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	England and Wales High Court (Technology and Construction Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Amey Wye Valley Ltd v The County of Herefordshire District Council (Rev 1) [2016] EWHC 2368 (TCC) (03 October 2016) URL: http://www.bailii.org/ew/cases/EWHC/TCC/2016/2368.html Cite as: [2016] EWHC 2368 (TCC)

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IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		03/10/2016

Mr Justice Fraser :

Introduction

1. This case concerns an adjudication, and the relevant adjustment for inflation purposes of sums paid to one party by the other, for works to the highways and roads of Herefordshire over a ten-year period between 2003 and 2013. There are two sets of proceedings between the parties, in each of which one party is the claimant and the other the defendant. These two sets of proceedings were ordered by Edwards-Stuart J to be heard together. They both arise out of the same contract, and indeed both arise out of the same adjudication, which was conducted by Mr Molloy some time ago and which led to a decision by him dated 26 February 2015. Both parties, the County of Herefordshire District Council ("HDC") and Amey Wye Valley Ltd ("Amey"), agreed a stay following that decision ("the Molloy Decision") in an attempt to agree their differences. However, those attempts did not succeed, the stay was lifted and both sets of proceedings were heard together over two days before me. HDC was successful in the adjudication before Mr Molloy, which was commenced by Amey.
2. One set of proceedings has action number HT-2016-145 and are conventional adjudication enforcement proceedings issued by HDC against Amey, seeking summary judgment under CPR Part 24 to enforce the Molloy Decision. The other set of proceedings has action number HT-2015-162, and were issued as CPR Part 8 proceedings by Amey against HDC. They essentially constituted an attempt at a pre-emptive strike by Amey to prevent HDC relying upon the Molloy Decision by seeking certain declarations in relation to that adjudication. Nothing turns upon which set of proceedings was issued before the other. Edwards-Stuart J approved a consent order dated 25 March 2015 staying the Part 8 proceedings issued by Amey ("the Amey Proceedings") which was, by the terms of that order, to remain in effect unless and until either party gave notice to the court and to the other party to lift the stay. That stay was finally lifted in June 2016.
3. On 8 July 2016, Edwards-Stuart J also gave further directions, which were again conventional ones for enforcement of an adjudicator's decision, and directed in paragraph 3 of his Order that the two sets of proceedings be case managed and heard together. I shall refer to the HDC proceedings which proceeded under CPR Part 7 as "the HDC Proceedings". Amey was also given permission to amend its Particulars of Claim in the Amey Proceedings.
4. It should be noted that at that stage there was no detailed evidence before Edwards-Stuart J on the substantive issues either in the HDC Proceedings or the Amey Proceedings. This much can be seen from the fact that the Order of 8 July 2016 gave directions in paragraph 6 for the service of substantive evidence and exhibits, and also from the provision in paragraph 9 of the Order that either party was given permission to make an application to sever the two claims and have them heard by the court separately. Neither party sought to do so, and therefore the hearing before me made no distinction between the two sets of proceedings.
5. In suitable cases, CPR Part 8 can be used to obtain final determination of an issue which is co-existent with the issue before an adjudicator, and it can also be used to obtain declarations concerning jurisdiction of adjudicators. Some losing parties in adjudications seek to use CPR Part 8 in this way. CPR Part 8.1(2) states as follows:

"A claimant may use the Part 8 procedure where –

a) he seeks the court's decision on a question which is unlikely to involve a substantial dispute of fact."

Here, three declarations were sought in the Particulars of Claim in the Amey Part 8 proceedings, once they were amended, although the first was split into a number of parts, and the second and third were in the alternative. The first is that the Molloy Decision is unenforceable because it is inconsistent with an earlier decision by another adjudicator called Mr Entwistle ("the Entwistle Decision"). Five particulars of that inconsistency are given, and they all go either to the interpretation of the Entwistle Decision by Mr Molloy, or Mr Molloy's actual calculations which are said to be wrong. The second declaration is that the Molloy Decision should be severed so that one error in one of the calculations which Mr Molloy made should be corrected so that "the Molloy Decision is not enforceable to the extent of the said error". The third declaration sought by Amey is that the:

"…calculation in the Molloy Decision is contrary to that required by the Contract and/or VOP3 in the respects set out…..above and, as a consequence of the final determination of these matters of contractual interpretation, the Molloy Decision should not be enforced".

6. To put both sets of proceedings into context, it is first necessary to explain the background to the two adjudications. The parties are agreed that the issues which arise do so in both sets of proceedings together. No distinction is made in the agreed issues regarding whether they arise in the HDC Proceedings or in the Amey Proceedings. Evidence was provided by Mr Woodburn of Amey, Mrs Ward, the Solicitor to the HDC employed by Legal Services, and Mr Hall who is employed by the HDC and who is the Head of Highways and Community Services. Mr Hall is also a Chartered Civil Engineer.

The dispute

7. HDC and a company called Herefordshire Jarvis Services Ltd entered into a contract, called a Service Delivery Agreement ("the SDA") on 1 September 2003 for repair and maintenance works to the highways and roads in Herefordshire. In due course, as part of the acquisition of Herefordshire Jarvis Services Ltd or its parent by the Amey group of companies, the name of the relevant contracting party was changed to Amey in 2007, although nothing turns on that. I will refer to the contracting party as Amey regardless of the previous name or the acquisition. By the terms of the SDA, Amey agreed to provide a range of services to HDC, broadly comprising highway maintenance and other construction and related works. The period for these services was to be ten years, ending on 31 August 2013. There was an option for that period to be extended for a further five years by HDC, but it was not exercised.
8. The SDA agreement itself expressly incorporated Option A of the Engineering and Construction Contract (2^nd edition 1995), together with Contract Data in Parts One and Two, and also expressly "together with and adjusted by the items listed in Schedule 5 ("the NEC Conditions")". That Schedule identified in Part A the Core Clauses, and Secondary Option Clauses, and expressly stated in clause 3:

"The Secondary Options Clauses included in this Contract are:….Option N:Price Adjustment for inflation, clauses N1.1, N2.1, N3.3, N3.1 and N4.1, as adjusted by Schedule 6."

