O'Donnell Developments Ltd v Build Ability Ltd

In these proceedings the claimant (ODD) brings a claim against the defendant (BAL) to enforce two adjudication decisions. ODD applied for summary judgment in the sum of £1,229,393.40 inclusive of VAT and interest. BAL originally challenged the appointment of the Adjudicator in the adjudications, contended that the he did not have jurisdiction to make corrections to the decision in one adjudication (Adjudication 8A) and sought a stay of execution of any summary judgment in relation to the adjudication decisions.

By the time of the hearing BAL had withdrawn its application to stay execution and had accepted that ODD was entitled to £920,670.35 plus VAT. That left two issues to be determined:

ODD was engaged as a concrete framework sub-contractor by BAL, the main contractor in respect of a mixed retail and leisure development known as The Cube at the Mailbox, Commercial Street, Birmingham.

The parties entered into the sub-contract on 28 September 2007 using the DOM/2 Form of Sub-Contract (1981 Edition), as amended (“the Sub- Contract”).

A number of disputes arose under the Sub-Contract as to interim valuations, extensions of time and loss and expense and these were referred to adjudication in Adjudications 1 to 7.

Adjudication 8A concerned the value of the sub-contract works for the purpose of Interim Valuation 25 (up to 3 August 2009) and the validity of deductions made by BAL against that valuation.

On 3 November 2009 the Adjudicator issued his Decision in Adjudication 8A in which he determined that ODD was entitled to payment in respect of the gross cumulative total value of the sub-contract works up to Valuation 25 of £14,328,131.88 less retention, valid BAL deductions and payments to date.

On 4 November 2009 ODD notified the Adjudicator of what were considered to be two errors in the Decision, as follows:

On 5 November 2009 BAL wrote and objected to the correction of those errors on the ground that they did not fall within the definition of slips which it was permissible for the Adjudicator to correct.

Later on 5 November 2009 the Adjudicator wrote to the parties. He said that he had power to correct both errors and issued a corrected version of his Decision entitling ODD to the sum of £778,267.25 plus applicable VAT and interest.

Adjudication 9 concerned the validity of BAL’s withholding notices against Valuation 26. On 6 November 2009 the Adjudicator issued his Decision in Adjudication 9 in which he determined that ODD was entitled to the sum of £285,306.56 plus applicable VAT and interest. There was a minor error in paragraph 36 of that decision but it was corrected on 9 November 2009 and is not disputed.

BAL failed to pay the sums awarded in Adjudication 8A and Adjudication 9.

By letter dated 10 November 2009, BAL’s solicitors indicated that they would challenge any enforcement proceedings on the basis that the Adjudicator was not properly appointed in the two adjudications and did not have jurisdiction to make the corrections made in Adjudication 8A. BAL also said they would seek a stay of execution in respect of any summary judgment on the grounds of ODD’s alleged insolvency.

On 11 November 2009 ODD issued proceedings, claiming the sums awarded in Adjudications 8A and 9. On 25 November 2009 BAL issued an application for a stay of execution in respect of any judgment against it pursuant to RSC Order 47.

BAL’s evidence served on 25 November 2009 set out the grounds on which it opposed ODD’s application. In that evidence BAL did not pursue its objection to the Adjudicator’s appointment in the two adjudications. BAL also accepted that the Adjudicator was entitled to correct the mistake in the calculation of retention in his Decision in Adjudication 8A. However BAL maintained its objection to the correction of sums paid against Valuation 25 and sought a stay of execution on the ground that ODD would be unable to repay any sums paid by BAL to ODD pursuant to any judgment.

Subsequently on 1 December 2009, BAL’s solicitors notified ODD that it withdrew its application for a stay of execution and that it would arrange for payment to be made to ODD in respect of the Adjudication Decisions in the sum of £920,670.35 plus applicable VAT.

I now deal with the two outstanding issues: the disputed correction in respect of sums paid against valuation 25 and costs.

BAL submits that, on the facts, the Adjudicator should not have made the corrections. BAL says that the Adjudicator asked ODD for information about sums paid and the error which it accepts was made by the Adjudicator was induced by that information. BAL says that the information was incorrect and was mistakenly provided by ODD. In the circumstances, BAL submits that the correction to Decision 8A which awarded ODD an additional £148,468.67 was not within the slip rule and it was not open to the Adjudicator to amend the Decision to increase the sum payable by that amount. BAL says that the sum of £148,468.67 should be found to constitute no part of Decision 8A.

