Thermal Energy Construction Ltd v AE & E Lentjes UK Ltd [2009] EWHC 408 (TCC)

Case No TCC15208[2009] EWHC 408 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
TECHNOLOGY AND CONSTRUCTION COURT
Venue Manchester Civil Justice Centre
Bridge Street West
Venue ManchesterDate 30th January 2009
Before
HIS HONOUR JUDGE STEPHEN DAVIES
Between
THERMAL ENERGY CONSTRUCTION LIMITED(Claimant)AE & E LENTJES UK LIMITED(Defendant)
From the audio transcription ofJ.L. Harpham LimitedOfficial Court Reporters and Tape Transcribers55 Queen Street, Sheffield S1 2DX
APPEARANCES:MR. ANTHONY EDWARDS for Claimant(instructed by Brooke North LLP, Solicitors)MR. STEPHEN FURST QC for Defendant(instructed by Pinsent Masons LLP, Solicitors)_________________JUDGMENT
[1]This is an application by the Claimant, Thermal Energy Construction Limited, to enforce against the Defendant, AE & E Lentjes UK Limited, a decision of an Adjudicator, Mr. Bruce Griffin, made 16 December 2008, in which he decided that the Defendant should pay the Claimant the sum of £904,567.60, together with VAT as appropriate, on or before 23 December 2008. The Defendant not having complied with that decision, the Claimant issued proceedings in the Manchester Technology and Construction Court to enforce that decision, and made an application for summary judgment which has come on for hearing today under an order providing for expedition in accordance with the normal procedure in the TCC in relation to adjudication enforcement claims.[2]The application is opposed by the Defendant. In summary the Defendant's case is that the Adjudicator failed to give reasons in respect of an issue which was a necessary element of his decision on the underlying dispute, in consequence of which the Defendant has suffered substantial prejudice such that the decision should not be enforced by the Court.[3]The claim arises out of a contract under which the Claimant was sub-contractor to the Defendant in relation to a project at the Fiddlers Ferry Power Station near Warrington, Cheshire. The Defendant, who was contracted to fit three flue gas desulphurisation plants for the benefit of its client, Scottish and Southern Energy, at that power station, sub-contracted the mechanical erection services element of that work to the Claimant.[4]It is common ground before me, and it was common ground in the adjudication, that there was a sub-contract between the parties and that the sub-contract included a provision for adjudication in accordance with the TeCSA Adjudication Rules 2002 version 2.0 Procedural Rules for Adjudication. There was a dispute before the Adjudicator as to whether that sub-contract was contained in various documents the last one being a contract amendment in April 2007, or whether it was contained in some further revisions concluded in October 2007; the Adjudicator decided in favour of the latter contention, and that is not the subject of any challenge for the purposes of this enforcement action.[5]The Notice of Adjudication was submitted on 17 October 2008, and the letter enclosing the Notice succinctly identified the dispute as being the Defendant's failure properly to value and certify payment for certain elements of the mechanical erection services works carried out in accordance with the terms and conditions of the contract. The Notice itself under Paragraph 6 identified four specific elements of claim: preliminary management claims, direct labour claims, repayment of risk claim and an interest claim, and specifically restricted the Adjudicator's jurisdiction to those particular claims. It also, by Paragraph 11, requested the Adjudicator to provide reasons for his decision. It is common ground that by virtue of Paragraph 31 of the TeCSA Rules, the Adjudicator was obliged to provide written reasons for any decision if any or all of the parties make a request for written reasons within seven days of the date of the referral of the dispute. It is common ground therefore that the Adjudicator was required to provide reasons for his decision.[6]On 20 October 2008, Mr. Griffin was appointed by the appropriate nominating body, and on the next day he notified the parties that he had accepted that appointment. Mr. Griffin is I am told a qualified engineer, and also a qualified solicitor and a partner in a firm of solicitors.[7]I need say nothing about the Referral Notice, but in the Response, following a lengthy section dealing with the claims made by the Claimant, there was a separate section beginning at Paragraph 3.1.3 headed "Amounts owed to the Defendant due to breaches of contract by the Claimant". What was said, in summary, was that the Defendant had a defence by way of counter-claim operating by way of set-off in relation to its liability to its client for liquidated damages under the main contract, as a result, it was said, of the Claimant's failure to achieve completion of certain tie-in dates provided for by the contract programme agreed between the parties as part of the contractual arrangements. What was said was that the total liability of the Defendant for liquidated damages amounted to £3.75 million, and that sum was asserted by way of defence of set-off and also by way of counter-claim.