Wales And West Utilities Ltd v PPS Pipeline Systems GmbH [2014] EWHC 54 (TCC)

“Increased quantities of rock The trench excavation and following operations have been seriously delayed due to rock. We have commissioned an expert report, which has highlighted the fact that the Works Information provided at Tender Stage is inaccurate. Not only has the quantity of rock encountered considerably increased throughout, the expected locations have been different… For these reasons, we respectfully request that you consider payment for the additional costs incurred. As notified, we are prepared to allow Wales...to carry out a full audit to establish the actual costs incurred. We confirm that if this request is accepted, we will not seek contractual entitlement (i.e. any savings made will benefit the Project)… The following activities may be affected: • Topsoil Strip & Benching • Mainline Trench Excavation • Lower & Lay • Backfill • Reinstatement…”

“…Your letter dated 11th October 2012 This letter is headed up ‘Early Warnings-Further Information’. We note therefore, and shall rely upon the fact that it is not a clause 61 notification of a Compensation Event… Early Warning item 1: Additional Quantity of Rock …We note you agree clause 1660.1 (12) as a Compensation Event was omitted…We further note that you now submit the information in the Site Information was inaccurate and unrepresentative. Accordingly you then leap to submit this is an Employer’s Risk under clause 80.1 which gives you a right to claim as a Compensation Event under clause 60.1 (14). …this clause provides… In referring to this clause we are somewhat confused by your rationale…Therefore are you submitting that the Employer was negligent in that the boreholes were not taken in the right place? If this is your case then your rationale is flawed. You do not dispute the information provided was correct, indeed nowhere have you evidenced the information provided was wrong. The boreholes for example stated what was there. Accordingly the information which has been provided by the Employer is correct… However on a first principle basis your right to rely upon clause 80.1 is wholly misplaced. Clause 80.1 is for third party claims rather than PPS’ costs… You further submit that the additional rock possibly constitutes a Force Majeure event as described in clause 94.2. The clause says… The matter of the alleged additional rock shall however fall short [sic] of having any claimable effect under the ambit of clause 94.2, not least given the effect of the wording of clause 60.2… Finally regarding rock you make reference to your ‘common law rights’ in negligent [mis-statement] and or misrepresentation in respect of both quantity of rock likely to be encountered and as to the nature and extent of the works required to deal with it… Early Warning item 2 Exceptionally Inclement Weather… We trust that we have interpreted your Early Warning notice correctly and that you shall consider our comments herein or indeed take advice on the wording of your rights and obligations under the Contract. As Project Manager I do not see, based on the information in my possession, that anything within your Early Warning Notices has any cause to notify or implement a Compensation Event…”

“There are no force majeure events recorded in progress minutes… • The existence of rock is not identified in progress minutes… • On 3rd September 2012 PPS…wrote an early-warning confirmation to Wales… in respect of the weather and also rock conditions… • On 11th October 2012 PPS…wrote to Wales…providing further information in respect of the early warnings relating to additional rock and exceptional weather conditions. • PPS…belatedly notified an early warning in respect of rock on 18 October 2012… • Completion of the project was achieved on 26 October 2012. • Wales…made preliminary observations in respect of the early warning notice on 29 October 2012 concluding that there is nothing in the PPS…early warning that causes "to notify or implement a Compensation Event” [sic]… • Discussions have been had between the parties in which Wales… have stated that it does not believe there is any contractual merit in the claim. This is confirmed in Wales’…letter dated 29th October 2012. Accordingly a dispute has arisen…”

“The Dispute referred Further, Wales…contend that: 1. As stated, PPS took the contractual risk for physical conditions including all physical conditions including rock. PPS…assumed the contractual responsibility for rock as clause 60.1 (12)…in respect of physical conditions, was deleted. PPS acknowledge that no entitlement can exist. 2. No compensation event has ever been notified pursuant to clause 60.1 (12)… 4. No compensation event has been notified pursuant to Clause 60.1 (14). This clause doesn't apply on the facts, as physical conditions are not a stated Employer Risk. 5. PPS have no entitlement to a compensation event pursuant to clause 94…Properly construed clause 94 relates to termination… 7. Further, and in any event, PPS…have never notified a force majeure event pursuant to clause 94… 8. As no compensation event notices have been given…therefore clause 61.3 contractually bars any claim. Accordingly PPS…do not have any contractual right to a compensation event in respect of the alleged existence of rock referred to in PPS’… early warning or in the letters referred to in this Notice to Adjudicate. For the sake of clarity we confirm that the scope of this adjudication does not extend to consequential issues such as the quantity of rock encountered, alleged time or quantum impact. Wales…have not referred any consequential issues in this adjudication as it is clear that there is no entitlement in principle. Crystallisation of dispute The dispute had crystallised by the time of Wales’…letter of 29 October 2012 when [PPS’] claim in relation to rock was rejected, especially having regard to the events which preceded that time when there were earlier rejections. Decision requested Wales…requests a decision that PPS…have no entitlement in respect of the dispute identified above and a decision that PPS…pay the Adjudicator’s costs…”

