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You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> RWE Npower Plc v Alstom Power Ltd [2009] EWHC 1192 (QB) (23 December 2009)
URL: http://www.bailii.org/ew/cases/EWHC/QB/2009/1192.html
Cite as: [2010] CILL 2835, [2009] EWHC B40 (TCC), [2009] EWHC 1192 (QB)

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Neutral Citation Number: [2009] EWHC 1192 (QB)
Claim No. 9BS90329

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

Bristol TCC
23 December 2009

B e f o r e :

HIS HONOUR JUDGE HAVELOCK-ALLAN QC
____________________

Between:
RWE NPOWER PLC
Claimant
- and -

ALSTOM POWER LIMITED
Defendant

____________________

Andrew Kearney (instructed by Osborne Clarke) for the claimant
Sean Brannigan QC (instructed by Hammonds LLP) for the defendant

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©


     
  1. This judgment follows the trial on documents and witness statements of preliminary issues concerning the enforceability of the decision of an adjudicator.
  2. The adjudication took place under a contract concluded in October 2006 for the repair and maintenance of the boilers at the Aberthaw power station in the Vale of Glamorgan. The defendant, Alstom, is a contractor who specialises in carrying out works to plant and machinery at power stations. The defendant, RWE, owns and operates the Aberthaw power station.
  3. The boiler contract was one of three contracts concluded between Alstom and RWE at about the same time. There was also a contract for the overhaul of the feed system at the power station ("the feed system contract") and a contract for reactive maintenance going forward ("the term maintenance contract").
  4. RWE planned for the boiler overhaul to be spread over three years because only one unit could be taken out of service at any one time. Alstom produced a programme of works which envisaged an interim outage of Unit 7 and a major outage of Unit 9 in 2007, a major outage of Unit 8 in 2008 and completion with an interim outage of Unit 9 and a major outage of Unit 7 in 2009. However the boiler contract was to run for an initial period of only 12 months (from 1st January to 31st December 2007) with RWE having the option to extend it for two further 12 month periods covering 2008 and 2009. In the events that happened, the contract was extended to cover 2008 but was not renewed for 2009.
  5. The boiler contract and the feed system contract incorporated a set of standard conditions entitled Model Conditions of Contract for Repair Modification and Rehabilitation of Boilers and Associated Plant ("the GB/WTBA Conditions 1980"). These were subject from the outset to some bespoke modifications and additions, none of which are material to the preliminary issues. The clauses in the GB/WTBA Conditions which are of relevance are the following:
  6. "29 Extension of Time
    (i) If, after the date of the Contract, the Contractor shall have been delayed or impeded by any act or omission of the Owner, a direction by the Engineer under clause 12 (Variations), industrial dispute, or any circumstances beyond the reasonable control of the Contractor, whether such delay or impediment occur before or after the time (if any) or extended time fixed for the taking over of the Works, or any section thereof, the Engineer shall, subject to the provisions of subclauses (ii) and (iii) of this clause grant the Contractor from time to time in writing either prospectively or retrospectively such extension of the time fixed for the taking over of the Works or any section or portion thereof as may be reasonable.
    (ii) If the Contractor shall have reason to believe that he is being delayed or will be delayed as aforesaid, he shall forthwith apply for an extension of time, informing the Engineer in writing of the circumstances which in his opinion will cause such delay and of the extent of the actual or estimated delay.
    (iii) The Engineer shall without delay investigate the said circumstances and the Contractor shall consult with the Engineer in order to determine the steps (if any) which can be taken to overcome or minimise the actual or anticipated delay. The Contractor shall thereafter without delay comply with all reasonable instructions which the Engineer shall give in order to overcome or minimise the said delay.
    33. Recovery of Extra Costs
    (i) All reasonable extra costs incurred by the Contractor:-
    ....
    (c) As the result of the granting under Clause 29 (Extension of Time) of an extension of time fixed for the taking over of the Works or any section or portion thereof in consequence of a variation made under the provisions of Clause 12 (Variations)
    shall be added to the Contract Price, provided that no such addition shall be made unless the Contractor has complied with the requirements of Clause 34 (Notification of Claims) and furnished full particulars of any benefits whether direct or indirect, which shall have accrued or may be expected to accrue to the Contractor and the said benefits shall be taken into account in determining the amount of the addition to the Contract Price. ...
    34. Notification of Claims
    (i) In every case where by virtue of these Conditions circumstances arise which entitle the Contractor to claim extra costs the following provisions shall take effect:
    (a) Within 90 days of the date of issue of the notice, instruction, approval or other communication in writing relevant to the case the Contractor shall, if he intends to make any claim for payment of such extra costs give to the Engineer notice in writing of his intention to make a claim and shall state the reasons by virtue of which he considers that he is entitled to additional payment.
    (b) If the clause under which the Contractor is entitled to claim extra costs does not provide for the issue of a notice, instruction, approval or other communication in writing the period of 90 days mentioned in (a) above shall commence from the date of issue to the Contractor of the Engineer's confirmation in writing of the action which the Contractor proposes to take.
    (c) As soon as reasonably practicable after the date of the notice given by the Contractor of his intention to make a claim for extra costs and not later than the expiry of the last defects liability period the Contractor shall submit to the Engineer (with copies for transmission to the Owner) full particulars and the actual amount of his claim. The Contractor shall thereafter promptly submit such further particulars as the Engineer may reasonably require to assess the value, if any, of the claim.
    (ii) Notwithstanding anything in these Conditions contained the Owner shall not be liable to make any payment in respect of any extra costs incurred as aforesaid, unless and until the Contractor has complied with the requirements of this clause.
    ....
    37. Interim and Final Certificates
    (i) The Contractor may at the times and in the manner following apply for interim and final certificates, as referred to in clause 41 (Terms of Payment)....
    (ii) Applications for interim certificates may be made to the Engineer from time to time during the progress of the Works.
    ....
    39. Payments due from the Contractor
    Without prejudice to any other remedy which the Owner may have he shall be entitled to deduct from any monies due, or becoming due to the Contractor under the Contract, all costs, damages or expenses for which under the Contract the Contractor is liable to the Owner.
    ....
    41. Terms of Payment
    (i) The Owner shall pay to the Contractor in the following manner the Contract Price adjusted to give effect to such additions thereto and such deductions therefrom as are provided for in these Conditions:
    (a) within 14 days from the presentation of each interim certificate a sum equal to 90% of the net value certified therein. ..."
  7. The boiler repair works in 2007 overran. The planned outages of Unit 7 and Unit 9 took longer than planned and Alstom claimed that extra costs had been incurred. There was concern that the scheduled outage of Unit 8 in April 2008 might also overrun. Against that background the parties discussed and agreed the terms of a deed amending the boiler and feed system contracts ("the Deed").
  8. The Deed was finalised and executed on 25 June 2008. It settled a number of financial and procedural matters regarding the works being undertaken in 2008. The key provisions were that: (i) the contract price for the Unit 8 outage under the boiler contract and the feed system contract was agreed, (ii) there would be an additional payment made to Alstom under the boiler contract, (iii) the rates in each contract for scaffolding, thermal insulation and asbestos removal were to be the subject of an uplift, (iv) a new programme for the Unit 8 outage was established with a takeover date of 9 July 2008, (v) RWE agreed to waive liquidated damages for one week (until 16 July) if the works were not completed by 9 July, (vi) certain payments were agreed to be made by RWE to Alstom in respect of work done under the boiler contract up to the date of the Deed and these were agreed to be in full and final settlement of sums due in respect of all variations and work instructions issued prior to the date of the Deed.
  9. Having dealt with the above matters the Deed provided in clauses 5 and 6 as follows:
  10. "5. The rights of any Party arising by virtue of any failure by the other Party to comply with any obligations arising by virtue of this Deed are hereby expressly preserved.
    6. This Deed amends and supplements the Contracts and in the event of any conflict between this Deed and the Contracts this Deed shall prevail. For the avoidance of doubt the Contracts shall, subject to the amendments herein and provisions hereof, remain in full force and effect and the Parties shall continue to comply with the provisions of the Contracts.
  11. There followed, in clause 11 of the Deed, the following provision:
  12. "11. The Parties hereby agree to amend the terms of Clause 45 of the Contracts as follows:
    (i) Re-number existing Clause 45(ii) as 45 (iii) and insert "or adjudication" after "arbitration" in lines 1 and 4.
    and
    (ii) Insert a new clause 45(ii) as follows:
    "If at any time any dispute or difference shall arise under or in connection with the Contract between the Owner or the Engineer or the Contractor, then any party may refer such dispute or difference to adjudication in accordance with Part 1 of the Schedule to the Scheme for Construction Contracts (England and Wales) Regulations 1998."
