| Date | 22 November 2000 |
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| Judgment | Bouygues (UK) Limited -v- Dahl Jensen (UK) Limited Court of Appeal 31 July 2000 |
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| The Issue | Enforcement of adjudicator's decisions containing errors and the effect of adjudicator's decisions in favour of an insolvent party. |
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| Implication |
The courts will enforce adjudicator's decisions even where they are plainly based upon an error. Where the successful party is insolvent, the insolvency rules will allow the other party to raise a set-off in respect of liabilities which at the time of insolvency porder may be due but not yet payable. |
printIn December of last year I reported the case of Bouygues (UK) Limited -v- Dahl Jensen. This case provided further evidence of the robust manner in which the courts will approach the enforcement of an adjudicator's decision, even when it can be shown that the decision of the adjudicator is clearly wrong. That decision was reviewed in the Court of Appeal in July of this year and the earlier judgment upheld. In so doing however, the Court of Appeal made some very interesting comments about the enforcement of adjudicator's decisions for the payment of money, in circumstances where the successful party is in liquidation. Bouygues was the main contractor for building works under a PFI contract for King's College in London. Dahl Jensen was the mechanical sub-contractor. In due course Bouygues, being dissatisfied with Dahl Jensen's work, determined Dahl Jensen's employment and arranged for the sub-contract work to be completed by others. Dahl Jensen issued a notice to adjudicate claiming payment for work done, damages for breaches by Bouygues and for its wrongful repudiation. Bouygues in turn issued its own notice to adjudicate claiming refund of alleged over-valuation under the sub-contract, damages for delayed completion and damages related to the termination. Both notices were referred to the same adjudicator and it was agreed that these should be consolidated into one adjudication. The adjudicator considered the extensive documentation and came to a conclusion upon the amounts owing. Starting with the original sub-contract tender sum, which was a gross amount prior to the deduction of retention, he added various items to which he considered Dahl Jensen were entitled. From this he deducted sums due to Bouygues in accordance with his adjudication of the counter-claim, and arrived at a gross figure payable. Finally he deducted amounts previously paid and stated that the difference, a sum of approximately £207,000, was an amount owing to Dahl Jensen. That approach gave rise to a basic error. Retention at 5% had not been deducted from the gross amount despite the fact that the works were not yet completed. The effect of this decision was to release retention to Dahl Jensen for the entirety of its sub-contract works even though it was not yet due under the contract. Had retention been properly taken into account the overall effect would have been a net award of £141,000 in favour of Bouygues. The award therefore was wrong, but the question to be put before the court was whether that would be a ground upon which its enforcement could be resisted. In the earlier case of Macob -v- Morrison Mr Justice Dyson had said "it is clear that Parliament intended that adjudication should be conducted in a manner which those familiar with the grinding detail of the traditional approach to the resolution of construction disputes apparently find difficult to accept. 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". Referring to the principle stated in Nikko Hotels (UK) Ltd -v- MEPC Ltd Mr Dyson noted that the principle to be applied was; "If he has answered the right question in the wrong way his decision will be binding. If he has answered the wrong question, his decision will be a nullity". Mr Dyson concluded that the adjudicator's mistake was a mistake in the calculations on the disputes referred to him and not a mistaken decision to deal with a dispute that was outside his jurisdiction. Accordingly he ordered summary judgment in favour of Dahl Jensen. In reviewing this the Court of Appeal agreed with this decision. Lord Justice Chadwick however, in the Court of Appeal, was concerned with the effect that the 1986 Insolvency Rules would have in respect of this decision. In his view this was no ordinary case. At the date of the application for summary judgement, indeed at the date of the reference to adjudication, Dahl Jensen was in liquidation. In those circumstances Rule 4.90 of the Insolvency Rules would have effect. Sub-section 2 of that rule states "an account shall be taken of what is due from each party to the other in respect of the mutual dealings and the sums due from one party shall be set off against the sums due from the other". The importance of the rule was illustrated by the circumstances of the presence case. If Bouygues was obliged to pay Dahl Jensen the amount awarded by the adjudicator, those monies when received by the liquidator of Dahl Jensen would form part of the fund applicable for distribution amongst Dahl Jensen's creditors. If Bouygues itself had a claim under the construction contract it would be required to prove that claim in the liquidation of Dahl Jensen and would receive only a dividend pro rata to the amount of its claim. By being forced to pay monies out to the liquidator of Dahl Jensen, it would be deprived of the benefit of treating that claim as security for its own cross-claim. In conclusion Lord Justice Chadwick stated that there was a compelling reason in such circumstances to refuse summary judgement on a claim arising out of an adjudication which is necessarily provisional. The claims and cross-claims between the parties should be resolved in the liquidation in which full account could be taken and a balance struck. Unfortunately these points were neither raised in the court nor on appeal and therefore no account of such arguments could be taken in deciding the matter under appeal. However, the effect of the summary judgment would be substantially negated by a stay of execution which the Court of Appeal imposed. This would potentially give Bouygues time to prove its cross-claim.
CJ-0046
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