ODD submits that the Adjudicator’s correction to Decision 8A fell within the slip rule because the uncorrected Decision 8A did not accurately reflect his intentions. As a result ODD says that the adjudicator had jurisdiction to make the correction and his corrected Decision 8A was valid and enforceable in its entirety.

In general, an adjudicator’s decision will be enforced even if it contains an error of fact or law. In Bouygues v Dahl-Jensen [2000] BLR 49 and 522 the adjudicator made an error in the calculation of the sum due because he did not properly take account to the fact that the sums due were based on the gross contract price whilst the sums paid were net of 5% retention. The existence of that error was not challenged in the Court of Appeal.

The adjudicator in that case was asked to amend his decision to correct the error which, if corrected, would have made the sum payable £141,254 and not £207,741. He had expressly reserved the right to rectify any “slip” in his decision as if it were an award published pursuant to the Arbitration Act 1950. He declined to do so on the basis that he said the decision reflected his intention and did not contain a clerical mistake or error arising from an accidental slip or omission.

The Court of Appeal upheld the decision of Dyson J at first instance. He held that the error did not give rise to a right to challenge the adjudicator’s decision on an application for summary judgment. He found that the adjudicator had done what he was being asked to do and was answering the correct question. On that basis there was no challenge if he answered the correct question in the wrong way.

This approach found support in the decision of Knox J in Nikko Hotels (UK) Ltd v MEPC Plc [1991] 2 EGLR 103 where he said: “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.”

For present purposes Simon Lofthouse QC, who appears for BAL, accepts that the slip rule is an implied term of the Sub-Contract in similar terms to the implied term held to exist by His Honour Judge Toulmin CMG QC in Bloor Construction (UK) Ltd v Bowmer & Kirkland (London) Limited [2000] BLR 314 and recently considered by Akenhead J in YCMS Ltd v Grabiner [2009] BLR 211 at [50].

In summary the implied term provides for a slip rule which permits an adjudicator to correct an accidental error or omission in a decision, providing that the correction is made within a reasonable time: see Bloor at 319.

In Bloor the adjudicator sent the parties his decision, one of the parties pointed out an error and the adjudicator corrected his decision, all within the time period within which the adjudicator could reach his decision. In YCMS the adjudicator had published his decision within time and the slip was pointed out within time but the adjudicator corrected his decision two days later. Akenhead J held that this would come within the slip rule, so far as timing in concerned.

The slip rule has therefore been interpreted to apply even where the time for making the original decision has expired. This is on the basis that the adjudicator retains power to correct slips even after the expiry of the time for his decision and that, when he corrects the decision, the correction takes effect as a correction to the original decision which was reached within time.

The slip rule has also been interpreted, consistent with decisions on s.57 of the Arbitration Act 1996, to enable an adjudicator to correct a patent error but only to correct a decision to give true effect to first thoughts or intentions rather than to second thoughts or intentions: see The Montan [1985] 1 Lloyd’s Rep 189 at 190 and 198.

On this application for summary judgment there is a threshold question as to how far the court can interfere with an adjudicator’s exercise of his power under the slip rule. If an adjudicator has jurisdiction under the slip rule, to what extent can the court review the exercise of that jurisdiction by the adjudicator? This question did not arise in Bloor and was not argued in YCMS.

Mr. Lofthouse QC submits that the court needs to be satisfied that a slip, properly so defined, has occurred. If there is no slip then the adjudicator does not have jurisdiction. He submits that the position may be different if there was an express power to correct slips.

He also referred me to paragraph 2.118 of Coulson on Construction Adjudication where, referring to the decision in Bloor and its effect on the principle in Bouygues, he says that the two decisions can be reconciled and adds:

“If the parties are in dispute as to the obviousness (or otherwise) of the alleged ‘slip’, or the adjudicator does not accept that an error has been made, or does accept it but only some time after the publication of the decision, then it is thought that the approach in Bouygues will remain appropriate.”

Mr Lofthouse submitted that it was only if the parties, in effect, agreed on the slip that the slip rule could be applied. I do not think that the passage cited expresses that view. What it is stating is that if the parties agree or the adjudicator decides that there has been a slip and does so within time, then the slip can be corrected. If that does not happen then in the circumstances set out in the passage cited, the position remains that there is an enforceable decision as set out in Bouygues.