9. Within the Contract Data Part One, Clause 4 Payment stated the following against a number of bullet points:

"1. The assessment interval is monthly.

2. The period within which payment is made is four weeks.

3. The proportions used to calculate the Price Adjustment Factor are as defined in Schedule 6."

10. Paragraph 4.3 of SDA Schedule 6 stated as follows:

"4.3 The Contract data required for option N is as follows:

Until such time as the Parties agree a mechanism to adjust prices in line with actual cost fluctuation via. open book accounting, the proportions used to calculate the Price Adjustment Factor are:

For the Highway Service as defined in Schedule 2: the following indices prepared by the Department of Trade and Industry and published as the Monthly Bulletin of Construction Indices (Civil Engineering Works) 1990, namely:

a) the Index of the Cost of Labour in Civil Engineering Construction

b) the Index of the Cost of Providing and Maintaining Construction Plant and Equipment.

c) The Indices of Construction Materials Prices.

Shall be used in the proportions listed in the table below

Construction Indices	Proportion
Labour Plant Aggregates Cements Coated Macadam and Bituminous Products DERV Fuel	0.35 0.18 0.12 0.1 0.1 0.15
	1.00

For all Works other than the Highway Service, the Retail Prices Index (RPI) prepared by the Office for National Statistics shall apply.

The base date for indices is March 2003 with the date of assessment being 1^st April 2004 and every anniversary thereof."

[emphasis added]

11. The indices for the Highway Service referred to in Schedule 6, produced by what was then called the Department of Trade and Industry or DTI, are colloquially referred to as "the Baxter indices". The agreement contained within the SDA was for the provision of services of uncertain scope in terms of how much maintenance would be needed, the extent of which would undoubtedly vary (and which the parties knew would vary) over the ten years of the contract term. The payment provisions contained within the SDA were based upon rates for certain types of work. The obvious intention of the SDA was to incorporate within it a mechanism for the adjustment of those rates to take account of inflation over time so that, for example, the payments made towards the end of the contract term for particular work would recompense Amey to the same extent as the payments at the beginning. The value of money changes over time due to inflation and this needed to be taken into account in the contractual payment structure. The necessary adjustment to the rates was to be done by means of the well-known index, the RPI, for all works other than those referred to as the Highway Service, which were to use the separate industry specific indices, namely the Baxter indices. Of course, deflation could potentially also occur and if it did, the adjustment to the rates, and hence the payments, would have been in the opposite direction.
12. During 2005, the parties fell into a dispute concerning how to calculate the price adjustment for inflation under the SDA. That dispute was resolved, eventually, in a letter dated 21 July 2005, which became known by the parties (and was referred to at the hearing before me) as "the 2005 Joint Statement". This statement was drafted, it appears, by the parties themselves. There is no suggestion that it was a carefully negotiated instrument as a result of any particular legal advice. It was signed by Mr Dunhill, the Director of Environment of HDC, and Mr Williams, the Project Director for Herefordshire Jarvis Services Ltd. Within it, part of the agreement related to the way in which the price increase mechanism was to apply over the life of the contract. That became known as "VOP3", and is the relevant part of the 2005 Joint Statement that concerns the issues before me on these applications. VOP3 stated as follows:

"An annual uplift in rates is applied on the 1^st April annually as detailed in paragraph 43 of Schedule 6 of the Service Delivery Agreement. Para.3 of Schedule 5 of the contract specifically applies NEC Option N: Price adjustment for inflation. It was agreed that the NEC – Option N – Para.N4.1, does apply to this contract and it was therefore agreed that each year an average monthly 'Baxter' index for the previous 12 months would be added to the January Baxter index for the forthcoming year for Highways works and similarly an RPI average on the remainder."

[emphasis added]

13. It can therefore be seen that the first sentence, and the first clause of the second sentence, of VOP3, merely recites the existing contractual position concerning the adjustment for inflation. The element of VOP3 that constitutes a variation or change to this pre-existing contractual provision is the statement:

"…each year an average monthly 'Baxter' index for the previous 12 months would be added to the January Baxter index for the forthcoming year for Highways works and similarly an RPI average on the remainder".

However, even following this agreement, the parties could not agree on the particular adjustment that this required or what those words in fact meant.

14. This led to two adjudications, both initiated by Amey. The first was conducted by Mr Entwistle in 2013. The second was conducted by Mr Molloy in 2015 and led to the Molloy Decision. In summary terms, Mr Entwistle was asked to decide (amongst other things) what VOP3 actually meant, without applying those findings to actual financial consequences in terms of payments due in either direction. The Molloy Decision was concerned with putting money figures to the findings of Mr Entwistle. Due to the differences between the parties about what actually was, and was not, decided by Mr Entwistle, it will be necessary to consider both the adjudications, but the dispute between the parties before me is a fairly simple one – is the Molloy Decision enforceable? The only purpose behind the Part 8 proceedings is to prevent enforcement. Mr Woodburn, in his First witness statement for Amey, is quite frank about this. He states in paragraph 31:

"Amey has brought this claim to challenge the enforceability of the Molloy Decision."

The financial consequences of the Molloy Decision are that Amey has been ordered to repay to HDC the sizeable sum of £9,500,632.43, together with Mr Molloy's costs, although that was the figure as at 26 February 2015 when the decision was made. This amount is the sum by which, according to the Molloy Decision, HDC had overpaid Amey for works during the contract period. By the time of the issue of the enforcement proceedings, this figure had risen due to interest. There does not seem to be any real dispute about the actual figures, and in the Claim Form in the HDC Proceedings, by the time that VAT is taken into account, the sum sought by HDC is approximately £12.3 million. Not all the actual figures themselves are actually agreed in these proceedings. The total paid to Amey under the SDA over the whole ten-year term was £204,133,291.67, according to Mr Hall. It can therefore be seen that the figure to be repaid to HDC by Amey calculated by Mr Molloy is on its face large, but comprises a small element of a far larger figure paid to Amey by HDC over many years.

