Adjudicator's mistake and part 8 proceedings

Geoffrey Osborne applied to enforce an adjudication award of £504,385 made by Mr. Allen Dyer. Atkins Rail (ARL) challenged the adjudicator’s jurisdiction to make the award and submitted that Mr. Dyer had been wrong.

ARL was the main contractor for the design and construction of signalling and civil engineering works as part of the Basingstoke Area Infrastructure Upgrade Project. ARL engaged Osborne as subcontractor. It was common ground that the adjudicator had made a mistake. The Notice of Adjudication had asked him to value Osborne’s ground investigation works and variations to the signalling control centre. These had been included in ARL’s interim certificates 35 and had been the subject of additional claims in certificate no.36.

Unfortunately, the adjudicator had valued the two items of work but then failed to deduct the amounts already included in respect of those items in Certificate No 35, so that he had concluded that Osborne was owed £504,385. He had ordered ARL to pay that amount. The parties agreed that since £912,147 had been included for the two claims in certificate 35, Osborne was not owed that amount. Matters were further complicated by the fact that certificate no. 35 showed a negative amount as being due i.e. that Osborne’s work had been overvalued so that it owed ARL £552,891. The correct result, on the adjudicator’s own findings, was that Osborne had been overpaid by around £400,000.

ARL invited the adjudicator to correct his award, but he declined because he apparently thought that ARL had specifically submitted that he was not to put his valuations in certificate no. 35, and, therefore, that the amounts paid or allowed were to be ignored.

Because an adjudicator’s findings are binding upon parties until finally determined by the court, ARL issued Part 8 proceedings in order to obtain a final determination and pre-empt any application by Osborne to have the award enforced. This was a similar situation to that in Bouygues (UK) Ltd. v Dahl-Jensen (UK) Ltd., [1999] EWHC 182 (TCC), [2000] BLR 49 and, [2000] EWCA Civ 507, [2000] BLR 522 (CA), in which the court enforced the adjudicator’s decision despite the mistake because, although the adjudicator had been wrong, he had asked the right question.

In the judge’s view, it was not open to the court to set aside the entire decision because the adjudicator had been wrong. It would have to determine the correct value of the claims, and this could not be done in Part 8 proceedings.

Looking at the Notice of Adjudication, what Osborne was asking the adjudicator to do was to assess the value of the two claims and order ARL to pay the difference between the claims and the sums certified in certificate no 35. Osborne was not asking the adjudicator to order ARL to pay the total value of the claims without deducting the sums included in the last valuation. However, the words in the second and fourth bullet points of paragraph 11 of the Notice had been very wide and were not limited to amounts that are net of any sums already paid or allowed. Osborne’s entitlement to seek adjudication was based on ARL’s failure to issue an interim certificate within 14 days of Payment Application no. 36. Osborne’s claim had not been assessed in 14 days as it should have been.

An adjudicator can only consider the claims referred to him, and is not entitled to consider any other claims in the payment application or the previous interim certificate that have not been referred to him.

Whilst, the adjudicator had been correct to assess the two claims referred to him without embarking upon the other claims, he had to take into account the sums already paid against them because Osborne’s entitlement to payment arose under those certificates. His role had been to carry out the valuation of the claims which ARL should have done and had not. He had neglected to take into account the sums which had been paid against the two claims in certificate 35, and had been wrong in law to direct ARL to pay a sum without making allowance for that amount. ARL was entitled to a declaration that the adjudicator had been wrong to order ARL to pay Osborne without taking into account any payments made by the date of the Notice of Adjudication. Osborne was granted summary judgement insofar as it related to the ward of costs and interest.

Author: Ann Glacki

Date: January 2010

Commentary

Adjudication by its very nature is an inherently “rough and ready” process, with errors being made by Adjudicators. Where such errors do occur sometimes the Adjudicator will agree to correct a slip in their Decision, sometimes they will not.