  13. Three adjudications have taken place under the boiler contract pursuant to the right of adjudication inserted by clause 11 of the Deed. On 7 October 2008 Alstom issued a notice of intention to refer to adjudication a dispute about liquidated damages withheld by RWE from sums payable for the 2007 works ("the first adjudication"). This reference was compromised with no admission of liability or admission of jurisdiction of the adjudicator by RWE. On 4 November 2008 Alstom referred to adjudication a claim for repayment of liquidated damages withheld by RWE from sums payable for the 2008 works ("the second adjudication"). The adjudicator made a decision on 22 December 2008 in which he held that Alstom was entitled to payment of the sums withheld because the Housing Grants Construction and Regeneration Act 1996 applied ("the HGCRA"), so that RWE was required to give, but had not given, a valid notice of intention to withhold under section 111 of the Act. RWE complied with the decision. The present action concerns the decision made by the adjudicator in the third adjudication, which was commenced by Alstom's Notice of Intention to Refer dated 13 February 2009.
  14. The matters referred to adjudication in the third adjudication were part only of a claim for extension of time and extra costs in respect of the 2007 works. Alstom first notified this claim to RWE by a letter dated 25 October 2007. Since there is an issue as to whether some or all of the ensuing exchanges between the parties were privileged, because they formed part of a sequence of negotiation conducted on an "without prejudice" basis, it is necessary to set out the history of the correspondence about the claim in some detail.
  15. The letter of 25 October 2007 was written by Alstom's project director. It was stated to be an initial notification of Alstom's claim for extension of time and extra works under both contracts. Only a bare outline of the basis of the claim was given. A detailed submission was promised on completion of the review which was currently in progress. RWE's procurement manager replied on 12 November, saying that a response in detail was not possible until Alstom provided the supporting documentation. The letter continued: "Without prejudice to the above position, RWE NPower wishes to confirm our willingness to continue discussions to seek a mutually acceptable position and look forward to resolution of this issue".
  16. Alstom wrote again on 14 December, having been pressed in the interim to produce the detailed claim, saying that the claim documentation was being compiled. On 3 January 2008 a meeting took place between representatives of Alstom and RWE to discuss and review the work instructions that had been given under the boiler and feed system contracts for the works undertaken in 2007.
  17. The correspondence resumed on 16 January. Between that date and 16 April, the parties exchanged 7 letters in which both expressed the view that it was important, if at all possible, that they should settle the 2007 claim by a process of discussion and negotiation. Meanwhile RWE wanted to see the detail of the claim and Alstom wanted to know from RWE the basis of its claim for delay and liquidated damages in respect of the overrun in 2007.
  18. The correspondence culminated in two letters from Alstom to RWE, both of which were headed with reference to the boiler contract only and were marked "Without Prejudice". The first was a letter dated 9 May 2008. It said:
  19. "Further to our notice on 25 October 2007 of our notification of claims, we herewith enclose two copies of Claim No. 1 Extension of Time Unit 7 and Unit 9 Boilers.
    This document sets out our position with respect to entitlement to Extensions of Time, together with our position with respect to the deduction of Liquidated Damages.
    We trust that you will review this in accordance with the contract, and we look forward to discussing this with you in the near future.
    We are currently completing details of Claim No. 2 for Additional Payments, including Prolongation and other Associated Costs and this will follow in due course."
  20. Claim No. 2 followed under cover of the second "without prejudice" letter, dated 30 May, which was as follows:
  21. "Further to our notice on 25 October 2007 of our notification of claims, and our letter of 8 May 2008 (sic) which enclosed Claim No. 1, we herewith enclose two copies of Claim No 2 Additional Payment of Unit 7 and Unit 9 boilers.
    This document sets out our position with respect to our entitlement to sums considered due in terms of the Contract for Prolongation and other Associated Costs.
    We trust that you will review this accordance with the Contract, and we look forward to discussing this with you in the near future."
  22. The documentation enclosed with these letters was substantial. Claim No. 1 requested an extension of time of 61 days from 25 August to 25 October 2007. The total amount claimed in Claim No. 2 was 4,665,058.11. For shorthand I will refer to Claims 1 and 2 as "the May 2008 claims".
  23. There was no reply from RWE until 2 October 2008. On that date, the Engineer under the contracts replied to Alstom in the following terms:
  24. "Aberthaw Power Station Boiler Overhaul Works - Contract reference AB 76948 Feed System Works - Contract Reference AB 76949
    Without Prejudice
    I refer to your letters dated 8 May 2008, 30 May 2008 and 9 June 2008 my initial comments on which are as follows:
    Unit 7 Interim 2007
    Further to your request with respect to extension of time and associated costs I am disappointed that Alstom have not considered previous discussions and meetings between RWE and Alstom (agreed position 24/04/2008 Robert Bramhill and Robert Hayes). A variance to establishment costs in relation to the extended interim outage period was agreed and finally settled on 28/08/2008 (Robert Bramhill and Paul Haslewood). RWE's view is that there is no validity to your claim.
    Unit 9 Major 2007
    RWE has no evidence that Alstom have met contractual obligations to notify the Engineer of an extension of time and associated costs.
    However, without prejudice to our position, RWE have reviewed Alstom documents in detail and potentially there are areas that RWE could consider, currently no greater than a 17 day extension of time and we are currently reviewing associated costs, if any.
    The claim items rejected are:
    Work instruction issue
    The presented data in the claim is incorrect. Work instruction issue was in line with the known workscope and promptly following identification of emergent works.
    Variation of Works from Budget sheets
    Workscopes for the outage were issued to Alstom on several occasions:
    Emergent Work
    Late access to areas for inspection under Alstom control resulted in late identification/initiation of emergent work.
    Areas of consideration by RWE are:
    RWE has stated that our position on the application of Damages remains flexible."
  25. Chronologically the next event was the commencement by Alstom of the first adjudication. This was the done by service on 7 October of a Notice of Intention to Refer and service on 13 October of a Referral Notice. The latter referred expressly (in paragraphs 2.2, 2.3 and 2.4) to the May 2008 claims in the following terms:
  26. "2.2 ... Alstom has submitted a detailed claim for additional payments (including prolongation and disruption costs) to RWE which, to date, RWE has failed formally to respond to.
    2.3 The substance of that claim for additional payments, however, falls outside the scope of this present reference. That said, in order that the Adjudicator can understand Alstom's logic in bringing this current reference, the background to this claim is relevant although it should be noted that the present reference extends solely to the question of the applicability of liquidated damages to the contractual framework and the consequent effect (or rather lack of effect) and thereby the re-payment to Alstom of sums improperly withheld."
    2.4 To be clear, Alstom takes the view that either time was at large or else Alstom was entitled to a substantial extension of time in relation to the works undertaken in 2007. To that end, Alstom has also submitted a claim which includes a request for a substantial extension of time. That second claim (for an extension of time) has been compiled for the purposes of the overall prolongation and disruption claim and, again, falls outside the scope of this present reference. In this reference, Alstom sets out its case in relation to the wrongful levying of liquidated damages, and pleads the same without prejudice to its other claims."
  27. The first adjudication did not progress very far because on 21 October RWE decided to pay the claim for reimbursement of the liquidated damages, without making any admission of liability.
  28. On 31 October 2008, Alstom sent an e-mail to RWE attaching a Scott Schedule covering Claim No. 2 (the claim for additional payments) "to try and assist a quicker resolution to some of the items contained in the claim". Alstom did the same on 5 December, providing a revised and updated version of the Scott Schedule. RWE did not reply to either message. In the meantime the second adjudication got under way by service of a Notice of Intention to Refer on 4th November and a Referral Notice on 10 November. Paragraph 2.4 of that Referral Notice was in identical terms to paragraph 2.4 of the Referral Notice in the first adjudication: but the extension claim being referred to on this occasion seems to have been a claim in respect of the 2008 works and not Claim No. 1 of the May 2008 claims.
  29. There were two further exchanges before the third adjudication was initiated. On 26 January 2009 Alstom sent an e-mail to RWE setting out the history of its attempts to get RWE to respond in detail to the May 2008 claims and inviting RWE to state affirmatively which parts it admitted and which (if any) it did not admit. This drew two letters in response from RWE, both dated 2 February. The first was an open letter which said:
  30. "Thank you of your e-mail dated 27 January 2009. We cannot record that the claim to which you refer was ever formally submitted in accordance with the contract. This accounts for the lack of response. We remind you that if you wish to exercise any contractual rights under the contract then you must do so strictly in accordance with the provisions of the contract and within the time limits stipulated therein."