15. As one example only of the lack of agreement between these two parties on the calculations and the figures generally – and this goes to the "severance" issue, which is the heart of the second declaration sought by Amey in the Part 8 proceedings – it is accepted by the parties that Mr Molloy made an error in his calculation, or rather in the spreadsheet he used to arrive at the final figure for repayment contained in his decision. This appears to have occurred when he adjusted the spreadsheets submitted to him so as to take account of the fact that the relevant application date was January and not April for each year, and in one year he seems to have applied the incorrect adjustment. There is no agreement about the effect that error had on the final figure in the Molloy Decision, although it is agreed that there was an error, and that the error was and is in favour of HDC. Amey says it had an effect on the overall sum of £2,450,093 excluding VAT (the figure in paragraph 55B of the Amended Particulars of Claim in the Part 8 proceedings); HDC calculate this as an error of £1,991,285.10 (this is Mr Hall's figure in his evidence). I will return to arguments concerning severance and an error of this kind by an adjudicator below. However, I should make it clear that absolutely no criticism can or should be leveled at Mr Molloy in respect of this error. This is for two reasons. Firstly, adjudicators work under very considerable time pressure, and Mr Molloy was being asked to deal with very complicated calculations in which compounding was used. He made adjustments to Excel workbook spreadsheets submitted to him. Errors of fine detail are part of the process effectively accepted by Parliament as a consequence of the process of adjudication. The "right" answer is secondary to the parties having a rapid answer.
16. Secondly – and in my judgment in this case even more importantly – both parties made admitted errors themselves in the material and calculations that they submitted to Mr Molloy. Mr Woodburn in his Second witness statement for Amey explained that in the calculation submitted to Mr Molloy by Amey, the VOP3 adjustments for previous years were mistakenly carried forward by Amey in the calculation of the price adjustment for each year. The effect of this was to show, using his words:

"…a sum due to Amey of £37,794.624 (including interest). If the effect of the erroneous compounding of the VOP3 calculation is removed, then Amey's calculation would be £2,828,860 including interest."

In other words, Amey's calculation error was to the effect of approximately £35 million in its favour. This is, in my judgment, a staggering figure, and a very significant error on these numbers. It does not affect the principles that I have to apply, or the enforceability of the Molloy Decision. However, it does show the conditions under which Mr Molloy was working. If one party made an error in its calculations to the effect of £35 million, Mr Molloy can hardly be criticized for a far smaller (though I appreciate significant in terms of money) error in his calculations when he adjusted spreadsheets submitted to him. HDC also made an error in its submissions before Mr Molloy, although its effect was more limited than that made by Amey. That error, or mistake, was that HDC expressly submitted that the Entwistle Decision was not binding on the parties, even though it is now accepted that it is. Mr Molloy correctly considered that it was binding, and avoided being led into this error by HDC.

17. In those circumstances, given Mr Molloy was performing the exercise on the basis of such material submitted to him by both parties and within the time constraints of an adjudication, it can be scarcely surprising that some 20 months later, after so much analysis by both parties, it has been discovered that his adjustment of the spreadsheet was not entirely perfect. Adjudicators are not expected to be perfect; certainly not so far as such extraordinarily detailed calculations are concerned. When the parties themselves submit contentious material to him of this nature, that material itself being incorrect and substantially so, it is hardly surprising that calculation errors can creep in.

The Entwistle Adjudication

18. This was conducted by Mr Entwistle in 2013 and his decision is dated 9 May 2013. It might seem curious to some that the wider dispute between these parties has been going on for over three years since the Entwistle decision, without proceedings to resolve it with finality (including the resolution of any challenged calculations) and that the court is faced, over three years later, with, amongst other things, contentious issues of fact going to very detailed calculations.
19. Amey served a Notice of Dispute upon HDC on 8 February 2013 and represented itself in the adjudication. Mr David Loosemore was appointed as adjudicator but resigned before issuing a decision, and so Mr Entwistle was appointed by agreement of the parties. Neither party raised any issue as to his jurisdiction and he conducted the adjudication. Essentially, Amey sought a declaration that the 2005 Joint Statement was binding upon the parties, and also a number of declarations about its meaning. Eight different remedies were sought, each lettered (a) to (h), and Mr Entwistle was asked to give reasons. The two most important ones for the purposes of the matter before me are those at Remedy (a), Remedy (b), and Remedy (g). The reasons are included in the text of his Decision. His findings so far as the remedies are concerned are in the passage following paragraph 235 under "Decisions on the Remedies Sought" where he stated:

"My decisions on the remedies sought:

1. Remedy a – I decide that the 2005 Joint Statement is a legally binding contractual agreement to vary the terms of the 2003 Service Delivery Agreement, that all parts of the 2005 Joint Statement are binding on both parties and that VOP 3 amended in writing the terms of NEC Option N which formed part of the 2003 Service Delivery Agreement.

2. Remedy b – I decide that [HDC] is not entitled to disregard VOP3.

…..

7. Remedy g – I decide that [HDC] is not entitled to deduct, withhold or counterclaim any sums against Amey as regards any matter decided herein."

20. In order to properly understand the declaration on Remedy (g), it is necessary to be aware of the fact that at that stage in the dispute, HDC was attempting to make deductions at the time of the Entwistle adjudication in the sum of £945,756.50, which it was arguing should be deducted, in addition to an amount of approximately £1.057 million by which Amey was contending it, Amey, had been underpaid by HDC. This is made clear in paragraphs 5.1 to 5.5 of the Notice of Adjudication. The point to which Remedy (g) goes is that at paragraph 5.3 of the Notice of Adjudication, which stated:

"Amey contends that no such sums should be deducted, withheld or counterclaimed from Amey as [HDC] is not entitled to disregard VOP3, which applies to every uplift for the full ten year duration of the 2003 Service Delivery Agreement."

