Bouygues UK Ltd v Dahl-Jensen UK Ltd
| Jurisdiction | England & Wales |
| Judge | Peter Gibson,Chadwick,Buxton L JJ |
| Judgment Date | 31 July 2000 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 July 2000 |
Court of Appeal (Civil Division).
Peter Gibson, Chadwick and Buxton L JJ.
Stephen Furst QC (instructed by J R Jones) for the applicant.
Sean Brannigan (instructed by Hammond Suddards) for the respondent.
The following cases were referred to in the judgments:
Jones v Sherwood Computer Services plc.WLR [1992] 1 WLR 277.
Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] CLC 739.
Nikko Hotels (UK) Ltd v MEPC plcUNK [1991] 2 EGLR 103.
Stein v BlakeELR [1996] 1 AC 243; [1995] BCC 543.
Building contract — Adjudication — Summary judgment — Insolvency — Adjudicator calculated sum due on subcontract without regard for retention — Whether adjudicator's award including retention not yet due for payment enforceable — Whether adjudicator purported to decide issue not referred to him — Provisional nature of adjudicator's award — Whether adjudicator's award should be enforced despite insolvency of subcontractor — Insolvency Rules 1986 r. 4.90 — CPR, Pt. 24.
This was an appeal from a decision of Dyson J giving summary judgment to enforce the award of an adjudicator under s. 108 of the Housing Grants, Construction and Regeneration Act 1996.
Bouygues (UK) Ltd was the main contractor for certain building works under a PFI contract and Dahl-Jensen UK Ltd was the mechanical subcontractor. The subcontract contained an arbitration clause and an adjudication clause and also provided for retention of five per cent of the contract price, pending certification under the main contract. In due course Bouygues, being dissatisfied with Dahl-Jensen's work, determined Dahl-Jensen's employment and arranged for the subcontract work to be completed by others. Dahl-Jensen issued a notice to adjudicate, claiming payment for work done but allegedly not valued under extensions of the subcontract and damages for breaches by Bouygues of the subcontract and for its wrongful repudiation. Bouygues issued its own notice to adjudicate, claiming the refund of payments already made in respect of work allegedly overvalued under the subcontract, damages for delayed completion and damages for costs incurred by the termination of Dahl-Jensen's employment. Both notices were referred to the same adjudicator under the Model Adjudication Procedure of the Construction Industry Council. It was agreed that he should treat Bouygues' claim as a counterclaim to the claim by Dahl-Jensen.
The adjudicator made no award on Bouygues's claim in respect of overpayment based on excessive valuation, subject to Bouygues' right to set-off against payments already made any losses caused by breaches by Dahl-Jensen in the performance of the contract. He valued the contract works, the original tender sum plus extensions, at a sum of £7,240,000, without any deduction of the retention moneys. He deducted from the £7,240,000 a sum of £647,000 that he awarded to Bouygues in respect of damages arising out of the termination, and he deducted from that revised contract sum of £6,593,000 the amount actually paid by Bouygues under the subcontract of £6,772,000, to produce a balance in favour of Bouygues of £179,000. He then added back to the earlier contract sum of £7,240,000 an award of £387,000 that he had made to Dahl-Jensen in respect of additional works performed by Dahl-Jensen and claims for damages sustained by them while the contract was subsisting. That addition increased the gross contract sum minus deductions due to Dahl-Jensen from the figure of £6,593,000 to £6,979,000. That in turn altered the overall balance in favour of Bouygues of £179,000 to a balance in favour of Dahl-Jensen of £208,000. The adjudicator's award was therefore that Bouygues should pay the sum of £208,000 to Dahl-Jensen.
Bouygues protested that the effect of making the calculations on a “gross” basis was to required Bouygues to pay the five per cent retention to Dahl-Jensen even though it was not yet due under the main contract. Deducting the retention would produce a net balance in favour of Bouygues. Furthermore Dahl-Jensen was in insolvent liquidation and any payment to it would be irrecoverable. The judge held that Dahl-Jensen was nevertheless entitled to summary judgment to enforce the adjudicator's award. Bouygues appealed.
Held dismissing the appeal:
1. The judge was right to reject Bouygues' argument that the adjudicator answered the wrong question or decided something which fell outside his jurisdiction. The adjudicator answered exactly the questions put to him. He did not intend or purport to rule on the retention moneys. In making the calculations to answer the question of whether the payments so far made under the subcontract represented an overpayment or an underpayment, he overlooked the fact that the assessment should be based on the sum presently due for payment, i.e. the contract sum less the retention, rather than the gross contract sum. That was an error made when the adjudicator was acting within his jurisdiction. The award was therefore enforceable. The fact that enforcement of the award, which was provisional in nature, might lead to a situation where an eventual adjustment in favour of Bouygues would be irrecoverable because of Dahl-Jensen's insolvency, was inherent in the nature of the adjudication procedure under the 1996 Act, as the judge indicated.
2. At the date of the application for summary judgment Dahl-Jensen was in liquidation and r. 4.90 of the Insolvency Rules 1986 applied. That required an account to be taken of the liabilities between the parties and the sums due from one to be set off against those due from the other. It was an incident of the rule that claims and cross-claims merged and were extinguished, so that, as between the insolvent and the other party, there was only a single claim, represented by the balance of the account between them. In circumstances such as the present, where there were latent claims and cross-claims between parties, one of which was in liquidation, there was a compelling reason to refuse summary judgment on a claim arising out of an adjudication which was, necessarily, provisional. All claims and cross-claims should be resolved in the liquidation, in which full account could be taken and a balance struck under r. 4.90. However since the point was not taken below or in the notice of appeal and the Court of Appeal would grant a stay of execution of the judgment, the order made by the judge in the exercise of his discretion would not be set aside. (Stein v BlakeELR[1996] 1 AC 243; [1995] BCC 543applied.)
Peter Gibson LJ: 1. I will ask Buxton LJ to give the first judgment.
Buxton LJ: 2. This appeal from Dyson J arises out of a reference to adjudication of differences arising during a construction contract, under the procedure envisaged by s. 108 of the Housing Grants, Construction and Regeneration Act 1996. That provides that the parties may at any time refer disputes to adjudication and, by s. 108(3), the decision of the adjudicator shall be binding until the dispute is finally determined by legal proceedings or arbitration. The purpose of this procedure is to enable a quick and interim, but enforceable, award to be made in advance of the final resolution of what are likely to be complex and expensive...
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