| Date | 22 February 2006 |
|
|
| Judgment | Carillion Construction Ltd v Devonport Royal Dockyard Ltd, Court of Appeal, 17 November 2005 |
|
|
| The Issue | An adjudicator’s power to award interest. |
|
|
| Implication |
Under paragraph 20(c) of the Scheme for Construction Contracts an adjudicator can only decide questions of interest if (i) those questions were properly referred ‘matters in dispute’ or, (ii) the parties had agreed to include interest within the scope of the adjudication or, (iii) the matter of interest was a question that the adjudicator considered ‘necessarily connected with the dispute’. |
printDedicated readers of this column will no doubt remember Geoff Brewer’s article on the case of Devonport Royal Dockyard v Carillion Construction in May of last year. That decision has now been revisited by the Court of Appeal and, in the process, provided some further helpful guidance on the subjects of jurisdiction and interest. For those of you who do not possess a photographic memory, here is a brief reminder. Devonport Royal Dockyard refits and refuels warships and nuclear submarines for the Royal Navy. In early 1997 the dockyard was privatised and it was decided that the facilities would be substantially upgraded. The Ministry of Defence engaged Devonport to carry out the works under a cost reimbursable contract with a target cost mechanism. In turn, Devonport engaged Carillion as a subcontractor to carry out the upgrading of one of the docks. A substantial dispute arose between Devonport and Carillion over the final sum due and Carillion referred the matter to adjudication. The adjudicator made an award of over £10 million in favour of Carillion. Devonport refused to accept the adjudicator’s decision and failed to make the payment that the decision required. Carillion commenced proceedings in the Technology and Construction Court seeking enforcement of the adjudicator’s decision. Devonport commenced simultaneous proceedings, seeking a judgement that the decision was invalid and, therefore, unenforceable. The case was brought before the most senior Judge at the TCC, the Honourable Mr Justice Jackson. Mr Justice Jackson was satisfied that the adjudicator had properly considered and addressed all of Devonport’s contentions and, irrespective of whether he was right or wrong in his decision, it could not be said that he had acted in disregard of the rules of natural justice. He duly upheld the adjudicator’s decision, giving summary judgement to Carillion for over £12 million which included interest and tax. In response to one of Devonport’s contentions, Mr Justice Jackson also held that paragraph 20(c) of the Scheme for Construction Contracts provided a ‘freestanding power’ that enabled the adjudicator to award interest. This power existed irrespective of whether or not there was an express term contained within the contract for the payment of interest. Devonport appealed and the matter was brought before Sir Anthony Clarke (The Master of the Rolls), Lord Justice Chadwick and Lord Justice Moore-Bick in the Court of Appeal. Devonport’s application contained numerous criticisms of the adjudicator and claimed that Mr Justice Jackson had ‘fallen into serious error’ when analysing the adjudicator’s decision. The Court of Appeal wholly endorsed Mr Justice Jackson’s judgment in respect of the challenges to jurisdiction and the alleged breaches of natural justice. Lord Justice Chadwick observed that: “The objective which underlies the Act and the statutory scheme requires the courts to respect and enforce the adjudicator’s decision unless it is plain that the question which he has decided was not the question referred to him or the manner in which he has gone about his task is obviously unfair. It should be only in rare circumstances that the courts will interfere with the decision of an adjudicator.”He also stated that the courts should not encourage the approach adopted by Devonport in the present case which he described as ‘trying to find some argument however tenuous to resist payment’. If the unsuccessful party did not accept the adjudicator’s decision as correct he could pursue legal or arbitration proceedings in order to establish the true position. To seek to challenge the adjudicator’s decision on the ground that he had exceeded his jurisdiction or breached the rules of natural justice, save in the plainest cases, was likely to lead to a substantial waste of time and expense. He went on to consider the role of adjudication in complex disputes, stating that: “The need to have the “right” answer has been subordinated to the need to have an answer quickly. The scheme was not enacted in order to provide definitive answers to complex questions. Indeed, it may be open to doubt whether Parliament contemplated that disputes involving difficult questions of law would be referred to adjudication under the statutory scheme; or whether such disputes are suitable for adjudication under the scheme.”The Court of Appeal was not, however, able to concur with Justice Jackson’s interpretation of the adjudicator’s ‘free standing’ power to award interest. Lord Justice Chadwick concluded that, whilst there are sensible commercial reasons to include a power to award interest, there was no such freestanding power under the Scheme. He explained that: “the adjudicator may decide questions as to interest if, but only if, (i) those questions are “matters in dispute” which have been properly referred to him or (ii) those are questions which the parties to the dispute have agreed should be within the scope of the adjudication or (iii) those are questions which the adjudicator considers to be “necessarily connected with the dispute”. Questions which do not fall within one or other of those categories are not within the scope of paragraph 20(c) of the Scheme. There is no freestanding power to award interest.”The Court of Appeal then went on to consider whether the question of interest, which the adjudicator originally decided, fell within one of these categories. They found that, because Carillion had raised the question of interest in their referral and Devonport had not raised any objection, the parties had agreed to confer onto the adjudicator the power to award interest. Accordingly, Devonport’s appeal was dismissed.
CJ-0607
|
|||
|
© Brewer Consulting |
|||
 |
|||