21. The reasoning of Mr Entwistle that led to his findings and declarations on the remedies is included in paragraphs 72, and 75 to 77 of his decision. This states as follows. Some of the wording, in particular paragraph 75, was the subject of a great amount of submission before me and so I will reproduce those passages in full:

"72. ..... For now, I find that the Joint Statement substituted VOP 3 for paragraph N4.1 in the SDA.

…..

75. I am of the view, and find, that what was intended was that at the start of each year (which I interpret to mean each calendar year, since there is no explanation of the expression "each year" in VOP 3 or elsewhere in the Joint Statement) an average Baxter increase would be calculated for the previous twelve month period and the amount of the average increase would be added to the Baxter index for the January"

76. Thus, by applying that new index, an adjustment would be calculable as applicable for the Highway services work for the forthcoming year. At the end of that year, a similar calculation would be made of the average Baxter increase during that year and a new index applied, reflecting that increase, from the next January for that forthcoming year.

77. A similar calculation would be made for the RPI increase and that would be applied to all non-highway works. I find that this was the meaning to be given to VOP3."

He also found at paragraphs 113 and 114, in answer to the question "what did the inflation adjustment mechanism become" that (in paragraph 113) the mechanism became as stated in the SDA but with the substitution of VOP 3 for paragraph N4.1. This meant that the remaining provisions of NEC Option N would have remained in place as part of the contract. However, in paragraph 114 he held that the substitution of paragraph N4.1 meant that the Price Adjustment Factor would not be applied and that would mean that the calculation provided for by paragraph N1.1 would no longer be needed and the determination of Base Date Index and Latest Index were rendered redundant.

22. Mr Entwistle also made the following pertinent findings. He expressly stated in paragraph 18:

"I have been given to understand the financial significance of the issues that I am required to address, although consideration and determination of financial matters is not within my jurisdiction. As a result of that understanding, I have come to the conclusion that it is appropriate to give full details of the analyses I have made and detailed explanations of the conclusions I have arrived at."

[emphasis added]

This mirrored paragraph 5.5 of the Notice of Adjudication itself, which stated

"Although financial matters do not form part of this reference, Amey estimates that the financial effect of disregarding that part of the 2005 Joint Statement will be a payment due to Amey from [HDC] of in excess of £2.2m……."

23. Ordinarily, a party dissatisfied with the decision of an adjudicator will comply with it (whether by opposing enforcement first, and being ordered to do so, or voluntarily) and then commence final resolution of the underlying dispute either in litigation or arbitration. Here, however, both parties were satisfied with this decision by Mr Entwistle. By virtue of neither party serving a Notice of Dissatisfaction within the necessary period of 56 days, and by clauses 4.6 and 4.10 of Schedule 7 to the SDA, "Dispute Resolution Procedure", the decision of an adjudicator regarding a dispute under this contract was to become final and binding after that period of time. Paragraph 4.6 of Schedule 7 states:

"His decision shall be enforceable and binding upon the Parties as a matter of contractual obligation unless and until finally determined by the Courts in accordance with paragraph 5 or by agreement of the Parties."

However, clause 4.10 only permits a dispute to be referred to the Courts if a party is dissatisfied with the decision, and notifies the other party of its intention to refer the dispute to the Courts within 56 days of the decision. The 56 day period is therefore the amount of time within which a party can state to the other that it does not accept an adjudicator's decision as being final and binding. That did not occur in respect of the decision of Mr Entwistle. Therefore, both parties before me accepted that Mr Entwistle's decision is binding upon them.

The Molloy Adjudication

24. Despite the lapse of time following the Entwistle Decision, the parties were unable to agree the financial consequences of the Entwistle Decision and, as a result, Amey referred this further dispute to adjudication. That dispute was described by Amey, in its Notice of Adjudication dated 22 January 2015, in the following terms:

"…the parties have failed to reach agreement on how to calculate the VOP3 Index which should apply to the sums due under the Contract in accordance with [the Entwistle Decision]. Therefore the Parties now refer this dispute back to adjudication so that the quantum of the sums owed to Amey on account of the VOP 3 Index, as interpreted in [the Entwistle Decision] can be determined".

This was therefore the second adjudication between these parties (the very first before Mr Loosemore not proceeding to a decision) and followed the first one determined, by Mr Entwistle, which had resulted in the Entwistle Decision. On this occasion, each party was represented by counsel (albeit not the counsel who appeared before me), and Amey used external solicitors (albeit not the firm acting for it in these proceedings). The dispute before Mr Molloy is summarised in paragraph 4 of his decision. He stated: "The dispute concerns how price inflation should be calculated using the VOP3 index". Correctly, in paragraph 2 of his decision he recited that the parties had amended various parts of the SDA, and that "one of those amendments is referred to as the 'VOP3 index', which concerns price inflation". In paragraph 3 he identified that there had been a previous adjudication conducted by Mr Entwistle which Mr Molloy referred to as "Adjudication No.1".

25. HDC challenged Mr Molloy's jurisdiction during the adjudication itself, arguing amongst other things that paragraphs 75 to 77 of the Entwistle Decision were a nullity and that Amey was now seeking to determine two disputes, not one. Mr Molloy analysed the submissions of both parties in this respect and concluded in paragraph 16 of the Molloy Decision as follows:

"Having considered the jurisdictional points raised, I concluded that I did have jurisdiction. I advised the parties of this in my e mail timed at 12:40hrs on 2^nd February 2015:…..my view is that such a dispute regarding how the VOP3 Index should be calculated is something which can be referred to adjudication…..it appears to me that what I am asked to decide is [Amey's] financial entitlement based on its interpretation of how the VOP3 Index should be calculated and which it says is in accordance with Mr Entwistle's Decision. My view is that that is something which I have jurisdiction to decide."

