Carillion Utility Services Ltd v Sp Power Systems Ltd

JurisdictionScotland
JudgeLord Hodge
Neutral Citation[2011] CSOH 139,[2010] CSOH 139,[2011] CSOH 138
Docket NumberCA165/10
Date18 August 2011
Published date18 August 2011
CourtCourt of Session (Outer House)

OUTER HOUSE, COURT OF SESSION

[2011] CSOH 139

CA165/10

OPINION OF LORD HODGE

in the cause

CARILLION UTILITY SERVICES LIMITED

Pursuer;

against

SP POWER SYSTEMS LIMITED

Defender:

________________

Pursuer: Howie, Q.C.; MacRoberts LLP

Defender: Reid, Q.C.; Richardson; Shepherd & Wedderburn LLP

18 August 2011

[1] This is the second of two actions between the pursuer ("Carillion") and the defender ("SP") arising out of contracts made under a framework agreement which the parties entered into in June 2003. Under those contracts Carillion carried out the excavation, backfilling and reinstatement of works and installed electricity and ancillary cables for SP.

[2] In my opinion of today's date in the other action (CA 1/11) I describe (a) the framework agreement and (b) the wider dispute between the parties in relation to Carillion's claim for payments for provision of lamping and guarding of cable excavations during periods when it was waiting for SP personnel to carry out and complete cable jointing operations. For the sake of brevity I refer to my findings in that opinion so far as relevant.

[3] The framework agreement and the contracts created by work orders made thereunder were construction contracts within the meaning of Part II of the Housing Grants, Construction and Regeneration Act 1996. Part I of the Scheme for Construction Contracts (Scotland) Regulations 1998 ("the 1998 Regulations") applies.

[4] Carillion referred the dispute to adjudication and Dr Robert Hunter was appointed Adjudicator on 20 October 2010. He issued a decision to the parties on 10 December 2010. He decided that Carillion was entitled to payment of £2,767,931.96 together with VAT thereon and that it was also entitled to interest on those sums from 10 September 2010 until payment. He also found SP liable in 60% of his fees and expenses. SP did not pay and Carillion, which was jointly and severally liable therefor, paid Dr Hunter.

[5] Carillion seeks in this action to enforce Dr Hunter's decision and to recoup the expenses due by SP which it has paid. SP challenges the legality of Dr Hunter's decision and thus the relevancy of the action. I heard the challenge in a debate which followed a debate in the principal action (CA1/11) in which Carillion pursues its claim under the contract.

SP's challenge

[6] SP asserts that Dr Hunter failed to comply with the rules of natural justice in the method which he adopted to quantify Carillion's claim. In short, he did not adopt the method of quantification which Carillion had put forward and which SP had criticised but used his own experience of what would constitute reasonable commercial rates for the additional equipment employed at the time the contract was formed. He made an assumption about the additional equipment which Carillion used for excavations which were greater than the sizes specified in the framework agreement and applied the rates which he selected to those excavations. He did not give the parties an opportunity to consider and comment on his proposed methodology and the material on which it was based. In so doing he acted in breach of natural justice in a material respect.

The parties' positions before the Adjudicator

[7] The parties accepted in their pleadings that the adjudicator accurately summarised their written submissions in his decision. The positions which they adopted may be stated as follows.

[8] Carillion in its referral notice sought payment of its claim of £4,829,718.10 "or such other sum as the adjudicator may decide" together with orders for the payment of interest and for costs. Its methodology for the calculation of its claim (which the adjudicator helpfully summarised in his decision) was as follows:

(i) it calculated the number of days of lamping and guarding required for each incident ("A");

(ii) it then calculated the perimeter of the excavation, compared it with the perimeter of a standard excavation in the contract and thereby obtained the appropriate multiplier ("B");

(iii) it identified the relevant Item 26 rate from the contract depending on when the lamping and guarding was supplied ("C"); and

(iv) it multiplied A x B x C.

[9] SP's primary position before the adjudicator, which was also its position in the principal action, was that, on a proper construction of the framework agreement, it was not due to pay Carillion any sums under the contract. It pointed out that Carillion's claim was based on over 35,000 work orders spanning four years which made the dispute unsuitable for a speedy determination by adjudication. SP asserted that Carillion had not substantiated its claim by producing a paper spreadsheet which SP, by a verification test, had shown to be materially overstated. The spreadsheet could not be relied upon. SP's fallback position was that (a) the use of a multiplier based on the perimeter of the joint bay was unjustified as Item 26 provided a flat rate per joint bay per day, (b) the multiplier artificially inflated the sum claimed as it included not only the equipment but also the attendance at site and labour costs which would not have increased as a result of the larger size of the excavation, (c) there was no contractual basis for applying Item 26 to excavations other than joint bays and thus to the lamping and guarding of the track (or trench) between joint bays . At most Carillion was entitled to a payment at the Item 26 rate per joint bay per day.

