Primus Build vs Pompey Centre and Slidesilver: Contractual wording

The facts

Primus Build (“Primus”) was engaged by Pompey Centre and Slidesilver (“Pompey”) under a construction management contract (“CM contract”) dated 12 October 2007 to provide construction management services in relation to the construction of a hotel and office building in Portsmouth. In June 2008, the office-building element of the project was taken away from the scope of Primus's work, and the parties agreed that Primus would be compensated for the loss of profit on that element on a fair basis. However, over the following months the profit claims put forward by Primus were rejected by Pompey, who insisted that Primus had already been adequately compensated for the loss of profit under the CM contract.

The dispute resolution provisions of the CM contract provided that, in the first instance, disputes were to be addressed by senior representatives or members of the board of directors of each party. If that method failed, the dispute would be referred to adjudication, and the governing rules would be the model adjudication procedure of the Construction Industry Council (“CIC”).

Clause 26 of the CM contract concerned notices, and provided that any notice should either be delivered personally or sent by fax to the addresses stated in schedule 1 (or such other address or number for service as the party to be served may have previously notified in writing to the other party). The parties did not resolve the dispute in relation to Primus's loss of profit claim and so Primus issued a notice of adjudication (“the notice”) on 5 March 2009 claiming loss of profit of £107,253.73 plus VAT and interest or other such sum as the adjudicator might determine. The notice was served by recorded post on that day. The adjudicator decided that the sum of £47,870.91 plus VAT and interest, the CIC nomination fee, and the adjudicator's fees should be paid by Pompey within seven days. The decision was not complied with by Pompey, and on 13 May 2009, Primus commenced enforcement proceedings in the TCC.

The issues

A number of jurisdictional challenges were made during the course of the adjudication but at enforcement, two main issues emerged. The first issue was whether the notice had been served correctly given that it was sent by recorded post not “delivered personally” (which Pompey equated with personal service) or by fax.

The second issue was whether the adjudicator had acted in excess of his jurisdiction and rules of natural justice had been breached. Pompey claimed that the adjudicator breached the rules of natural justice by basing the loss of profit on a calculation he derived from Primus' statutory accounts, rather than one of the bases of calculation advanced by the parties.

The decision

It was common ground that the notice was served by recorded post on 5 March 2009 and received by Pompey's in-house solicitor on 6 March 2009. Mr Justice Coulson held that clause 26 of the CM contract contained an unusual expression, “personal delivery”, which indicated that the parties must have meant something different from personal service. He held that delivery was actual delivery - whether by post or some other mechanism - and “delivered personally,” meant the actual delivery by an appropriate individual within Primus to an appropriate individual within Pompey. The method of delivery did not matter provided that the document was actually delivered to the named address in the CM contract. Since there was actual delivery to Pompey's solicitor at the relevant address on the following day, there was no breach of clause 26 and the notice was validly served.

In relation to the second issue, the judge heard that during the course of the adjudication the statutory accounts of Primus were produced but both parties, separately and for different reasons, made the point that they were not and should not be the basis of the loss of profit calculations. Primus was seeking the contractual rate of 3% for the loss of profit, not their usual profit recovery on similar works (which was illustrated by the statutory accounts). Pompey in response sought proof of the loss of profit, which they submitted should be based upon project specific financial information, not statutory accounts or the usual Primus profit margins. As both parties had effectively pushed the statutory accounts to one side, Mr Justice Coulson held that the parties had agreed that the accounts should be ignored in a similar fashion to the agreement in Shimizu Europe vd LBJ Fabrications [2003] BLR 381 and that the adjudicator should not have gone beyond that agreement within his “third way”. Mr Justice Coulson held that, in basing his decision on the statutory accounts (and in particular, on a calculation he derived from the statutory accounts), the adjudicator had acted in excess of his jurisdiction. Furthermore, Mr Justice Coulson held that the adjudicator had in fact gone as far as the adjudicator in Balfour Beatty Construction v London Borough of Lambeth [2002] EWHC 597, as he had made an assessment on evidence that was not relied on by the parties, and he had not shared this assessment with the parties until the decision was published. As the parties were not given the opportunity to make submissions on this assessment, there had been a significant and material breach of natural justice. Accordingly, Mr Justice Coulson declined to enforce the decision.

Comment

This case is of particular importance for two reasons. The first is that referring parties must take extra care in relation to mandatory service provisions of their contracts, which may be unconventional in their wording. In this instance, Mr Justice Coulson made clear “personal delivery” meant that if the notice had not been delivered to an appropriate person at Pompey in a timeous fashion the notice would not have been effectively served. The second is that adjudicators have been reminded that the foundation for their decision must be based upon evidence that has been relied on by either party and properly put before them. If certain material or an alternative approach (which has not been relied upon or has been dismissed by the parties) emerges during the course of an adjudication and is considered by the adjudicator to be determinative he or she must consider whether they should put the parties on notice of this and invite comment upon it before the decision is made and published.