Lidl UK GmbH v R G Carter Colchester Ltd

The contractor (Carter) failed in its attempts to block enforcement of an adjudication decision in the employer's (Lidl) favour despite various challenges based on breaches of natural justice and excess of jurisdiction. Even though the adjudicator got his reasoning wrong and acted in excess of his jurisdiction by answering a question which was not referred to him, the court severed that part of the decision and enforced the rest. Carter also failed in its request for declaratory relief under Part 8. This is another robust decision from the Technology and Construction Court (TCC) which appears increasingly prepared to sever decisions where necessary.

Background

Lidl employed Carter to construct a food store and 12 housing units, under a design and build contract with bespoke amendments. The work was to be carried out in three sections with a completion date for sections one and two and a second completion date for section three.

On 28 June 2011, Lidl certified what was described as "Part Practical Completion" of section one. A few days later, on 6 July 2011, Lidl certified that practical completion had been achieved for section two.

Neither certificate complied with the contract. As regards the first certificate, there was no such thing as Part Practical Completion in the contract. As regards the second certificate, it appeared that it was intended to cover all the work involved in section two apart from the external works relating to another section's work. However, there was nothing in the contract which allowed Carter to complete part of a section, nor was there anything in the certificate which suggested that it was intended to be a certificate of Partial Possession.

Lidl agreed that both certificates were of no effect and "for clarity" withdrew them. It also withdrew two notices of non-completion dated 22 June 2011. Instead, it served non-completion notices in relation to sections one and two saying that it had taken partial possession of part of the works within each section on the dates mentioned in the earlier (but purportedly withdrawn) certificates.

Lidl's new position was that it was entitled to pro-rated liquidated and ascertained damages (LADs) from the dates when it alleged it had taken partial possession of sections one and two. It also alleged that neither section had been completed. Carter was at this time, it is understood, claiming an extension of time (EOT) for all three sections.

First adjudication

In June 2012 Carter referred a dispute to adjudication concerning the certification of practical completion for each section. The adjudicator concluded that practical completion had been achieved for sections one and two in March 2012. However, the adjudicator then found that Lidl's certificates of "part practical completion" issued in June and July 2011 "remained effective" even though the certificates had been withdrawn in January 2012. The adjudicator went on to give reasons which suggested that there had been partial possession of the two sections. However, in his second adjudication decision (see below) he said that Lidl had taken possession but by the Part Practical Completion route. It was all very confusing. The judge himself said that he did not really understand the adjudicator's reasoning.

The day following the first adjudication decision, in a letter dated 12 July 2012, Lidl claimed £535,650 by way of LADs from Carter, consisting of:

  • £125k up to June and July 2011 respectively for sections one and two at the full contractual rate. The contract provided for Lidl to be entitled to LADs at the contract rate or "lesser rate stated in the notice" (to be issued after the non-completion notice);
  • Pro-rated LADs (£193,050 and £151,800) from June and July 2011 until March 2012. This reflected contractual provisions providing for partial possession by the employer with a reduction in the LADs due from the contractor on a pro-rata basis;
  • £65,800 in relation to section three.

Second adjudication

The claim for LADs prompted Carter to commence a second adjudication relating to Lidl's entitlement. There was much debate as to what had been referred to adjudication and whether it comprised the full or pro-rated LADs. The Notice of Adjudication described the dispute in the following terms: "Lidl's entitlement to liquidated and ascertained damages (LADs) under the Contract."

Carter sought a declaration that Lidl was not entitled to partial LADs as claimed in Lidl's letter of 12 July 2012, or otherwise. Carter also disputed Lidl's entitlement to the full LADs of £125k. This was due to Carter's entitlement to an EOT which was the subject of a separate dispute. Consequently, the £125k LADs issue fell outside the scope of the adjudication.

In its Referral Notice, Carter described the dispute as follows: "The issue for determination in this Adjudication concerns Lidl's claim to be entitled to partial and pro-rata liquidated and ascertained damages (LADs) under the Contract" and it claimed the following relief: "A declaration that Lidl is not entitled to pro-rata LADs in respect of sections one and two of the Works as claimed in their letter of 12 July 2012, or at all." The same adjudicator was appointed.

Lidl asserted in its Response that the Referral was "confused and confusing" and that Carter needed to break down the Notice and the Referral so as to understand the precise scope of the jurisdiction of the Referral. Lidl submitted that the Referral was limited to a dispute regarding the LADs for the period after a partial possession of section one and section two had taken place. Lidl explained that it had taken partial possession of parts of sections one and two in accordance with the contract and that it was entitled to pro-rated LADs.

The adjudicator decided that Lidl was entitled to the £125k at the full contractual rate together with the sums claimed at the lesser rate in the notice.

Legal proceedings

Carter did not pay the LADs. Consequently, Lidl commenced enforcement proceedings following which it was "entitled to deduct the LADs all as set out in its letter dated 12 July 2012."

