A multi-million decision

The decision of Carillion Construction Ltd vs Devonport Royal Dockyard last month considers a challenge to the adequacy of an adjudicator’s reasons and his power to award interest. It also reviews much of the extensive law relating to challenges to enforcement of adjudicators’ decisions and restates key principles.

The case involved Carillion seeking to enforce a £12.3m adjudicator’s decision. Devonport, perhaps unsurprisingly in view of the sum involved, attempted to challenge its validity. It argued the standard fare of excesses of jurisdiction and breaches of natural justice. But Devonport also had two further challenges:

• First, the decision awarded £1.2m of interest under paragraph 20(c) in the Scheme for construction contracts. However, Devonport said this provision did not give adjudicators an unlimited, freestanding power to award interest.
• Second, the adjudicator had been required to provide a reasoned decision. Devonport argued that his reasons were inadequate, so invalidating the decision.

Mr Justice Jackson. In relation to interest he had to consider whether the Scheme provides a freestanding power to award interest, or means that an adjudicator may only award interest if the contract provides for it.

The contract between Carillion and Devonport did not contain relevant provisions and the Late Payment of Commercial Debts (Interest) Act 1998 was inapplicable. However, it was held that paragraph 20(c) does create a freestanding power to award interest. However, if there are express contractual terms, the freestanding power will not override them. The judge considered there was “obvious commercial sense” in adjudicators having power to award interest.

As to reasons, the judge found that under the Scheme, “it will only be in extreme circumstances that the court will decline to enforce because of the inadequacy of the reasons. The complainant would need to show that the reasons were absent or unintelligible and that, as a result, he had suffered substantial prejudice”. The failure of the reasons here specifically to address a number of Devonport’s arguments was not fatal because the adjudicator made clear which of the parties’ arguments he accepted and how his figures were calculated.

One of Devonport’s natural justice challenges related to the adjudicator’s consideration of certain remedial works. Devonport had submitted expert reports in the adjudication purportedly identifying £20m of required remedials – all strongly denied by Carillion. The adjudicator relied upon a valuation of £2.9m served by Devonport before the adjudication and applied a 20% reduction to it to arrive at a £2.4m reduction in Carillion’s entitlement. Devonport complained that neither side had been able to make submissions on the adjudicator’s proposed course of action. This complaint relied upon the case of Balfour Beatty vs London Borough of Lambeth in 2002, where an adjudicator was held to have breached the rules of natural justice by having prepared his own critical path analysis to assess a contractor’s extension of time claim without affording the parties a chance to consider it and make submissions.

In dismissing Devonport’s argument, it was stated that the 20% reduction was comparatively small and was precisely the kind of exercise to be expected of an engineer adjudicator. The facts of Balfour Beatty were exceptional, and generally it was unrealistic to expect adjudicators to put provisional conclusions to parties for comment.

The judgment reviews the key authorities relating to enforcement of adjudicators’ decisions and restates certain key principles. One is that judges should examine technical defences to enforcement with a degree of scepticism. Devonport was unsuccessful in its various arguments and the thrust of the judgment appears to be that parties seeking to challenge enforcement must have extremely cogent grounds to succeed.

The judgement’s confirmation that Scheme adjudicators have the power to award interest and the refusal to set a stringent test for the adequacy of reasons (which would have created a fertile new area of challenge) is all power to the elbow of adjudication.

Peter Clayton is a partner at Pinsent Masons. Email him at peter.clayton@pinsentmasons.com