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MILLER CONSTRUCTION (UK) LIMITED v. BUILDING DESIGN PARTNERHIPS LIMITED


Submitted: 02 May 2014

OUTER HOUSE, COURT OF SESSION

[2014] CSOH 80

CA55/14

OPINION OF LORD MALCOLM

in the cause

MILLER CONSTRUCTION (UK) LIMITED

Pursuers;

against

BUILDING DESIGN PARTNERSHIP LIMITED

Defenders:

________________

Pursuers: Richardson; Burness Paull LLP

Defenders: Balfour; Simpson & Marwick

2 May 2014

[1] In this action Miller Construction (UK) Ltd (the pursuers) ask the court to enforce an adjudicator's award by granting summary decree ordaining Building Design Partnership Ltd (the defenders) to pay them £224,044.96, all as part recompense in respect of the costs arising from the replacement of a defective ventilation system.


Submissions for the defenders

[2] For the defenders Mr Balfour explained that the action is resisted on the basis that the adjudicator's reasoning was inadequate and incoherent. In Diamond & Others v PJW Enterprises Limited 2004 SC 430, the then Lord Justice-Clerk, Lord Gill, said that a reasonable reader must be able to make sense of an adjudicator's decision (paragraph 31). The losing party is entitled to know why he lost. Counsel also submitted that there had been a breach of natural justice, in that, without notice, the adjudicator determined the dispute on a basis which had not been raised by either party. The pursuer's case before the adjudicator was presented solely on the basis of alleged professional negligence on the part of the defenders. The adjudicator held that it had not been proven that the defenders were professionally negligent. According to Mr Balfour it followed that he was bound to find in the defender's favour. Counsel observed that the adjudicator held against the defenders "on some notion of responsibility regarding the installation of the ventilation system". This was "a frolic of his own". The finding at paragraph 10.3.2 of the decision, namely that there was no evidence that it was the defenders who selected the particular type of ventilation unit used in the system, should have been fatal to the pursuer's case. It was submitted that the defenders had no obligations in connection with the installation of the ventilation system. "The issue was never one of responsibility for the installation." Given the adjudicator's findings, his ultimate decision makes no sense. In these circumstances summary decree should be refused and the case put out by order for discussion as to appropriate further procedure.


Submissions for the pursuers

[3] For the pursuers Mr Richardson contended that the failure of the ventilation system, for which the defenders had a design responsibility, was, in itself, a breach of contract on their part. Although there was no finding that the defenders selected the particular type of ventilation unit used in the system, thereafter they were involved in design decisions. The phrase "installation of the ventilation system" might be unfortunate, but a reasonable reading of the decision as a whole leaves no doubt as to the reasons for the award, and that it flowed from the case presented to the adjudicator by the pursuers. In particular the defenders were involved in a collaborative process concerning the design of a ventilation system which failed to meet the required standard of performance. The use of the term "installation" should be understood in this sense. Because the adjudicator held that responsibility for the failure was shared equally between the parties, he awarded the pursuers only 50% of the replacement costs. The court was cautioned as to the risk of allowing the defenders a re-run of their arguments before the adjudicator, and of being tempted into an examination of the merits of his decision. According to Mr Richardson it is clear that there is no defence to the action, thus summary decree should be pronounced.

Discussion

[4] If an adjudicator's decision is so muddled or confused as to perplex the reasonable reader, it will not be enforced. However there is no question of muddled or confused reasoning in respect of this award. On the contrary, the decision and the reasons leading to it are clear, coherent and readily understandable. In my view the real issue in the case is whether the adjudicator was entitled to decide the dispute on the basis which he did.

[5] The pursuers were appointed as the design and build contractors for a new facility and associated infrastructure at Motherwell College. The defenders were the lead consultants. They were the architects for the project, and their services included acoustic and building services engineering. Following completion, complaints were made about stuffy classrooms. It was discovered that the ventilation system did not comply with the contractual requirement of a fresh air flow rate of 8 litres per person per second. A new system was installed at a cost of £448,089.33, exclusive of VAT. The pursuers sought to recover this sum from the defenders, who denied liability, and the adjudication ensued. Amongst other things the adjudicator was asked to determine that (a) the defenders undertook responsibility for the design of the development, including the ventilation system; (b) the defenders did not meet the required minimum fresh air flow rate in the design of the ventilation system; and (c) they failed to exercise the standard of skill and care expected of an ordinarily competent mechanical and electrical engineer/lead consultant.

[6] Amongst other things, the defenders sought a finding from the adjudicator that the pursuers had failed to prove a breach of contract on their part. They averred that, in order to save money, the pursuers decided to change the type of ventilation unit to be used in the system from "Passivent" to "Renson" units. "As a result the ventilation system was inadequate to meet the contractual requirements". There was no requirement on the defenders to examine the design of proprietary products supplied by the contractors. It was claimed that the defenders were not liable. It was averred that the defenders advised the pursuers that Passivent units were the only suitable solution of which they were aware. In short, the defenders blamed the deficiencies on the pursuers' decision to use Renson units rather than those specified by the defenders. But for that, all would have been well.

[7] In his decision the adjudicator noted that the dispute concerned factual and contractual differences of importance. He had regard to evidence led on behalf of the pursuers to the effect that it was the design team which concluded that the initial Passivent design was unsuitable. The design development process continued for some months. It was said that it was only after confirmation from the defenders and the sub-consultants for building services (Aecom) that the pursuers instructed purchase of the Renson units. One witness accepted that there was a cost saving, but claimed that this was not the reason for the change. There was evidence that the defenders and Aecom communicated directly with Renson throughout the design period.

[8] The adjudicator's decision includes reference to the expert reports submitted by the parties. Mr Williamson's stated that the defenders and Aecom had a duty to coordinate the alternative Renson proposal into the overall design. Another, Mr Morris, said that it was for the designers of the building and the ventilation system to determine and assess whether the pressure differences required to provide the necessary air flow would be present at all times. Had this been done, it would have been evident that the 8 litres per person per second requirement would not be met if the Renson units were used.

[9] The adjudicator noted that there were significant factual disputes between the parties, and differences as to "which party carries responsibility for the installation of a Renson system which failed to meet the employers' requirements, and which should bear the costs of replacing the Renson system with an acceptable Passivent system" (paragraph 9.1). Counsel for the defenders takes exception to this formulation, but in my view it is an entirely reasonable description of the issues put before the adjudicator by both parties. The adjudicator observed that the pursuers blame the design team for the change to the Renson units, thus it is said that the defenders, as lead consultants, should take full responsibility for the subsequent failures. On the other hand, the defenders blame the pursuers for instructing a purely cost saving measure, and claim that they were not in breach of any of their duties (paragraphs 9.2/3).

[10] In chapter 10 of the decision, the adjudicator set out his findings on the relevant issues. He thought it probable that the change to Renson units was made by the pursuers as a cost saving measure. He found no evidence that the defenders were involved in the selection of the Renson units. The Renson system failed because in certain circumstances the Renson units could not match their stated performance data. Both parties were involved in the process of managing the installation of the units. There was a design failure in that, as an overall concept, it failed to meet the contractual performance requirements. The adjudicator noted that the pursuers relied upon a term of the contract that the contractors would have no liability in respect of any defect, insufficiency or fault in the consultant's design; and that the defenders referred to another provision which stated that the consultants need not examine the design of proprietary products supplied by the contractors. At paragraph 10.8 the adjudicator concluded that neither party could place all of the responsibility for the selection and installation of the inadequate Renson system on the other party. The defenders did not design the Renson system, however they "did have obligations and responsibilities in respect of the installation of the system". By this I understand the adjudicator to mean that the defenders did not choose to use Renson units, but this did not discharge them of all contractual responsibilities for the effectiveness of the system as a whole.

[11] The adjudicator was not persuaded that the defenders fell below the standard of skill and care expected from reasonably competent lead consultants. He explained that there was a substantial element of unpredictability in the assessment of air flows in the new buildings. "Both parties took risks in assuming that the Renson system would meet the contractual requirements. I find that the parties share responsibility" (paragraph 10.9). The adjudicator decided that the parties should be liable for the replacement costs on a 50-50 basis, hence the award of just over £224,000.

[12] This reasoning was carried forward into the adjudicator's decisions on the redress sought by the parties. They included that the defenders undertook responsibility for the design of the development, including the ventilation system, under exception of products manufactured or supplied by contractors or sub-contractors. In other words, while the defenders had no involvement in the choice of the Renson units, as lead consultants they retained a degree of accountability for the performance of the ventilation system as a whole. They could not simply wash their hands of the subsequent failure to meet the contractual requirements as to air flow. The adjudicator made it clear that he was not deciding the case on the basis of the allegation of a failure to demonstrate the care and skill expected of lead consultants, but rather on the defenders' obligation to design a system which complied with the contract specifications.

[13] One can understand why the defenders are disappointed with the decision. They succeeded in putting the blame for the choice of the Renson units on the pursuers' desire to save costs. Without that change, in all probability the system as originally designed would have worked well. Furthermore the pursuers failed to prove that the defenders were professionally negligent. However the court's task is not to assess the merits of the decision, nor to discuss the substance of the dispute referred to the adjudication. The question is whether the adjudicator was entitled to reach the decision summarised above. Essentially the defenders claim that the pursuers' case was perilled on the allegation of professional negligence, and that there was no scope for a finding of breach of contract upon some other basis. In the defences to the action it is averred that the adjudicator determined matters on the basis of which party bore "responsibility", which "was not the issue that had been remitted to him for his determination." The defenders should have been given an opportunity to address the approach which found favour with the adjudicator, hence there was a substantial breach of natural justice.

Decision

[14] In my view the defenders have taken too narrow a view as to the issues in the adjudication, and as to the scope of the adjudicator's decision-making powers. The broad issue remitted to him was to determine whether the defenders undertook responsibility for the design of a ventilation system which failed to meet the minimum fresh air flow rate requirement. It is true that there was an offer to prove professional negligence in the Hunter v Hanley sense, but I find nothing to support the view that the pursuer's case depended upon that, or that it was not open to the adjudicator to conclude that the lead consultants carried some responsibility for the deficiencies in the ventilation system given their design obligations and ongoing involvement in the design process once the Renson units were chosen. At paragraph 6.1.4 of the Notice of Intention to Refer, the pursuers allege that the defenders were in breach of contract and further in any event they failed to meet the standard of skill and care required of a competent mechanical and electrical engineer in providing a defective design (emphasis added). Furthermore, it appears from the defenders' rejoinder to one of the submissions to the adjudicator that they fully appreciated that the pursuers' case was not dependent upon proof of negligence. At paragraph 2.1 of production 6/7, the defenders stated:

"The referring party's case proceeds on an erroneous hypothesis, namely that by demonstrating the minimum airflow was not met, an inference arises that the respondent was in material breach of contract. The contractual test which the respondent requires to meet is not one of fitness for purpose but rather one of failing to meet the standard required of an ordinary competent professional exercising appropriate skill and care."

[15] No doubt one possible outcome of the adjudication was that the pursuers, having specified the Renson units in place of the apparently satisfactory Passivent units originally chosen by the design team, should be held wholly responsible for the unsatisfactory outcome. However there was evidence before the adjudicator that the defenders and the sub-consultants communicated directly with Renson throughout the design period, and there was expert evidence that they required to coordinate the alternative Renson units into the overall design. Another expert was of the view that there should have been an assessment by the defenders of the suitability of the Renson units to provide the required performance, and that, had this been done, it would have been apparent that the required air flow rate would not be met. It seems to me that there was scope and a basis for the view that the defender's design duties and obligations did not end when the Renson units were specified by the pursuers. Thereafter the decision to share liability on an equal basis was within the discretion of the adjudicator.

[16] I agree with Mr Richardson's submission that Mr Balfour took an overly strict view of the adjudicator's use of the phrase "installation of the system." The adjudicator had firmly in mind the overall design obligations undertaken by the defenders, and, on a fair reading of his decision as a whole, it is clear that he was not criticising the workmanship involved in the installation, but rather the defenders' post-Renson unit ongoing involvement and collaboration in respect of a ventilation system which proved to be inadequate for the buildings concerned. No doubt if the defenders had done no more than provide a document setting out a system using the Passivent units, and then, without their knowledge or involvement, the pursuers used that design but substituting Renson units, the outcome might have been different; but the adjudicator's findings paint a very different picture. There may be some infelicities in the expression of certain parts of the decision, and a lawyer might have expressed matters differently, however none of that gives me any cause for concern.

[17] It is well established in the authorities that an adjudicator is given considerable leeway, and that the court should be very slow to refuse enforcement on the grounds of breach of natural justice or that the adjudicator exceeded his jurisdiction. For example, reference can be made to the decision in the case of Diamond (cited earlier), and to the judgment of Chadwick LJ in Carillion Construction Limited v Devenport Royal Dockyard Limited [2006] BLR 15 at paragraphs 52/3 and 84/7. Amongst other things it was confirmed that an adjudicator is not required to adopt one or other of the parties' submissions. He can take an intermediate position without giving notice of his intention to do so. The remedy for the disappointed party is to resort to litigation or arbitration to establish the correct position in fact and law.

[18] I have already held that the adjudicator's reasoning was clear and coherent. I am also satisfied that he was entitled to proceed as he did, and that the decision was within the scope of the dispute referred to him. He did not embark upon the suggested "frolic of his own". There was no unfairness by not giving the defenders an opportunity for further submissions in respect of the adjudicator's intended approach. In my opinion there is no sound basis for challenging this award and the defence to the action must fail. There is nothing to be gained by further procedure. I shall grant summary decree in the terms sought by the pursuers.