| Date | 28 May 2003 |
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| Judgment | Galliford UK Limited -v- Markel Capital Limited, QBD 12 May 2003 |
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| The Issue | Whether an adjudicator's award amounts to a legal liability for damages in the context of the Third Parties (Rights Against Insurers) Act 1930 such that a successful party in adjudication can immediately seek payment of the adjudicator's award against the unsuccessful party's insurers in the event of that party's insolvency. |
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| Implication |
An adjudicator's decision does not constitute a legal liability for damages until it is enforced by the court. Therefore an action brought against insurers to recover sums awarded by an adjudicator will not succeed unless the adjudicator's decision has first been enforced by the court. |
printThe recent case of Galliford -v- Markel Capital examined how adjudication might be used to establish a loss for the purposes of making a claim against a professional indemnity insurer. Galliford acted as main contractor under a design and build contract for the conversion into flats of the Wellesley Hotel in Leeds. Galliford engaged Michael Heal Associates to act as consulting structural engineers and prior to entering into the main contract took advice from Heal as to the nature and scope of the works which would be required under the main contract. Heal were subsequently to advise and prepare a detailed design on behalf of Galliford. Part way through the construction the existing roof slab was found to be inadequate to support the additional floors safely and the design had to be substantially changed. The amendments to the design resulted in a critical 24 week delay to the project and losses of over £2m incurred by Galliford which it could not recover from its client. In due course, therefore, Galliford sent a letter of claim to Heal claiming that those losses arose as a consequence of Heal failing to comply with the terms of its contract or its negligence in failing to provide investigations and design duties owed to Galliford. Unfortunately for Galliford, approximately one year later, before that claim could be progressed to a conclusion, Heal passed a resolution for the voluntary winding up of the company. A liquidator was appointed. Galliford now recognised that the only recourse it might have to obtain redress in respect of its losses would be to claim against Heal's professional indemnity insurers. Accordingly they commenced adjudication proceedings against Heal. These proceedings were fully contested by the insurers who engaged solicitors to conduct Heal's defence. The insurers argued on behalf of Heal that not only was Heal innocent of any wrongdoing in respect of the professional services it had provided, but that the adjudicator did not have jurisdiction to make an award since, it was argued, no construction contract had been entered into between Galliford and Heal which would create a right to adjudication. In the event, however, the adjudicator rejected that argument and determined that he did have jurisdiction. He proceeded with the adjudication and in summary decided that Heal was liable to Galliford in respect of the changes to the roof slab design and of the changes to infil steelwork design but not in respect of certain other matters. He assessed quantum in the sum of £720,000 and ordered Heal to pay that sum to Galliford within 14 days. Neither Heal, who were of course penniless, nor their insurers, who were represented by Markel Capital Limited, paid a penny. Accordingly Galliford commenced proceedings against Markel to recover the amount of the adjudicator's decision claiming a right of indemnity under the Third Parties (Rights Against Insurers) Act 1930. Galliford claimed that the effect of the resolution for voluntary winding up of Heal was to transfer and vest in Galliford the rights Heal previously held to be indemnified by their insurers against such claims. Markel, representing the insurers, argued that the rights of Heal under the insurance policy could not be transferred to Galliford until a relevant liability was ascertained by judgment, award or agreement. According to Markel, an adjudicator's decision was simply not enough in circumstances where that decision had not been enforced by the court. Enforcement might be resisted since, for example, the insurer would seek to demonstrate to the court upon enforcement proceedings that the adjudicator never had appropriate jurisdiction to make the decision. Galliford disagreed. It cited Section 1 of the 1930 Act which provides that when Heal became insolvent, Galliford was entitled to step into the shoes of Heal such that any rights available under the policy of insurance would be transferred to Galliford. Moreover, Galliford argued that the insurance policy had been specifically extended to cover an adjudication award. The indemnity provided by the insurance had been extended to include loss consequent upon an adjudicator's award under a procedure complying with the 1996 Act. This being the case, Galliford argued that it was quite unnecessary for it to take proceedings against Heal to enforce the adjudication award. Markel maintained is position that the adjudicator's decision was not sufficient. It did not establish a loss as defined within the insurance policy. The adjudicator's decision did not amount to a legal liability for damages awarded against Heal. Judge Behrens concluded that the question to ask was whether the adjudication award established Heal's liability to Galliford such that it was equivalent to a judgment of the court or an arbitration award. He concluded that it was not. The adjudication award created a contractual obligation on Heal to pay Galliford but that was not an absolute obligation. That obligation would not be enforced by the court if the adjudicator had exceeded his jurisdiction. In his view, therefore, the liability of the insurers under the insurance policy was not established until the adjudication award had been enforced by a judgment of the court. It followed that the proceedings against the insurers had been issued prematurely and required to be dismissed.
CJ-0320
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