Ms. Finola O’Farrell QC, on behalf of ODD, refers to the decision of the House of Lords in Lesotho Highlands Development Authority v Impregilo SpA [2006] 1 AC 221 which was cited by the court in argument. She submits that it is authority for the proposition that an erroneous exercise of a power does not constitute an act in excess of powers so as to fall outside of the jurisdiction of the adjudicator. She refers to the following passage from Mustill & Boyd on Commercial Arbitration, cited with approval by Lord Steyn at [25]: “if… [the arbitrator] applies the correct remedy, but does so in an incorrect way - for example by miscalculating the damages which the submission empowers him to award - then there is no excess of jurisdiction. An error, however gross, in the exercise of his powers does not take an arbitrator outside his jurisdiction and this is so whether his decision is on a matter of substance or procedure.”

She submits that, as set out by Lord Steyn at [31] and [32], the concept of a tribunal exceeding its powers necessarily assumes that the tribunal was acting within its substantial jurisdiction.

I accept her submission that an erroneous exercise of a power does not fall outside the jurisdiction of an arbitrator or adjudicator. However, the distinction between disputes as to the jurisdiction of an adjudicator and disputes as to ways in which that jurisdiction should be exercised is not an easy one to draw as the decision in Lesotho Highlands shows. This can be illustrated in the case of the slip rule as follows. First if the adjudicator were to exercise a slip rule when there was no express or implied slip rule, that would clearly be a decision which was outside his jurisdiction. Secondly, if the adjudicator is asked by one party to correct a slip and he accepts that an error has been made within the slip rule then if the adjudicator makes an error of fact or law in so doing, I consider that such an error does not take the exercise of the slip rule outside his jurisdiction. Finally, if the adjudicator is asked by one party to correct a slip which the other party agrees is a slip within the slip rule but in operating the slip rule he makes and error of fact or law, then I do not consider that the court can interfere in that decision.

The dividing line between exercising a wrong jurisdiction which does not exist and exercising a jurisdiction which does exist, wrongly is difficult. Each case obviously has to be considered on its facts to decide whether it is a decision within or outside the adjudicator’s jurisdiction.

As Dyson J said in Bouygues at [36]: “…in deciding whether the adjudicator has decided the wrong question rather than given a wrong answer to the right question, the court should bear in mind that the speedy nature of the adjudication process means that mistakes will inevitably occur, and, in my view, it should guard against characterising a mistaken answer to an issue that lies within the scope of the reference as excess of jurisdiction.”

In considering whether the adjudicator was acting within his jurisdiction in operating the slip rule the court should similarly guard against characterising a mistaken application of the slip rule as a decision in excess of, and therefore, outside his jurisdiction.

In the present case it is accepted by BAL that the slip rule is an implied term of the Sub-Contract. The Adjudicator was asked to correct a slip and accepted that he had made an error within the slip rule. In such circumstances I do not consider that the court can or should interfere with the exercise of the adjudicator’s powers within his jurisdiction. To do so would be to seek to interfere in a case where he has answered the right question and like Bouygues his decision will be temporarily binding, whether he was right or wrong in the answer he gave.

If I am wrong about that and the court can interfere in the decision then I have to consider the merits of the dispute.

The “error” which the adjudicator made arose in this way. At 6.13am on 2 November 2009, the day his decision was due, the Adjudicator requested an extension of time in which to reach his decision of 24 hours from ODD. The Adjudicator also asked ODD “to confirm the amount it has been paid at the final date for payment for [Application for Payment]25 (excluding interest and any litigation costs) and also to confirm whether it has received any further payment from [BAL] since then.”

At 2:50pm on 2 November 2009 ODD wrote to the Adjudicator and granted the extension of time. They also set out“a comprehensive list of all payments received in relation to the Sub-Contract”. One of the payments identified was £148,468.58 received on 2 September 2009 in relation to the decision in Adjudication 7. The total sum paid was set out as £12,816,597.51.

At 5:30pm on 2 November 2009 BAL responded with a schedule which also set out a summary of payments. That schedule also included a payment of £148,468.67 on 2 September 2009, with a total sum of £12,816,597.61, a few pence different to the sum in ODD’s schedule.

At 11.56pm on 3 November 2009, just before the extended time for the decision was due to expire, the Adjudicator issued Decision 8A to the parties.

At 10:33am on 4 November 2009 ODD wrote to the Adjudicator as follows:

“The figure for the amount paid to date includes a payment by BAL in respect of the Decision of the Adjudicator in Adjudication No 7 of the gross sum of £148,468.58. We would refer you to paragraphs 162 to 184 of the Decision in Adjudication No 7 in this regard. The sum represents additional loss and expense incurred by ODD as a result of delays to the Sub-Contract Works which the Adjudicator determined were the responsibility of BAL. Consequently, this sum is additional to the amounts set out in [Application for Payment] 25 and Valuation 25 and should not have been deducted from the total sum awarded in this adjudication. In deducting this amount from the sum you have awarded, in effect you have restricted the effect of the Decision of the Adjudicator in Adjudication No 7.