[8]In its Reply, the Claimant took issue with that part of the response on two grounds, firstly asserting that the Adjudicator had no jurisdiction to consider the defence, and secondly asserting that in any event the claim itself was barred by Clause 9 of the overriding conditions of the contract, which in summary provided that: "The parties agree that liquidated or unliquidated damages shall not be applicable to the contract in the event of delays to completion of the works, irrespective of the causes of such delays, and accordingly the purchaser shall not hold the contractor liable for late completion and/or any consequential costs arising therefrom".[9]There was a response to that by the Defendant. In addition to taking issue with the jurisdictional point, the Defendant's response to the reliance upon Clause 9 was to assert that as a matter of construction of the contract, whilst that provision might apply to a claim based on a delay in overall completion, it did not apply to a claim based on a delay in achieving the individual tie-in dates. There were further exchanges between the parties in which the respective contentions were re-stated and amplified and in due course the Adjudicator, as I have already indicated, gave his decision on 16 December 2008.[10]The decision is a document running to 23 pages. It began by identifying the structure of the decision in a Contents page, and there were then eight separate sections, the first being titled "Introduction", the second "The nature of the dispute", the third "The issues to be decided", the fourth "The remedy sought", the fifth "The Adjudicator's decision, including reasons", the sixth "Decision on the remedies sought", the seventh "Adjudicator's fees and expenses" and finally the eighth "Adjudicator's signature". I do not need to refer to the Introduction. Section 2 ("The nature of the dispute") referred to the individual claims made by the Claimant in accordance with the Notice of Adjudication, but made no express reference to the set-off and counter-claim advanced by the Defendant in its response. Section 3 ("The issues to be decided") did not in any conventional way set out a list of issues to be decided, but was instead more in the nature of a discursive section of the decision. So that for example, Section 3.1 was headed "The contract", and there the Adjudicator made a positive finding as to which of the competing versions of the contract was the correct one, deciding that it was the October 2007 amendment. Under Section 3.2, headed "Contract comment", he made a number of comments on the contract. In Section 3.3, under the heading "The 3rd October 2007 contract", he referred to five of the conditions of the overriding conditions, including Condition 9 to which I have referred. However, it is right to observe that he made no specific comment on that condition; he did not say in terms that that was something in respect of which there was an issue between the parties in relation to the set-off and counter-claim.[11]He went on to refer to a number of further contractual clauses in some detail. Then at the end of that section at 3.4.4, headed "Jurisdiction", he referred to various jurisdictional matters, but it is to be observed, he did not make any reference to the jurisdictional challenge which the Claimant had made in relation to the Defendant's set-off and counter-claim.[12]Under Section 4 entitled "The remedy sought", he effectively adopted the content of the Notice of Adjudication and included, therefore, in his recital of "The remedy sought" a remedy that the Adjudicator should decide the sum due and payable.[13]In Section 5, which as Mr. Furst QC for the Defendant submits, one would expect to find the Adjudicator's decision, including reasons, as intimated in the Contents page, the Adjudicator began by setting out in Section 5.1 what are described as "General principles", where he made findings as to the basis under which the Claimant was entitled to payment under the contract. In a section culminating in Paragraph 5.1.13, he said this, which Mr. Edwards for the Claimant particularly relies upon: "This decision would be taken bearing in mind that the Claimant's liability was capped and liquidated damages were not applicable on this contract".[14]However, as Mr. Furst submits, that itself is only explicable by reference to the previous clause which explains to what the 'decision' referred to relates. Thus Paragraph 5.1.12 says: "If the Defendant had confirmed they did not intend to pay for various costs that the Claimant were expending, then the Claimant would have been able to make a commercial decision upon whether they would incur this further expenditure when they were aware that they would be unable to recover that cost".[15]The Adjudicator then went into some detail to consider the four issues referred to in the Notice of Adjudication, and dealt with each of them in turn. However, there was no express section in that part of the decision which referred at all to the Defendant's set-off or counter-claim. In Section 6, headed "Decision on the remedies sought", the decision said this:
"My valuation of the issues in dispute, as indicated on the attached schedule, is as follows ..."
