It isn’t every day that we get to refer to Will Smith’s “wicky wicky wild wild wild west“, on this blog, but Jonathan managed it last year when he discussed Fraser J’s judgment in Beumer Group UK Ltd v Vinci Construction UK Ltd.
The parties have been before the court again, this time before O’Farrell J, on a Part 8 declaratory relief application. There is no mention of the wild west this time around. It was all about whether the adjudicator had correctly interpreted the parties’ sub-contract. Not a subject for cowboys!
Vinci Construction UK Ltd v Beumer Group UK Ltd
To set the scene, it is worth mentioning the facts briefly.
Gatwick Airport Ltd employed Vinci Construction UK Ltd to carry out works at the airport’s south terminal. The contract sum was in the region of £30 million. In November 2012, Vinci entered into a sub-contract with Beumer Group UK Ltd for Beumer to carry out works to the baggage handling system. The parties used an NEC3 ECC sub-contract, with disputes to be dealt with by Option W2. Dr Cyril Chern was named as one of three potential adjudicators in the sub-contract.
By October 2014, the sub-contract works were in delay and the parties entered into a settlement agreement. Among other things, this extended two sectional completion dates:
- Section 5, which was concerned with baggage.
- Section 6, which dealt with the “remaining works”.
In early 2016, a dispute arose over the operation of the sectional completion dates and the delay damages (liquidated damages) payable in light of the settlement agreement. The dispute was referred to adjudication and, in May 2016, Dr Chern issued his decision, finding that the provisions were “uncertain, inoperable and unenforceable”.
In October 2016, Vinci applied for declaratory relief as to the proper construction of the sub-contract, as amended by the settlement agreement. The matter came before O’Farrell J in May 2017 and she handed down her judgment last month.
It seems that the parties’ dispute centred on the allocation of work between sections 5 and 6 and, in particular, exactly what work was included in section 5.
The parties agreed that the sub-contract works included:
- The baggage handling system works within the new pier building.
- The baggage handling system works within the existing building required to make the new baggage system operational.
- Beumer’s works in connection with the airport readiness trials.
- Disconnection of the redundant baggage equipment (including temporary carousels) but not including strip out and removal.
Vinci said that only the last item fell within section 6 and that, on a proper construction of the sub-contract (as amended by the settlement agreement) the works falling within sections 5 and 6 were sufficiently identifiable, such that the sectional completion and delay damages provisions were operable and enforceable.
In contrast, Beumer said that it wasn’t “clear or ascertainable with reasonable certainty” whether the last item fell within section 5 or section 6. It said all of the works could be argued to fall within section 5, rather than section 6:
“Although some work must be within section 6, it is not possible to define what that must be. Therefore, there can be no certainty as to what works are encompassed in within each section.”
O’Farrell J held that the works falling within sections 5 and 6 were sufficiently identifiable and certain, such that the sectional completion and delay damages provisions were operable and enforceable.
In reaching this conclusion, she looked in detail at a number of the sub-contract’s provisions, including what was meant by sectional completion and what works were included in sections 5 and 6. She also looked at the principles of contract interpretation (Arnold v Britton and Wood v Capita Insurance Services Ltd), and uncertainty, noting that a court will be reluctant to hold a contract provision void for uncertainty.
Court contradicts adjudicator’s decision
While we all accept that adjudicators’ decisions are of a temporary or interim-binding nature, in practice, court or arbitration proceedings rarely follow on from the majority of decisions.
Here, because O’Farrell J reached the opposite conclusion to what the adjudicator found, the parties have, effectively, appealed his decision and now have a final and binding decision on the meaning of their sub-contract (at least with regard to the section completion and delay damages provisions).
Parties have long had the right to seek declaratory relief from the courts and it is a procedure that has often been used to deal with jurisdictional issues and questions of contract interpretation (both during as well as after an adjudication). In that sense, it isn’t unusual for parties to use the courts to “appeal” an adjudicator’s decision, although the courts don’t like it called that. For example, in Walter Lilly & Co Ltd v Dmw Developments Ltd, Coulson J rejected an argument that a Part 8 application should not be entertained because it was effectively an appeal from the adjudicator. He concluded it was open to either party to come to court for a final decision on the points considered by the adjudicator.
Back then, he added only one proviso. If a party wants to use the “short-cut of Part 8”, it must be possible to deal with the dispute “within its relatively tight confines”. By that he meant that there shouldn’t be any factual dispute between the parties (such as over alleged defects), requiring the court to consider witness evidence and so on.
On the facts as set out in Vinci v Beumer, I would say the parties’ dispute clearly fell within that particular short-cut.
A final thought
Given the way Option W2 operates, it may not have been open to the parties to proceed straight to court to get a declaration. They probably had to start an adjudication and then serve a notice of dissatisfaction, before the Part 8 application could be made. Even if the adjudicator had answered the question he was asked correctly, it is arguable that one of the parties would still have been unhappy with the result and applied to the court.
Sometimes you can see the benefit in dispute resolution clauses that escalate, other times they simply result in the parties incurring additional costs to get to the same point.