[2024] EWHC 1032 (TCC)

Was the Adjudicator’s error within jurisdiction, such that the court will not interfere?

This is a more difficult point. It is clear that the Adjudicator was alerted to the limitations of his powers under paragraph 22A (1), but he nonetheless concluded that he was entitled to issue the Revised Decision.

What is the legal effect of his so proceeding?

The starting point, in my judgment, is the decision of the House of Lords in Lesotho Highlands Development Authority v Impregilo SpA[2006] 1 A.C. 221.

In that case, their Lordships were concerned with two provisions of the (then quite new) Arbitration Act 1996.

Section 48 provided that:

“(1)

The parties are free to agree on the powers exercisable by the arbitral tribunal as regards remedies.

(2)

Unless otherwise agreed by the parties, the tribunal has the following powers….

(4)

The tribunal may order the payment of a sum of money, in any currency…”

Section 68 dealt with challenges to an Award, as follows, so far as material:

“(1)A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award…

(2)

Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant—

…(b)the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: see section 67) …”

In Lesotho, the facts were that a public authority in the Kingdom of Lesotho had engaged the contractors, a consortium of seven companies from various countries, to construct a dam in Lesotho. The law of the contract was stated to be that of the Kingdom of Lesotho and the currency of account was to be Maloti, with provision for payments to be converted into the contractors' currencies at the exchange rates applicable on a specified date. The project was successfully completed but a dispute arose in respect of claims by the contractors for reimbursement of increased costs. The employers rejected the claims and they were referred to ICC arbitration in London. The arbitrators decided that sums totalling 18.9m Maloti should have been paid by the employer. However, between the date when the payments should have been made and the date of the award the value of the Maloti had fallen heavily and the arbitrators, in purported reliance on their power under section 48(4) of the 1996 Act, ordered payment in the contractors' own currencies converted from Maloti at the rate prescribed in the contract, which pre-dated the Maloti's collapse. The judge held that the arbitrators had exceeded their powers by expressing the award in currencies other than those stipulated in the contract. The Court of Appeal upheld the judge's decision.

The House of Lords held that there had been no excess of power under section 68(2)(b) of the 1996 Act. Lord Steyn gave the leading speech as follows, with emphasis added:

“23.

Contrary to the view I have expressed, I will now assume that the tribunal committed an error of law. That error of law could have taken more than one form. The judge ([2003] 1 All ER (Comm) 22, para 25) and the Court of Appeal ([2004] 1 All ER (Comm) 97, para 35) approached the matter on the basis that the tribunal erred in the interpretation of the underlying contract. Another possibility is that the tribunal misinterpreted its powers, under section 48(4) to express the award in any currency. Let me approach the matter on the basis that there was a mistake by the tribunal in one of these forms. Whichever is the case, the highest the case can be put is that the tribunal committed an error of law.

24.

But the issue was whether the tribunal "exceeded its powers" within the meaning of section 68(2)(b). This required the courts below to address the question whether the tribunal purported to exercise a power which it did not have or whether it erroneously exercised a power that it did have. If it is merely a case of erroneous exercise of power vesting in the tribunal no excess of power under section 68(2)(b) is involved. Once the matter is approached correctly, it is clear that at the highest in the present case, on the currency point, there was no more than an erroneous exercise of the power available under section 48(4). The jurisdictional challenge must therefore fail…

32.

In order to decide whether section 68(2)(b) is engaged it will be necessary to focus intensely on the particular power under an arbitration agreement, the terms of reference, or the 1996 Act which is involved, judged in all the circumstances of the case. In making this general observation it must always be borne in mind that the erroneous exercise of an available power cannot by itself amount to an excess of power. A mere error of law will not amount to an excess of power under section 68(2)(b).

33.

For these reasons the Court of Appeal erred in concluding that the tribunal exceeded its powers on the currency point. If the tribunal erred in any way, it was an error within its power.”

This point was considered in the adjudication context by Ramsey, J in O’Donnell Developments Limited v Build Ability Limited [2009] EWHC 3388 (TCC).