    The second was a letter marked "Without prejudice" which said:

    "We refer to our letter of 2 February 2009 reference AB76948/SFH01. The letter is an open letter but refers to without prejudice submission. For your records I attach a copy of the letter submitting your Claim No. 2 which clearly shows it marked "Without Prejudice" and as such it cannot be relied on. We do not consent to this document being relied on and will not do so. Should you consider you have any rights under the Contract to make claims of this nature then you must strictly observe the procedures and timescales set out in the Contract. Only once you have demonstrated that you have done so will RWE assess whether any entitlement exists.
    For the avoidance of doubt nothing said or done by RWE should waive their rights or the timescales stated in the Contract. Please note that should you seek to rely on documents which are without prejudice and/or privileged then we will bring this letter and the appropriate clauses of the Contract to the attention of the parties you disclose this material to."
  31. The Notice of Intention to Refer, dated 13 February, stated that the contract under which the dispute was to be referred was the boiler contract. Section 4 of the Notice contained the following description of the dispute:
  32. "4.1 The dispute referred to adjudication relates to the failure, by RWE, to reimburse or make payment to Alstom in relation to generally disrupted and prolonged works carried out in accordance with the contract during the 2007 period (the "Dispute").
    4.3 In overview, during the period of 1 January continuing to 31 December 2007, pursuant to the Contract, Alstom undertook general maintenance and repair works at RWE's Aberthaw power station. Included within the scope of those works was a substantial amount of work undertaken in relation to the boilers and ancillary equipment during outages for Units 7 and 9 at the power station.
    4.4 In carrying out these works, and as a result of a disrupted work scope and/or general prolongation of parts of the works, Alstom incurred substantial additional costs both as a result of sub-contracted works (such as scaffolding and insulation) and as a result of varied work instructed by, or on behalf of RWE, for which RWE has failed to make payment.
    4.5 Over and above this, but in relation to the works carried out during the
    period, Alstom submitted, in May 2008, a claim for additional payments which remains unanswered by RWE. That claim, in part, encompasses the issues which will be raised in this reference, but in no way represents the totality of Alstom's entitlements under the Contract.
    4.6 Alstom has provided, on an entirely voluntary basis, further substantiation to RWE in relation to those additional costs. Alstom provided such information, in spite of RWE's failure to reply to numerous requests from Alstom to state whether RWE required clarification of any head of claim.
    4.7 In the circumstances, given the passage of time and the fact that RWE has neither agreed to reimburse nor pay Alstom those additional costs, and given that RWE has failed to reply to requests and offers from Alstom to clarify any matters, Alstom has decided to refer the Dispute to adjudication.
    4.8 Broadly speaking, the dispute referred herein relates to only part of the additional costs to which Alstom claims it is entitled and in relation to such additional costs as are not referred in this reference, Alstom reserves its rights absolutely. Specifically, the additional costs claimed in this reference will relate to:
    (a) Met Memos; and
    (b) Valves; and
    (c) Under-recovered Scaffolding Works; and
    (d) Additional Insulation Works.
    4.9 The terms referred to immediately above replicate headings set out in documentary information provided to RWE over a period from May and will be expanded upon in Alstom's referral."
  33. Mr Robert Shawyer (who had been adjudicator in the first two adjudications) was again nominated by the Chartered Institute of Arbitrators as adjudicator. In the Referral Notice, Alstom claimed sums of 49,216.32 in respect of met memos (the cost of providing metallurgical memoranda of non-destructive testing of metal structures and welds), 23,401.13 for work carried out to valves on Unit 9, 558,981.59 for prolongation and disruption costs related to scaffolding works and 337,310.50 for the "additional insulation works".
  34. RWE responded on 23 February by disputing the jurisdiction of the adjudicator on a number of grounds. The three that remain live, and form part of RWE's case on the preliminary issues, are as follows (I quote directly from the summary in RWE's submission to the adjudicator):
  35. "(d) There is no dispute. No submission of claim was ever made by Alstom in respect of the matters on which it seeks decisions. The only submissions made were clearly marked "without prejudice" and were part of a series of settlement discussions which, as such, cannot be relied on by Alstom; and
    (e) Alstom has sought to rely on without prejudice submissions to advance its claims thereby breaching the requirements of natural justice; and
    (f) Many of the sums claimed in the referral are sums arising out of an entirely separate contract for the Feed System (the "Feed System Contract")."
  36. Initially, RWE did not particularise the sums which it said arose out of the feed system contract, and on 25 February Alstom responded by categorically denying that any of the claims arose out of the feed system contract. The adjudicator decided to continue with the reference without ruling on his jurisdiction at that stage. RWE then clarified the point it was making in the Response to the Referral Notice which it served on 13 March. RWE said that the met memos and valves were works commissioned under the feed system contract. Alstom checked the position and discovered that RWE was right. Most of the met memos and all of the works on the valves had been commissioned under the feed system contract rather than the boiler contract. Alstom's solicitors wrote immediately to the adjudicator to withdraw those parts of the claim. They did so in a letter to the adjudicator dated 23 March 2009 in these terms:
  37. "With regards to the exchange of correspondence, last week, dealing with the issue of an extension of time for the publication of your Decision, Alstom has now had the opportunity to fully consider the contents of the Response served on behalf of RWE. Upon reviewing the contents, it now becomes clear that a serious matter has arisen which clearly goes to the heart of this reference.
    In relation to the claim referred to as Valves, it appears to be RWE's primary defence that each and every one of the items claimed under this head relates to a different (sister) contract - the Feed Systems Contract. On making a detailed analysis of this submission, Alstom finds that RWE's argument is correct. That is to say, that each of the items claimed under this head do, indeed, relate to a different contract and it would therefore follow that you unfortunately lack jurisdiction to consider that part of the present reference.
    With regard to Alstom's claims under the heading of Met Memos, it would appear that the position is almost identical to that for Valves. That is to say that (as RWE correctly identifies) only 15 of the 62 items claimed actually relate to the boiler contract. Whilst the remaining 15 items are clearly in contention between the parties, the overall cost of considering the same, preparing a Reply and having the Adjudicator consider the same, would be entirely disproportionate to any recovery made.
    On the basis of the foregoing, and in order to avoid the Adjudicator wasting further time, Alstom hereby retracts those parts of its referred case in relation to Valves, Met Memos, and any interest payable thereon."
  38. Alstom served a Reply to the Response on 25 March formally conceding that most of the met memos and all of the valve works arose under the feed system contract and were therefore withdrawn, but objecting that RWE should bear the costs wasted by the introduction of these claims because RWE must always have been aware that they arose under the other contract.
  39. The decision in the third adjudication was issued on 10 April. The adjudicator made no award in respect of additional scaffolding works but ordered RWE to pay Alstom a sum of 219,780.79 plus interest in respect of the claim for additional insulation. He ordered Alstom to pay 80% and RWE to pay 20% of his costs.
  40. The preliminary issues
  41. The preliminary issues arise from the action which RWE commenced on 14 April, in anticipation of steps being taken by Alstom to enforce payment. They are twofold: (1) whether the decision is unenforceable and not binding on the parties (as RWE invites the court to declare in paragraph 1(a) of the Particulars of Claim), and (2) whether, on the assumption that the HGCRA did not apply to the boiler contract, RWE is entitled to a set off against the adjudicator's decision of any sum due to it from Alstom, and in particular the sum of 747,513.69 claimed by way of liquidated damages for delay in completion of the 2008 works.
  42. If the answer to the first question is that the decision is not enforceable, that will be an end of the matter, subject to any appeal by Alstom. If the answer to the first question is that the decision is enforceable, and to the second question that RWE has no right of set-off, Alstom will be entitled to summary judgment for the amount awarded by the adjudicator. If the answer to the first question is that the decision is enforceable, and to the second question that RWE does have a right of set-off, the parties have reserved for later argument Alstom's contention that the boiler contract was a "construction contract" to which the HGCRA applied and therefore any right of set-off conferred by the contract or at common law is overridden by the statute. Also reserved for later argument (in adjudication and/or arbitration) is the validity of the cross-claim for liquidated damages.
  43. Is the decision enforceable?
