Developing adjudication

The number of decided cases that clarify and develop the process of adjudication continues to increase. In F W Cook -v- Shimizu (UK), the court had to examine the notice of adjudication and the adjudicator's decision to determine the nature of the issues put before the adjudicator and the manner in which the decision ought to be enforced.

There appears to be an increasing use of adjudication as a means of coming to a decision on the amount due in respect of a complex final account. However, it will often be tactically appropriate to limit the matters put before the adjudicator to discrete components of an account where the referring party feels confident of a decision in its favour. Care must be taken as to how these issues are expressed in the notice to adjudicate and subsequent communications, in order that the redress sought by the referring party is clearly understood and met.

In the now rather notorious case of Bouyges-v-Dahl-Jensen, a case that is to be heard on appeal in July this year, difficulties in expression of the issues being put before the adjudicator gave rise to a substantial error in the decision.

Having examined the claims and counter-claims from each party the adjudicator then considered it necessary to factor the resulting sums into the payment situation as it existed between the parties. This led to a simple but fundamental error whereby the adjudicator compared the gross amounts due with the net value of sums paid on account. The result was a release of retention in circumstances where retention was clearly not yet payable.

The adjudicator in Cook -v- Shimizu was clearly determined not to fall into this trap. He considered that he had not been asked to give a decision as to how much the next interim payment between the parties should be. Instead the adjudicator approached his task on the basis that he had been asked to look at a number of items, elements or ingredients in the overall final account. These were set out in the notice of intention to adjudicate issued by Cook in the following terms: "Please accept this letter as notice of our intent to refer the following disputes to adjudication.

1. Reinstatement of the agreed sum for acceleration, circa £72,000.

2. Removal of negative variations for work not within the scope of our sub-contract, circa £60,000.

3. Removal of contra charges not relevant to our activity, circa £80,000.

4. Release of half retention money, circa £45,000".

The adjudicator carefully considered these issues and found Cook was entitled to be paid £73,000 plus VAT in respect of the acceleration agreement. That was issue one.



Issue two concerned the so-called negative variations. The adjudicator held that Shimizu had wrongfully deducted an amount of £61,000 plus VAT and thus Cook was entitled to recover that sum from the respondent. Similarly in respect of the third issue the adjudicator held that Shimizu had wrongfully deducted a further £55,000 plus VAT and that Cook was entitled to recover this amount from Shimizu.

The adjudicator did not total up those figures in any way, and having dealt with retention, interest and costs he concluded his decision by saying only: "I direct that all sums payable pursuant to this decision shall be paid by the respondent to the referring party within seven days of the date hereof".

A further dispute then arose between the parties as to how this decision was to be interpreted. Cook regarded that in respect of the first three items in dispute it was entitled to be paid the monies held in its favour by the adjudicator, £222,000 including VAT.

Shimizu, however, read the decision as indicating that the adjudicator had decided that some of the items that were being disputed were to be treated in a particular way in the overall final account then under negotiation between the parties.

Accordingly, Shimizu duly issued a payment notice and set out in explanatory schedules and other forms how the amount should be treated. This meant commencing with the sum for measured work, applying the amounts decided by the adjudicator in respect of the acceleration, negative variations and contra-charges and then deducting the amounts paid on account. The balance was £22,000, barely 10% of the amount that Cook considered it was entitled to.

Examining both the letter of referral and the decision itself, his Honour Judge Humphrey Lloyd QC came to the conclusion that Shimizu was right in its interpretation of the adjudicator's decision. The referring letter issued by Cook expressed the view that it wished to have decisions on certain disputed matters only, with the intention of advancing the process of agreement on the final account as a whole. The referring letter did not ask for a revision of what had been paid so far and nor, it seems, did the adjudicator have the necessary material that would have allowed him to determine any balance due from either party as a consequence of his decisions.

The adjudicator's direction that "all sums payable pursuant to this decision shall be paidÉ" was to be taken to mean payable pursuant to the subcontract. Judge Lloyd considered this would give effect to the decision in the manner in which a decision of this kind should be read.

Accordingly Judge Lloyd decided Shimizu had correctly interpreted the award and the application for enforcement of the decision as contended for by Cook was dismissed.