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RECENT ADJUDICATION CASES – PART 11
By
Roger Knowles
INDEX
1.0 Breach of Natural Justice
1.1Ardmore Construction Ltd v Taylor Woodrow Ltd (2006)
1.2Keir Regional Ltd (trading as Wallis) v City and General (Holborn) Ltd (2006)
2.0 Enforcement of Post Adjudication Agreement
Baris Ltd v Kajima Construction Europe (UK) Ltd (2006)
3.0 Side Agreement
L Brown and Sons v Crosby North West Homes (2005)
4.0 Adjudicator Uses His Own Expertise
Ramkor and Perco v Igoe (2006)
5.0When Does a Dispute Arise
Orange EBS Ltd v ABV Ltd (2003)
6.0Dealing With a Successful Party’s Likely Inability to Repay Ajudicator’s Decision in Subsequent Proceedings
Wimbledon Construction Company Ltd v Derek Vargo (2005)
7.0Enforcement of Adjudicator’s Decision
Harlow and Milner Ltd v Teasdale (2006)
8.0Contracts in Writing
Trustees of the Stratfield Saye Estates v AHL Construction Ltd (2004)
9.0Introducing a New Claim Into The Adjudication Process
William Verry (Glazing Systems Ltd v Furlough Homes Ltd (2005)
10.0Adjudicator’s Decision and Set Off
10.1Balfour Beatty Construction v Serco Ltd (2005)
10.2 Geris v Handelsgesellschaft GmbH v Les Constructions Industrielles de Mediterrannee SA (2005)
ADJUDICATION CASES PART 11
1.0 Breach of Natural Justice
1.1 Ardmore Construction Ltd v Taylor Woodrow Ltd (2006)
A fairly well developed strategy for avoiding an unwelcome adjudicator’s decision is to allege that there has been a breach of natural justice. Basically natural justice is served if it is clear as to the case each party has to answer and an opportunity has been provided for them to be heard. A number of challenges have been made to decisions of adjudicators on the grounds that the manner in which the adjudicator has conducted the proceedings resulted in a breach of the rules of natural justice. The present case involved work at GlasgowHarbour. Ardmore entered into a subcontract with Taylor Woodrow to carry out groundworks, concrete works and drainage works. Ardmore submitted an interim application for payment which among other matters included a claim for overtime working. A dispute arose and the matter was referred to an adjudicator who found in favour of Ardmore including the overtime working. This decision was based upon the fact that there had been verbal instructions given by Taylor Woodrow or acquiescence on their part. Taylor Woodrow refused to comply with the adjudicator’s decision on the grounds that there had been a breach of natural justice and as a result enforcement proceedings were commenced by Ardmore. The claim for overtime working was based upon the interpretation of a letter dated 2nd July 2003. Nothing in the written material put before the adjudicator gave notice of an argument that there had been verbal instructions given or acquiescence. It was alleged by Ardmore that whilst there was no reference in the written submissions representations had been made concerning these matters at the hearing. This was disputed by Taylor Woodrow who argued that the adjudicator’s decision had been based upon arguments which had not been raised or discussed before him and for which they had received no notice.
It was held by the Outer House of the Court of Sessions in Scotland that the adjudicator had failed to observe the basic rules of natural justice and had behaved in a manner which on an objective basis involved a disregard of fair play. That part of the decision relating to the overtime working was not enforced but Taylor Woodrow were obliged to pay the remainder.
1.2 Kier Regional Ltd (trading as Wallis) v City and General (Holborn) Ltd (2006)
This is another case where the court had to decide whether an adjudicator’s decision had been arrived at involving a breach of the rules of natural justice. The question to be answered by the court was whether new information could be introduced by one of the parties after the
adjudication proceedings had commenced. Wallis entered into a contract for the refurbishment and rebuilding of premises which formerly were the Patent Office Library. Disputes arose between the parties some of which were referred to adjudication. One referral involved a claim for an extension of time. An extension of time had been granted under the contract for 28 weeks and the adjudicator in his decision awarded a further 30 weeks. Wallis then evaluated the loss and expense associated with the delay which totalled £1,330,012 and made an application for certification and payment. A sum of £527,192 was certified by the contract administrator which did not meet with the approval of Wallis who instigated a further referral to adjudication. Two expert’s reports were submitted as part of the City and General’s defence. However as these reports had not been seen prior to the referral by Wallis it was argued that the adjudicator had no jurisdiction to take them into account. The adjudicator decided that as the experts reports were new evidence not available to the parties at the time the dispute crystallised they were not to be taken into account. Further due to the short time scale involved in adjudication there was insufficient time available for Wallis to properly consider the reports which is sometimes referred to as defence by ambush. His decision was that Wallis was entitled to an additional payment of £719,295. City and General refused to pay and enforcement proceedings were commenced. City and General argued that the adjudicator’s refusal to consider the expert’s reports was manifestly unfair and amounted to one of the plainest cases of a breach of natural justice. The court was not fully convincedbut concluded that it was not necessary to make a decision on the point as if the adjudicator was wrong it amounted to an error in law which was not sufficient to invalidate the adjudicator’s decision.