We note that the figure in respect of the amounts paid to date was determined on the basis of our recent e-mail exchange, and we apologise for not making clear during that exchange that part of the sums paid to date represented loss and expense.”

BAL’s solicitors responded at 5.51 pm on 5 November 2009 and said this:

“The first matter ODD wishes you to “correct” is that an additional £148,468.58 for loss and expenses is due as a result of the effect of the Adjudicator’s Decision in Adjudication 7. This is not a patent error in that it is a simple arithmetical error. It should not be forgotten that the loss and expense now raised by ODD was not referred to in any of the documents which has formed part of this adjudication. It is BAL’s position that it cannot be a patent error if you are now being asked to consider something ODD chose (or forgot to) make you aware of at the appropriate time. You clearly considered the amounts due to ODD and the effect of any sums previously paid to date. For you to now “correct” your decision as ODD seeks you would in fact be addressing your mind to an issue for the second time clearly in breach of paragraph 50(c)[of YCMS] above. ”

The Adjudicator then set out the slip rule as follows:

“I have considered the matters identified and the authority referred to. I conclude that there is an implied term that I may correct a slip provided the correction is made promptly. In this instance, the alleged slips were identified within 24 hours of the publication of my Decision and BAL has provided its comments within 48 hours of the publication of my Decision.

Therefore if my Decision does contain a slip, then my view is that I can now correct it.”

He then addressed the question and said:

“In this instance, in addressing the question of whether ODD was entitled to further payment my intention was to give effect to my findings in relation to the matters decided by me and also the matters decided by previous Adjudicators. In that regard, my failure to account for the fact that the amount paid to date included (on BAL’s schedule) £148,468.67 in respect of additional loss and expense awarded in Adjudication No.7 was an inadvertent slip and did not reflect my intention. Similarly, the failure to omit the amount of loss & expense from my calculations of the retention was also an inadvertent slip and did not reflect my intention. I therefore consider it appropriate to correct those slips.”

Mr Lofthouse submits that there was no accidental slip or omission by the adjudicator. Rather he says that the Adjudicator came to his decision as to sums paid on the basis of the information supplied by ODD which mistakenly included the payment in relation to Adjudication 7. He accepts that the Adjudicator made a mistake in allowing that payment against sums due on Certificate 25 but says that this is a case where the Adjudicator acted on the basis of the evidence before him and like any other error of fact or law the Adjudicator cannot amend his decision on the basis of a reconsideration of his decision.

Ms. O’Farrell submits that the correction to Decision 8A fell within the slip rule. She says that the Adjudicator’s intention in Decision 8A was clearly to award ODD the balance due in respect of Valuation 25, taking into account deductions in respect of retention, sums properly withheld by BAL and payments made against the valuation. She says that the uncorrected Decision did not accurately reflect that intention as it allowed for a sum paid for loss and expense awarded in Adjudication 7, which was not within Valuation 25.

She submits that the mistake occurred because the Adjudicator took the bottom line figure in the schedule of payments made, without appreciating that the final payment was in respect of the loss and expense awarded in Adjudication 7 that took place after Valuation 25. The Adjudicator therefore simply overstated the credit that should be given for sums paid by BAL.

I consider that this is a case where the Adjudicator made a patent error of the type which Akenhead J identified in paragraph 50(b) of YCMS v Grabiner as including a failure to give credit for sums found to have been paid.

He had in item N of his decision said “Less paid to date” in the sum of £12,816,597.61 It is common ground that the sum of £148,468.67 should not have been taken into account in coming to the total sum due. The intention and first thought of the adjudicator was to set out at Item N the relevant sum paid to date which fell to be deducted from sums due on Application for Payment 25. The Adjudicator also made an earlier error in relation to retention, where the calculation did not reflect his intention and which BAL does not challenge.

I consider that the Adjudicator was correct to identify the mistake as an “inadvertent slip” because he made a deduction which he had not intended to make. Such slips are often, to some extent, contributed to by information provided by the parties or the way in which that information is provided. I do not consider that this prevents an adjudicator from operating the slip rule if he concludes that what he has done is not what he intended. In this case both parties had provided the Adjudicator with similar figures. This is not a case of the Adjudicator giving effect to second thoughts or intentions but of giving proper effect to his first thoughts.

