The impact of Mr Justice Jackson

One thing that has been noticeable about the appointment of Mr Justice Jackson is the number of decisions he has given, which have been reported. We thought it would be sensible to summarise the most important of these as they provide an interesting insight into the impact of the appointment of Mr Justice Jackson within the TCC.

Since his appointment, the topics he has dealt with include:

• The basic principles of enforcing an adjudicator’s decision;
• Can you set off against an adjudicator’s decision?
• What constitutes a contract in writing?
• What is a dispute?
• Arbitration clauses;
• The Single Joint Expert; and
• The duty of impartiality when certifying payment.

Three of the decisions relating to adjudication (Balfour Beatty v Serco, Stratfield v AHL and Amec v Secretary of State) have been dealt with in a previous article of this Review.

The “Justice Jackson” judgments often provide a useful summary of the current case law and then a statement of the principles to be derived from this. From these cases, it is possible to discern quite clearly Mr Justice Jackson’s approach to a number of topical legal and procedural matters. For example, there is one other case which deals with adjudication. Ever since the introduction of adjudication, there has been debate about the extent to which the judges within the TCC viewed adjudication favourably. Whatever the merits of that debate, the decision of Mr Justice Jackson in Carillion v Devonport[1] demonstrates a decidedly pro-adjudication approach. It is worth setting out his comments at some length:

“Prior to 1998, if there was a dispute about payment within the construction sector, money would generally remain in the pocket of the paying party until final resolution of that dispute. This was a source of concern, for reasons set out in a number of reports including Sir Michael Latham’s report, ‘Constructing the Team’, published in 1994. The statutory system of compulsory adjudication was set up to address this problem. The purpose of an adjudication was and is to determine who shall hold the disputed funds, and in what proportions, until such time as the dispute is finally resolved.

In order to achieve this objective, it is necessary that adjudication should be as speedy and inexpensive as circumstances permit. The adjudicator is not necessarily expected to arrive at the solution which will ultimately be held to be correct. That would be asking the impossible. The adjudicator is required to arrive at an interim resolution within strictly drawn constraints.

Over the last seven years, adjudication has been widely used in the construction industry. On many occasions, the parties have chosen to use the adjudicator’s decision as, or as the basis for the final settlement of their disputes. This is a perfectly sensible and commercial approach. It has been remarked upon by the judges of this Court. Nevertheless that perfectly sensible and commercial approach, which many parties choose to adopt, cannot change the juridical nature of adjudication or transform the legal duties which are imposed upon adjudicators by statute.

One can detect in the first instance cases over the last six years some slight differences[2] in emphasis and approach. In borderline cases what one judge may regard as a permissible error of law or procedure on the part of an adjudicator, another judge may characterise as excess of jurisdiction or a substantial breach of the rules of natural justice.

In my view, it is helpful to state or restate four basic principles:

1. The adjudication procedure does not involve the final determination of anybody’s rights (unless all the parties so wish).

2. The Court of Appeal has repeatedly emphasised that adjudicators’ decisions must be enforced, even if they result from errors of procedure, fact or law: see Bouygues, C&B Scene and Levolux;

3. Where an adjudicator has acted in excess of his jurisdiction or in serious breach of the rules of natural justice, the court will not enforce his decision: see Discain, Balfour Beatty and Pegram Shopfitters.

4. Judges must be astute to examine technical defences with a degree of scepticism consonant with the policy of the 1996 Act. Errors of law, fact or procedure by an adjudicator must be examined critically before the Court accepts that such errors constitute excess of jurisdiction or serious breaches of the rules of natural justice: see Pegram Shopfitters and Amec.”

This reference to the judges needing to show a degree of scepticism is consistent with a broad international consensus and that adjudication should not be thwarted by relatively modest complaints about procedure. In the New Zealand case of George Developments Limited v Canam Construction, the Court of Appeal noted that the purpose of the Construction Contracts Act was to facilitate regular and timely payments between the parties to a construction contract and that technical quibbles should not be allowed to vitiate on a payment claim that substantively complied with the requirements of the Act. A “technocratic” or “formalistic” interpretation of that Act would undercut Parliament’s intent that cash flow be maintained.

A similar approach was taken by the New South Wales Court of Appeal in Australia, in the case of Brodyn v Davenport, where the court said:

“In my opinion, the reasons given above for excluding judicial review on the basis of non-jurisdictional error of law justify the conclusion that the legislature did not intend that exact compliance with all the more detailed requirements was essential to the existence of a determination: cf. Project Blue Sky Inc. v Australian Broadcasting Authority (1998) 194 CLR 355 at 390-91. What was intended to be essential was compliance with the basic requirements (and those set out above may not be exhaustive), a bona fide attempt by the adjudicator to exercise the relevant power relating to the subject matter of the legislation and reasonably capable of reference to this power (cf. R v Hickman; Ex Parte Fox and Clinton (1945) 70 CLR 598), and no substantial denial of the measure of natural justice that the Act requires to be given. If the basic requirements are not complied with, or if a purported determination is not such a bona fide attempt, or if there is a substantial denial of this measure of natural justice, then in my opinion a purported determination will be void and not merely voidable, because there will then not, in my opinion, be satisfaction of requirements that the legislature has indicated as essential to the existence of a determination.”

However, the Carillion case has certainly not decided that attempts to set off against sums awarded by adjudicators will always fail. As we noted above, Mr Justice Jackson decided in Balfour Beatty v Serco that Serco were not, in the circumstances of the particular case, entitled to set off their claims against a decision of an adjudicator, made in favour of Balfour Beatty.

Moving away from adjudication, the seven-fold test as to what constituted a dispute in Amec v Secretary of State for Transport is not the only arbitration-related case considered by Mr Justice Jackson.

In a case known as X v Y to protect the confidentiality of the parties, Mr Justice Jackson had to consider a challenge to the decision of an arbitral tribunal that the tribunal did not have jurisdiction to deal one of the heads of claim being advanced in that arbitration. The challenge was made pursuant to section 67 of the 1996 Arbitration Act. The proceedings were issued in the Commercial Court, but transferred to the TCC since the issue in dispute concerned a construction contract.

The question here was whether one of the heads of claim being advanced in the arbitration, fell outside the scope of the arbitration clause in the contract which was the subject of the arbitration dispute. Essentially, Mr Justice Jackson had to consider the meaning of words or phrases in the context of other arbitration clauses or contracts, something which he noted must be considered with caution. From his review of the authorities, on this occasion, Mr Justice Jackson put forward four propositions:

1. The question whether a dispute falls within the arbitrator’s jurisdiction turns upon the construction of the relevant arbitration clause. This is an objective exercise of contractual interpretation (see Bingham L.J. in Ashville at p.506).
2. Previous decisions about the proper interpretation of different arbitration clauses may be persuasive but they do not constitute binding precedents (see May L.J. in Ashville at pp.494-495).
3. There have been cases where courts have held that a dispute concerning one contract falls within the ambit of the arbitration clause of another earlier contract. Each of these decisions turns upon its own particular facts (see Faghirzadeh, A. and B. and El Nasharty).
4. If an arbitration clause is drafted in appropriate terms, it may encompass a claim for contribution under the Civil Liability (Contribution) Act 1978 (see Wealands).

Accordingly, here the arbitral tribunal did not have jurisdiction to consider the claim, since it could not be said to be a dispute relating to the specific contract.

It should not be forgotten that the TCC is not confined to London. We frequently find ourselves dealing with the courts in Leeds, Birmingham and elsewhere. Mr Justice Jackson has over the past year spent some time in Leeds hearing TCC cases. In one of these, Quarmby Electrical Limited v Trant, Mr Justice Jackson considered the use of single joint experts in what he termed “lower value construction cases”.

The Quarmby case concerned a Sub-Contractor’s Final Account. HHJ Graville had ordered that a single joint expert be appointed to deal with the technical issues. Both parties accepted the expert’s findings in respect of defects and the valuation of variations. This lead to a substantial saving of court time and legal costs. Mr Justice Jackson provided valuable guidance to those considering proposing a single joint expert:

“I fully accept that in the larger construction cases the device of a single joint expert is generally reserved for subordinate issues or relatively uncontroversial matters. However, in the smaller cases, such as this one, if expert assistance is required, it is difficult to see any alternative to the use of a single joint expert in respect of the technical issues. If adversarial experts had been instructed to prepare reports and then give oral evidence in the present case, I do not see how there could have been a trial at all. The respective experts’ fees and the trial costs would have become prohibitive. In lower value cases such as this one, I commend the use of single joint experts. The judge, of course, remains the decider of the case. He is not bound by everything which the single joint expert may say. However, the judge is able to perform his functions within more sensible costs parameters.

The Civil Procedure Rules enable both parties to put written questions to a single expert: see Rule 35.6. This facility was used in the present case. Part 35 of the Civil Procedure Rules and the accompanying practice direction are silent on the matter of a single joint expert being called to give oral evidence. The commentary at paragraph 35.7.1 of the current edition of the White Book states:

‘If a single joint expert is called to give oral evidence at trial, it is submitted, although the rule and the practice direction do not make this clear, that both parties will have the opportunity to cross-examine him/her, but with a degree of restraint, given that the expert has been instructed by the parties.’

It must be a matter for the discretion of the judge whether oral examination of a single joint expert is appropriate. In a case where the single joint expert is dealing with major issues, such oral examination might be appropriate and proportionate. In such a case it is the practice of other TCC judges to whom I have spoken, and indeed of myself, for the judge to call the expert, and then for both sides to cross-examine. However, where the report of the single joint expert comes down strongly on the side of one party, it may be appropriate to allow only the other party to cross-examine.

Before leaving the topic of single joint experts I wish to make four further comments:

1. The choice of single joint expert is important. He should be someone in whom both parties have confidence.

2. If the case is one in which it might become appropriate for the single joint expert to give oral evidence and be cross-examined, it is desirable to alert the expert to this possibility when he is invited to accept instructions.

3. Experience shows that quite often the instruction of a single joint expert leads to settlement of the whole litigation.

4. The procedure for dealing with single joint experts should, so far as possible, be addressed at case management hearings in advance of trial. Also provision should be made for securing payment of the fees of single joint experts before they undertake work.

Finally, Mr Justice Jackson in the case of Costain Ltd & Othrs v Bechtel Ltd & Anr in May of this year, considered the role of the project manager under the NEC contract when it came to assessing and certifying sum due to the contractor.

Costain were part of a consortium of contractors carrying out work in respect of the Channel Tunnel Rail Link. The consortium entered into a contract to carry out the extension and refurbishment of St Pancras Station. The contract provided that:

“The Employer, the Contractor and the Project Manager act in the spirit of mutual trust and co-operation and so as not to prevent compliance by any of them with the obligations each is to perform under the Contract.”

The contract, though amended, was based upon the NEC Form of Contract. The contract was a target cost contract with a pay and gain mechanism providing for the Costain consortium to be paid actual cost less disallowed cost as defined by the contract. The project manager (RLE) was another consortium. The dominant member was Bechtel Rail Link Engineering. Many of the RLE personnel who worked on the contract were also Bechtel employees. On 6 February 2005, RLE issued payment certificate no. 47. This valued the work carried out as approximately £264 million, but disallowed costs of some £1.4 million. On 8 April 2005, payment certificate no. 48 was issued. The total of disallowed costs had risen to £5.8 million.

The Costain consortium alleged that at a meeting held on 15 April 2005, one Mr Bassily instructed all Bechtel staff to take a stricter approach to disallowing costs. It also alleged that he instructed the Bechtel staff to disallow legitimate costs when assessing the payment certificates. The Costain consortium were concerned that Bechtel had deliberately adopted a policy of administering the contract unfairly and adversely to them. Accordingly, the consortium issued a claim alleging that Bechtel and Mr Bassily had unlawfully procured breaches of contract by the employer. The claim sought interim injunctions restraining the RLE consortium from acting in such a way in relation to the assessment of the contractor’s claims.

Bechtel argued that they were obliged to look after the employer’s best interests and that therefore they did not owe a duty to act impartially in respect of consideration of the payment applications.

Mr Justice Jackson disagreed, holding that it was properly arguable that when assessing sums payable to the contractor, the project manager did owe a duty to act impartially as between employer and contractor.

On the evidence before the court, Mr Justice Jackson found that Mr Bassily had, in fact, been telling Bechtel staff to exercise their functions under the contract in the interests of the employer and not impartially. However, when acting as project manager, it was the RLE consortium’s duty to act impartially as between employer and contractor and not to act in the interests of the employer.

The judge considered the authorities, starting with Sutcliffe v Thackrah where the House of Lords discussed the role and duties of an architect in that situation. Lord Reid said:

“It has often been said, I think rightly, that the architect has two different types of function to perform. In many matters he is bound to act on his client’s instructions, whether he agrees with them or not; but in many other maters requiring professional skill he must form and act on his own opinion.

Many matters may arise in the course of the execution of a building contract where a decision has to be made which will affect the amount of money which the contractor gets. Under the R.I.B.A contract many such decisions have to be made by the architect and the parties agree to accept his decisions. For example, he decides whether the contractor should be reimbursed for loss under clause 11 (variation), clause 24 (disturbance) or clause 34 (antiquities), whether he should be allowed extra time (clause 23); or when work ought reasonably to have been completed (clause 22). And, perhaps most important, he has to decide whether work is defective. These decisions will be reflected in the amounts contained in certificates issued by the architect.

The building owner and the contractor make their contract on the understanding that in all such matters the architect will act in a fair and unbiased manner and it must therefore be implicit in the owner’s contract with the architect that he shall not only exercise due care and skill but also reach such decisions fairly, holding the balance between his client and the contractor.”

Mr Justice Jackson noted that these comments had generally been accepted by the construction industry and the legal profession as correctly stating the duties of architects, engineers and other certifiers under the conventional forms of construction contract. The issue here concerned the duty of certifiers in general, but the specific duties of the project manager under the present contract. Four reasons were put forward as to why the contract here was different:

1. The terms of the present contract which regulate the contractor’s entitlement are very detailed and very specific. They do not confer upon the project manager a broad discretion, similar to that given to certifiers by conventional construction contracts. Therefore, there is no need, and indeed no room, for an implied term of impartiality in the present contract.
2. The decisions made by the project manager are not determinative. If the contractor is dissatisfied with those decisions, he has recourse to the dispute resolution procedures set out in section 9 of the contract. The existence of these procedures has the effect of excluding any implied term that the project manager would act impartially.
3. The project manager under contract C105 is not analogous to an architect or other certifier under conventional contracts. The project manager is specifically employed to act in the interests of the employer. In Royal Brompton Hospital NHS Trust v Hammond (No. 8) [2002] EWHC 2037 (TCC); 88 Con LR 1 Judge Humphrey Lloyd QC at paragraph 23 described the project manager as “coordinator and guardian of the client’s interest”.
4. The provisions of clauses Z.10 and Z.11 prevent any implied term arising that the project manager will act impartially.

This was an application for an Injunction and the judge agreed that the Costain consortium had raised serious questions to be tried both in relation to whether RLE had acted in breach of its duty to act impartially as between employer and contractor and whether as a consequence the employer was thereby in breach of contract. In addition to this, the Costain consortium had raised a serious question as to whether the RLE consortium had committed the tort of procuring a breach of contract.

However, Mr Justice Jackson was not prepared to exercise the court’s discretion at this interim stage and grant the injunction (and it is important to bear in mind that this judgment does not provide a definitive answer on this issue) to correct any failings in the contractual payment procedures. The reason for this was that these could ultimately be compensated for by way of damages. Whilst the claimants had demonstrated that there were potentially serious questions to be tried thus passing the threshold test in American Cyanamid Co v Ethicon [1975] AC 396 at 409D, the claimants failed to pass the test of the balance of convenience.

One key interest in this case is the debate concerning the obligations owed by the project manager to the contractor in respect of the assessment for payments and the employer’s obligations to the contractor in the event of any breach of such obligations by the project manager. The form of contract, whilst amended in many significant respects, is based very much on the NEC target cost contract and therefore the issues considered are of great significance to the industry as a whole, particularly given the popularity of this form of contract for major infrastructure projects.

The defendants argued that they were in fact obliged to look after the employer’s best interests and that they did not owe a duty to act impartially in respect of consideration of the contractor’s payment application. The judge held that, at the very least, it is properly arguable that when assessing sums payable to the contractor, the project manager did owe a duty to act impartially as between employer or contractor.

Somewhat frustratingly, it is not known whether or not this matter will proceed further, but there can be no doubt that a definitive answer on this issue would be extremely welcome. If it is held that the project manager does not owe such a duty of impartiality, it is a little difficult to see how this can sit comfortably with the supposed overriding objective of contracts of this nature to attempt to foster collaborative working and avoid confrontation.

[1] (2003) CILL 1976.

[2] It would be right to treat the words “some slight differences” as a triumph of tact over candour.