Herbosh-Kiere Marine Contractors Ltd v Dover Harbour Board [2012] EWHC 84 (TCC)

Enforcement of adjudicator’s decision –basis of decision –whether within the terms of the dispute referred –whether amounting to a breach of the rules of natural justice –whether a mere error of fact or law.

The Issue: whether the adjudicator significantly exceeded his jurisdiction or failed to follow the rules of natural justice by adopting a method of assessing the financial compensation due for delay which had been put forward by neither party before or during the adjudication.

The Facts: The Claimant, a company of specialist marine contractors, entered into a contract with the Defendant harbour authority in the standard form of International Wreck Removal and Marine Services Agreement “Wreckstage 99”. The contract was for the provision equipment, including barges, personnel and supervision, in order to remove the remains of a former cargo ship deliberately sunk by the Admiralty close to the entrance to Dover Harbour during World War I, as well as debris from another vessel deliberately sunk alongside it during World War II. The contract provided for (i) the contractor to receive additional time and compensation from the harbour authority in the event of delay in the performance of its obligations for certain reasons outside its control or as specified; (ii) what was referred to as a pain/gain share of time related costs to penalise or reward the contractor if it finished early or was culpably late; (iii) a breakdown of the lump sum price by reference to three resources, the number of days for which they would be required and their daily rates.

It was not disputed that there was some delay caused by weather or sea conditions and by the finding of asbestos within the wreck, although the extent of the delay was in issue. A dispute arose on the final account and the contractor put forward its final version of the account in a letter addressing the delay attributable to each of a number of causes and highlighting month by month why additional extensions were required. The calculations for money claimed for the various delay or disruption variations were done on a resource by resource basis, as was the pain/gain assessment. The harbour authority’s letter and further valuation in response was also addressed on a resource by resource basis.

The contractor served a referral notice identifying the dispute as the one contained in the exchange of letters between the parties. The harbour authority’s response calculated the amount due in relation to the delay or disruption in effect on exactly the same basis as the contractor had put forward, expressly comparing what had been claimed by way of delay against each individual resource. The adjudicator decided that there was a certain amount of ‘pain’ to be deducted but allowed the contractor an additional 73 days’ time. However, he calculated the ‘resource rate’ to be applied as a composite average rate of the three resource rates in the contract. The decision was not honoured by the harbour authority and the contractor issued enforcement proceedings

Held: (Akenhead J) (1) The dispute did not encompass any assertion by either side that the appropriate method of assessment was simply a determination of the overall delay multiplied by a composite rate comprising or relating to the three resource rates; both parties adopted the individual resource rates and applied them to the resources but only to the extent that the resources were actually delayed by the events relied upon. Similarly the pain/gain assessment was calculated by reference to the individual resource rates rather than a composite rate. (2) It was not an over-analytical approach to establish that the scope of the dispute was defined by reference to the specific letters relied upon by both parties as defining the dispute. It was not a case in which what was being referred was some very general amorphous final account dispute but a specific final account claim, calculated on a certain basis in relation to delay related matters to which there was no dispute broadly about the method of assessment. (3) The case could equally be considered as one involving a basic breach of the rules of natural justice. Both parties were proceeding on the basis of the individual contract resource rates being applied to the delay attributable to each resource as a result of the events relied upon. Neither party had either suggested or even hinted at the need or desirability for the application of a composite overall rate to the total delay. The way in which the adjudicator decided of his own initiative to assess the quantum relating to delay and to pain/gain assessment did, arithmetically, make a very real difference. (4) Although it could be said that the adjudicator had arguably gone wrong in fact or law in assessing the contractor’s financial entitlement as he did, it was not that which was the subject of legitimate criticism. What he could be criticised for was deciding something not only on a basis which was not argued but also without giving either party the opportunity to address the point. In essence the adjudicator had gone off on a frolic of his own in using a method of assessment which neither party had argued and which he had not put to the parties. That breach of the rules of natural justice was material as it had or appeared to have lead to a very substantial financial difference.

The Court declined to enforce the adjudicator’s decision.

Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 522 referred to; Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2006] BLR 15 followed; Cantillon Ltd v Urvasco Ltd [2008] BLR 250 applied.

Comment: This case illustrates the sort of decision made by an adjudicator that exceeds one of mere error of fact or law and amounts to a breach of natural justice such that it will not be enforced. It also highlights the importance of framing the dispute referred in appropriate terms, whether narrowly or widely, so as to enable or limit the range of the adjudicator’s decision-making. As an adjudicator, it also shows the importance of being aware of the ambit of the dispute that has been referred to you and giving the parties an opportunity to address argument to you as to the basis of any decision you may make that is not explicitly within the parameters of the debate they put before you.

Case Report by Alexander Goold