“7…it is PPS’ position in this adjudication that in encountering increased quantities of rock in the installation of the pipeline ("the Rock Issue") they are entitled to a Compensation Event in respect of an increase in the quantities of pipe protection installed because the increase in the quantities of pipe protection, and rock installed [sic] constitutes a change in the Works Information. 8. However, for the avoidance of doubt PPS does not seek a decision from the Adjudicator as to the time and quantum impact of the Compensation Event… 9. Finally, in this regard the Adjudicator is reminded that the dispute referred to by [Wales] is limited and relates solely to the question in principle of PPS’s entitlement to a Compensation Event or Compensation Event in respect of the Rock Issue. 13. Under the next heading, "Summary of PPS’s case", the following appeared: “10. [Wales’] design for pipe protection in rock areas confirms that PPS was to include within its Contract price for the installation of 2,000m of Rockguard…to protect the pipe when installed in areas of rock excavated by PPS. PPS had in fact excavated rock and installed Rockguard to over 8,000m of the pipeline. Accordingly, this increase in the quantity of Rockguard actually installed is a change in the permanent works design and a clear change to the Works Information and accordingly a Compensation Event under 60.1 (1) of the Contract. 11. PPS’ alternative case is that both the increased quantity of the Rockguard installed and the increased quantity of rock required to be excavated in order to effect the Rockguard installation similarly constitutes a change to the Works Information and accordingly Compensation Event under 60.1 (1) of the Contract." Over the next few pages, PPS set out this case in more detail and at Paragraph 32 set out the decisions which it was seeking: “32.1 A decision that in principle PPS is entitled to a Compensation Event in respect of the increase in the quantities of Rockguard installed as described in this Response… 32.3 A decision that the Project Manager’s inaction in failing to instruct a change to the Works Information in accordance with Clause 60.1 (1) of the Contract in respect of the increase in the quantities of Rockguard installed as detailed in the Response should be reviewed and revised with a declaration that PPS are entitled to an appropriate Project Manager’s instruction…”

“1. PPS…has no entitlement to a Compensation Event in respect of physical conditions including rock. 2. The Project Manager’s inaction in failing to instruct a change to the Works Information in accordance with Clause 60.1 (1) of the Contract in respect of the increase in the quantity of Rockguard installed should be reviewed and revised. 3. PPS…is entitled to an appropriate Project Manager’s Instruction in respect of Rockguard.”

“19.1…that PPS is entitled to a Project Manager’s Instruction changing the Works Information in accordance with Clause 60.1 (1) of the Contract to reflect the increase in the quantity of the Rockguard actually installed including the assumptions required to provide a reasonable assessment. 19.2 a decision that the Clause 60.1 (1) Compensation Event be assessed at £607,659.72 or such other sum as the Adjudicator may decide…”

“13. Mr Furst submits that the word "decision," where it appears in clause 27, and where it appears in paragraph 23 of Part 1 of the Scheme, means a lawful and valid decision. Accordingly, where there is a decision whose validity is challenged, that is not a decision which is binding or enforceable as a contractual obligation until it has been determined or agreed that the decision is valid. 14. It will be seen at once that, if this argument is correct, it substantially undermines the effectiveness of the scheme for adjudication…But Parliament has not abolished arbitration and litigation of construction disputes. It has merely introduced an intervening provisional stage in the dispute resolution process. Crucially, it has made it clear that decisions of adjudicators are binding and are to be complied with until the dispute is finally resolved. 18. For all these reasons, I ought to view with considerable care the suggestion that the word "decision" where it appears in section 108(3) of the Act, paragraph 23(2) of Part 1 of the Scheme and clause 27 of the contract, means only a decision whose validity is not under challenge. The present case shows how easy it is to mount a challenge based on an alleged breach of natural justice. I formed the strong provisional view that the challenge is hopeless. But the fact is that the challenge has been made, and a dispute therefore exists between the parties in relation to it. Thus on Mr Furst’s argument, the party who is unsuccessful before the adjudicator has to do no more than assert a breach of the rules of natural justice, or allege that the adjudicator acted partially, and he will be able to say that there has been no "decision". 19. At first sight, it is difficult to see why a decision purportedly made by an adjudicator on the dispute that has been referred to him should not be a binding decision within the meaning of section 108(3) of the Act, paragraph 23(1) of the Scheme and clause 27 of the contract. If it had been intended to qualify the word "decision" in some way, then this could have been done. Why not give the word its plain and ordinary meaning? I confess that I can think of no good reason for not so doing, and none was suggested to me in argument. If his decision on the issue referred to him is wrong, whether because he erred on the facts or the law, or because in reaching his decision he made a procedural error which invalidates the decision, it is still a decision on the issue. Different considerations may well apply if he purports to decide a dispute which was not referred to him at all.”