  44. Two issues arise. The first is whether more than one dispute was referred to the adjudicator. The second is whether Alstom's claims were communicated to RWE on a "without prejudice" basis. If the May 2008 claims were made on a without prejudice basis, RWE says that Alstom cannot prove that there was a dispute capable of being referred to adjudication. Logically the second of these questions falls to be considered first: but I shall address the multiple dispute issue first because it is a path well trodden in other cases and if RWE's arguments are correct, the decision is unenforceable in any event.
  45. More than one dispute
  46. I take the following propositions about the operation of the Scheme (Part 1 of the Schedule to the Scheme for Construction Contracts (England and Wales) Regulations 1998) to be well-established (most of them are covered in Coulson on Adjudication at paras. 7.35-7.45):
  47. (1) A referring party is only permitted to refer to adjudication one dispute under one contract (see paragraphs 1(1) and (2) and 8(1) and (2) of the Scheme).
    (2) The jurisdiction of the adjudicator and the extent or scope of the dispute referred to him is determined by reference to the Notice of Intention to Refer. The Referral Notice or submissions subsequently served by the parties cannot enlarge or cut down the jurisdiction of the adjudicator unless they contain the clear agreement of the parties that this should happen.
    (3) A Notice of Intention to Refer which refers more than one dispute is invalid and "... the appointment of an adjudicator in consequence of it is similarly invalid, unless the other party has nonetheless clearly and knowingly accepted the notice or the appointment as valid so that there is consent for the purposes of paragraph 8(1) of the Scheme" (see HH Judge Humphrey Lloyd QC in David Maclean Contractors Ltd v Swansea Housing Association Ltd [2001] Adj. LR 076/27 at para. 12).
    (4) If an adjudicator adjudicates upon more than one dispute without the consent of the parties, he exceeds his jurisdiction and his decision as a whole is unenforceable.
  48. On behalf of RWE, Mr Kearney advances two arguments. The first is that the Notice of Intention to Refer covered claims arising under two contracts. It therefore purported to refer more than one dispute, one under the boiler contract for which (subject to the second argument) there was jurisdiction, and one under the feed system contract for which there was no jurisdiction because RWE did not consent to claims under that contract being included (see HH Judge Bowsher QC in Grovedeck Ltd v Capital Demolition Ltd [2000] BLR 181 at 186). The second is that, even if the Notice of Intention to Refer covered claims under one contract only, the claims themselves encompass more than one dispute. Although described as claims for additional costs arising out of prolongation and/or disruption, only the scaffolding claim truly arose from prolongation of the works. The claims for met memos and valves were claims for payment for the value of varied work and the claim for additional insulation was a re-measurement claim for the value of work the volume of which had been underestimated.
  49. Mr Brannigan QC, counsel for Alstom, accepts that if the Notice of Intention to Refer invited the adjudicator to decide what sums were due under more than one contract it was an invalid Notice. However the Notice plainly states that the 4 claims were being referred under the boiler contract only. The adjudicator was not invited to determine whether any sums were due under the feed system contract. The scope of the jurisdiction being invoked by the referring party must be ascertained by reference to what the Notice of Intention to Refer says on its face. There is no secondary test whereby the Notice has also to be intrinsically correct.
  50. Mr Kearney disputes this analysis. He submits that one must look at what, in reality, is the effect of the Notice of Intention to Refer. What does it do? The reason given in Alstom's solicitors' letter to the adjudicator of 23 March for withdrawing the met memo and valve claims was that he had no jurisdiction to deal with them. By election or estoppel, Alstom is bound by that concession. Referring claims which the adjudicator has no jurisdiction to determine because they arise under a second contract is in fact making a reference of two disputes. Alstom cannot avoid this consequence by pointing to the fact that the Notice of Intention to Refer mentioned only the boiler contract. It is not possible to establish jurisdiction by a misrepresentation, even if that misrepresentation was innocent.
  51. I cannot accept Mr Kearney's argument. It ignores the function of the Notice of Intention to Refer. The function of the Notice is to define what the referring party intends to refer to adjudication and thereby define the jurisdiction of the adjudicator. I agree with Mr Brannigan that if the intention is defined in terms of seeking payment for claims A, B, C and D under contract X, the adjudicator is clothed only with jurisdiction to award sums for those claims under contract X. He is not being invited to award anything in respect of those claims under contract Y, and for that reason has no power to do so. By describing the Notice in this case as referring disputes under two different contracts, RWE makes no distinction between two aspects of jurisdiction. The first is the jurisdiction to decide whether the met memo and valve claims were claims arising under the boiler contract. The second is the jurisdiction to decide whether those claims have merit and what sums should be paid in respect of them. The Notice of Intention to Refer conferred jurisdiction on the adjudicator to answer the first question. It did not confer jurisdiction on him to answer the second question if the answer to the first question was that the claims did not arise under the boiler contract. It would follow that, if RWE had not raised the objection on 23 February that "Many of the sums claimed in the referral are sums arising out of an entirely separate contract for the Feed System", the adjudicator could have made a decision dismissing the claims in respect of met memos and valves on the ground that they did not arise under the boiler contract, but allowing the claims for scaffolding and/or additional insulation. A decision to that effect would have been enforceable and Alstom would have had no ground for complaint.
  52. It is at this juncture that Mr Kearney's argument of election or estoppel comes into play. He points to the wording of Alstom's solicitors' letter of 23 March which, in his submission, is inconsistent with the adjudicator having any power to decide whether the met memo and valve claims arose under the boiler contract because the letter accepted that the adjudicator had no jurisdiction to consider the met memo and valve claims at all. By withdrawing the met memo and valve claims on the ground that the adjudicator had no "threshold" jurisdiction to consider them, Mr Kearney submits that Alstom gained a tactical advantage. It avoided a decision in which the met memo and valve claims were valued at a nil amount.
  53. In Redworth Construction Ltd v Brookdale Healthcare Ltd (2006) 110 Con LR 77, HH Judge Havery QC applied the principle against approbating and reprobating, which was referred to by Lord Evershed MR in Banque des Marchands de Moscou (Koupetchesky) v Kindersley [1951] Ch 112 at 119, in order to prevent a referring party from seeking to uphold an adjudicator's decision on the basis of an argument on which it did not rely in the course of the adjudication. He held that it would be unjust to permit the referring party to resile from the election at the enforcement stage, having obtained the benefit of a decision from the adjudicator by a different argument. Mr Kearney submits that, by the same principle, Alstom cannot now be heard to say that the Notice of Intention to Refer conferred a limited jurisdiction on the adjudicator to entertain the met memo and valve claims if, but only if, he was satisfied that they arose under the boiler contract. Mr Kearney's estoppel argument is similar. By their letter of 23 March Alstom's solicitors conceded not only that the adjudicator in fact lacked jurisdiction to consider the met memo and valve claims but also that he lacked threshold jurisdiction to entertain them at all. RWE relied on that concession in taking legal advice as to how to conduct its case on the remaining two claims. Without waiving privilege as to the content of the advice which was given, Mr Kearney submits that it would not be fair to allow Alstom to resile from the full width of the concession now. He relies on the decision of the Court of Appeal in The Vistafiord [1988] 2 Lloyd's Rep. 343, a case of estoppel by convention.
  54. I am unable to accept these submissions. First of all, they place too great a reliance on the phraseology used in Alstom's solicitors' letter of 23 March. When read in the context of the Reply to the Response served by Alstom two days later it is plain in my judgment that Alstom was doing no more than concede that it was bound to fail at the first stage of the inquiry, namely, whether the met memo and valve claims arose under the boiler contract, so the adjudicator would never have jurisdiction to proceed to the second stage of entertaining those claims on the merits because they fell outside the ambit of the reference. I am unable to read the letter of 23 March as giving rise to a common assumption that there was no threshold jurisdiction, as well as no jurisdiction in fact. I see no inconsistency between the concession made in the letter and Mr Brannigan's argument as summarised above (in paragraph 36).
