Carillion Construction Ltd v Devonport Royal Dockyard Ltd

An adjudicator’s decision is provisionally binding and enforceable despite errors of fact, law or procedure. Enforcement may be refused for excess of jurisdiction or a serious breach of natural justice. Courts should examine technical objections sceptically and intervene only in clear cases. Excluding evidence regarded as irrelevant on the adjudicator’s analysis does not itself invalidate the decision, even if that analysis is erroneous. Brief reasons identifying the issues and conclusions ordinarily suffice. An adjudicator need not routinely invite comment on provisional conclusions or assessments of expert evidence.

Paragraph 20(c) of the statutory Scheme confers no freestanding power to award interest. Interest questions must fall within the properly referred dispute, the parties’ agreement on scope, or matters necessarily connected with the dispute. Agreement to include interest may be established by acquiescence in its referral.

Devonport Royal Dockyard Ltd engaged Carillion Construction Ltd as subcontractor to upgrade a dock. Their Alliance Agreement provided for payment of actual costs, gainshare or painshare against a target cost, and a fee. Amendments increased the target cost subject to a contemplated review following negotiations between Devonport and the Ministry of Defence. The parties subsequently failed to agree the final amount payable.

Carillion referred the payment dispute to statutory adjudication. The adjudicator awarded further payment, a completion bonus and interest, subject to a deduction for defects. Devonport challenged his jurisdiction, treatment of evidence, procedural fairness, reasons and power to award interest.

Jackson J dismissed Devonport’s challenge and granted Carillion summary judgment for £12,376,454.54, including interest and VAT: [2005] EWHC 778 (TCC). Devonport sought permission to appeal. The central questions were whether its objections disclosed jurisdictional error or serious procedural unfairness, and whether the adjudicator had jurisdiction to award interest.

Permission to appeal was refused on every issue except the power to award interest. Permission was granted on that issue, but the appeal was dismissed.

1. The statutory adjudication scheme provides a speedy, provisional solution to construction disputes. Its decisions remain binding pending final resolution by litigation, arbitration or agreement. Errors of fact, law or procedure ordinarily do not prevent enforcement. Excess of jurisdiction and serious breaches of natural justice remain grounds for refusal, but courts should scrutinise technical objections sceptically and intervene only in clear cases. The statutory policy prioritises a prompt answer and contractors’ cash flow over definitive resolution of complex questions.

2. The notice of adjudication identifies the dispute. Here, whether target cost could be determined after the contractual machinery failed, and what that cost should be, were central questions within the referred payment dispute. The adjudicator therefore acted within his jurisdiction in deciding them. Carillion had maintained its original claim, and Devonport had an opportunity to address the methodology adopted. The court expressed no view on whether the adjudicator’s contractual analysis was legally correct.

3. An adjudicator may exclude evidence which is irrelevant on his own factual or legal analysis. An error in that analysis does not convert the exclusion into a breach of natural justice or paragraph 17 of the Scheme. Nor must he explain the rejection of submissions rendered irrelevant by his approach. This principle was endorsed. To the extent that Buxton Building Contractors Limited v Governors of Durand Primary School, [2004] 1 BLR 474, was inconsistent with it, Jackson J was right not to follow that decision.

4. The adjudicator had considered Devonport’s expanded defects claim. His assessment of the evidence and application of a 20 per cent reduction did not require further consultation with the parties. Only exceptionally would failure to put provisional conclusions to the parties constitute a serious breach of natural justice. Where reasons are requested, a brief explanation of the issues and conclusions suffices. Refusal of enforcement for inadequate reasons requires extreme circumstances involving absent or unintelligible reasons and substantial prejudice. Planning authorities on reasons have limited relevance to this provisional process.

5. Paragraph 20(c) of the Scheme confers no freestanding power to award interest. The words introducing its subparagraphs particularise the preceding powers. Interest questions must therefore be properly referred matters in dispute, matters agreed to fall within the adjudication, or matters the adjudicator considers necessarily connected with the dispute.

   Carillion expressly referred interest. Devonport responded only that no principal sum was due and therefore interest did not arise. In the context of its extensive submissions, its acquiescence established agreement that interest lay within the adjudication. That agreement conferred jurisdiction to award interest. The award and summary judgment consequently stood, although the judge’s construction of paragraph 20(c) was rejected.

• Court of Appeal (Civil Division): [2005] EWCA Civ 1358 . Lloyd LJ adjourned the permission application to an oral hearing before the full court, with the appeal to follow if permission was granted. The court refused permission on all issues except interest. It granted permission on interest and dismissed the appeal, preserving the order below for different reasons on that issue.
• High Court, Queen’s Bench Division, Technology and Construction Court: Jackson J, [2005] EWHC 778 (TCC) , delivered judgment on 26 April 2005. By an order dated 28 April 2005, he dismissed Devonport’s proceedings challenging the adjudicator’s decision and granted Carillion summary judgment for £12,376,454.54, including interest and VAT. He refused permission to appeal.