[emphasis added]

26. Mr Molloy scrupulously analysed, by reference to the dicta of Edwards-Stuart J in Hyder v Carillion [2011] EWHC 1810 (TCC), what had been before Mr Entwistle and what he had actually decided in that earlier decision. Mr Molloy also correctly decided in paragraph 18 that Mr Entwistle's:

"…findings in relation to the issues which were identified were to be decided by [Mr Entwistle] and, subject to them forming the basis of his award (in line with Hyder) they would be binding on the parties."

He therefore, contrary to HDC's submissions, found that Mr Entwistle's findings were binding on HDC and Amey, and he also correctly identified in paragraph 22 that:

"I shall therefore consider the parties' respective calculations and positions in relation to the issues between them in the context that the findings [by Mr Entwistle] are binding on the parties".

27. As a result of that very detailed exercise, Mr Molloy came to the conclusions that I have already summarised above, namely that there had been a substantial overpayment to Amey, and that this amount should be repaid to HDC.

The agreed issues

28. Amey's position, in summary, is that Mr Molloy did not follow or apply what Mr Entwistle had decided and accordingly he acted without jurisdiction such that the Molloy Decision is not enforceable. The parties agreed a list of issues for both sets of proceedings before me and they are as follows.

Average Increase

1. Are paragraphs 75 to 77 of the Entwistle Decision binding on the parties?

It is agreed that the answer to this is "yes".

2. If so:

a) Do they interpret VOP3 so as to require the average increase in the index over the last 12 months to be added to the Baxter index for the January each year, or the average index?

b) How is "B" calculated for the purposes of the formula "L-B/B"?

Use Of Indices From The Correct Year

3. Does the Entwistle decision require that the index for the January of each year be used?

It is agreed that the answer to this is "yes"

4. Does the Molloy Decision wrongly apply the uplift for the previous year to the uplifts for January, February and March between 2005 and 2013 inclusive?

It is agreed that the answer to this is "yes"

5. Is the Molloy Decision inconsistent with the Entwistle Decision?

6. Can the Molloy Decision be severed?

Base Index

7. Is the Molloy Decision inconsistent with the Entwistle decision in that it includes a calculation of VOP3 for January and/or March 2003, using monthly price increases in 2002?

Remedy G

8. Does Remedy G prevent the Council from advancing any claim that is inconsistent with the Entwistle Decision?

29. The parties, in their evidence, submitted a great deal of material including detailed calculations. These were for a variety of purposes, but predominantly to demonstrate that their respective way of doing the calculations was the correct one, and also to demonstrate that doing the calculations in other ways led to different results. These calculations were also used to demonstrate the arithmetic effect of making the relevant calculation in a different way. Usually, because this made the mathematics easier, an assumed inflation rate of 1% per month was used by the parties to demonstrate their points, not because inflation has ever been as high as that over the applicable period, but because it makes the effect of compounding easier to follow. Of course, when compounding is performed, the way in which the compounding is done will undoubtedly have an effect. When the numbers are as sizeable as approximately £200 million paid over a ten-year period between 2003 and 2013, adjustments of the type contended for will have a sizeable financial effect. I found the vast majority of this hypothetical evidence of different calculations rather unhelpful. I also consider that it is misconceived in the context of a challenged adjudication enforcement, whether as a defence to summary judgment on Part 7 proceedings or the defensive nature of declarations going to jurisdiction sought in Part 8 proceedings. There are essentially only two matters before the court on a challenged enforcement of an adjudicator's decision. These are whether the adjudicator was acting within his or her jurisdiction; and whether the decision made was one that was reached in accordance with the rules of natural justice, within the context of the adjudication process. This is trite law. There is no issue concerning the way that Mr Molloy conducted the adjudication and natural justice. The sole issue therefore becomes an analysis of his jurisdiction. That issue has different parts, as demonstrated by the eight different elements of the jurisdiction question considered by the parties in their list of issues. However, I would not want this judgment, with its consideration in principle of different calculations and possible errors, to lead to a misapprehension amongst those who use adjudication as suggesting that the court will embark upon a detailed analysis of how any adjudicator has made detailed calculations or findings of fact leading to their ultimate decision. Such an exercise is not the function of the court on enforcement proceedings. The way in which Mr Molloy performed the calculations that he did is not immediately determinative of whether he had jurisdiction to perform those calculations. This distinction did not seem to be apparent to Amey.

The law

30. Adjudicator's decisions will be enforced by the courts, regardless of errors of fact or law. This has been stated many times. Carillion v Devonport Royal Dockyard [2005] EWCA Civ 1358 is the most often quoted appellate authority, including as it does an exhortation (sometimes ignored) that dissatisfied parties should take steps finally to resolve the substantive dispute, rather than waste time and money opposing enforcement. Adjudication is a merely temporary resolution of any dispute. Another, if not the first, appellate authority which the parties in this case might have considered, given their concentration on calculations and errors within them, is that of Bouygues v Dahl-Jensen [2000] EWCA Civ 507 [2000] BLR 522. In that case an adjudicator had incorrectly calculated retention, with the overall result that the party who would have become the net winner (absent the error) became the net loser in the adjudication. Although a stay was granted for other reasons, the Court of Appeal made it clear that summary judgment would still be granted to the "winner", who was the winner only due to the incorrect calculation. The Court of Appeal would not correct the calculation on the face of the decision.
31. An adjudicator's decision will not be enforceable to the extent that he or she purports to decide again that which has already been decided. In Quietfield Ltd v Vascroft Construction Ltd [2006] EWCA Civ 1737 May LJ said at paragraph [31]:

"More than one adjudication is permissible, provided a second adjudicator is not asked to decide again that which the first adjudicator has already decided."

32. In MJ Harding Contractors v Paice and Springall [2015] EWCA Civ 1231 [2016] BLR 85 the Court of Appeal considered an issue arising in one adjudication between the parties, in a series of adjudications that has by now between those parties (as at autumn 2016) reached number five. At that point, an issue arose concerning both the 3^rd and 4^th adjudications. In the 3^rd adjudication, an adjudicator had found that there was no valid payless notice in respect of the final account claim which had been issued, the notice that had been issued being too late. He decided that the final account claim (the merits of which he did not consider) should be paid. A 4^th adjudication started, and the contractor sought an injunction to restrain it on the grounds that it concerned the same dispute decided in the 3^rd. Edwards-Stuart J refused the injunction. Jackson LJ gave permission to appeal on the basis that the case raised issues of importance. The Court of Appeal heard the appeal notwithstanding the decision by Coulson J in the 4^th adjudication which is at Paice and Springall v MJ Harding Contractors [2015] EWHC 661 (TCC) [2015] BLR 345. In that decision, Coulson J declined to enforce the 4^th decision for the reasons of apparent bias. The Court of Appeal held there were important decisions of principle and that the appeal was not academic and heard the appeal in any event concerning the refusal to grant an injunction. In dismissing the appeal, the Court of Appeal stated that "the dispute" should not be looked at in isolation. The decision in the 3^rd adjudication had dealt with the first of two alternative limbs, namely a contractual issue (validity of the payless notice) and hence had not dealt with the second issue, which was the valuation issue. Accordingly, Mr Paice and Ms Springall were entitled to have referred the valuation dispute for resolution in the 4^th adjudication, and remained entitled to do so again in (what was then only proposed) the fifth adjudication. In paragraph [57] Jackson LJ stated that it is what the first adjudicator decided which determines how much or how little remains for consideration by a second adjudicator.
33. This approach was reinforced by a differently constituted Court of Appeal in Brown v Complete Building Solutions Ltd [2016] EWCA Civ 1 [2016] BLR 98. This again concerned repeat adjudications. Mr and Mrs Brown engaged a contractor to build a new house in Surrey. Following issue of a "Final Certificate" by the Architect, the contractor sought a final payment. It was not paid and the contractor commenced the 1^st adjudication. The adjudicator decided that the certificate was not ineffective, and the letter seeking payment was not a valid payment notice as it had certain deficiencies. He therefore found no sum payable. The contractor then corrected the deficiencies, issued a valid payment notice, and started a 2^nd adjudication. Mr and Mrs Brown did not serve a payless notice, and argued that this was the same dispute as the 1^st adjudication. The 2^nd adjudicator did not agree and decided in favour of the contractor. HHJ Raynor QC granted the contractor summary judgment, and Mr and Mrs Brown appealed. The Court of Appeal dismissed the appeal, holding that the terms, scope and extent of the dispute previously referred, and the terms, scope and extent of the earlier decision, had to be analysed. The dispute that was referred for resolution in the earlier adjudication cannot be considered in isolation. Although there are earlier first instance decisions on similar or even the same point, such as Redwing Construction Ltd v Wishart [2010] EWHC 3366 (TCC), the two Court of Appeal authorities are binding and take precedence. In any event, they are consistent with the bulk of the earlier first instance authorities.
34. Here, Mr Stansfield QC for Amey advances a rather subtle argument in order to demonstrate, as he submits, that Mr Molloy had no jurisdiction to act as he did. He argues that the Entwistle Decision binds the parties in terms of the meaning of VOP3. That decision has become binding. Accordingly, Mr Molloy only had jurisdiction to act in accordance with that decision, and no jurisdiction to act otherwise than in accordance with it. Mr Stansfield QC argues that because Mr Molloy had no jurisdiction to act otherwise than in accordance with the Entwistle Decision, if he did act "otherwise" he would have been acting without jurisdiction. Mr Stansfield QC argues that if Mr Molloy made a mistake of fact in applying Mr Entwistle's Decision, Mr Molloy would by reason of that mistake have been acting outside his jurisdiction. This amounts, in my judgment, to a submission that Mr Molloy occupied an entirely unique position amongst adjudicators, to the effect that for his decision to be enforceable he was not permitted to make any errors of fact or law. Any errors of fact, say – such as adding up figures incorrectly – would be to fall foul of Mr Stansfield's argument that he could only act in accordance with the Entwistle decision, and that he had no jurisdiction to act otherwise.
35. With respect to Mr Stansfield QC, this argument is misconceived. Providing that Mr Molloy was resolving the dispute referred to him, and not re-deciding something that was not before him (because it had already been decided by Mr Entwistle), then in my judgment he had jurisdiction to determine that dispute, whether he made mistakes in doing so or otherwise. As stated in Brown v Complete Building Solutions, it is necessary to consider the terms, scope and extent of the dispute previously referred, and the terms, scope and extent of the earlier decision. These are what have to be analysed, not the accuracy of Mr Molloy's arithmetic. The starting point, as Brown LJ stated in that case in paragraph [24], is the view of the adjudicator regarding "whether one dispute is the same or substantially the same". When that is done, it can be seen that Mr Molloy not only knew, but applied, that Mr Entwistle had considered and decided the matter of the binding (or otherwise) nature of the 2005 Agreement, the meaning of VOP3, and whether HDC was entitled to act otherwise than in accordance with its terms. Mr Entwistle had decided those matters. Mr Molloy did not purport or attempt to decide those again. That dispute was not the one that was referred to him, and he did not re-decide those issues. Mr Entwistle had not decided the financial consequences of his findings on VOP3, and expressly had not done so. The parties had not asked him to do so. That was the task that Mr Molloy was asked to perform, and it was the task that he did perform.
36. Further, even if Mr Molloy's point of view is not taken as the starting point (which binding authority requires me to follow in any event) the answer to this point remains the same. In summary terms, Mr Entwistle decided to what extent, and how, VOP 3 was to be considered (including whether it was to be binding). Mr Molloy decided the financial consequences of that. To adopt the wording of Amey's own Notice, the dispute before Mr Molloy was "how to calculate the VOP3 Index which should apply to the sums due under the Contract in accordance with" the Entwistle Decision.
37. However, in order to assist the parties, who advanced different ways of arguing how Mr Entwistle's views of VOP 3 should be interpreted, I will provide my answers to the separate issues that they asked the court to determine in so far as I am able to do so. Issues 6 and 8 require analysis in any event as they constitute free-standing challenges to enforcement.

Average Increase

1. Are paragraphs 75 to 77 of the Entwistle Decision binding on the parties?

It is agreed that the answer to this is "yes".

2. If so:

a) Do they interpret VOP3 so as to require the average increase in the index over the last 12 months to be added to the Baxter index for the January each year, or the average index?

b) How is "B" calculated for the purposes of the formula "L-B/B"?

38. Issues 2(a) and 2(b) represent the essence of each way of doing the calculations, one proposed by HDC, and the other proposed by Amey. Amey argues that the HDC method of approaching this fails to apply Mr Entwistle's findings, as he does not use the expression "average index". The difference in methodology is, according to Amey, that Amey takes the average increase and adds it to the Baxter index in January. HDC, on the other hand, takes the average Baxter index, and not the average increase. Amey argues that Mr Entwistle is clear, and that the average Baxter increase is what has to be taken. HDC, on the other hand, argues that the only sensible meaning of the phrase used by Mr Entwistle "average Baxter increase" is the average of the monthly Baxter index. There is no specific piece of data anywhere that is identified, or referred to generally, as the "average Baxter increase" and so it is necessary to consider the commercial purpose of the provision, and interpret the paragraphs of Mr Entwistle in accordance with well known principles of contractual interpretation. To do otherwise, it is said, would be to give Amey a windfall and to increase the remuneration above that to which Amey is entitled due to inflation.
39. There was some argument before me about the principles which should be adopted by a court when it comes to consider construing an adjudicator's decision. Usually, potentially different interpretations will only arise on enforcement, when a court is faced as a matter of fact with an order sought by one party seeking to enforce what the adjudicator has decided. However, here the parties have effectively agreed (in the sense that neither served a notice of dissatisfaction with Mr Entwistle's decision on the other) that the language adopted by Mr Entwistle represented their agreement. In those circumstances, I consider that the usual principles of contractual interpretation would apply, set down in the well known cases such as Arnold v Britton [2015] AC 1619, Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. This is because these particular parties have indeed chosen the language. The parties in this case did have control over the language they used, because even though Mr Entwistle was not a party and drafted that language, they chose to accept it. I did not hear full argument on principles of construction that should be applied to an adjudicator's decision more generally when its meaning is unclear, and this judgment should not be taken as deciding that latter point which is of wider application. The commercial purpose of the VOP3 provision was to compensate Amey only for inflation – it was not to increase the remuneration above that.
40. Turning to the phrase "average Baxter increase", I do not consider that this phrase can simply be picked from paragraph 75 of the Entwistle Decision and concentrated upon in isolation the way that Amey seek. It must obviously be read in context, not only regarding the rest of the decision generally but in particular paragraphs 114 and importantly paragraph 76. That latter paragraph makes it clear that Mr Entwistle envisaged the creation of what he called "a new index". That makes it clear to me that he envisaged the creation of a new formula or equation. He was not simply adjusting one variable (or component) within an existing equation, as Amey seeks to do. Therefore, on this issue, I prefer the construction of HDC.
41. However, there are some difficulties with both parties' submission on this point. HDC has constituted a new approach with both elements of the pre-existing equation, (L-B)/B, being adjusted or changed. Amey would only change L. I heard no submissions from Amey as to what other candidates there might be for "B", if the Entwistle Decision is to be interpreted as I have found it should be interpreted. The formula (L-B/B) is contained within the Price Adjustment Factor in Option N1.1(c) which Mr Entwistle decided should be replaced. This sub-issue was added by both parties before the second day of the two-day hearing before me, and I did not hear any alternatives for "B" other than the adjusted B used by HDC, or the original measure of B as used by Amey. This sub-issue also ignores paragraph 114 of the Entwistle Decision. In my judgment, I do not consider that this sub-issue is necessary to resolve the differences between the parties on enforcement. I therefore decline to answer Issue 2(b) on the state of the evidence and submissions before me. It may be, if Part 7 proceedings are actually commenced for final resolution of the dispute, and the actual effects of actual inflation considered, that other ways of identifying "B" are more suitable to achieve the commercial purpose. The Entwistle Decision does not state, definitively, what B is to be. However, so far as Amey's approach is concerned, it does not seem to me to be at all logical to adjust "L" (an adjustment required undoubtedly as a result of the Entwistle Decision) yet leave "B" in its earlier, pre-VOP3, state, which is what Amey seek to do. To do the calculation in that way will undoubtedly increase the amount of the adjustment, and in my judgment this runs the risk of over-compensating Amey by increasing the rates above the necessary element to allow for inflation. Also, if that were what Mr Entwistle had decided was the meaning of VOP3, he would have said so, and concentrated upon the need to change "L" only. He did not do this and in my judgment his decision cannot be interpreted in that way.

Use Of Indices From The Correct Year

3. Does the Entwistle decision require that the index for the January of each year be used?

It is agreed that the answer to this is "yes"

4. Does the Molloy Decision wrongly apply the uplift for the previous year to the uplifts for January, February and March between 2005 and 2013 inclusive?

It is agreed that the answer to this is "yes"

5. Is the Molloy Decision inconsistent with the Entwistle Decision?

7. Is the Molloy Decision inconsistent with the Entwistle decision in that it includes a calculation of VOP3 for January and/or March 2003, using monthly price increases in 2002?

42. Issues 5 and 7 can be taken together. I find that the Molloy Decision is consistent with the Entwistle Decision in that Mr Molloy did not attempt to re-decide or consider again that which had been decided by Mr Entwistle. Such errors of calculation as were made by Mr Molloy do not render his decision unenforceable. Mr Molloy certainly did not attempt to re-decide matters that had already been decided by Mr Entwistle.

6. Can the Molloy Decision be severed?

43. The basis of the "severance" claim advanced by Amey is that, if the decision of Mr Molloy is enforceable (which I find it is), it should not be enforced in the full amount because part of the amount of repayment calculated by him involved an error in one part of the spreadsheet that Mr Molloy was using. This claim is only advanced in the alternative. The primary position adopted by Amey is that the decision is not severable, and the decision should not be enforced at all. However, if I am against Amey on that, it is argued in the alternative by Amey that I should give leave to defend up to the amount of the error. Given the size of the error is not agreed, it is said that I should give leave to defend for the larger amount contended for.
44. I consider that such an approach would be contrary to the law regarding enforcement of decisions by adjudicators. It would amount, here, to a correction of an error of fact on the face of the decision to arrive at a different outcome. It would be different, say, if part of the decision of an adjudicator were made without jurisdiction (for example, a deduction for liquidated damages) and part within their jurisdiction (to continue the example, the variation account). In those circumstances, severance can be performed and the principles set down in paragraph 64 of Cantillon Ltd v Urvasco Ltd [2008] EWHC 282 (TCC) [2008] BLR 250 make it clear the approach that should be taken. Paragraph [64] of that judgment of Akenhead J sets down the principles that apply. A decision on a single dispute is either valid and enforceable, or invalid and unenforceable. This was a single dispute, one of the categories identified by Akenhead J in that case where a decision may not be severed. The single dispute here was the financial effect of the inflation adjustment necessary as a result of VOP3 and Mr Entwistle's findings as to its effect. The error that he made in one part of the calculation of that total cannot be severed. This would, in my judgment, amount to a correction of a single mistake of fact. The court will not embark upon such an exercise, and it is well known that adjudicator's decisions are enforceable regardless of mistakes of fact and/or law, even those apparent on the face of the decision. The fact that the mistake can be seen in the spreadsheets used by Mr Molloy to reach the figure for repayment makes it even less suitable or permissible, in my judgment, for the court to interfere by severing that part of the calculation. What Amey is really seeking is not "severance"; it is correction of the arithmetic or spreadsheet calculation. An error in the arithmetic does not render the decision unenforceable.
45. Although this case was not relied upon by either party, the calculation error in this case is very similar to the situation in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] EWCA Civ 507 [2000] BLR 522. In that case, the error that the adjudicator made in his calculation was apparent on the face of the decision. Summary judgment was still granted and the court would not contemplate adjustment of the arithmetic to correct the outcome.
46. There was some debate before me by the parties as to the intention of the adjudicator when he made the error that he did – HDC submitted that Mr Molloy was intending to apply the reasoning and findings of Mr Entwistle. I accept that he was, but in my judgment his intention is not relevant. There will be an enormous amount of wasteful satellite litigation ahead in adjudication enforcements if the court adopts an approach to errors of fact in one way if an adjudicator is perceived as having a particular intention, and in another if the intention is, or appears to be, different. The test is whether what the adjudicator decided is something that it was within their jurisdiction to decide. In my view, the calculation that Mr Molloy performed leading to the figure in the Molloy Decision was within his jurisdiction. Accordingly, the question of "severing" part of it – in reality correcting an error in his calculation – does not arise.

Remedy (g)

8. Does Remedy G prevent the Council from advancing any claim that is inconsistent with the Entwistle Decision?

47. Applying the test as set down in MJ Harding Contractors v Paice and Springall [2015] EWCA Civ 1231 [2016] BLR 85 and Brown v Complete Building Solutions Ltd [2016] EWCA Civ 1 [2016] BLR 98, it can be seen that Mr Entwistle was not asked to decide, and did not decide, that HDC was not entitled in any circumstances and at any point in the future to have any recalculation performed that would result in a payment in its direction. This is not what Remedy (g) deals with, although it is how Amey seeks to have it interpreted. Again, in my judgment that part of the Entwistle Decision is being taken out of context and Amey can only advance this argument if no attention is given to the dispute that was actually referred to Mr Entwistle in the first place. Remedy (g) of the Entwistle Decision deals with the situation as it pertained at the time of that dispute before Mr Entwistle, namely the attempts being made then by HDC to act other than in accordance with VOP 3, and to make deductions on a basis other than one calculated in accordance with VOP 3.
48. Indeed, as Mr Curtis QC for HDC compellingly points out, the financial effect of Mr Entwistle's findings on the binding nature of VOP 3 were expressly not before him, and neither party asked Mr Entwistle to deal with them. They were excluded expressly by him, and the adjustments necessary to the actual payments to which Amey were entitled were no part of that decision. Remedy (g) cannot sensibly be interpreted to mean that the calculation of those future adjustments could only ever be performed, or enforced, if they were in Amey's favour. Accordingly, in my judgment, Remedy (g) cannot be interpreted in the way contended for by Amey. Nor can the dispute referred to Mr Molloy sensibly be interpreted as one consisting of an assessment of Amey's entitlement to payment but only in one direction, namely a positive payment to Amey. It was no part of the Entwistle Decision that HDC were not entitled to any repayment if the consequential adjustment necessary were to show that Amey had been overpaid. Both parties knew that the financial effects of the Entwistle adjudication would have to come after he had decided the points of principle. Accordingly, the Entwistle Decision concerning Remedy (g) does not affect the enforceability of the Molloy Decision. Mr Molloy had jurisdiction to perform a calculation that showed Amey had been overpaid, and to order the overpayment to be repaid to HDC. It is enforceable notwithstanding Remedy (g).

Conclusion

49. HDC is entitled to summary judgment for the full amount of the Molloy Decision, as adjusted for interest, in its Part 7 proceedings. The Part 8 proceedings brought by Amey fail, and Amey is not entitled to any of the declarations sought in those proceedings.