  55. If that is wrong, I fail to see how Alstom benefited from making the concession in such a way that it would be unjust to allow it to present the case in the way that Mr Brannigan has sought to do in this trial. If the concession had never been made, the adjudicator would either have dismissed the met memo and valve claims on grounds of lack of jurisdiction, in which case there would have been no decision about them on the merits and Alstom would have been free (as they are now) to pursue them in a fresh reference under the feed system contract, or he would have decided (erroneously) that the met memo and valve claims did arise under the boiler contract, and would have decided on the merits what sums were payable in respect of them. For the purposes of this part of the argument it is not suggested that it was any more likely that the adjudicator would have accorded them a nil value than that he would have found in favour of Alstom and awarded payment of substantial sums by RWE. I therefore fail to see how it can be said that Alstom gained an advantage by the way in which the concession was expressed which it would not have gained if the concession had not been made or had been made in a more limited fashion. As for the reliance which is alleged to support the estoppel, RWE is perfectly entitled not to waive privilege in the advice it says it received; but RWE has not explained how the conduct of its case in the adjudication was different in the light of that advice from what it would otherwise have been. In the circumstances I am not persuaded that it would be unfair to allow Mr Brannigan to put Alstom's case in the way he has done. I therefore reject Mr Kearney's first set of arguments on the multiple dispute point.
  56. Mr Kearney's second argument depends on how the dispute is defined. He relies on the decision of this Court in Bothma v Mayhaven Health Care Ltd [2006] EWHC 2601 (QB), and the judgment of Dyson LJ refusing permission to appeal [2007] EWCA Civ 527, for the proposition that a number of separate heads of claim can only form part of a single dispute if they share a common foundation. Claims which are independent of each other represent individual and separate disputes.
  57. In deciding whether the claims referred constitute a single dispute or more than one dispute, the starting point is, again, the Notice of Intention to Refer. The weight of judicial authority favours giving the Notice a benevolent interpretation. The most frequently quoted definition of what a dispute comprises is that of HH Judge Thornton QC in Fastrack Contractors Ltd v Morrison Construction Ltd [2000] BLR 168 at 176-177:
  58. "During the course of a construction contract, many claims, heads of claim, issues, contentions and causes of action will arise. Many of these will be, collectively and individually, disputed. When a dispute arises, it may cover one, several or many of one, some or all of these matters. At any particular moment in time, it will be a question of fact what is in dispute. That is the "dispute" which may be referred to adjudication is all or part of whatever is in dispute at the moment that the referring party first intimates an adjudication reference. In other words, the "dispute" is whatever claims, heads of claim, issues, contentions or causes of action that are then in dispute which the referring party has chosen to crystallise into an adjudication reference."
  59. Although the width of this definition has been questioned (see eg Lord Macfadyen in Barr Ltd v Law Mining Co Ltd (2001) 80 Con LR 134), it was approved and adopted by HH Judge Humphrey Lloyd QC in David Maclean Housing Contractors Ltd v Swansea Housing Association Ltd [2001] Adj. LR 076/27 at para. 10 and in KNS Industrial Services (Birmingham) Ltd v Sindall Ltd (2000) 75 Con LR 71 at para. 14.
  60. The effect of all the above cases is summarised in the following passage in Coulson on Adjudication at para. 7.63:
  61. "It would appear ... that a party refers a single dispute to adjudication if it can be demonstrated that his claim, which may be made up of several different elements, can be fairly described as a single, disputed claim for a sum due (or some other relief, like an extension of time) under the contract. In those circumstances, it is always important to ensure that the notice of adjudication is carefully drafted and does not refer to disputes in the plural. If a contractor or a sub-contractor is making a claim pursuant to the payment provisions of the contract then, provided that such a claim can legitimately include a wide range of different elements, such a claim is likely to give rise to a single dispute. It is thought that it will be rare for the court to decide that a claim in relation to one contract and one site gives rise to more than one dispute, unless the referring party is making to different and unrelated claims (such as occurred in Bothma), or seeking two different declarations as to its contractual entitlement which involve entirely different aspects of the contract."
  62. Mr Kearney reads the Notice of Intention to Refer as claiming reimbursement of additional costs caused by prolongation or disruption which was itself caused by sub-contractors or variations in relation to the four individual heads of claim. I disagree with this sequence of causation. Taking paragraphs 4.1, 4.4 and 4.8 together I interpret the Notice as saying that the four individual claims (in respect of met memos, valves, scaffolding and insulation) are claims for reimbursement or payment of additional costs "incurred ... both as a result of sub-contracted works (such as scaffolding and insulation)... and as a result of varied work instructed by or on behalf of RWE" caused by "a disrupted work scope and/or general prolongation of parts of the works".
  63. RWE's case is that when one examines the basis of the claims in the Referral Notice it is apparent that only the scaffolding claim can be said to be based on prolongation and/or disruption of the works. The claims for met memos and valves are for the value of varied works. In the case of the met memos it is alleged that no work instruction was issued by RWE permitting payment to be made, although the work was requested, was necessary and was done. As for the valves, it is alleged that work instructions were issued by RWE, and the work was done, but payment has not been made. The additional costs incurred in removal of asbestos insulation are alleged to have resulted from the fact that a far greater area of insulation had to be removed than had been anticipated by RWE at the outset.
  64. This description of the basis of each claim is broadly correct; but I fail to see why the grounds particularised in the Referral Notice do not fall within the rubric of a claim for additional costs resulting from sub-contracted works and varied works caused by "a disrupted workscope". That is to my mind the common thread to all four heads of claim. The scaffolding costs are said to have arisen from prolongation of the works but the prolongation was in whole or in part itself caused by the disrupted workscope. RWE is splitting hairs in contending otherwise. Like Judge Lloyd in David Maclean Housing v Swansea Housing I would interpret the Notice of Intention to Refer in the present case as referring the following dispute to adjudication under the boiler contract: "What extra costs are Alstom entitled to be paid for the 2007 boiler overhaul in respect of met memos, valve works, additional scaffolding and additional insulation?". That is a single dispute, all the elements of which are linked. Mr Kearney's argument that, unlike in the Maclean case, Alstom had never made an application for payment of these sums (eg an application for an interim certificate under clause 37) does not alter this conclusion. Maybe if such an application had been made, Alstom would have realised rather sooner that their entitlement to payment for met memos and valves arose under the feed system contract rather than the boiler contract but that does not mean that all these claims cannot be traced back to the increased scope of the works and time overrun. My conclusion therefore is that the Notice of Intention to Refer was not invalid because it referred more than one dispute.
  65. Without prejudice
  66. RWE makes two submissions. The first is that Alstom cannot prove that any dispute had crystallised between the parties at the time the Notice of Intention to refer was served because the May 2008 claims and all of the exchanges between the parties about those claims (save the notice of them given on 25 October 2007) are protected by the cloak of without prejudice privilege. They were not admissible before the adjudicator and they are not admissible in this court for the purpose of proving that a dispute existed. The second argument proceeds from the first. It is that the adjudicator acted contrary to the principles of natural justice when he decided to proceed with the reference after reading the privileged documentation. If RWE is wrong on the first point, the second does not arise.
  67. I was referred to a number of cases on the ambit of "without prejudice" privilege and the limited exceptions to it. The principle ones were the decision of the Court of Appeal in South Shropshire District Council v Amos [1986] 1 WLR 1271, the judgment of Laddie J in Schering Corporation v CIPLA Ltd [2004] ADR.L.R. 11/10 and the decision of the House of Lords in Ofulue v Bossert [2009] 1 AC 945. Certain principles can be derived from these cases (and from the cases referred to in them) which ought not to be controversial: (1) The justification for the privilege attaching to without prejudice communications is not only the public policy of encouraging the negotiated settlement of disputes but also the express or implied agreement of the parties that such communications should be treated as confidential. (2) The fact that a document is marked "without prejudice" is not conclusive as to its status, although it is often a strong pointer. As a general rule a document marked "without prejudice" is privileged unless it was not written as part of a process of negotiation or with the intention of promoting compromise. The test for determining whether the privilege applies is an objective one. As Laddie J held in Schering v CIPLA: "The court has to determine whether or not a communication is bona fide intended to be part of or to promote negotiations. To determine that, the court has to work out what, on a reasonable basis, the intention of the author was and how it would be understood by a reasonable recipient". (3) Once a communication is covered by without prejudice privilege, the court is slow to lift the cloak of that privilege unless the case for doing so is absolutely plain. There are certain exceptional circumstances where it may be permissible to admit into evidence without prejudice communications which are privileged. These were summarised by Robert Walker LJ in Unilever plc v The Procter and Gamble Co. [2000] 1 WLR 2436 at 2444C-2445G. The principal ones are: (i) when the issue is whether without prejudice communications have resulted in a concluded compromise agreement, (ii) when the issue is whether a concluded compromise agreement should be set aside on the grounds of fraud, misrepresentation or undue influence, and (iii) where, even if the negotiations have not resulted in a concluded compromise, it is alleged that a clear statement made by one party in the course of the negotiations on which the other party was intended to act and has acted, has given rise to an estoppel. In Oceanbulk Shipping and Trading SA v TMT Asia Ltd [2009] 1 WLR 2416 Andrew Smith J (at paras. 