REUTERS | Robert Galbraith

The latest word on serial adjudication

In a decision handed down earlier this week, Fraser J has held that Herefordshire District Council (HDC) is entitled to have Mr Matt Molloy’s adjudication decision, in the sum of £10 million, enforced. The judge did not accept the contractor, Amey Wye Valley Ltd’s, submissions that Mr Molloy’s decision was inconsistent with Mr Mark Entwistle’s earlier adjudication decision.

Long term maintenance contract

The dispute arose out of a long term maintenance contract, incorporating the NEC Engineering and Construction Contract (ECC) (2nd edition), made between HDC and Amey in 2003. By the terms of the contract, Amey agreed to provide a range of services to HDC, broadly comprising highway maintenance and other construction and related works. The period for these services was to be ten years, ending on 31 August 2013.

The value of money changes over time due to inflation and this needed to be taken into account in the contractual payment structure. However, during 2005, the parties fell into a dispute concerning how to calculate the price adjustment for inflation under the contract. That dispute was resolved by the parties entering into a side agreement, which became known as VOP3.

The problem was that the parties could not agree what VOP3 meant. This led to two adjudications, both initiated by Amey. The first was conducted by Mr Entwistle in 2013. The second was conducted by Mr Molloy in 2015. In summary:

  • Mr Entwistle was asked to decide (among other things) what VOP3 actually meant, without applying those findings to actual financial consequences in terms of payments due in either direction.
  • Mr Molloy’s decision was concerned with putting money figures to the findings of Mr Entwistle.

Neither party served a notice of dissatisfaction in relation to Mr Entwistle’s decision within the 56-day contractual time limit. This meant that Mr Entwistle’s decision became final and binding on the parties 56 days after it was issued.

In applying Mr Entwistle’s (binding) decision, Mr Molloy decided that there had been a substantial overpayment to Amey on account of inflation over the term of the contract, and that this amount (some £9.5 million) should be repaid to HDC.

Amey’s enforcement challenge

Amey’s position was that Mr Molloy did not follow or apply what Mr Entwistle had decided and accordingly he acted without jurisdiction, such that Mr Molloy’s decision was unenforceable.

In rejecting this challenge, the judge began by considering the well-established principle that adjudicators’ decisions will be enforced, regardless of errors of fact or law. The judge also cited the three well-known Court of Appeal cases on serial adjudication, namely Quietfield v Vascroft, Harding v Paice and Brown v Complete Building Solutions Ltd. These cases establish that it is necessary to consider the terms, scope and extent of the dispute previously referred, and the terms, scope and extent of the earlier decision. Brown v Complete Building Solutions also states that the starting point is the adjudicator’s view regarding whether one dispute is the same or substantially the same as a previous dispute.

Applying these authorities, the judge held that, provided Mr Molloy was resolving the dispute referred to him, and not re-deciding something that was not before him (because it had already been decided by Mr Entwistle), then he had jurisdiction to determine that dispute, whether he made mistakes in doing so or otherwise.

The judge went on to consider three particular respects in which Amey contended that Mr Molloy’s decision was inconsistent with Mr Entwistle’s decision. The first of these turned on the proper meaning of the words “average Baxter increase” (a component to be used in the calculation for inflation) as used in Mr Entwistle’s decision. Amey contended that these words were clear, such that the average Baxter increase was what had to be taken. HDC contended that the only sensible meaning of the phrase “average Baxter increase” was the average of the monthly Baxter index.

In rejecting Amey’s challenge on this issue, the judge had to consider the proper approach to the interpretation of Mr Entwistle’s decision (a decision which had become final and binding prior to the second adjudication before Mr Molloy). This was a novel point which has not previously been considered by the courts. HDC submitted and the judge held that the usual principles of contractual interpretation should apply, as set down in cases such as Arnold v BrittonRainy Sky SA v Kookmin Bank and Investors Compensation Scheme Ltd v West Bromwich Building Society. This was because, although the person responsible for the drafting (Mr Entwistle) was not a party to the contract, the parties chose to accept it.