What the Adjudicator did

[10] In section 6.2.3 of his decision the adjudicator decided that the contract stated a standard excavation size and that additional resources were needed to lamp and guard an excavation which was bigger than the standard size of excavation. He recognised however that some resources were constant or warranted little increase. Thus he concluded:

"that additional payment is due but the adoption of a multiplier which is simply the application of a number derived by dividing the actual plan perimeter of the excavated area by the theoretical plan perimeter of the standard excavation as stated in the Contract is not appropriate.

I have decided therefore to evaluate the applicable charge for excavations that are larger than that specified in the Contract on the basis of my experience of what would constitute reasonable commercial rates for the additional equipment employed at the time the contract was formed i.e. June 2003."

He decided to take, as an average, two barriers and two cones as the additional equipment for larger excavations, whatever their size, and applied a rate of £1.48 per joint bay/day as adequate recompense for that extra equipment. He also allowed for inflationary increases in line with the increases of the Item 26 rate which the Extension Agreement allowed.

[11] Thus the adjudicator took the Item 26 rate and added his average rate for larger excavations as he demonstrated in table 5 of his decision:

Period of Application of Item 26 Rate

Item 26 Rate

(per joint bay/day)

Equivalent Additional Lamping and Guarding Rate (per joint bay/day)

1 January 2005 to 9 July 2006

£8.03

£1.48

10 July 2006 to 31 May 2007

£10.92

£2.01

1 June 2007 to 31 December 2008

£11.36

£2.09

Table 5. Inflationary revisions to the additional rate of £1.48 per joint bay/day

SP's submission

[11] Mr Reid QC for SP submitted, first, that an adjudicator would be in breach of the rules of natural justice and his decision would be unenforceable if he relied on material from whatever source, including his own knowledge and experience, without having given the parties a proper opportunity to comment on that material. Secondly and likewise, he would be in breach of the rules of natural justice if he adopted an approach or methodology which had not been canvassed before him without having given the parties an opportunity to comment on that approach or methodology.

[12] Dr Hunter had, without giving the parties an opportunity to comment, (a) made assumptions about the average numbers and sizes of barriers and (b) applied commercial rates from his own knowledge or an undisclosed source to arrive at the sum which he decided was payable. In so doing he decided the case on undisclosed factual material and on a basis which neither party had advanced.

[13] In support of his submissions Mr Reid referred to Balfour Beatty Construction Ltd v London Borough of Lambeth [2002] BLR 288, RSL (South West) Ltd v Stansell Ltd [2003] EWHC 1390 (TCC), Costain Ltd v Strathclyde Builders Ltd 2004 SLT 102, Primus Build Ltd v Pompey Centre ltd and Others [2009] BLR 437, and Paton, Petitioners [2010] CSOH 40.

Carillion's response

[14] Mr Howie QC for Carillion submitted, first, that the adjudication procedure did not involve the final determination of anybody's rights and, secondly, that it required a serious breach of the rules of natural justice or actions in excess of jurisdiction before a court would refuse to enforce an adjudicator's decision. He stressed the tight timescale in which an adjudicator had to reach his decision and referred to the repeated statements by courts that they would rarely intervene with such decisions which were only interim solutions of a dispute.

[15] He referred to Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93, Carillion Construction Ltd v Devonport Dockyard Ltd [2006] BLR 15, Balfour Beatty (above), Multiplex Constructions (UK) Ltd v West India Quay Development Company (Eastern) Ltd [2006] EWHC 1569, Primus Build (above), Try Construction Ltd v Eton Town House Group Ltd [2003] BLR 286, Cantillion Ltd v Urvasco Ltd [2008] BLR 250, Barr Ltd v Klin Investment UK Ltd [2009] CSOH 104 and Atholl Developments (Slackbuie) Ltd [2010] CSOH 94.

Discussion

(i) What the rules of natural justice require

[16] The parties agreed that the rules of natural justice applied to an adjudication. There was little difference in their presentation of the relevant rules. Their differences lay in their characterisation of...

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