This article summarises the judgment of Carillion Construction Limited v Devonport Royal Dockyard Limited [2005] EWHC 778 (TCC), delivered by the venerable Mr Justice Jackson, as he then was. The case concerned four challenges by Devonport Royal Dockyard Limited (DML) to the validity and enforceability of an adjudicator’s decision on grounds of jurisdiction and natural justice.

Background to the Dispute

DML was engaged by the Ministry of Defence (MoD) under a modified engineering contract with a target cost mechanism to upgrade facilities at Devonport Royal Dockyard. These works would provide facilities for refitting and refuelling Vanguard submarines. DML subcontracted a portion of these works to Carillion under an Alliance Agreement which also contained a target cost mechanism. The original price was £54,198,373.

Disputes arose between Carillion and DML, culminating in Carillion referring a dispute to adjudication on 6 January 2005. The dispute encompassed issues relating to the revised target cost, claims for breach of the Alliance Agreement, bonus payments, and defects.

A civil engineer was appointed as the adjudicator and DML challenged the adjudicator’s jurisdiction and fairness throughout the adjudication process. The adjudicator issued a decision requiring DML to pay sums to Carillion and DML subsequently brought Part 8 proceedings in the TCC seeking declarations that the adjudicator’s decision was invalid and unenforceable on grounds of lack of jurisdiction and breaches of natural justice. Mr Justice Jackson ultimately dismissed all four of DML’s challenges and concluded that the adjudicator’s decision should be enforced in full.

Challenging the Adjudicator’s Decisions

Mr Justice Jackson reiterated the fundamental purpose of the 1996 Act is to introduce a “speedy mechanism for settling disputes in construction contracts on a provisional interim basis, and requiring the decisions of adjudicators to be enforced pending final determination of disputes by arbitration, litigation or agreement” [59]. He emphasised that adjudicators’ decisions are binding and must be complied with until the dispute is finally resolved.

Further, the judgment reinforces the narrow scope for challenging an adjudicator’s decision. Errors of law, fact, or procedure by an adjudicator are generally not sufficient grounds to prevent enforcement. The primary grounds on which a court will refuse to enforce an adjudicator’s decision are: 1) If the adjudicator 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 [63]; and 2) Where there is a breach of the rules of natural justice. However, the breach must be “substantial and relevant” [67].

Jurisdiction

DML argued the adjudicator exceeded his jurisdiction by adopting Carillion’s proposed revised target cost without proper analysis of alternative calculations provided by DML. The judge rejected this, stating the adjudicator was required to determine the sum due and was entitled to prefer one party’s calculation over another based on the submissions made. He noted that “any such errors of law and fact cannot be characterised as excess of jurisdiction.” [87]

Further, DML argued the adjudicator had no jurisdiction to award interest as the contract did not expressly provide for it. Mr Justice Jackson disagreed, interpreting paragraph 20(c) of the Scheme as creating a “freestanding right to award interest“, even in the absence of an express contractual term. He reasoned this was a “more natural meaning” of the Scheme and made “obvious commercial sense“. [123]

Natural Justice

DML argued breaches of natural justice based on three “disregards” by the adjudicator: (i) not considering the impact of DML’s negotiations with MoD; (ii) not considering DML’s alternative target cost calculation; and (iii) not addressing five specific defence arguments. The Judge dismissed these, finding: (i) the adjudicator’s decision not to consider the MoD negotiations was a decision on the relevance of evidence, which is within his remit; (ii) the adjudicator considered the alternative calculation but rejected its contractual basis; and (iii) the adjudicator was not obliged to specifically address every single argument made, especially given the volume of submissions.

Further, DML argued the adjudicator’s allowance for defects was reached in breach of natural justice. It contended the adjudicator focused on DML’s initial defects claim and unfairly applied a 20% reduction without consultation. The judge rejected this and stated the deductions were considered, did not warrant consultation and were with adequate reasoning.

Reasons for Adjudicator’s Decisions

The court elaborated on this point and the requirements in statutory adjudication. While adjudicators are often not required to give reasons, if requested under paragraph 22 of the Scheme, the court stated that a brief statement of those reasons will suffice [81(5)]. Only in extreme circumstances where reasons are absent or unintelligible and the complainant has suffered substantial prejudice will the court decline to enforce a decision (Gillies Ramsay Diamond & Others v PJW Enterprises Limited [2004] BLR 131).

Conclusion

The judgment strongly reaffirms the principles established in previous case law regarding the enforceability of adjudicator’s decisions under the Act and the Scheme. It underscores the limited grounds for challenging these decisions, emphasizing that errors of law, fact, or procedure, unless amounting to a clear excess of jurisdiction or a serious breach of natural justice, will not prevent enforcement. The case serves as a reminder of the ‘pay now, argue later’ policy underpinning construction adjudication in the UK.