This type of case makes it difficult to differentiate between a breach of natural justice which invalidates an adjudicator’s decision and an error of law which does not.
2.0 Enforcement of Post Adjudication Agreement
Baris Ltd v Kajima Construction Europe (UK) Ltd (2006)
It is unusual for the parties where a dispute has been the subject of an adjudicator’s decision, which has been resisted by one of the parties, to arrive at a compromise agreement. However this was what happened in this case.Baris was a subcontractor to Kajima to construct dry wall partitioning on a Health and Safety Executive building in Bootle. A dispute arose which was referred to adjudication where a decision was made on 1st December 2005 that Kajima should pay Baris the sum of £181,895 plus interest. This decision was not to the liking of Kajima who refused to make payment. On the 13th December 2005 Baris made a pre-action offer to settle by fax headed “without prejudice save as to costs” in accordance with CPR 36. The wording of the offer was:
“Baris Ltd hereby offer to fully and finally settle their rights given by the adjudicator if Kajima Construction Europe (UK) Ltd pay the total sum in the decision namely £181,893.65 only within 21 days of this letter i.e. 3rd January 2006 plus the costs to be taxed if not agreed on a simple basis incurred by Baris Ltd in issuing and serving proceedings in the High Court.”
The difference between the adjudicator’s decision and the compromise agreement seems to be limited to the matter of interest only. However Kajima replied on 14 December 2005
“We acknowledge receipt of your letter dated 13th December 2005 and confirm that funds will be in your account on or before 3rd January 2006”
Rather strangely on 19th December 2005 after the exchange of letters but before payment, Baris commenced proceedings in Court to enforce the adjudicator’s decision including interest and costs. No reference was made by Baris to the compromise agreement. Kajima must have been more than a little non plussed and submitted a defence to the effect that a compromise agreement was in existence which stood in the place of the adjudicator’s decision. Baris argued that as the compromise did not constitute a binding agreement and in any event as it was headed without prejudice it could not be used in evidence.
The court held that normally a document headed without prejudice cannot be used in evidence. However if an offer embodied in a without prejudice letter has been accepted, so that there is a binding compromise between the parties, then the without prejudice tag falls away and the letter can be used.It was considered that to deny the court a sight of the offer letter would be absurd and would effectively deprive Kajima of the opportunity of raising the compromise point as a defence to the claim. On the matter of whether or not the exchange of correspondence constituted a binding agreement it was argued by Baris that there was no binding agreement because Kajima had not agreed or paid any interest and had not agreed upon any liability as to their costs. This was dismissed by the court as there was a binding compromise between the parties as a result of the exchange of faxes.
3.0 Side Agreement
L Brown and Sons v Crosby North West Homes (2005)
A contract was entered into between the parties using JCT 1998 With Contractor’s Design. Clause 39A was amended to provide for any dispute
“arsing under out of or in connection with the contract “
to be referred to adjudication. There was also a side agreement to the effect that the claimant was entitled to claim payment of a bonus which would not be reduced by any entitlement the respondent might have to deduct liquidated damages. Despite the side agreement the respondent sought to deduct liquidated damages. The matter was referred to adjudication but it was argued by the respondent that the side agreement was not governed by the adjudication provisions in clause 39A as the dispute did not arise under the contract. The side agreement did not contain a separate right of adjudication.
It was held that it is not uncommon for parties to a construction contract to enter into side agreements which varied the terms of the contract without themselves having their own dispute resolution clause. The parties under the circumstances must have intended that the original contract dispute resolution provisions would apply. The adjudication provisions therefore applied to the side agreement.
4.0 Adjudicator Uses His Own Expertise
Dr Rankillor and Perco v Igoe (2006)
There have been a few cases which have dealt with an adjudicator using his own expertise when arriving at a decision. In the Balfour Beatty v London Borough of Lambeth case the judge said that where an adjudicator intends to use his own expertise he should put his initial thoughts to the parties for comment before employing them in the final decision making process. If the adjudicator failed to follow this procedure then it would amount to him or her making out the case on behalf of one of the parties and hence a breach of natural justice. In the present case a dispute arose between a contractor and subcontractor in relation to augur boring work. In the final analysis it came down to an interpretation of laboratory test results concerning the condition of the soil. The subcontractor Perco who undertook the augur work claimed that additional cost had been incurred as a result of unforeseen difficult ground conditions. Both parties submitted their interpretation of the laboratory test results to the adjudicator. He seemed to disagree with the relative interpretations and substituted his own experience and expertise. His conclusion was that the machine chosen was not capable of undertaking the work and had there been a proper site investigation undertaken the conditions which were encountered could have been foreseen. The adjudicator in his decision concluded that Perco were entitled to be paid extra.
