Carillion Utility Services Ltd v SP Power Systems Ltd [2011] CSOH 139

This dispute arose out of contracts made under a framework agreement whereby Carillion carried out certain excavation, installation and reinstatement works for SP. Carillion were awarded £2.7million by an adjudicator in respect of claims for payment for the provision of lamping and guarding of cable excavations during periods when it was waiting for SP personnel to carry out and complete cable jointing operations.

SP said that the adjudicator had failed to comply with the rules of natural justice in the method which he adopted to quantify Carillion’s claim. In short, he did not adopt the method of quantifi cation which Carillion had put forward and which SP had criticised but used his own experience of what would constitute reasonable commercial rates for the additional equipment used at the time the contract was formed.  

Further, he did not give the parties an opportunity to consider and comment on his proposed methodology and the material on which it was based. In so doing he acted in breach of natural justice in a material respect. The adjudicator concluded that:  

“that additional payment is due but the adoption of a multiplier which is simply the application of a number derived by dividing the actual plan perimeter of the excavated area by the theoretical plan perimeter of the standard excavation as stated in the Contract is not appropriate....I have decided therefore to evaluate the applicable charge for excavations that are larger than that specifi ed in the Contract on the basis of my experience of what would constitute reasonable commercial rates for the additional equipment employed at the time the contract was formed...”

SP further said that this meant that the adjudicator had decided the case on undisclosed factual material and on a basis which neither party had advanced. Lord Hodge referred to the comments of Lord Drummond Young in the case of Costain Ltd v Strathclyde Builders Ltd who listed 9 principles of natural justice including at number 6:

“6. An adjudicator is normally given power to use his own knowledge and experience in deciding the question in dispute... If the adjudicator merely applies his own knowledge in assessing the contentions, factual and legal, made by the parties, I do not think that there is any requirement to obtain further comment. If, however, the adjudicator uses his own knowledge and experience in such a way as to advance and apply propositions of law or fact which have not been canvassed by the parties, it will normally be appropriate to make those propositions known to the parties and call for their comments.”

In the Judge’s view, an adjudicator should disclose to the parties information, which he has obtained from his own experience or from sources other than the parties’ submissions, if that information is material to the decision which he intended to make. Whether the information is of suffi cient potential importance to the decision is a question of degree which must be assessed on the facts of each case. Here, the adjudicator did not go off on a frolic of his own.  

The adjudicator’s task was to fi x a reasonable price for the lamping and guarding of the larger excavations. He had before him Carillion’s claim which he considered to be overstated but which disclosed the size of the excavations in respect of which it claimed payment. Having concluded that the perimeter multiplier overstated Carillion’s claim, he was entitled to look at the sizes for which Carillion claimed and form the view from that material that on average the equipment which was needed amounted to what he stated. In doing so, he applied his knowledge and experience to assess both Carillion’s claim and SP’s comments on that claim. Here the adjudicator derived his reasoning from the parties’ submissions rather than adopting a wholly extraneous methodology.  

However, the Judge was concerned about the way in which the adjudicator had applied the commercial rates which from his experience he saw as reasonable and about which there appears to have been no evidence. There was no doubt that this was a material part of his decision. It could not be regarded as being in any way peripheral or insignifi cant. The Judge noted that this was an addition to a daily charge and that even a minor adjustment could have a large impact. A change of some 30% would have altered the mark up which he allowed by over £100,000. Therefore parties were entitled to know of this input into the adjudicator’s reasoning and to have a chance to comment on it.  

This was a breach of natural justice as the parties were entitled to have notice of the commercial rate which he proposed and the way in which the adjudicator proposed to apply it in reaching his conclusion.