27-30) held that the first of these exceptions would extend to admitting evidence as to the proper construction of the terms of the settlement agreement where that was in issue. Outside the established exceptions it is not permissible to go behind the privilege. In Ofulue v Bossert the House of Lords held that it was not permissible to have regard to without prejudice communications in order to prove that there had been an acknowledgment of title. In The Cadle Co. v Hearley [2002] 1 Lloyd's Rep. 143), I held that it was not permissible to go behind the cloak of without prejudice privilege to establish that there has been an admission of a debt for limitation purposes. (4) The privilege attaching to without prejudice communications cannot be waived unilaterally. A party wishing to change the character of communications from being ones which are covered by without prejudice privilege to ones which are not privileged can only do so without the consent of the other party to the communications on a prospective basis, and will only succeed in doing so if he gives adequate notice of the proposed change to the other party. The test of whether he has done so is an objective one (see Cheddar Valley Engineering Ltd v Chaddlewood Homes Ltd [1992] 1 WLR 820).
  68. Mr Kearney submits that the May 2008 claims were served on a privileged basis, not only because they were sent under cover of letters marked "Without Prejudice" but also because (i) they were served in response to RWE's invitation that the claims should be particularised so that the parties could explore a negotiated settlement and (ii) they were treated by both sides as being privileged until, in paragraph 2.11 of the Referral Notice, Alstom purported to waive that privilege. He points out that there is no challenge to the evidence of Mr Watson, RWE's operations procurement manager, that both parties originally contemplated that Alstom's claims arising from the 2007 works would be settled as part of the negotiations leading up to the Deed amending the contracts. That did not happen because the parties found themselves too far apart and they did not want the May 2008 claims to hold up resolution of the commercial issues that needed to be addressed if Alstom was to be able to achieve a 12 week programme for the outage in the summer of 2008. However, even if the May 2008 are to be regarded as the first move in a separate negotiation of the claims themselves, Mr Kearney submits that it is plain from the decision in the South Shropshire District Council case that they would still be privileged. Moreover the two Scott Schedules sent in October and December 2008 were privileged, even if the May 2008 claims were not, because they were sent in response to RWE's without prejudice letter of 2 October which invited negotiation, at least on those items not rejected.
  69. If all the above is correct, RWE says that the only "open" document in the entire correspondence between October 2007 and February 2009 was Alstom's notice of claim sent on 25 October 2007. That letter, and the fact that negotiations subsequently took place, is not enough to establish that by 13 February 2009, when the Notice of Intention to Refer was served, a dispute between the parties had crystallised. Alstom needs to be able to refer to the privileged communications in order to prove that there was a dispute. It cannot do so unless RWE agrees to waive, or has itself already waived, the privilege.
  70. Mr Brannigan's reply to these contentions is that it is irrelevant that any of these communications between the parties were being conducted on a without prejudice basis. It is permissible to have regard to them in order to establish whether there was a dispute. If that is wrong, none of the relevant communications was in fact privileged. RWE's argument based on privilege is really an afterthought. The last letter which RWE sent to Alstom before the May 2008 claims were submitted was the letter of 16 April. It was not headed "Without Prejudice" and it was not a negotiating document but a demand for particulars of the claim which had been notified the previous October. One can tell that the privilege argument is an afterthought because RWE has not pleaded in the Particulars of Claim or the Reply that any of the correspondence prior to May 2008 was conducted on a without prejudice basis, nor has it argued that the meeting on 3 January 2008 was similarly privileged. This is significant because, in paragraph 16 of the Defence, Alstom made an open reference to all of these pre-May 2008 exchanges between the parties.
  71. Mr. Brannigan submits that the "Without Prejudice" marking on the letters of 9 May and 30 May was an aberration, and it should have been obvious to RWE that it was a mistake. None of the documentation enclosed with the letters was in its nature privileged. It provided the detail to back up the claim which had been notified in October. RWE understood perfectly well the difference between correspondence that was protected by without prejudice privilege and correspondence that was not. RWE did not itself use a "Without Prejudice" heading until the letter of 2 October (paragraph 18 above). By that time, Alstom had made open reference to the May 2008 claims in the Referral Notice in the first adjudication. Thereafter Alstom referred on several occasions to the May 2008 claims in open correspondence, from which RWE should have been in no doubt at all that Alstom did not consider them to be privileged. Mr. Brannigan's fall-back position is that the failure by RWE to raise any objection to these open references was a waiver of the right to rely upon any privilege which may originally have attached to the underlying documents.
  72. I have come to the following conclusions on these competing arguments. In my judgment there was nothing privileged about the correspondence between the parties before the May 2008 claims were served. There was nothing to negotiate about, until those claims were particularised. There was nothing confidential about the expressions on both sides of a willingness to compromise. If the letters of 9 and 30 May had not been marked "Without Prejudice", there would be no question of the particulars contained in the attached documents being privileged. The "Without Prejudice" marking suggested that the particulars of the claim were an opening shot in negotiations: but they were also a response to the demand by RWE that details of the claim openly notified on 25 October 2007 should be given. They therefore had a dual purpose. In the circumstances I do not think that the particulars themselves were privileged. The communications between the parties after May 2008 were privileged insofar as they contained negotiations about the claims (eg RWE's letter of 2 October). However, the privilege attaches to the content of the exchanges rather than to the fact that they took place. In my judgment there is nothing to stop Alstom relying on the fact that negotiations took place over the claim that it had notified in outline on 25 October 2007 and that those negotiations did not result in an agreement or payment. Adopting the broad approach to the definition of a "dispute" which was favoured by Jackson J in Amec Civil Engineering Ltd v The Secretary of State for Transport [2004] EWHC 2339 (TCC) and which has been adopted in later cases (see Coulson on Adjudication at paras. 7.54 to 7.56), I would hold that this was enough to establish that a dispute between the parties had crystallised by the time the Notice of Intention to Refer was served.
  73. If I am wrong in the view that the May 2008 claims were not privileged when they were served, it still strikes me as artificial to conclude that they remained privileged as at 13 February 2009. A claim had been notified in open fashion, there had been negotiations or an attempt at negotiations, and the negotiations had failed to produce an agreement. An objective assessment of the situation that prevailed in the week before the Notice of Intention to Refer was served leads to the conclusion that the parties were in dispute about the claim that had been notified in October 2007. The view I take is that, once that point was reached, any privilege which previously attached to the May 2008 claims, ceased to attach to them. It follows that I do not think that Alstom is precluded, by reasons of privilege, from demonstrating that there was a dispute between the parties when the Notice of Intention to Refer was served or from making reference to the May 2008 claims in the Notice itself and the Referral Notice which followed. I have reached this conclusion on the somewhat unusual facts of this particular case. It is in my judgment unnecessary for the court to decide whether it would be legitimate to have regard to the content of privileged communications between the parties after May 2008 in order to establish whether there was a dispute. I express no view as to whether Mr. Brannigan is right in submitting that the exception which permits an examination of without prejudice communications in order to determine whether a concluded compromise has been reached, applies so as also to permit examination of such communications in order to determine whether a dispute exists which is capable of being referred to adjudication or arbitration. The two situations are not necessarily analogous.
  74. I should add that, even if the May 2008 claims remained subject to privilege at the date of the Notice of Intention to Refer, I would not hold that the decision of the adjudicator was unenforceable because of a breach of the rules of natural justice. This allegation by RWE rests primarily on the fact that the May 2008 claims were drawn to the attention of the adjudicator. They were exhibited to the Referral Notice as Appendix 4. Reference was also made by Alstom to the Scott Schedules. As part of its jurisdictional challenge on the ground that there was no dispute, RWE invited the adjudicator to resign on the ground that he had seen this without prejudice material. The adjudicator received written submissions from both sides on this aspect. He held that the May 2008 claims were not privileged. He accepted Alstom's argument that the claims were not an offer to negotiate but rather particularisation of the claims previously notified or "what it said on the tin". He declined to resign.