Figures were given against each of the four issues, including, as Mr. Furst has observed, "Nil" against Issue 3. There followed a section dealing with when payment should be made. The decision itself ended by dealing with the Adjudicator's fees and expenses, and there was attached a schedule which contained a detailed breakdown of the sums decided to be due, with no reference to any set-off or counter-claim.[16]I must now consider the issues which arise. First of all, as I have said it is common ground between the parties that the Adjudicator was obliged to give reasons. The question which I must therefore first consider is whether or not in fact the Adjudicator did give any or any intelligible reasons in relation to the set-off and counter-claim advanced by the Defendant. What Mr. Furst has submitted is that this is a case where the Defendant, having raised the defence of set-off and counter-claim, was entitled to have the Adjudicator consider that question, and the Adjudicator was indeed obliged to consider that question as being one of the matters raised by the Defendant in its defence. He submits that by failing to do so, that failure being evidenced by an absence of any reasons given in relation to that element of the defence, the Adjudicator failed to comply with his obligations under the contractual adjudication scheme.[17]The second issue which then arises, if Mr. Furst is right about the first issue, is whether or not the Defendant, has suffered substantial prejudice as a result of the failure to provide reasons.[18]The third issue which arises is that Mr. Edwards submits that even if the Defendant succeeds on issues one and two, nonetheless the decision ought to be enforced by reason of what he submits is the Defendant's failure to follow the procedure envisaged by Rules 32 and 33 of the TeCSA Rules, which in summary permit the parties to ask the Adjudicator to correct errors in his decision. I shall refer to those rules in more detail in the course of this judgment.[19]So far as the first question is concerned, both parties agree that the starting point is to be found in the decision at first instance of Mr. Justice Jackson, as he then was, in the case of Carillion Construction Limited -v- Devenport Royal Dockyard Limited [2005] EWHC 779 (TCC), where in paragraph 81 he stated five propositions which he derived from the authorities, the fifth of which is relevant to this case and which reads as follows: "If an Adjudicator is requested to give reasons pursuant to Paragraph 22 of the Scheme, in my view a brief statement of those reasons will suffice. The reasons should be sufficient to show that the Adjudicator has dealt with the issues remitted to him and what his conclusions are on those issues. It will only be in extreme circumstances, such as those described by Lord Justice Clark in Gillies Ramsey and Others -v- PJW Enterprises, that the Court will decline to enforce an otherwise valid Adjudicator's decision because of the inadequacy of the reasons given. The complainant would need to show that the reasons were absent or unintelligible, and that as a result he had suffered substantial prejudice".[20]I should record that it is clear in my judgment from paragraph 84 of the decision of the Court of Appeal in that case that the Court of Appeal expressed itself as being in broad agreement with the five propositions which the Judge set out at Paragraph 81 of his Judgment. It is also right to record that subsequently those propositions have been followed by first instance decisions of the Technology and Construction Court, including most recently a decision of Mr. Justice Coulson in the case of Balfour Beatty Construction (Northern) Limited -v- Modus Corovest (Blackpool) Limited [2008] EWHC 3029 (TCC). I have been taken by Mr. Furst to certain passages in that Judgment which refer, with evident approval, to the passage from the decision of Mr. Justice Jackson in Carillion which I have just cited and also to the Gillies Ramsey case.[21]Mr. Furst in his written submissions submits that there is an analogy with Section 68 of the Arbitration Act 1996 in the context of the Arbitrator's duty to deal with the matters referred to him and to give reasons. Nonetheless he accepts, in my judgment rightly, that the analogy is not complete, because in the case of an adjudication there is of course an expedited procedure where the Adjudicator will often have to deal with a great number of matters within a short time-frame but where his decision has only a temporary finality, whereas of course the decision of an Arbitrator under the 1996 Arbitration Act is usually not subject to the same exacting time pressure and has is final, subject to restricted grounds for challenge. However nonetheless it seems to me the fact remains that an Adjudicator is obliged to give reasons so as to make it clear that he has decided all of the essential issues which he must decide as being issues properly put before him by the parties, and so that the parties can understand, in the context of the adjudication procedure, what it is that the Adjudicator has decided and why.