In those circumstances, the Adjudicator applied the slip rule to correct an accidental error and BAL has no real prospect of successfully defending ODD’s claim for sums due under corrected Decision 8A. On the basis that BAL has paid all other sums due on Decisions 8A and 9, ODD is therefore entitled to summary Judgment for £148,468.67.

I have to consider the costs of two applications: the costs of ODD’s application for summary judgment and the costs of BAL’s application to stay execution.

ODD has been successful in its summary judgment application and they should be entitled to their costs. They seek costs on an indemnity basis and refer me to the decision of His Honour Judge Coulson QC in Harris Calnan Construction v Ridgewood [2008] BLR 132 (TCC) where he awarded indemnity costs on the basis that the defendant had acted unreasonably in seeking to defend the enforcement of an adjudicator’s decision which could not be resisted.

In this case BAL’s solicitors set out in their letter of 10 November 2009 a number of grounds on which they resisted enforcement. Those included a contention that the Adjudicator had not been properly appointed and did not have jurisdiction to make corrections to either the error as to sums paid or as to retention.

At the time when BAL submitted its evidence on 25 November 2009, it abandoned the challenge on the basis that the Adjudicator had not been properly appointed and as to correction of the error in respect of retention.

On 25 November 2009 BAL’s challenge then became more focussed in relation to the slip as to sums paid, which I have dealt with above, and as to seeking a stay of execution under its application.

The background to the application to stay was that, on 16 October 2009, BAL’s solicitors had written to ODD’s solicitors seeking information on the financial solvency of ODD. The information requested was set out on eight paragraphs and amounted, in effect, to a detailed set of interrogatories into all aspects of ODD’s financial and business status which might affect its solvency. Attached to that letter was a Dunn & Bradstreet report. The letter said that BAL was seeking the information to enable it to decide whether to resist enforcement on grounds of ODD’s insolvency.

ODD’s solicitors responded on 23 October 2009 and included a letter from ODD’s accountants which stated: “We have been preparing management accounts on a quarterly basis since the last audited accounts were filed. Based on these and our knowledge of the Company we believe it to be financially sound and able to meet its debts and would point out that the report from D & B acknowledges that only 2.4% of similar businesses on its data base have a stronger financial strength.”

BAL then instructed KPMG to produce a report and it was that report which was provided as part of the evidence relied on by BAL for their application made on 25 November 2009.

Following service of ODD’s evidence in response to BAL’s application, BAL decided on 1 December 2009 to withdraw its application to stay proceedings and did so on the basis that, on a fair reading of the letter, it could not prove the matters needed for such an application.

Matters then proceeded from 1 December 2009 to the hearing on the basis of only the two issues dealt with in this judgment: the error as to sums paid and costs.

I consider that the convenient way of dealing with the costs in this case is to separate the costs of the summary judgment application and those of the application to stay execution.

On that basis, there were clearly elements raised by BAL in its solicitor’s letter of 10 November 2009 which were abandoned when it put in its evidence on 25 November 2009. This meant that ODD had to put in evidence and deal with matters which I do not consider were reasonably raised as grounds for defending enforcement. The remaining issue on the summary judgment application then proceeded as the sole basis for challenge up to the hearing. In my judgment, the conduct by BAL in resisting enforcement up to 25 November 2009 on grounds which were then abandoned should be marked by an indemnity basis for costs up to that date, but that the costs after that date should be assessed on a standard basis. Where a party decides to raise defences to an application to enforce an adjudication decision and then abandons many of those grounds that is conduct which is unreasonable and needs to be marked by indemnity costs to prevent parties from seeking to defend enforcement of adjudication decisions on grounds that have no merit.

In relation to the costs of the application to stay execution, I do not consider that ODD acted unreasonably in failing to provide the information which was requested on 16 October 2009. It was for BAL to adduce evidence and decide whether there were grounds for a stay. Whilst the parties must co-operate, there is no obligation on a claiming party in an adjudication to give widespread disclosure of all of its financial and business information so that the other party can see whether there is something which gives grounds for an application to stay. In this case I consider the letter from ODD’s accountants was a sufficient response to the request for information.

In the end BAL decided that it could not establish its case for a stay and withdrew the application. In my view, the normal rule should apply, and ODD should have its costs. There is nothing in ODD’s conduct which should modify the position. Those costs should be assessed on a standard basis.

I therefore find that: