ISG Retail Ltd v FK Construction Ltd

ISG Retail Ltd (“ISG”) had engaged FK Construction Ltd (“FK”) as the main contractor in relation to works to a distribution centre. A dispute arose in relation to two categories of work carried out by FK: (i) pallet store defects, and (ii) rooflight works.

This case concerns an application for summary judgment brought by ISG in order to enforce an adjudicator’s decision dated 21 March 2024 and later corrected on 25 March 2024, ordering FK to pay the sum of £191,740.86 plus interest. The date for payment under the adjudicator’s decision was 28 March 2024. On that date, FK wrote to ISG’s solicitors indicating its intention to challenge the decision under Part 8 of the Civil Procedure Rules, on the basis that the adjudicator had failed to properly consider and give effect to a set-off argument, and he had erred in his calculation of ISG’s measure of damages.

Prior to ISG issuing the Part 7 claim, FK had already issued its Part 8 claim in the TCC. In response to ISG’s application for summary judgment, FK issued an application notice dated 26 April seeking for the Part 8 claim to be heard alongside the summary judgment application.

In relation to the enforcement proceedings, FK’s primary argument was that there had been a breach of natural justice as the adjudicator failed to consider or deal with its defence of set-off. FK argued that the manner in which the adjudicator undertook his calculation made the whole of this part of his decision unenforceable. ISG’s position in relation to this argument was that, on its own evidence, FK recognised that its set-off case was dealt with by the adjudicator and that FK was simply unhappy with the way in which he had addressed it.

FK went on to submit that in his calculation of the damages payable in respect of the rooflight works, the adjudicator failed to perform the task that he accepted needed to be undertaken in order to put ISG back into the position it would have been in had there been no breach of contract. It was common ground between the parties that the sums which would have been paid to FK had it completed the rooflight works should be credited against the costs that ISG had incurred to complete those works.

In his assessment of the loss and damage that ISG had suffered, the adjudicator found that the value of the work that had to be undertaken by ISG to remedy FK’s breach was £826,473.46. From this, there had been deducted a total of £760,000 which would have been payable to FK had it carried out all of the works. It was FK’s position that, on a straightforward application of the principles stated within the adjudicator’s decision, this £760,000 should have been deducted from the £826,473.46 in order to arrive at the loss suffered by ISG. However, FK had carried out additional works and the adjudicator determined that the value of those works was £303,473.46 when only £54,239.60 had been paid by ISG to FK. The adjudicator therefore arrived at a figure of £370,180, which ISG sought to be enforced through the summary judgment application.

There was no challenge to any of the figures determined by the adjudicator. FK’s challenge was to the calculation, which it submitted was erroneous. Counsel for FK argued that the adjudicator should have only added in £54,239.60 to reflect the amount ISG actually paid to FK for the works. By doing this, the adjudicator overvalued the second deduction by £249,466.94, effectively double counting the deduction for works already carried out by FK from the sum owed to ISG.

With regards to this point of miscalculation, Counsel for ISG argued that the adjudicator did not incorrectly transpose any figures, rather his decision reflected his methodology. ISG refers to FK’s request to the adjudicator to correct this error in his methodology, which the adjudicator refused, as reinforcement of the point that there was no error on the adjudicator’s part.

Counsel for FK challenged the adjudicator’s award in respect of the rooflight works under the principles set out in Coulson J’s decision in Hutton Construction Ltd v Wilson Properties (London) Ltd [2017] EWHC 517 (TCC). Both FK and ISG acknowledged that if the court was to accept the partial defence to the summary judgment presented, then on the basis of Hutton, the court should substitute the correct figure into the adjudicator’s award for the rooflight works.

Decision

The judge rejected FK’s primary argument that the adjudicator ignored the set-off argument presented within the defence which resulted in a breach of natural justice. It was held that it was clear from the original decision that the adjudicator did have regard for this submission, he simply did not agree with it.

In relation to the miscalculation argument presented by FK, the court was satisfied that there was an error in the approach of the adjudicator. In relation to the sum representing the cost of the works actually paid by ISG, the correct sum to use was £54,239.620, rather than the £303,706.54 used by the adjudicator.

It was held that, on the application of Hutton, in order to resist summary judgment on the basis of a Part 8 claim, FK would have to demonstrate three things:

1. That there was a short, and self-contained issue which arose in the adjudication and which FK continues to contest;
2. That issue requires no oral evidence, or any other elaboration beyond that which is capable of being provided during the interlocutory hearing for the enforcement; and
3. The issue is one which it would be unconscionable for the court to ignore.

The court was satisfied that all of these factors were present in this case, and therefore upheld FK’s limited defence. The court corrected the error and instead of awarding the sum of £303,706.54 in relation to the rooflight works, summary judgment was granted in the sum of £120,713.06.

This decision provides helpful guidance on the limit of the court’s powers to correct an error within an adjudicator’s decision.