The adjudication rules were those of the ICE which expressly allowed the adjudicator to use his own expertise and experience when making a decision. In arriving at his decision the adjudicator did not give any advance warning of the findings he intended to make which did not allow Igoe an opportunity of responding to the adjudicator’s views about the soil conditions. It was argued by Igoe that this amounted to a breach of natural justice. It has been held in the case Carillion v Devonport Dockyard (2005) that the adjudicator was not required to put his provisional views to the parties in every case. It all comes down to what the court decides is fair.
It is not unreasonable however when the adjudicator rules state that the adjudicator can use his own experience and expertise if he or she does just that.
5.0 When Does a Dispute Arise?
Orange EBS Ltd v ABV Ltd (2003)
Reference to adjudication cannot commence until there is a dispute between the parties. It is not uncommon once a referral has been made for one of the parties to argue that the adjudicator has no jurisdiction on the basis that no dispute has crystalllised. What constitutes a dispute has been the subject of a number of cases and judges have been eloquent in providing definitions. Examples are
Fastrack Contractors v Morrison Construction (2000)
In this case judge Thornton made the following observation:
“A dispute can only arise once the subject matter of a claim issue or other matter has been brought to the attention of the opposing party and that party has had an opportunity of considering and admitting modifying or rejecting the claim or assertion”
Sindall v Solland (2001)
Judge Humphrey Lloyd provided the following definition in this case:
“For there to be a dispute for the purposes of exercising the statutory right of adjudication it must be clear that a point has emerged from the process of discussion or negotiation … and that there is something that must be decided”
Edmund Nuttall v RG Carter (2002)
Judge Seymour’s view expressed in this case is:
“For there to be a dispute there must have been an opportunity for the protagonists each to consider the position adopted by the other and to formulate arguments of a reasoned kind”
The present case again involved the question as to whether a dispute had arisen which could be referred to adjudication.Orange was a subcontractor to ABB for M and E work at John Radcliffe Hospital Oxford employing a DOM/1 form of contract. Orange submitted a penultimate application for payment in the sum of £81,339 when 75% of work had been completed. ABB responded stating that Orange had failed to complete the work and refused them further access to the site. On 6th July 2002 ABB wrote to Orange informing them that the employer would not readmit them to the site as they had abandoned the works. ABB advised Orange that some of their work was defective and requested the submission of a final account.Orange denied that they had abandoned the works or that any of their work was defective. A comprehensive final account was delivered by Orange to ABB on or about 2nd December 2002. ABB advised Orange that they would need until 20th January 2003 to review the final account. On 6thJanuary 2003 ABB served a notice of adjudication. ABB claimed that there was no dispute as they needed until 20th January 2003 to review the final account. An adjudicator was appointed and found in favour of Orange in the sum of £90,283 which ABB refused to pay on the grounds that as there was no dispute the adjudicator had no jurisdiction. The court considered from early December 2002 until 6th January 2003 gave ABB sufficient time for the evaluation and negotiation of the final account, despite the holiday period. It was unfair that a company should be denied substantial sums of money because of the intervention of a holiday period. By the 6th January 2003 the process of negotiation and discussion should have come to an end and therefore a dispute had arisen.
6.0 Dealing With a Successful Party’s Likely Inability to Repay Adjudicator’s Decision in Subsequent Proceedings
Wimbledon Construction Company Ltd v Derek Vargo (2005)
The likelihood of a successful party to an adjudicator’s decision being unable to repay a sum awarded in subsequent proceedings has arisen in a few enforcement proceedings. In the case of Bouygues v Dahl Jenson the court refused to enforce an adjudicator’s decision on the grounds that Dahl Jenson was in liquidation. A similar decision was given in the case of Rainford House v Cadogan due to there being a strong prima facie case that the claimant was insolvent. There are however examples of the court enforcing the decision of an adjudicator even though the party seeking to enforce the decision was in a financially weak position and there was a likelihood that in the event of a reversal of the decision in subsequent proceedings the money would not be forthcoming. Examples of this type of case are:
- Absolute Rentals v Glencor
- Henshall Engineering v Breen Properties
- Total M and E Services v ABB
- All-in-One Building v Makers UK
In the present case Wimbledon had carried out construction work to Vago’s house in south west London and disputes arose concerning the value of the works. Anadjudication took place and the adjudicator in his decision ordered Vago to pay Wimbledon the sum of circa £120,000. About the same timeVago commenced arbitration proceedings against Wimbledon. Enforcement proceedings were instigated by Wimbledon for the payment of the adjudicator’s decision. Due to Wimbledon’s uncertain financial position Vago offered to pay the £120,000 into court pending the outcome of the arbitration. In considering the above cases the judge considered that each case must be judged on its own facts. He then set out the following principles which should be used as a guide to deciding whether or not an adjudicator’s decision ought to be enforced.