“29. In my judgment it cannot be right that it is open to a party to an adjudication simultaneously to approbate and to reprobate a decision of the adjudicator. Assuming that good grounds exist on which a decision may be subject to objection, either the whole of the relevant decision must be accepted or the whole of it must be contested. It may, of course, be important correctly to characterise what constitutes a decision of the adjudicator. It is likely that, to be relevant for the purposes now under consideration, a decision will be the answer to a question referred to the adjudicator, rather than a conclusion reached on the way to providing such answer. For example, if the adjudicator has had referred to him or her for decision both the question how much money is due to a contractor and also the question to what extension of time for completion of construction works the contractor is entitled, it is likely that it will be open to a party to the adjudication to accept the determination in relation to the sum due while disputing, if otherwise there are good grounds for so doing, the assessment of the extension of time, or vice versa. In such a case two separate questions would have been referred to the adjudicator. However, that situation is to be distinguished from the case in which in order to answer the question to what sum a party is entitled it is necessary to consider a number of elements of claim, or the case in which in order to reach a conclusion as to what extension of time is appropriate a number of grounds of possible entitlement to extension of time need to be considered. In each of these latter cases the result of the evaluation of the various elements will be a single cash sum or a single period of extension of time. It seems to me that the option available to a party who otherwise has good grounds for objecting to a decision that a particular sum is payable is to accept it in its entirety or not at all. He does not have the option of declining to accept the decision in its entirety, but to accept the reasoning which led to particular items being included in the overall total… 30…In my judgment by inviting Mr. Haller to correct the Award under the slip rule Berwins on behalf of Automajor accepted that the Award was valid. It is true that in its letter to Mr. Haller dated 6 November 2001 Berwins asserted that the Award contained an error which went to Mr. Haller's jurisdiction, but, if that were right, it would follow that the Award, or the relevant part of it, was a nullity. There would be nothing to correct. I accept the submission of Mr. Constable that the invitation to Mr. Haller to correct the Award under the slip rule is only consistent with recognising it as valid. I also accept the submission of Mr. Constable that by paying part of the sum the subject of the Award Automajor elected to treat the Award as valid. Otherwise there was no need to pay Shimizu anything, and it was not appropriate to do so. Consequently, had it been necessary to do so, I should have held that Automajor had elected to forgo any opportunity which it might otherwise have had to object to the Award.”

“26. In my judgment the underlying decisions on election or approbation and reprobation, as applied in the context of adjudication, show that a party cannot both assert that an adjudicator's decision is valid and at the same time seek to challenge the validity of the decision. The party must elect to take one course or the other. By taking a benefit under an adjudicator's decision, the party will generally be taken to have elected a particular course and will be precluded from challenging the adjudicator's decision. In Macob the benefit was the claim to have the proceedings stayed to arbitration in relation to the decision. In Shimizu the benefit was the right to have the decision corrected under the slip rule… 29. PTB also relied on the fact that ROK had paid the Adjudicator's fees and had thereby elected to treat the Adjudicator's decision as valid. I do not consider that, in the absence of evidence to show that the payment was a mistake, the court can come to that conclusion as a matter of inference or otherwise, as Mr Lee sought to submit. Rather, the natural inference from the payment of the adjudicator's fees is that ROK intended to make payment in respect of a valid decision requiring such payment. Did that payment amount to an election? Mr Lee submits that it is difficult to characterise ROK's payment as amounting to ROK taking a benefit. There is strength in that point but, in my judgment, the taking of a benefit, whilst sufficient for there to be an election, is not necessary. What has to be determined is whether there has been an election. Objectively, a party who decides to pay a sum awarded against it in an adjudicator's decision does so in reliance on that decision being valid. I consider that, in the absence of any circumstances indicating to the contrary, by making that payment ROK elected to treat the adjudicator's decision on fees and expenses as being a valid decision, at least to that extent.”