BuildLaw, Issue 18 Editorial Part 4

Lost in Space: Consequential Loss and Loss of Profit

 
Construction and engineering contracts often contain provisions excluding or limiting liability for “consequential loss”, including “loss of profit”. 
 
Is all loss of profit a consequential loss?  In this article Fritha Wheeler-Ozanne of CMS Cameron McKenna’s London office discusses the recent TCC case ADS Aerospace Limited v EMS Global Tracking Limited [2012] EWHC 1012 (Ch) which sheds light on this important issue.
 

Severability of Adjudicator’s Decisions – Different Jurisdictions Different Results

 
In Lidl UK GmbH v R G Carter Colchester Ltd [2012] EWHC 3138 (TCC) (its third judgment on severability in 2012 following Working Environments Ltd v Greencoat Construction [2012] EWHC 1039 and Beck v UK Flooring [2012] EWHC 1808 (TCC)) the English High Court ruled that an adjudicator’s decision can be enforced in part only, severing the part reached without jurisdiction. 
 
Lidl was the employer under a building contract to construct a food store and 12 housing units in Chessington. R G Carter Colchester Limited (RGC) was the contractor.
 
Lidl was the successful party in an adjudication and sought to enforce the determination. RGC claimed that the adjudicator had exceeded his jurisdiction which approach amounted to a breach of natural justice that was material to the decision with the result that it was unenforceable. Lidl accepted that the adjudicator had decided one question that was not referred to him but submitted that this part of the decision could be severed from the remainder of the decision. RGC submitted that there was only one dispute put to the adjudicator and his decision was therefore not severable. 
 
The Court first had to determine what was referred to the adjudicator.  The reference had sought a determination in relation to “pro rata liquidated damages…as claimed in the [Employer's] letter…or otherwise/at all”.  The Court took the view that this widened the issue from simply being one of entitlement to one of both entitlement and amount.  The adjudicator could therefore determine both issues. 
 
The adjudicator awarded Lidl liquidated damages at the full contractual rate for the period up to when it had issued “partial completion” certificates and at a reduced rate for the subsequent period. It was common ground that the adjudicator did not have jurisdiction to award liquidated damages at the full contractual rate. Lidl sought to have the adjudicator’s award of liquidated damages at the reduced rate enforced.
 
The court held that the adjudicator had exceeded his jurisdiction. It went on to consider Cantillon Ltd v Urvasco Ltd (2008) 117 Con LR 1 in which case it was held that if more than one dispute is referred to an adjudicator, a successful jurisdictional challenge to one part did not undermine the enforceability of the other. Previously, if an adjudicator was in breach of the rules of natural justice or exceeded his jurisdiction, his decision would be unenforceable in its entirety.
 
The court found that only one question was referred to the adjudicator but it was still possible to sever the “additional questions” provided they “did not form an integral part of the decision as a whole”. Edwards-Stuart J held that the adjudicator’s award of liquidated damages at the full contractual rate which he had no jurisdiction to make should be severed from his award of such damages at a reduced rate for a different period which he did have jurisdiction to make. He concluded on the facts, that the reasoning which underpinned the award of liquidated damages at the full contractual rate had no bearing on the issues properly before the adjudicator.
 
In reaching his decision, Edwards-Stuart J made some general observations on the general principle that a decision cannot be severed where only one dispute or difference has been referred. He stated that the rationale underlying this principle is that where a single dispute or difference has been referred, it will generally be difficult to show that the reasoning in relation to the part of the decision being sought to sever had no impact on the reasoning leading to the decision actually reached or that the actual outcome would still have been the same. If this cannot be shown, the part cannot safely be severed from the whole.
 
However, where additional questions are brought in and adjudicated upon, whether by oversight or error, there should be no reason in principle why any decision on those additional questions should not be severed provided that the reasoning giving rise to it does not form an integral part of the decision as a whole. If this cannot be shown, the entire decision will be unenforceable.
 
In Working Environments two issues which were outside the adjudicator's jurisdiction were severed. These two items were not part of, or within the confines of, the dispute as it had crystallised as they had not been mentioned before they emerged 22 days into the adjudication process.
 
In Beck, Beck's claim consisted of two parts but only one part had crystallised. The judge was able to sever the decision with there being separate arguments, separate evidence and an identifiable award for each part.
 
In Lidl, unlike the two cases cited above, the issue was not concerned with crystallisation of disputes but the fact that the adjudicator acted in excess of his jurisdiction by considering an issue which had not been referred to him and he therefore exceeded hi jurisdiction in that way.
 
This case shows the gradual widening of the severability principle within adjudication in the UK.
 
By contrast, in the article ‘Adjudicator’s partial mistake voids entire BCIPA adjudication decision’, Rocco Russo from Cooper Grace Ward’s Brisbane office discusses the recent Supreme Court of Queensland decision in Thiess Pty Ltd v Warren Brothers Earthmoving Pty Ltd & Ors [2012] QSC 373 in which Her Honour Justice Ann Lyons declared the entire adjudication decision to be void.
 
Justice Lyons rejected Warren Brothers' contention that the adjudicator had made a simple error that could be corrected under either section 28 of the Building and Construction Industry Payments Act 2004 (Qld) (the BCIPA) (correction of a clerical mistake) or under the 'slip rule' in Rule 388 of the Supreme Court Rules 1999 (Qld).
 
The court held that the error was not in the nature of an accidental slip but rather required the adjudicator to accept a complete change in reasoning. Justice Lyons accepted that the adjudicator had failed to consider the complete submissions of either party in relation to the item in issue 'in deciding the adjudication application', as required by section 26(2) of the BCIPA. This jurisdictional failure, together with the extent of the failure, the nature, gravity and effect of the error made by the adjudicator grounded Justice Lyon's decision to find that the adjudication decision was void. In the course of the decision, Justice Lyons noted that there was no mechanism available to sever that part of the decision that was infected with jurisdictional error and suggested this aspect of the BCIPA is ripe for legislative reform.
 
Editorial Part 5 - Click here to continue reading

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under section 65 of the Construction Contracts Act 2002