It may be helpful to set out a substantial portion of that judgment, with emphasis added:

“The Threshold Question

29.

On this application for summary judgment there is a threshold question as to how far the court can interfere with an adjudicator’s exercise of his power under the slip rule. If an adjudicator has jurisdiction under the slip rule, to what extent can the court review the exercise of that jurisdiction by the adjudicator? This question did not arise in Bloor and was not argued in YCMS.

30.

Mr. Lofthouse QC submits that the court needs to be satisfied that a slip, properly so defined, has occurred. If there is no slip then the adjudicator does not have jurisdiction. He submits that the position may be different if there was an express power to correct slips.

31.

He also referred me to paragraph 2.118 of Coulson on Construction Adjudication where, referring to the decision in Bloor and its effect on the principle in Bouygues, he says that the two decisions can be reconciled and adds:

“If the parties are in dispute as to the obviousness (or otherwise) of the alleged ‘slip’, or the adjudicator does not accept that an error has been made, or does accept it but only some time after the publication of the decision, then it is thought that the approach in Bouygues will remain appropriate.”

32.

Mr Lofthouse submitted that it was only if the parties, in effect, agreed on the slip that the slip rule could be applied. I do not think that the passage cited expresses that view. What it is stating is that if the parties agree or the adjudicator decides that there has been a slip and does so within time, then the slip can be corrected. If that does not happen then in the circumstances set out in the passage cited, the position remains that there is an enforceable decision as set out in Bouygues.

33.

Ms. Finola O’Farrell QC, on behalf of ODD, refers to the decision of the House of Lords in Lesotho Highlands Development Authority v Impregilo SpA [2006] 1 AC 221 which was cited by the court in argument. She submits that it is authority for the proposition that an erroneous exercise of a power does not constitute an act in excess of powers so as to fall outside of the jurisdiction of the adjudicator. She refers to the following passage from Mustill & Boyd on Commercial Arbitration, cited with approval by Lord Steyn at [25]:

“if… [the arbitrator] applies the correct remedy, but does so in an incorrect way - for example by miscalculating the damages which the submission empowers him to award - then there is no excess of jurisdiction. An error, however gross, in the exercise of his powers does not take an arbitrator outside his jurisdiction and this is so whether his decision is on a matter of substance or procedure.”

34.

She submits that, as set out by Lord Steyn at [31] and [32], the concept of a tribunal exceeding its powers necessarily assumes that the tribunal was acting within its substantial jurisdiction.

35.

I accept her submission that an erroneous exercise of a power does not fall outside the jurisdiction of an arbitrator or adjudicator. However, the distinction between disputes as to the jurisdiction of an adjudicator and disputes as to ways in which that jurisdiction should be exercised is not an easy one to draw as the decision in Lesotho Highlands shows. This can be illustrated in the case of the slip rule as follows. First if the adjudicator were to exercise a slip rule when there was no express or implied slip rule, that would clearly be a decision which was outside his jurisdiction. Secondly, if the adjudicator is asked by one party to correct a slipand he accepts that an error has been made within the slip rule then if the adjudicator makes an error of fact or law in so doing, I consider that such an error does not take the exercise of the slip rule outside his jurisdiction. Finally, if theadjudicator is asked by one party to correct a slip which the other party agrees is aslip within the slip rule but in operating the slip rule he makes and error of fact orlaw, then I do not consider that the court can interfere in that decision.

36.

The dividing line between exercising a wrong jurisdiction which does not exist and exercising a jurisdiction which does exist, wrongly is difficult. Each case obviously has to be considered on its facts to decide whether it is a decision within or outside the adjudicator’s jurisdiction.

37.

As Dyson J said in Bouygues at [36]:

“…in deciding whether the adjudicator has decided the wrong question rather than given a wrong answer to the right question, the court should bear in mind that the speedy nature of the adjudication process means that mistakes will inevitably occur, and, in my view, it should guard against characterising a mistaken answer to an issue that lies within the scope of the reference as excess of jurisdiction.”

38.

In considering whether the adjudicator was acting within his jurisdiction in operating the slip rule the court should similarly guard against characterising a mistaken application of the slip rule as a decision in excess of, and therefore, outside his jurisdiction.

39.

In the present case it is accepted by BAL that the slip rule is an implied term of the Sub-Contract. The Adjudicator was asked to correct a slip and accepted that he had made an error within the slip rule. In such circumstances I do not consider that the court can or should interfere with the exercise of the adjudicator’s powers

within his jurisdiction. To do so would be to seek to interfere in a case where he has answered the right question and like Bouygues his decision will be temporarily binding, whether he was right or wrong in the answer he gave.

40.

If I am wrong about that and the court can interfere in the decision then I have to consider the merits of the dispute.

Review of the exercise of the slip rule…

54.

I consider that the Adjudicator was correct to identify the mistake as an “inadvertent slip” because he made a deduction which he had not intended to make. Such slips are often, to some extent, contributed to by information provided by the parties or the way in which that information is provided. I do not consider that this prevents an adjudicator from operating the slip rule if he concludes that what he has done is not what he intended. In this case both parties had provided the Adjudicator with similar figures. This is not a case of the Adjudicator givingeffect to second thoughts or intentions but of giving proper effect to his firstthoughts.

55.

In those circumstances, the Adjudicator applied the slip rule to correct an accidental error and BAL has no real prospect of successfully defending ODD’s claim for sums due under corrected Decision 8A. On the basis that BAL has paid all other sums due on Decisions 8A and 9, ODD is therefore entitled to summary Judgment for £148,468.67.”

In this case, LJJ rely upon the highlighted passage in paragraph 35 of the Judgment. They submit that the Adjudicator was asked by them to correct a slip and accepted that an error had been made within the slip rule. Even if he was wrong about that, this did not take the exercise of the slip rule outside his jurisdiction. The court should not interfere.

I do not agree, for the following reasons:

For these reasons, I have concluded that O’Donnell does not bind me to any particular approach to the facts of the present case. It is clear from O’Donnell that “the dividing line between exercising a wrong jurisdiction which does not exist and exercising a jurisdiction which does exist, wrongly is difficult. Each case obviously has to be considered on its facts to decide whether it is a decision within or outside the adjudicator’s jurisdiction.”

In the present case, I am satisfied, particularly having regard to the Adjudicator’s email of 4th November 2023 at 12:31 that the Adjudicator’s approach in the present case fell the wrong side of the line. In particular, the addition of the words “if not already allowed” served to convert a straightforward determination that a sum of money should be paid within seven days by LJJ into a mere declaration that a sum was due, subject to an investigation of other transactions between the parties.

I am, of course, bound by the decision in Lesotho. That obliges me to “focus intensely on the particular power”. The power in question was “to remove a clerical error or typographical error arising by accident or omission”. On a correct analysis of what the Adjudicator did here, this was not “merely a case of erroneous exercise of power vesting in the tribunal” but, rather, the purported exercise of a power which the Adjudicator did not have, namely “giving effect to second thoughts or intentions”.

Finally, on this aspect, it should be noted that the Adjudicator did not attempt to change paragraph 84 of the Decision, the last sentence of which provides that:

“In any case that Application [17] and the corresponding Payless Notice were superseded by Interim Application 18, and the related Payless Notice of the following month in which [the Claimant] says, no Key Date Damages were deducted.”

It was this finding which was the subject of a substantial part of the further submissions of LJJ. Despite the proposed inclusion of the words “if not already allowed” in paragraphs 2 (Operative) and 138 (Reasons), no change was suggested by the Adjudicator for this paragraph. This reinforces my conclusion that the Adjudicator was here seeking to clarify or qualify his decision, i.e. to exercise a power which he did not have. He was not, in truth, attempting to remove a clerical error or typographical error arising by accident or omission, the power which he did have.