In Bloor v Bowmer & Kirkland in which Alway Associates acted as representative for Bowmer back in 2000 the Adjudicator made a mistake in his Decision. Bloor as sub-contractors had entered into a contract with Bowmer to provide labour and plant for ground works for a development at Whiteley Village, Fareham in Hampshire. Disputes arose and Bloor referred the matter to Adjudication. The Adjudicator subsequently delivered his Decision to the effect that Bloor should be paid some £122,000 including interest. Upon receipt of the Decision it was noticed that the Adjudicator had failed to take into account previous payments made by Bowmer and Alway Associates advised him accordingly the same day. Later that day the Adjudicator revised his decision correcting his error with effect that the £122,000 was no longer payable to Bloor, and deciding that Bloor had been over paid.

In court it was argued on behalf of Bloor that once the Adjudicator had communicated his Decision to the Parties, his duty was at an end and he had no power to correct any errors, except perhaps clerical errors.

It was held, however, by Judge Toulmin that, in the absence of any specific agreement to the contrary, a term should be implied into the contract referring the dispute to adjudication that the Adjudicator may on his own initiative, or upon the application of a party, correct an error arising from an accidental error or omission, or clarify or remove any ambiguity in the decision which he has reached, providing this is done within a reasonable time and without prejudicing the other party.

In the more recent case of Geoffrey Osborne Ltd v Atkins Rail Ltd (‘ARL’) Silver Shemmings were Solicitors for ARL and the Adjudicator also made a mistake.

Within its Notice of Adjudication Osborne had asked the Adjudicator to value Osborne's ground investigation works and variations to the signalling control centre and which had been included in ARL's interim certificates 35.

Unfortunately, whilst the Adjudicator valued the two items of work he failed to deduct the amounts already included in respect of those items in Certificate No 35, and moreover failed to take due account of the fact that Certificate no. 35 had been in a negative amount as being due. The upshot was that the Adjudicator ought to have decided that Osborne had been overpaid around £400,000 but instead he concluded that Osborne was owed £504,385 and he had ordered ARL to pay that amount. As with Bloor, the error made by the Adjudicator was identified and he was notified accordingly; unfortunately this Adjudicator refused to correct his mistake.

Because an adjudicator's findings are binding upon parties until finally determined by the court, Silver Shemmings on behalf of ARL issued Part 8 proceedings in order to obtain a final determination and pre-empt any application by Osborne to have the award enforced. This was a similar situation to that in Bouygues (UK) Ltd. v Dahl-Jensen (UK) Ltd., [1999] EWHC 182 (TCC), [2000] BLR 49 and, [2000] EWCA Civ 507, [2000] BLR 522 (CA), in which the court enforced the adjudicator's decision despite the mistake

In the judge's view, it was not open to the court to set aside the entire decision on the grounds that the adjudicator had been wrong. To set aside the entire decision the Court would have to determine the correct value of Osborne’s entire application and not just the two discrete items referred, and this could not be done in Part 8 proceedings.

Whilst the Adjudicator had been correct to assess the two claims referred to him without embarking upon the other claims, he had to take into account the sums already paid against them because Osborne's entitlement to payment arose under those certificates. His role had been to carry out the valuation of the claims, which ARL should have done and had not.

He had neglected to take into account the sums which had been paid against the two claims in certificate 35, and had been wrong in law to direct ARL to pay a sum without making allowance for that amount. ARL was entitled to a declaration that the Adjudicator had been wrong to order ARL to pay Osborne without taking into account any payments made by the date of the Notice of Adjudication.

This case now illustrates that an unsuccessful party can seek to avoid the enforcement of an adjudicator’s decision by seeking a declaration from the court (or an arbitral tribunal) that the adjudicator got it wrong. The provisionally-binding decision of the adjudicator may thereby be overruled by the final declaration from the court, resulting in the decision or a substantive part of it, not being enforced.

For more information please contact Richard Silver by telephone on 01992 576440 or by email on richard.silver@alway-associates.co.uk

Richard Silver

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