[22]So, for example, in this case it would be important for any reader of the decision to know whether or not firstly the Adjudicator had purported to decide the set-off and counter-claim, and secondly, if so, on what grounds. By way of practical illustration, there is clearly a significant difference between a decision to the effect that the Adjudicator did not have jurisdiction to decide the set-off and counter-claim, which in principle would be subject to consideration by the Courts in the event of an adjudication enforcement application such as the present, and a decision within his jurisdiction that having considered the defence, he rejected it on the merits. In the latter case, in accordance with established principles, a party seeking to resist enforcement would not be entitled to challenge the correctness of that decision if made within his jurisdiction.[23]It seems to me therefore that it is right that a recipient of a decision such as this should be entitled to know what it is the Adjudicator has decided and why.[24]In this case then, the question which arises is whether the Adjudicator has performed this duty? Mr. Edwards has, if I may say so, put up a spirited argument that in the context of the Adjudicator not being required to provide a reasoned judgment in the same way as a Court would be, it is clear from what is in there that the Adjudicator has referred to the relevant overriding condition and has in effect made a finding that this condition prevents the Defendant from being able to rely upon the set-off and counter-claim.[25]However, it seems to me that in the context of this decision, which as will be apparent from what I have already said is a lengthy and carefully-structured decision, it is impossible for that submission to succeed in circumstances where, as Mr. Furst has observed, there is simply no express reference at all to this point being one of the issues which the Adjudicator recognised he had to decide, nor is it the subject of any express reference as being an issue which he has in fact decided, nor is it even included in the summary of items decided or the summary of the decision. It does seem to me that the only references that Mr. Edwards can pick up or point to in the decision as being references to this point are equally, if not more, capable, as Mr. Furst has submitted, of being references to an entirely separate point, namely the commercial issue as to the circumstances in which the Claimant provided the services under the contract for which it was claiming payment.[26]It seems to me that in those circumstances, the position is that the Adjudicator has not, evidently, dealt with this issue at all, and he has not given any reasons which would indicate that he has dealt with this issue. That this is therefore one of those cases, one envisages rare, where the Adjudicator has failed to comply with his obligations.[27]That, of course, is not the end of the debate, because as Mr. Furst recognises by reference to the authorities to which I have referred, it is necessary to show that the Defendant has suffered substantial prejudice as a result. This requirement arises from the fact that, as has been well-established, the Court recognises the summary nature of the adjudication process and therefore recognises that it is not every error or omission by an Adjudicator which should lead to a decision not being enforced; one has to go further and show substantial prejudice before one can resist enforcement of the decision.[28]In this case, what Mr. Furst submits is that there are two separate items of substantial prejudice. The first is that, because of the way in which the decision is structured, it being unclear whether or not the Adjudicator has in fact considered the set-off and counter-claim on the merits, his lay client has lost the opportunity of having the Adjudicator deal with that defence, and has therefore lost the prospect of the Adjudicator deciding that point in his favour.[29]Although Mr. Edwards has submitted that the Adjudicator did deal with that point, for the reasons I have already given, it seems to me that that is not evidently so. He has not advanced a separate argument along the lines that the defence being run by the Defendant before the Adjudicator was so entirely devoid of merit that there was never any prospect of it succeeding anyway, so that the Defendant has lost nothing of any intrinsic value. I express no opinion as to whether or not that would be the sort of issue which ought to be canvassed by a Court in the context of an enforcement application in any event. In my judgment the Defendant can properly say that there has been a substantial injustice here.[30]The second point argued by Mr. Furst is that given the - at the very least - confusion as to what it is that the Adjudicator has in fact decided in relation to the set-off and counterclaim, there is substantial further prejudice, because if his clients were now to seek to launch a further adjudication to seek to recover these losses, then first of all they would have to comply with this decision and pay up in the meantime if the Adjudicator's decision was enforced, and secondly there would be a risk at the very least that the second Adjudicator might decline jurisdiction on the basis that the point had already been determined by the Adjudicator in this case. It seems to me that the first matter is certainly capable of amounting to a substantial injustice such as to engage the applicable principle here.[31]Turning then to the third issue, Mr. Edwards submits by reference to the TeCSA Rules that the Defendant cannot complain in this case about the deficiencies in the Adjudicator's decision, because he failed to take up the opportunity of invoking the procedure in Paragraph 32 of the Texor Rules.

