THERMAL ENERGY CONSTRUCTION LTD VA E & EL ENTJES UK LTD

							     THERMAL ENERGY CONSTRUCTION LTD V AE & E LENTJES UK LTD
                 Technology and Construction Court
                  His Honour Judge Stephen Davies
                          30 January 2009


THE FULL TEXT OF JUDGE DAVIES' JUDGMENT

1. This is an application by the Claimant, Thermal Energy Construction Limited, to
enforce against the Defendant, AE & E Lentjes UK Limited, a decision of an
Adjudicator, Mr. Bruce Griffin, made 16 December 2008, in which he decided that the
Defendant should pay the Claimant the sum of £904,567.60, together with VAT as
appropriate, on or before 23 December 2008. The Defendant not having complied
with that decision, the Claimant issued proceedings in the Manchester Technology
and Construction Court to enforce that decision, and made an application for
summary judgment which has come on for hearing today under an order providing for
expedition in accordance with the normal procedure in the TCC in relation to
adjudication enforcement claims.

2. The application is opposed by the Defendant. In summary the Defendant's case is
that the Adjudicator failed to give reasons in respect of an issue which was a
necessary element of his decision on the underlying dispute, in consequence of
which the Defendant has suffered substantial prejudice such that the decision should
not be enforced by the Court.

3. The claim arises out of a contract under which the Claimant was sub-contractor to
the Defendant in relation to a project at the Fiddlers Ferry Power Station near
Warrington, Cheshire. The Defendant, who was contracted to fit three flue gas
desulphurisation plants for the benefit of its client, Scottish and Southern Energy, at
that power station, sub-contracted the mechanical erection services element of that
work to the Claimant.

4. It is common ground before me, and it was common ground in the adjudication,
that there was a sub-contract between the parties and that the sub-contract included
a provision for adjudication in accordance with the TeCSA Adjudication Rules 2002
version 2.0 Procedural Rules for Adjudication. There was a dispute before the
Adjudicator as to whether that sub-contract was contained in various documents the
last one being a contract amendment in April 2007, or whether it was contained in
some further revisions concluded in October 2007; the Adjudicator decided in favour
of the latter contention, and that is not the subject of any challenge for the purposes
of this enforcement action.

5. The Notice of Adjudication was submitted on 17 October 2008, and the letter
enclosing the Notice succinctly identified the dispute as being the Defendant's failure
properly to value and certify payment for certain elements of the mechanical erection
services works carried out in accordance with the terms and conditions of the
contract. The Notice itself under Paragraph 6 identified four specific elements of
claim: preliminary management claims, direct labour claims, repayment of risk claim
and an interest claim, and specifically restricted the Adjudicator's jurisdiction to those
particular claims. It also, by Paragraph 11, requested the Adjudicator to provide
reasons for his decision. It is common ground that by virtue of Paragraph 31 of the
TeCSA Rules, the Adjudicator was obliged to provide written reasons for any
decision if any or all of the parties make a request for written reasons within seven
days of the date of the referral of the dispute. It is common ground therefore that the
Adjudicator was required to provide reasons for his decision.
6. On 20 October 2008, Mr. Griffin was appointed by the appropriate nominating
body, and on the next day he notified the parties that he had accepted that
appointment. Mr. Griffin is I am told a qualified engineer, and also a qualified solicitor
and a partner in a firm of solicitors.

7. I need say nothing about the Referral Notice, but in the Response, following a
lengthy section dealing with the claims made by the Claimant, there was a separate
section beginning at Paragraph 3.1.3 headed "Amounts owed to the Defendant due
to breaches of contract by the Claimant". What was said, in summary, was that the
Defendant had a defence by way of counter-claim operating by way of set-off in
relation to its liability to its client for liquidated damages under the main contract, as a
result, it was said, of the Claimant's failure to achieve completion of certain tie-in
dates provided for by the contract programme agreed between the parties as part of
the contractual arrangements. What was said was that the total liability of the
Defendant for liquidated damages amounted to £3.75 million, and that sum was
asserted by way of defence of set-off and also by way of counter-claim.