Carter:

  • Requested a Part 8 declaration in relation to one aspect of Lidl's entitlement to recover LADs for delay in completing sections of the works, namely that: "on the true construction of the Contract, LADs do not accrue following Part Practical Completion of the Works or a Section thereof."
  • Contended that the adjudicator made an error of law which the court could and should correct. In effect the Part 8 claim was a pre-emptive strike to defeat the application for summary judgment.
  • Contended that the adjudicator's decision should not be enforced because the adjudicator:
    • exceeded his jurisdiction by purporting to decide matters which were not referred to him, and
    • decided the relevant question, without giving Carter a proper opportunity to deal with his proposed approach which amounted to a breach of the rules of natural justice. Carter argued the breach was very material to the decision rendering it unenforceable.

There was a further dispute about whether or not the adjudicator was entitled to determine the amount of any pro-rated or lesser LADs (in addition to entitlement to LADs).

The decision

Edwards-Stuart J held that the adjudicator had not breached the rules of natural justice but had exceeded his jurisdiction by deciding a question which had not been put to him. However, this part of the decision could be severed and the adjudication decision was enforced.

Scope of the adjudication and severability - Carter argued that the scope of the adjudication was limited to liability for LADs whereas Lidl argued that it also included the amount of LADs due from Carter. Both parties accepted that in awarding Lidl the sum of £125k, the adjudicator had answered a question that was not put to him and had no jurisdiction to make. However, Lidl argued that this part of the decision could be severed.

The wording of the Notice of Adjudication and Referral Notice left it open to the adjudicator to determine not only the question of entitlement to pro-rata LADs but also the amount of them - the adjudicator answered the question put to him by Carter.

Carter could have simplified/narrowed the referral, by asking for a declaration that Lidl was "not entitled to pro-rata LADs in respect of LADs in respect of sections one and two" whereas the declaration they requested was "pro-rata LADs...as claimed in their letter of 12 July 2012 or otherwise/at all."

No breach of natural justice - Carter complained about the adjudicator's reasoning in relation to the "lesser rate" of LADs. The adjudicator found that although no specific mechanism for calculating the lesser rate was incorporated into the contract, it was sufficient for Lidl to set out the lesser rate in the appropriate notice. Carter argued that the adjudicator was relying on an entirely new contractual provision without giving either party an opportunity to comment on his proposed analysis. Carter also argued that there was no room in the contract for the imposition of LADs, at a lesser rate or otherwise. The adjudicator simply misunderstood this or, contrary to his own conclusions in the first adjudication, decided that the position was in some way analogous to a case of partial possession.

In the judge's view, the adjudicator's reference to the use of a lesser rate seems to have been no more than a vehicle for giving effect to this erroneous reasoning. However, the judge stated that the two sides could not have put their cases more forcefully in their written submissions to the adjudicator and the judge considered that Carter had had every opportunity, which indeed it took, to put its case on the central issue. The problem for Carter was that Lidl's reference to "Part Practical Completion" (the contract provided for a Practical Completion Statement or a Section Completion Statement) did not exist under the contract but rather than raise this difficulty, chose to capitalise on the use of the term and to argue that there could be no entitlement to LADs once a certificate of Part Practical Completion had been issued.

Part 8 claim dismissed - the judge decided that Part 8 was not the appropriate procedure. As long as a fundamental dispute existed about whether what happened was Section Completion or Partial Possession, there was no useful purpose in making hypothetical declarations. The correct route on the Partial Possession issue was to commence court proceedings in the usual way. See our earlier analysis on Part 8 court declarations.

Commentary

This case adds to a list of decisions dealing with the severability of adjudicators' decisions where the adjudicator has exceeded his jurisdiction. In Working Environments Ltd v Greencoat Construction Ltd (2012) 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 Interiors Ltd v Uk Flooring Contractors Ltd (2012), 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 crystallization of disputes but the fact that the adjudicator acted in excess of his jurisdiction, answering a question which was not referred to him.

Interestingly, the judge also referred to the general principle that a decision cannot be severed where only one dispute or difference has been referred to adjudication. He said that where in relation to a single dispute, additional questions are brought in and adjudicated upon, whether by oversight or error, there was no reason in principle why any decision on those additional questions should not be severed provided that the reasoning giving rise to it did not form an integral part of the decision as a whole; otherwise, the entire decision would be unenforceable.

The problems faced by the parties could have been avoided had they addressed the inconsistencies in the contractual machinery and ensured that it was operated properly. From an adjudication process perspective, greater clarity in the Notice of Adjudication and the Referral Notice (described by Lidl as "confused and confusing") would have assisted the parties as well as the adjudicator whose reasoning although incorrect was nonetheless valid and not a ground for not enforcing his decision.