Building works — Subcontractor — Target cost — Dispute — Subcontractor obtaining adjudicator’s award — Whether adjudicator’s decision enforceable — Claimant’s claim allowed — Defendant’s claim dismissed
The claimant was a subcontractor engaged by the defendant main contractor to carry out part of construction works for the Ministry of Defence (MOD). The MOD had engaged the defendant to carry out the entire works under a modified engineering contract with a target cost mechanism. The defendant and the claimant entered into a subcontract and into a written “alliance agreement” that also provided for a target cost. The defendant was negotiating for a substantial increase in the price of the main contract works. The target cost in the claimant’s subcontract would be adjusted accordingly.
A dispute arose as to the amount payable to the claimant. The claimant rejected the defendant’s calculation of increased target cost on the basis that it did not accord with the figures that had already been agreed. An adjudicator made an award in the claimant’s favour which included interest, to be paid within seven days. The defendant refused to pay this. The claimant issued proceedings to enforce the adjudicator’s decision. The defendant sought a declaration that the decision was unenforceable. The cases were heard together.
The defendant argued that: (i) the adjudicator’s decision on target cost fell outside his jurisdiction; (ii) the decision breached natural justice since the adjudicator had refused to consider matters raised by the defendant; (iii) the decision on allowance for defects breached natural justice and was not supported by adequate reasons; and (iv) the adjudicator had no jurisdiction to award interest.
Held: The claimant’s claim was allowed; the defendant’s claim was dismissed.
(i) It was inherent to the system that an adjudicator might decline to consider evidence that he erroneously believed to be irrelevant. However, this decision was not necessarily unenforceable.
The adjudicator’s assessment of target cost was likely to be revised if and when an arbitrator or the court determined the issues between the parties. It would not be surprising if the adjudicator’s approach to, or assessment of, target cost embodied factual and legal errors in view of the statutory constraints under which he operated and the volume of evidence and submissions. But such errors did not constitute an excess of jurisdiction.
(ii) It was for the adjudicator to decide if and how the negotiations between the defendant and the MOD were relevant to the assessment of target costs. Whether he was right or wrong could not affect the validity of his decision. Furthermore, there was nothing objectionable in the adjudicator rejecting the defendant’s alternative calculation: Bouygues UK Ltd v Dahl-Jensen UK Ltd [2001] 1 All ER (Comm) 1041; C&B Scene Concept Design Ltd v Isobars Ltd [2002] EWCA Civ 46; Levolux AT Ltd v Ferson Contractors Ltd [2003] EWCA Civ 11; [2003] 5 EG 145 (CS); Pegram Shopfitters Ltd v Tally Weijl (UK) Ltd [2003] EWCA Civ 1750; and AMEC Capital Projects Ltd v Whitefriars City Estates Ltd [2004] EWCA Civ 1418 applied; Bill Biakh v Hyundai Corporation [1988] 1 Lloyds Reports 187 and Buxton Building Contractors Ltd v Durand Primary School Governors [2004] EWHC 733 (TCC) considered.
(iii) The adjudicator had considered all the expert evidence in respect of defects and had given adequate reasons. It was not always practical to ask the parties to comment upon provisional conclusions and it was only in exceptional cases that failure to do so would constitute such a serious breach of natural justice that the court would decline to enforce the adjudicator’s decision: Balfour Beatty Construction Ltd v Lambeth London Borough Council [2002] EWHC 597 (TCC) distinguished.
(iv) Clause 20(c) of the Scheme for Construction Contracts (England and Wales) Regulations 1998 created a freestanding right to award interest. That was the more natural meaning of the provision read in the context of the entire paragraph and it made commercial sense.
Nicholas Dennys QC and Simon Lofthouse (instructed by Pinsent Masons, of Manchester) appeared for the claimant; Stephen Furst QC and Louise Randall (instructed by Herbert Smith) appeared for the defendant.
Eileen O’Grady, barrister