8. In its Reply, the Claimant took issue with that part of the response on two grounds,
firstly asserting that the Adjudicator had no jurisdiction to consider the defence, and
secondly asserting that in any event the claim itself was barred by Clause 9 of the
overriding conditions of the contract, which in summary provided that:

       "The parties agree that liquidated or unliquidated damages shall not be
       applicable to the contract in the event of delays to completion of the works,
       irrespective of the causes of such delays, and accordingly the purchaser shall
       not hold the contractor liable for late completion and/or any consequential
       costs arising therefrom".

9. There was a response to that by the Defendant. In addition to taking issue with the
jurisdictional point, the Defendant's response to the reliance upon Clause 9 was to
assert that as a matter of construction of the contract, whilst that provision might
apply to a claim based on a delay in overall completion, it did not apply to a claim
based on a delay in achieving the individual tie-in dates. There were further
exchanges between the parties in which the respective contentions were re-stated
and amplified and in due course the Adjudicator, as I have already indicated, gave
his decision on 16 December 2008.

10. The decision is a document running to 23 pages. It began by identifying the
structure of the decision in a Contents page, and there were then eight separate
sections, the first being titled "Introduction", the second "The nature of the dispute",
the third "The issues to be decided", the fourth "The remedy sought", the fifth "The
Adjudicator's decision, including reasons", the sixth "Decision on the remedies
sought", the seventh "Adjudicator's fees and expenses" and finally the eighth
"Adjudicator's signature". I do not need to refer to the Introduction. Section 2 ("The
nature of the dispute") referred to the individual claims made by the Claimant in
accordance with the Notice of Adjudication, but made no express reference to the
set-off and counter-claim advanced by the Defendant in its response. Section 3 ("The
issues to be decided") did not in any conventional way set out a list of issues to be
decided, but was instead more in the nature of a discursive section of the decision.
So that for example, Section 3.1 was headed "The contract", and there the
Adjudicator made a positive finding as to which of the competing versions of the
contract was the correct one, deciding that it was the October 2007 amendment.
Under Section 3.2, headed "Contract comment", he made a number of comments on
the contract. In Section 3.3, under the heading "The 3rd October 2007 contract", he
referred to five of the conditions of the overriding conditions, including Condition 9 to
which I have referred. However, it is right to observe that he made no specific
comment on that condition; he did not say in terms that that was something in
respect of which there was an issue between the parties in relation to the set-off and
counter-claim.

11. He went on to refer to a number of further contractual clauses in some detail.
Then at the end of that section at 3.4.4, headed "Jurisdiction", he referred to various
jurisdictional matters, but it is to be observed, he did not make any reference to the
jurisdictional challenge which the Claimant had made in relation to the Defendant's
set-off and counter-claim.

12. Under Section 4 entitled "The remedy sought", he effectively adopted the content
of the Notice of Adjudication and included, therefore, in his recital of "The remedy
sought" a remedy that the Adjudicator should decide the sum due and payable.

13. In Section 5, which as Mr. Furst QC for the Defendant submits, one would expect
to find the Adjudicator's decision, including reasons, as intimated in the Contents
page, the Adjudicator began by setting out in Section 5.1 what are described as
"General principles", where he made findings as to the basis under which the
Claimant was entitled to payment under the contract. In a section culminating in
Paragraph 5.1.13, he said this, which Mr. Edwards for the Claimant particularly relies
upon:

       "This decision would be taken bearing in mind that the Claimant's liability was
       capped and liquidated damages were not applicable on this contract".

14. However, as Mr. Furst submits, that itself is only explicable by reference to the
previous clause which explains to what the 'decision' referred to relates. Thus
Paragraph 5.1.12 says:

       "If the Defendant had confirmed they did not intend to pay for various costs
       that the Claimant were expending, then the Claimant would have been able to
       make a commercial decision upon whether they would incur this further
       expenditure when they were aware that they would be unable to recover that
       cost".

15. The Adjudicator then went into some detail to consider the four issues referred to
in the Notice of Adjudication, and dealt with each of them in turn. However, there was
no express section in that part of the decision which referred at all to the Defendant's
set-off or counter-claim. In Section 6, headed "Decision on the remedies sought", the
decision said this:

       "My valuation of the issues in dispute, as indicated on the attached schedule,
       is as follows ..."

