Background

FK Construction Limited (FK) was a sub-contractor, acting under a bespoke construction contract for ISG Retail Limited (ISG) (the main contractor) in relation to an envelope and cladding package of works for a new distribution centre located at London Gateway Logistics Park, Essex. In his Decision of 21 March 2024 (later corrected on 25 March 2024), the adjudicator ordered that FK pay to ISG £370,180 plus interest of £33,214.78, in relation to works, including rooflight underdrawing works (the Rooflight Works). It was FK's position that the adjudicator had failed to properly consider and give effect to a set-off argument advanced by FK in relation to the Rooflight Works and had therefore erred in his calculation of ISG’s measure of damages.

FK argued that in calculating the amount of damages payable in respect of the Rooflight Works, the adjudicator failed to take into consideration the correct value of these Works as actually performed by FK, which then rendered his calculation incorrect and led to an incorrect or excessive financial award, which went beyond the correct measure of damages. FK's position, therefore, was that the Decision should not be enforced on the basis of a breach of the rules of natural justice, or alternatively that there was an error in the calculation or arithmetical basis to the financial award that the Court could correct pursuant to the decision in Hutton. This led FK to issue (first in time) Part 8 proceeding to this effect, with ISG subsequently issuing Part 7 enforcement proceedings. Given the TCC's policy of supporting adjudication via rapid enforcement of awards and a specialised Part 7 process, ISG's enforcement proceedings came on first for a hearing.

The Adjudicator's Decision

The adjudicator stated that when assessing ISG's loss and damage resulting from FK's breach of contract in stopping activities on the Rooflight Works, the sum payable to FK for those works should be set off against the costs ISG had incurred in bringing in others to complete those Works, or more correctly, had reasonably incurred having regard to its duty to mitigate its loss. The adjudicator held that ISG's incurred costs of £826,473.46 in bringing in a new sub-contractor (to complete the remaining 70% of the Works), whereas the amount payable to FK for the Works would have been £760,000. The actual value of the Works completed by FK up to the point of its replacement was found to be £303,706.54, of which only £54,239.60 had been paid by ISG to FK. Based on this information, the calculation then undertaken by the adjudicator to assess his valuation of ISG's losses was to take the actual cost of ISG's replacement contractor of £826,473.46, add to that the FK costs of its completed 30% of the Works (£303,706.54) and then subtract from that FK's total forecast cost of £760,000, giving ISG a recoverable loss of £370,180.

Application of Hutton

FK challenged the adjudicator's decision based upon the principle set out in Hutton. FK stated that the adjudicator's calculation or methodology was wrong, as he should have included £54,239.60 instead of the £303,706.54 figure for the additional works. ISG had only paid £54,239.60 to FK out of the £303,706.54 total for the additional works. Therefore, the adjudicator had overvalued ISG's loss by £249,466.94. FK argued that based upon this, the Judge should, applying Hutton, substitute the correct figure of £120,713.06 for the £370,180 in calculating the loss and damage suffered by ISG.

The Judge stated that he did not believe this was a breach of natural justice case, as the adjudicator did not fail to consider FK's submissions, but he did accept that the adjudicator had miscounted or erred in using the sum payable for the additional works rather than the amount paid. The question then for the Court was whether this was an error which could operate to reduce the amount of the adjudicator’s decision on an application for summary enforcement of that decision.

The Judge held that the error was not an arithmetical error but an error in approach, or, as FK put it, an error in law. The error was pointed out to the adjudicator; however, he confirmed his original decision. The Judge therefore stated that this was an error that could be corrected based upon the principles set out in Hutton. The Judge stated that for Hutton to apply, FK must be able to satisfy the below three stage test:

(a) That there is short and self-contained issue which arose in the adjudication and which the defendant continues to contest;

(b) That that issue requires no oral evidence, or any other elaboration beyond that which is capable of being provided during the interlocutory hearing set aside for the enforcement; and

(c) That the issue is one which, on a summary judgment application, it would be unconscionable for the court to ignore.

The Judge stated that, on the facts, all three of these grounds applied, including that it would be unconscionable not to correct the error as it would result in ISG recovering a windfall sum, approaching some quarter of a million pounds.

On this basis, the Judge upheld FK's limited defence to the enforcement of the decision in respect of the Rooflight Works and granted summary judgment that instead of the amount awarded by the adjudicator of £303,706.54, the Court should enforce that part of the decision up to only a financial maximum of £120,713.06.

Practically, this case clarifies that the Court will seek to correct errors within an adjudicator's decision – on either a Part 7 or Part 8 set of proceedings (Hutton was Part 8, but this decision was taken in respect of Part 7 enforcement proceedings) – where possible, particularly where it would be unconscionable for the Court to ignore it.