Vertase F.L.I. Ltd v Squibb Group Ltd

As with Lidl, this was an application for summary judgment to enforce the second adjudication decision. We reported on the first adjudication in the previous issue of Adjudication watch. The central questions in this case were:

  • What exactly had the adjudicator decided in the first adjudication?
  • Had the adjudicator been asked to decide the same issue again in the second adjudication?

The starting point is that once a dispute has been determined by adjudication, there cannot be another about that same dispute. Therefore, where an adjudicator has considered the same issue previously, he lacks jurisdiction and therefore his second decision is invalid. The principle encompasses the situation where a dispute in an earlier adjudication is materially different from the dispute referred in a second adjudication but the reasoning of the adjudicator in his first decision effectively establishes a proposition which impinges on the dispute in the second adjudication.

Adjudication one

To recap, Vertase employed Squibb to undertake asbestos removal and demolition work. The works completed three months late and the parties disputed responsibility for that delay. The adjudicator decided that Squibb was entitled to an EOT of six weeks and £167,501 by way of additional costs due to the six week delay. The adjudicator considered Vertase's entitlement to LADs. He decided that:

  • There was no withholding notice from Vertase in respect of any cross-claim for LADs for the unextended period;
  • Vertase had no entitlement to take LADs from any amount that the adjudicator might decide was due to be paid to Squibb; and
  • Squibb was not required to pay Vertase the sum of £180,000 (12 weeks delay at £15,000 per week LADs) or any amount in respect of LADs.

Vertase refused to pay the awarded sum of £167,501 but purported to serve a withholding notice in the sum of £276,613.67 (broadly divided into £105,000 (seven weeks) for the LADs for the unextended period of the sub-contract and approximately £171,000 for other items). Squibb applied successfully to the court to have the decision enforced.

Adjudication two

In the second adjudication, the adjudicator ordered Squibb to pay Vertase the sum of £184,813 and to pay the adjudicator's fees and expenses in the sum of £5,512.50. Squibb had paid or agreed to pay these sums less £105,000 awarded in respect of liquidated damages (and the court was given an undertaking to this effect).

Question for the court?

The court was asked by Vertase to enforce the second decision in relation to the £105,000 awarded in respect of LADs, only. Edwards-Stuart J carried out a detailed review of the first and second adjudication decisions in order to identify exactly what had been decided by the adjudicator so as to establish whether the issue relating to LADs had in effect already been decided.

The first adjudication and the sub-contract link with the main contract

The first issue for consideration was the link between the main contract and the subcontract as regards LADs. In the first adjudication Squibb had asserted that Vertase had no entitlement to LADs because no LADs had been withheld or claimed against Vertase under the main contract. The adjudicator had said that:

"Although no link exists between the sub-contract and the main contract, other than the premise that the conditions of main contract are incorporated into the sub-contract, Vertase do not have the right to claim liquidated damages under the sub-contract unless they can demonstrate an equivalent loss under the main contract."

Vertase argued that the adjudicator's statement was a continuation of Squibb's argument that Vertase had not served a withholding notice.

Squibb, in contrast, argued that the adjudicator's conclusion that Vertase was not entitled to LADs was based on two grounds - that there was no withholding notice and its failure to demonstrate any equivalent loss under the main contract.

The second issue was whether if Vertase was correct in its analysis of the first issue, the adjudicator nevertheless based his findings on both grounds.

The parties' different views on what the adjudicator actually decided on this issue had a direct impact on the second adjudication decision.

The second adjudication - "What reason, if any, would absolve Squibb from liability for liquidated damages as asserted by Vertase?"

In his first adjudication the adjudicator said that Squibb should not be liable for LADs because Vertase had not issued a valid withholding notice. He said that Squibb had no payment due under the contract from which Vertase could withhold and that no LADs had been taken from Vertase under the main contract. Vertase asserted that it had a right under the sub-contract to be paid LADs whether or not a similar loss had been suffered under the main contract. The adjudicator said that no loss had been demonstrated by Vertase but that he was sufficiently persuaded by Vertase's arguments on the legal position to change the view that he had taken in the first adjudication (i.e. that Vertase did not have a right to claim LADs under the sub-contract unless it could demonstrate an equivalent loss under the main contract). Consequently, Vertase was entitled to LADs from Squibb.

Vertase argued that the adjudicator had changed his mind about the no loss issue but that the issue did not form part of his actual decision. Alternatively, the adjudicator was simply mistaken when he said he had changed his view. The judge rejected this argument immediately.

Squibb argued that the adjudicator had changed his reasoning and that the adjudicator's original finding that there was no entitlement to LADs was not limited to the withholding notice point but was based also on the no loss point.

The decision

The judge agreed with Squibb that the adjudicator had changed his mind. In the second adjudication he had found that Vertase was not entitled to LADs because it had not demonstrated any loss under the main contract.

Was the adjudicator entitled to change his mind?

Yes - Vertase argued the two adjudications involved different disputes and so the adjudicator was entitled to reach apparently conflicting conclusions. The first conclusion was about Squibb's entitlement to an EOT and associated loss and expense. The second was about Vertase's entitlement to a sum of money for breach of contract and/or delay with LADs being merely one of a number of heads of claim.

No - Squibb argued that adjudication one decided that Vertase had no entitlement to LADs and that should have been the end of the matter. The second adjudication was also about Vertase's entitlement to LADs. There had been no change in circumstances in relation to the no loss point, in contrast to the withholding notice point where Vertase had served a compliant withholding notice before the second adjudication. In essence, Vertase had been able to persuade the adjudicator in the second adjudication to alter a conclusion that he had reached in the first adjudication and that conclusion formed part of the reasoning that led to his rejection of Vertase's claim for LADs.

Decision

The judge agreed with Squibb and dismissed Vertase's application to enforce the decision in the second adjudication insofar as it related to the £105,000. He found that:

"in Adjudication No 2 he [the adjudicator] purported to change his mind about a finding made in his first decision. Since that initial finding was final and binding on the parties until finally determined by litigation or arbitration, it was not open to the adjudicator to change it. To put it another way, since the parties are bound by his decision in Adjudication No 1 that the absence of any loss in respect of delay precluded Vertase from claiming liquidated damages, that conclusion, until finally determined by litigation or arbitration, remains one with which the parties are bound to comply. It matters not whether it is right or wrong."

In a nutshell, the adjudicator purported in the second adjudication to decide the same issue he had decided in the first (i.e. that Vertase was not entitled to claim or deduct LADs if it did not sustain any similar loss under the main contract) as well as being disentitled because of the lack of a withholding notice.

Commentary

The case law in this area is well settled. You cannot adjudicate the same issue (or substantially the same issue) twice, but it can be difficult to identify what was "decided" and that it actually formed part of the adjudicator's reasoning. Here the judge was required to establish whether the adjudicator was adopting a party's submissions or reaching his own conclusions. Although not an easy task, the judge decided it was the latter based on the adjudicator's own statement that he was "persuaded by Vertase's arguments on the legal position sufficiently to change the view that I took in my Decision in the first adjudication". It is also important to remember that even if the adjudicator got his reasoning correct second time around, it was irrelevant and it was too late. The issue was already decided and binding until resolved by litigation or arbitration or agreement.