Figures were given against each of the four issues, including, as Mr. Furst has
observed, "Nil" against Issue 3. There followed a section dealing with when payment
should be made. The decision itself ended by dealing with the Adjudicator's fees and
expenses, and there was attached a schedule which contained a detailed breakdown
of the sums decided to be due, with no reference to any set-off or counter-claim.

16. I must now consider the issues which arise. First of all, as I have said it is
common ground between the parties that the Adjudicator was obliged to give
reasons. The question which I must therefore first consider is whether or not in fact
the Adjudicator did give any or any intelligible reasons in relation to the set-off and
counter-claim advanced by the Defendant. What Mr. Furst has submitted is that this
is a case where the Defendant, having raised the defence of set-off and counter-
claim, was entitled to have the Adjudicator consider that question, and the
Adjudicator was indeed obliged to consider that question as being one of the matters
raised by the Defendant in its defence. He submits that by failing to do so, that failure
being evidenced by an absence of any reasons given in relation to that element of
the defence, the Adjudicator failed to comply with his obligations under the
contractual adjudication scheme.

17. The second issue which then arises, if Mr. Furst is right about the first issue, is
whether or not the Defendant, has suffered substantial prejudice as a result of the
failure to provide reasons.

18. The third issue which arises is that Mr. Edwards submits that even if the
Defendant succeeds on issues one and two, nonetheless the decision ought to be
enforced by reason of what he submits is the Defendant's failure to follow the
procedure envisaged by Rules 32 and 33 of the TeCSA Rules, which in summary
permit the parties to ask the Adjudicator to correct errors in his decision. I shall refer
to those rules in more detail in the course of this judgment.

19. So far as the first question is concerned, both parties agree that the starting point
is to be found in the decision at first instance of Mr. Justice Jackson, as he then was,
in the case of Carillion Construction Limited -v- Devenport Royal Dockyard Limited
[2005] EWHC 778 (TCC), where in paragraph 81 he stated five propositions which he
derived from the authorities, the fifth of which is relevant to this case and which reads
as follows:

       "If an Adjudicator is requested to give reasons pursuant to Paragraph 22 of
       the Scheme, in my view a brief statement of those reasons will suffice. The
       reasons should be sufficient to show that the Adjudicator has dealt with the
       issues remitted to him and what his conclusions are on those issues. It will
       only be in extreme circumstances, such as those described by Lord Justice
       Clark in Gillies Ramsey and Others -v- PJW Enterprises, that the Court will
       decline to enforce an otherwise valid Adjudicator's decision because of the
       inadequacy of the reasons given. The complainant would need to show that
       the reasons were absent or unintelligible, and that as a result he had suffered
       substantial prejudice".

20. I should record that it is clear in my judgment from paragraph 84 of the decision
of the Court of Appeal in that case that the Court of Appeal expressed itself as being
in broad agreement with the five propositions which the Judge set out at Paragraph
81 of his Judgment. It is also right to record that subsequently those propositions
have been followed by first instance decisions of the Technology and Construction
Court, including most recently a decision of Mr. Justice Coulson in the case of
Balfour Beatty Construction (Northern) Limited -v- Modus Corovest (Blackpool)
Limited [2008] EWHC 3029 (TCC). I have been taken by Mr. Furst to certain
passages in that Judgment which refer, with evident approval, to the passage from
the decision of Mr. Justice Jackson in Carillion which I have just cited and also to the
Gillies Ramsey case.

21. Mr. Furst in his written submissions submits that there is an analogy with Section
68 of the Arbitration Act 1996 in the context of the Arbitrator's duty to deal with the
matters referred to him and to give reasons. Nonetheless he accepts, in my judgment
rightly, that the analogy is not complete, because in the case of an adjudication there
is of course an expedited procedure where the Adjudicator will often have to deal
with a great number of matters within a short time-frame but where his decision has
only a temporary finality, whereas of course the decision of an Arbitrator under the
1996 Arbitration Act is usually not subject to the same exacting time pressure and
has is final, subject to restricted grounds for challenge. However nonetheless it
seems to me the fact remains that an Adjudicator is obliged to give reasons so as to
make it clear that he has decided all of the essential issues which he must decide as
being issues properly put before him by the parties, and so that the parties can
understand, in the context of the adjudication procedure, what it is that the
Adjudicator has decided and why.

22. So, for example, in this case it would be important for any reader of the decision
to know whether or not firstly the Adjudicator had purported to decide the set-off and
counter-claim, and secondly, if so, on what grounds. By way of practical illustration,
there is clearly a significant difference between a decision to the effect that the
Adjudicator did not have jurisdiction to decide the set-off and counter-claim, which in
principle would be subject to consideration by the Courts in the event of an
adjudication enforcement application such as the present, and a decision within his
jurisdiction that having considered the defence, he rejected it on the merits. In the
latter case, in accordance with established principles, a party seeking to resist
enforcement would not be entitled to challenge the correctness of that decision if
made within his jurisdiction.

23. It seems to me therefore that it is right that a recipient of a decision such as this
should be entitled to know what it is the Adjudicator has decided and why.

24. In this case then, the question which arises is whether the Adjudicator has
performed this duty? Mr. Edwards has, if I may say so, put up a spirited argument
that in the context of the Adjudicator not being required to provide a reasoned
judgment in the same way as a Court would be, it is clear from what is in there that
the Adjudicator has referred to the relevant overriding condition and has in effect
made a finding that this condition prevents the Defendant from being able to rely
upon the set-off and counter-claim.

25. However, it seems to me that in the context of this decision, which as will be
apparent from what I have already said is a lengthy and carefully-structured decision,
it is impossible for that submission to succeed in circumstances where, as Mr. Furst
has observed, there is simply no express reference at all to this point being one of
the issues which the Adjudicator recognised he had to decide, nor is it the subject of
any express reference as being an issue which he has in fact decided, nor is it even
included in the summary of items decided or the summary of the decision. It does
seem to me that the only references that Mr. Edwards can pick up or point to in the
decision as being references to this point are equally, if not more, capable, as Mr.
Furst has submitted, of being references to an entirely separate point, namely the
commercial issue as to the circumstances in which the Claimant provided the
services under the contract for which it was claiming payment.

26. It seems to me that in those circumstances, the position is that the Adjudicator
has not, evidently, dealt with this issue at all, and he has not given any reasons
which would indicate that he has dealt with this issue. That this is therefore one of
those cases, one envisages rare, where the Adjudicator has failed to comply with his
obligations.

27. That, of course, is not the end of the debate, because as Mr. Furst recognises by
reference to the authorities to which I have referred, it is necessary to show that the
Defendant has suffered substantial prejudice as a result. This requirement arises
from the fact that, as has been well-established, the Court recognises the summary
nature of the adjudication process and therefore recognises that it is not every error
or omission by an Adjudicator which should lead to a decision not being enforced;
one has to go further and show substantial prejudice before one can resist
enforcement of the decision.

28. In this case, what Mr. Furst submits is that there are two separate items of
substantial prejudice. The first is that, because of the way in which the decision is
structured, it being unclear whether or not the Adjudicator has in fact considered the
set-off and counter-claim on the merits, his lay client has lost the opportunity of
having the Adjudicator deal with that defence, and has therefore lost the prospect of
the Adjudicator deciding that point in his favour.

29. Although Mr. Edwards has submitted that the Adjudicator did deal with that point,
for the reasons I have already given, it seems to me that that is not evidently so. He
has not advanced a separate argument along the lines that the defence being run by
the Defendant before the Adjudicator was so entirely devoid of merit that there was
never any prospect of it succeeding anyway, so that the Defendant has lost nothing
of any intrinsic value. I express no opinion as to whether or not that would be the sort
of issue which ought to be canvassed by a Court in the context of an enforcement
application in any event. In my judgment the Defendant can properly say that there
has been a substantial injustice here.

30. The second point argued by Mr. Furst is that given the - at the very least -
confusion as to what it is that the Adjudicator has in fact decided in relation to the set-
off and counterclaim, there is substantial further prejudice, because if his clients were
now to seek to launch a further adjudication to seek to recover these losses, then first
of all they would have to comply with this decision and pay up in the meantime if the
Adjudicator's decision was enforced, and secondly there would be a risk at the very
least that the second Adjudicator might decline jurisdiction on the basis that the point
had already been determined by the Adjudicator in this case. It seems to me that the
first matter is certainly capable of amounting to a substantial injustice such as to
engage the applicable principle here.

31. Turning then to the third issue, Mr. Edwards submits by reference to the TeCSA
Rules that the Defendant cannot complain in this case about the deficiencies in the
Adjudicator's decision, because he failed to take up the opportunity of invoking the
procedure in Paragraph 32 of the TeCSA Rules. Paragraph 32(i) provides that:

       "The Adjudicator may, on his own initiative or on the application of a party,
       correct his decision so as to remove any clerical mistake or error arising from
       an accidental slip or omission";

Paragraph 32(ii) (2) provides that:

       "Any application for the exercise of the Adjudicator's powers under paragraph
       (i) shall be made within 5 days of the date that the decision is delivered to the
       parties, or such shorter period as the Adjudicator may specify in his decision".

32. There is a provision in paragraph 32(iii) for any correction to be made as soon as
possible, and finally Paragraph 33, which is entitled "Enforcement", reads as follows:

       "Every decision of the Adjudicator shall be implemented without delay. The
       parties shall be entitled to such reliefs and remedies as are set out in the
       decision, and shall be entitled to summary enforcement thereof, regardless of
       whether such decision is or is to be the subject of any challenge or review".

33. Paragraph 33 also deals with defences of set-off, counter-claim or abatement, to
which I do not need to refer in this case.

34. What Mr. Edwards submits is that those paragraphs should be read together, in
the same way he suggests that Sections 57 and 70 of the Arbitration Act 1996
operate so as to require a party dissatisfied with an arbitral award first to exhaust any
available recourse under Section 57 before being entitled to make an application or
appeal to the Court in relation to that award.

35. What Mr. Furst submits is that the attempted analogy does not work for two
principal reasons. First, he submits, is that if one compares paragraph 32 of the
TeCSA Rules with Section 57 of the Arbitration Act, under paragraph 32 the
Adjudicator simply does not has the same wide powers as an Arbitrator has under
Section 57. Second, he submits that in any event paragraphs 32 and 33 cannot
sensibly be construed as to be read together in the same way as Sections 57 and 70
of the 1996 Act are explicitly stated to be read together, so as to require a party in the
position of the Defendant to exercise the right conferred by paragraph 32 as a pre-
condition of having the right to resist enforcement proceedings on grounds such as
those advanced in this case.

36. Although Mr. Edwards has argued his case with determination, nonetheless I
prefer Mr. Furst's submissions. Firstly, if one compares paragraph 32 with Section
57, there is a clear and compelling difference in the words used which show, in my
judgment, that paragraph 32 is limited, as indeed it says it is, to "The removal of
clerical mistakes or errors arising from an accidental slip or omission". That could
not, in my judgment, encompass what has happened here, where the Adjudicator
has for whatever reason simply not dealt at all explicitly with a substantial element of
the defence raised by the Defendant to the claims advanced by the Claimant in the
adjudication. Secondly, it seems to me that as a matter of construction of paragraphs
32 and 33, there is no warrant for the submission that it is a pre-condition for resisting
enforcement on the grounds of a failure to deal with all matters and/or a failure to
give reasons, that the losing party must first exercise the right conferred by
paragraph 32. It would require very clear words in my judgment for the Court to come
to the conclusion that a party should lose the right that it would otherwise have to
raise legitimate jurisdictional grounds for opposing an enforcement action on the
basis that it was obliged to exercise a remedy, when nothing in paragraph 32 itself
suggests that this was an obligation imposed on it under the contract.

37. For all of these reasons I have reached the conclusion that this is one of those
relatively rare cases where the Court must decline to enforce the decision of the
Adjudicator. I should say that on the evidence before me there is no reason to
believe that the Claimant itself or its advisers is in any way to blame for what has
happened. It may well be, and this is pure speculation, that what has happened here
is that the Adjudicator was so overwhelmed by the mass of detail in terms of
documentation and submission, that in seeking to provide his decision within the
short timetable that he simply, through oversight, neglected to deal with an issue
which he ought to have dealt with.

38. However, be that as it may, it seems to me that he failed to deal with the point,
that as a result there is substantial prejudice to the Defendant, and that therefore the
decision cannot be enforced. For those reasons, it seems to me that the application
for Summary Judgment must be dismissed.