Practical Law

A project that finished late, with issues over the final account caused, in part, by delays, and with the parties arguing over who was liable for those delays (unsurprisingly, weather was one of the reasons cited, as was asbestos removal).

So far, this sounds like many other construction disputes. However, the contract in Herbosh-Kiere Marine Contractors Ltd v Dover Harbour Board was to remove the remains of a boat sunk to stop torpedoes being fired into Dover harbour during the first world war. It was a wreck-removal agreement, with a lump sum price of almost £1.8 million and with scope for certain extra costs to be priced and paid for. The contractor (Herbosh-Kiere Marine’s) disputed final account claimed just under £4 million. That is a lot of extras.

It seems from the judgment that this was a contractual adjudication. It certainly wasn’t a statutory adjudication under the Construction Act 1996 and yet, when it came to the enforcement proceedings, Akenhead J used the body of case law that has built up around construction adjudication to resolve the issue of whether the adjudicator had breached the rules of natural justice.

Breach of rules of natural justice

The contractor had an adjudicator’s decision in its favour. The adjudicator decided the contractor’s final account was worth £3.7 million and awarded the contractor just over £500,000.

The employer, Dover Harbour Board, resisted payment. It argued that the adjudicator had either exceeded his jurisdiction or had failed to follow the rules of natural justice because he adopted a method of assessing the damages for the delay that neither party had argued for, either before or during the adjudication. Alternatively, he failed to tell the parties what method he was adopting to calculate the daily rate and so denied them an opportunity to comment.

What did the adjudicator do?

The adjudicator adopted a method for calculating the daily rate (for plant and personnel) that the contractor was entitled to that neither party had argued for. In simple terms, he seems to have added together the total cost of plant and personnel and then divided that sum by the original contract duration. He then applied this daily rate (£21,000) to the number of extra days claimed.

Akenhead J’s judgment

Akenhead J looked at the nature of the dispute that the contractor had referred to the adjudicator. He noted that:

“the scope of disputes can be ‘as broad as it is long’. Disputes may be very wide and cover myriad issues… disputes may be very narrow and involve one or more limited and discreet issues”.

After looking at what had been referred here, Akenhead J confirmed that the dispute’s scope did not include the method for calculating the daily rate which the adjudicator adopted. Both parties relied on individual resource rates, not some form of composite rate. The adjudicator’s initiative was a breach of the rules of natural justice and it made a real difference to the amount awarded to the contractor. Something like £350,000 more was awarded than the contractor claimed.

Adjudicator’s frolic

So, once again we have an example of an adjudicator going off “on a frolic of his own”. Not for the first time I find myself commenting that adjudicators have to be careful when considering what has been referred to them. This is especially the case when it comes to looking at damages and how they are calculated. In this situation, when the adjudicator chose to depart from the accepted method of calculation, he committed a material breach of the rules of natural justice.