  75. Stanley Burnton J held in Berg v IML London Limited [2002] 1 WLR 3271 that a judge should recuse himself only if, subjectively, he considered that the knowledge he acquired of privileged communications disabled him from fairly continuing with the case or, objectively, a fair-minded and informed observer would conclude that there was a real possibility or a real danger that there could not be or would not be a fair trial. Both sides were content before me to adopt the judgment in that case as providing the appropriate test. Mr Brannigan acknowledges that it would be a breach of natural justice for an arbitrator or adjudicator to consider without prejudice material which one party has not had an opportunity of addressing. However RWE makes no allegation that the way in which the adjudicator dealt with the allegedly privileged material was procedurally unfair or caused prejudice. I think it would also be contrary to the principles of natural justice for an adjudicator to take into account privileged communications in which the party not consenting to any waiver of the privilege had said anything which was potentially disadvantageous to its pleaded case. An offer to settle on certain terms or a concession made for negotiating purposes would obviously fall into this category. The only communication of that character which emanated from RWE between 25 October 2007 and 13 February 2009 was the letter of 2 October. Alstom attached some correspondence to the Referral Notice as Appendix 5. It is not clear to me that it included this letter. If it did, Alstom made no reference to it in the Referral Notice. On the contrary, it was RWE who expressly drew the adjudicator's attention to the letter in their document headed "Challenge to Jurisdiction". They did so in an effort to persuade him that all the correspondence, or at least the correspondence from May 2008, had been conducted on a without prejudice basis and therefore Alstom could not demonstrate that a dispute had arisen. In the circumstances I do not think that RWE can be heard to complain that the adjudicator's mind may have been prejudiced or biased by sight of the contents of the letter, and to be fair to Mr Kearney, that was not a point he made in the course of the trial.
  76. I think there is no substance to the argument that the rules of natural justice were breached. Viewed objectively I do not consider that there was a real danger that the adjudication would be unfair because the adjudicator saw the May 2008 claims and the Scott Schedules.
  77. Set-off
  78. The particular cross-claim which RWE wishes to set-off is for liquidated damages for delay in completion of the 2008 works under the boiler contract. It arises under clause 32 as amended by the Deed. RWE particularised the claim in a letter to Alstom's solicitors dated 19 December 2008. The Deed required the works to be completed by 9 July 2008. Takeover was not in fact achieved until 29 July 2008. The Deed provided that liquidated damages were to be payable as from 16 July. Liquidated damages for 13 days amount to a sum of 747,513.69, which is the sum which RWE claims from Alstom.
  79. Alstom has not replied to the December letter. Neither side has subsequently sought to test the validity of the cross-claim in any proceedings. RWE has not referred it to arbitration or adjudication or applied for summary judgment. Alstom has not applied for a declaration that the liquidated damages are not due because it is entitled to an extension of time covering the 13 days in question. I think it can be inferred, from the scope of the dispute referred in the second adjudication, that Alstom denies liability for up to half of the sum claimed: but its attitude to the rest is unclear. In the circumstances I agree with Mr Kearney that one can at least say that RWE has a bona fide and arguable claim for a quantified sum of liquidated damages which is capable of operating as a set-off against any sum due under the contract from RWE to Alstom, if a right of set-off exists.
  80. Whether there is a right of set-off in part depends on whether the HGCRA applies to the contract. The HGCRA applies if the boiler contract was a "construction contract". In broad terms the effect of the Act, and in particular section 111, is that, in the absence of service of a valid withholding notice (which RWE has not served in the present case), any right to set-off a cross-claim against a sum ordered to be paid by the decision of an adjudicator is excluded (see VHE Construction plc v RBSTB Trust Co. Ltd [2000] BLR 187). Since, for the purposes of the present hearing, I am to assume that the boiler contract was not a construction contract and that the Act does not apply to it, the question which I have to decide about RWE's right of set-off is purely one of construction of the boiler contract, as amended by the Deed.
  81. The relevant contractual provisions are clause 39 of the GB/WTBA conditions and clauses 5, 6 and 11 of the Deed. Clause 11, it will be remembered, is the clause which incorporates the facility for adjudication under the Scheme. The three other clauses are set out in paragraphs 5 and 8 of this judgment. For convenience I repeat them here:
  82. "39. Without prejudice to any other remedy which [RWE] may have [RWE] shall be entitled to deduct from any moneys due, or becoming due to [Alstom] under the Contract, all costs, damages or expenses for which under the Contract [Alstom] is liable to [RWE].
    ....
    5. The rights of any Party arising by virtue of any failure by the other Party to comply with any obligations arising by virtue of this deed are hereby expressly preserved.
    ....
    6. This Deed amends and supplements the Contracts and in the event of any conflict between this Deed and the Contracts this Deed shall prevail. For the avoidance of doubt the Contracts shall, subject to the amendments herein and provisions hereof, remain in full force and effect and the parties shall continue to comply with the provisions of the Contracts."
  83. RWE submits that clear words are required to deprive a paying party of the rights of set-off arising by operation of law (see Lord Diplock in Modern Engineering Ltd v Gilbert-Ash [1974] AC 689 at 717H). In this case, far from there being words of exclusion, the right of set-off is reinforced by clause 39. The contractual incorporation of the Scheme by clause 11 of the Deed is not, of itself, sufficient to displace this right of set-off by implying that the parties had agreed to import a "pay now, argue later" approach to sums payable to the contractor. First, none of the policy considerations underpinning the HGCRA are imported into the contract by a clause which merely incorporates the Scheme without the Act, especially where the parties who have chosen to adopt the Scheme are not parties engaged in conventional construction work where disputes involving the employer, main contractor and sub-contractors are commonplace. Second, the adjudication provision is optional rather than compulsory. Third, it is a procedure made available to both parties and not just to Alstom. This suggests that its adoption was not intended to affect the rights of one party more than the rights of the other. Fourth, the fact that clause 11 was not intended to displace clause 39 is reinforced by clause 5 and the second sentence of clause 6. Clause 5 is of relevance because the liquidated damages claim arises under the amended completion arrangements for 2008 contained in clause 3 of the Deed. The second sentence of clause 6 emphasis that clause 39 of the contract continues to comply. There is no conflict between the deed and clause 39.
  84. Alstom's case is that clause 11 of the Deed not only incorporated into the contract the provisions of the Scheme (eg paragraphs 21 and 23), which impose an obligation to comply with the adjudicator's decision, but also the intent underpinning the legislation which gave rise to the Scheme. Reported decisions have made it very clear that the objective of the legislation is to promote cash-flow and that the Scheme is designed to ensure that an adjudicator's decision is honoured to the letter, unless there is a well-founded challenge to its enforceability (see eg the Court of Appeal in Carillion Construction Ltd v Devonport Royal Dockyard (2005) 104 Con LR 1 at paras. 85-87 and Akenhead J in Cantillon v Urvasco [2008] EWHC 282 (TCC) at paras. 51-53). In the third adjudication, the adjudicator has decided that RWE shall pay certain sums to Alstom. Any deduction from the sums ordered to be paid would not be due compliance with the decision. In short, Mr Brannigan submits that the incorporation of the Scheme by clause 11 of the Deed imports wording which overrides the right of set-off in clause 39 or any right of set-off which would otherwise be available at common law.
  85. Five cases were cited in which the courts have considered the effect on rights of set-off of contractual provisions incorporating an adjudication process. I will consider them in the chronological order in which they were decided.
  86. In Parsons Plastics (Research and Development) Ltd v Purac Ltd (2002) 93 Con LR 26, the court was concerned with an ad-hoc referral to adjudication of a dispute under a sub-contract to which it was common ground that the HGCRA did not apply. HH Judge Kirkham refused summary judgment for the amount of the adjudicator's decision in favour of the sub-contractor (Parsons) and granted the main contractor (Purac) summary judgment for liability, and an interim payment, on its much larger counterclaim. Parsons' argument on appeal was that the adjudication had taken place under the bespoke adjudication scheme in clause 27 of the sub-contract, clause 27g and 27h of which expressly provided as follows:
  87. "27g. The decision of the Adjudicator shall be complied with forthwith upon receipt.
    27h (i) The decision of the Adjudicator shall be final and binding."