(i) provides that:

"The Adjudicator may, on his own initiative or on the application of a party, correct his decision so as to remove any clerical mistake or error arising from an accidental slip or omission"; Paragraph 32(ii) (2) provides that: "
Any application for the exercise of the Adjudicator's powers under paragraph (i) shall be made within 5 days of the date that the decision is delivered to the parties, or such shorter period as the Adjudicator may specify in his decision".[32]There is a provision in paragraph 32(iii) for any correction to be made as soon as possible, and finally Paragraph 33, which is entitled "Enforcement", reads as follows: "Every decision of the Adjudicator shall be implemented without delay. The parties shall be entitled to such reliefs and remedies as are set out in the decision, and shall be entitled to summary enforcement thereof, regardless of whether such decision is or is to be the subject of any challenge or review".[33]Paragraph 33 also deals with defences of set-off, counter-claim or abatement, to which I do not need to refer in this case.[34]What Mr. Edwards submits is that those paragraphs should be read together, in the same way he suggests that Sections 57 and 70 of the Arbitration Act 1996 operate so as to require a party dissatisfied with an arbitral award first to exhaust any available recourse under Section 57 before being entitled to make an application or appeal to the Court in relation to that award.[35]What Mr. Furst submits is that the attempted analogy does not work for two principal reasons. First, he submits, is that if one compares paragraph 32 of the TeCSA Rules with Section 57 of the Arbitration Act, under paragraph 32 the Adjudicator simply does not has the same wide powers as an Arbitrator has under Section 57. Second, he submits that in any event paragraphs 32 and 33 cannot sensibly be construed as to be read together in the same way as Sections 57 and 70 of the 1996 Act are explicitly stated to be read together, so as to require a party in the position of the Defendant to exercise the right conferred by paragraph 32 as a pre-condition of having the right to resist enforcement proceedings on grounds such as those advanced in this case.[36]Although Mr. Edwards has argued his case with determination, nonetheless I prefer Mr. Furst's submissions. Firstly, if one compares paragraph 32 with Section 57, there is a clear and compelling difference in the words used which show, in my judgment, that paragraph 32 is limited, as indeed it says it is, to "The removal of clerical mistakes or errors arising from an accidental slip or omission". That could not, in my judgment, encompass what has happened here, where the Adjudicator has for whatever reason simply not dealt at all explicitly with a substantial element of the defence raised by the Defendant to the claims advanced by the Claimant in the adjudication. Secondly, it seems to me that as a matter of construction of paragraphs 32 and 33, there is no warrant for the submission that it is a pre-condition for resisting enforcement on the grounds of a failure to deal with all matters and/or a failure to give reasons, that the losing party must first exercise the right conferred by paragraph 32. It would require very clear words in my judgment for the Court to come to the conclusion that a party should lose the right that it would otherwise have to raise legitimate jurisdictional grounds for opposing an enforcement action on the basis that it was obliged to exercise a remedy, when nothing in paragraph 32 itself suggests that this was an obligation imposed on it under the contract.[37]For all of these reasons I have reached the conclusion that this is one of those relatively rare cases where the Court must decline to enforce the decision of the Adjudicator. I should say that on the evidence before me there is no reason to believe that the Claimant itself or its advisers is in any way to blame for what has happened. It may well be, and this is pure speculation, that what has happened here is that the Adjudicator was so overwhelmed by the mass of detail in terms of documentation and submission, that in seeking to provide his decision within the short timetable that he simply, through oversight, neglected to deal with an issue which he ought to have dealt with.[38]However, be that as it may, it seems to me that he failed to deal with the point, that as a result there is substantial prejudice to the Defendant, and that therefore the decision cannot be enforced. For those reasons, it seems to me that the application for Summary Judgment must be dismissed. ___________________

Cited in 6 later judgments