Amey’s second ground of challenge was based on what was effectively a calculation error in one of the spreadsheets attached to Mr Molloy’s decision. The judge did not accept Amey’s submission that this error rendered Mr Molloy’s decision unenforceable, whether in whole or in part. He said that to sever the erroneous part of Mr Molloy’s decision would amount to a correction of a single mistake of fact, an exercise the court will not embark on. The fact that the error could be seen in the spreadsheets used by Mr Molloy to reach the figure for repayment made it even less suitable, or permissible, for severance.

Amey’s third ground of challenge, namely, that “remedy (g)” of Mr Entwistle’s decision precluded HDC from advancing any claim that was inconsistent with that decision, also failed. Amey said that remedy (g) meant that HDC should not be entitled to any payment or set off as against Amey in any circumstances. The judge once again applied the test set down in Harding v Paice and Brown v Complete Building Solutions and held that Mr Entwistle did not decide, and was not asked to decide, that HDC was not entitled in any circumstances and at any point in the future to have a recalculation performed that would result in a payment due to it.

Accordingly, HDC was entitled to summary judgment for the full amount of Mr Molloy’s decision and, in addition, Amey’s Part 8 declaratory relief claim was dismissed.

Comment

Coulson J said recently (in Penten Group v Spartafield Ltd) that:

“The topics raised at adjudication enforcement hearings seem to change with the seasons. A few years ago, those debates centred on alleged breaches of natural justice. More recently, it was the intricacies of the payment notice/payless notice regime which held centre stage. And now the wheel has turned again and the courts are grappling with the consequences of what might be termed serial adjudication…”

The decision in Amey v HDC is a further example of the courts grappling with the consequences of serial adjudication. In this case, that was complicated by the fact that the previous adjudicator’s decision had become final and binding on the parties.

It is suggested that the judge’s approach to the novel point of how to interpret that previous decision – namely to apply the usual principles of contractual construction – must be right. This approach accords with common sense and reflects the modern tendency of the law to harmonise the rules of the interpretation of different kinds of document. For example, see Lord Hodge’s comments in the recent Supreme Court case, Trump International v The Scottish Ministers [2015] UKSC 74:

“Whether words are to be implied into a document depends on the interpretation of the words which the author or authors have used. The first question therefore is how to interpret the express words, in this case the section 36 consent. There is a modern tendency in the law to break down divisions in the rules on the interpretation of different kinds of document, both private and public, and to look for more general rules on how to ascertain the meaning of words. In particular, there has been a harmonisation of the interpretation of contracts, unilateral notices, patents and also testamentary documents… Differences in the nature of documents will influence the extent to which the court may look at the factual background to assist interpretation. Thus third parties may have an interest in a public document, such as a planning permission or a consent under section 36 of the 1989 Act, in contrast with many contracts. As a result, the shared knowledge of the applicant for permission and the drafter of the condition does not have the relevance to the process of interpretation that the shared knowledge of parties to a contract, in which there may be no third party interest, has… It is also relevant to the process of interpretation that a failure to comply with a condition in a public law consent may give rise to criminal liability. In section 36(6) of the 1989 Act the construction of a generating station otherwise than in accordance with the consent is a criminal offence. This calls for clarity and precision in the drafting of conditions.”

Amey v HDC further emphasises an important point that emerges from the Brown v Complete Building Solutions case, namely that the starting point in serial adjudication cases will usually be the adjudicator’s view of whether one dispute is the same or substantially the same, and that it is important that the court gives due respect to the adjudicator’s decision.

Michael Curtis QC and Charles Pimlott (instructed by Veale Wasbrough Vizards LLP) appeared on behalf of Herefordshire District Council.

Crown Office Chambers Michael Curtis QC Charles Pimlott

Leave a Reply

Your email address will not be published. Required fields are marked *