    However the sub-contract also contained the following clause:

    "31. Nothing contained in this Deed whether expressly or by incorporation or by implication shall in any way restrict [Purac's] equitable or common law rights of set off. Without prejudice to the generality of the foregoing, [Purac] shall have the right to set off against any sum due to [Parsons] whether hereunder or otherwise a fair and reasonable sum in respect of or on account of any claim or claims that have been made or which are to be made against [Purac] by the Purchaser the subject matter of which touches or concerns the Sub-Contract Works."
  88. There was an issue as to whether it was a condition precedent to the right of set-off in clause 31 that Purac should have served a withholding notice in accordance with clause 17g of the sub-contract. The Court of Appeal (Pill, Mummery and Latham LJJ) agreed with the judge that failure to serve a withholding notice under clause 17g was not fatal to the right of set-off. The Court went on to hold that by reason of the wording of clause 31 ("Nothing contained in this Deed ... shall in any way restrict...) it was open to Purac to set off against the adjudicator's decision any other claim it had against Parsons which had not been determined by the adjudicator.
  89. The sub-contract in Levolux AT Ltd v Fersons Contractors Ltd (2003) 86 Con LR 98 was one to which the HGCRA did apply. The sub-contractor (Levolux) applied for a second interim payment of which the main contractor (Fersons) paid only a small proportion, claiming to be entitled to rely on a withholding notice in respect of the balance. Levolux referred its claim to payment of the balance to adjudication. The adjudicator held that the notice of withholding did not comply with the provisions of section 111 and decided that the balance of the second interim payment should be paid to Levolux. Ferson's argument was that they had validly determined the subcontract under express provisions contained in clause 29 and that accordingly there was no obligation to honour the decision of the adjudicator because clause 29.8 provided: "If the contractor shall determine the Sub-Contract for any reason mentioned in clause 29.6 the following provisions shall apply: 1. All sums of money that may then be due or accruing due from the Contractor to the Sub-Contractor shall cease to be due or accrue due....".
  90. HH Judge Wilcox held that clause 29 did not supersede the provisions of the Act and of the Scheme which require compliance with the decisions of adjudicators, nor the other terms of the sub-contract which were to the same effect. Clause 38 of the sub-contract provided as follows:
  91. "38.7 Subject to the proviso to clause 38B.1, the decision of the adjudicator is binding until the dispute is finally determined by arbitration or agreement, ...
    38.B.1 [Allowing for a reference to arbitration] Provided always, that where any dispute, difference or question has been referred to an adjudicator under Clause 38A and the adjudicator has issued his decision thereon, a Party shall not be entitled to refer such dispute, difference or question to arbitration, and the adjudicator's decision thereon shall become unchallengeable, unless that party serves the above notice within 42 days of receipt of notification of the adjudicator's decision; and, for the avoidance of doubt, this proviso shall apply whether or not the adjudicator has notified his decision within the time limit specified in Clause 38A.5. ...
    38A.9 Notwithstanding clause 38B, the Contractor and the Sub-contractor shall comply forthwith with any decision of the adjudicator, and shall submit to summary judgment/decree and enforcement in respect of all such decisions."
  92. The Court of Appeal agreed with Judge Wilcox, even though the appeal was conducted on the assumed basis that the sub-contract had been validly determined under clause 29. Mantell LJ held (at para. 30) that the contract was to be construed so as to give effect to the parliamentary intention which could be discerned from section 108 of the Act. That intention (to borrow the phraseology used by Dyson J in Macob Civil Engineering Ltd v Morrison Construction Ltd (1999) 64 Con LR 1 at para. 14) was "... to introduce a speedy mechanism for settling disputes in construction contracts on a provisional interim basis, and requiring the decisions of adjudicators to be enforced pending the final determination of disputes by arbitration, litigation or agreement: see s. 108(3) of the Act and para. 23(2) of Pt 1 of the Scheme". Mantell LJ was of the view that construing clause 29 so as to justify non-payment of the adjudicator's decision would defeat that intention. Longmore LJ went further. He held (at para. 33) that although the parliamentary intention was clear, the parties had themselves chosen to underline it by including clause 3 8A.9 in the sub-contract:
  93. "The parties have thus agreed not merely that the adjudication is to be binding but also that they will comply with the adjudication notwithstanding the arbitration clause. For good measure, they have agreed they will submit to applications for summary judgment. If Ferson had a genuine point, there would then be a dispute which would have to be referred to arbitration but the parties have expressly agreed that course is not open to them once an adjudication has occurred. The clause thus prevents the party who has lost the adjudication from applying for a stay and, for good measure, requires him to submit to applications for summary judgment. The point of that must be not that the court should hear argument, at the stage of the application for summary judgment, about matters which (apart from the adjudication provision) should be referred to arbitration, but rather that summary judgment should be given without further ado."
  94. In Balfour Beatty Construction v Serco Ltd [2004] EWHC 3336 (TCC), the employer (Serco) declined to pay the amount awarded by the adjudicator to the contractor (Balfour Beatty) on the ground that the adjudicator had only granted Balfour Beatty an extension of time to 7 June 2004 and therefore Serco had a claim for liquidated damages for delay in completion after that date, which exceeded the amount made payable by the decision. Jackson J considered all the earlier authorities about the effect of the HGCRA and the Scheme on rights of set-off (including Parsons Plastics and Levolux) and derived from them the following two principles:
  95. "(1) Where it follows logically from an adjudicator's decision that the employer is entitled to recover a specific sum by way of liquidated and ascertained damages, then the employer may set off that sum against monies payable to the contractor pursuant to the adjudicator's decision, provided that the employer has given proper notice (in so far as required).
    (2) Where the entitlement to liquidated and ascertained damages has not been determined either expressly or impliedly by the adjudicator's decision, then the question whether the employer is entitled to set off liquidated and ascertained damages against sums awarded by the adjudicator will depend upon the terms of the contract and the circumstances of the case."
  96. The contract in Balfour Beatty was one to which Part 2 of the HGCRA applied: but it also contained (in Schedule 23 and Appendix A) detailed express provisions about adjudication. These included the following paragraphs in Appendix A:
  97. "10. The decision of the adjudicator shall be binding upon the parties, who shall forthwith give effect to the decision, unless and until the dispute is finally determined by the court or otherwise resolved by agreement between the parties
    13. The parties shall be entitled to the relief and remedies set out in the decision and to seek summary enforcement thereof subject to review by the courts. ..."
  98. Jackson J concluded that the extension of time to 7 June 2004 was only an interim extension and that the adjudicator had left open the possibility that Balfour Beatty might be entitled to a further extension beyond that date. In the absence of a definitive conclusion as to the total extension due to Balfour Beatty, no specific entitlement to any sum of liquidated damages could be derived from the adjudicator's decision. Therefore it was right that the decision of the adjudicator should be enforced without deduction or set-off. He noted (at para. 40) that the contractual provisions (in Appendix A) were "... consistent with the provisions of Pt 2 of the Construction Act and with the Parliamentary intention referred to in the authorities".
  99. In William Verry Ltd v London Borough of Camden [2006] EWHC 761 (TCC), the employer (Camden) claimed to be entitled to decline payment of an adjudication decision in favour of the contractor (Verry) on two grounds: (1) a subsequent final certificate showing that only a fraction of the sum awarded by the adjudicator was due, which was extinguished by Camden's counterclaim for liquidated and ascertained damages, and (2) a substantial defects claim which had been referred to a later adjudication.
  100. The contract was a construction contract to which Part 2 of the HGCRA applied. It also incorporated the JCT Intermediate Form of Contract 1998 edition which contained the following express terms about the status of the decision of an adjudicator:
  101. "9A. 7.1 The decision of an Adjudicator shall be binding on the Parties until the dispute or difference is finally determined by arbitration or by legal proceedings or by an agreement in writing between the Parties made after the decision of the Adjudicator has been given.
    9A. 7.2 The Parties shall, without prejudice to their other rights under this Contract, comply with the decision of the Adjudicator; and the Employer and the Contractor shall ensure that the decision of the Adjudicator is given effect.
    9A. 7.3 If either Party does not comply with the decision of the Adjudicator, the other Party shall be entitled to take legal proceedings to secure such compliance pending any final determination of the referred dispute or difference pursuant to clause 9A.7.1."
  102. Ramsey J held that those clauses reflected the intention of Parliament, as summarised by Dyson J in Macob Civil Engineering and Mantell LJ in Levolux. He rejected Camden's arguments for not paying the amount awarded to Verry in adjudication 3. The central planks of his reasoning under both grounds were that: (1) the binding nature of the adjudicator's decision and the agreement of the parties to comply with that decision meant that, prima facie, the decision should be enforced, (2) if an adjudicator's decision was liable to be overridden by a subsequent certificate or by set-off of a disputed counterclaim, the intention of Parliament would be defeated, and (3) the phrase in clause 9A.7.2 of the contract that compliance by the parties with the adjudicator's decision was "without prejudice to their other rights under this Contract" should be read as requiring compliance with the decision but that such compliance would not prejudice other rights under the contract.
  103. In addition Ramsey J held that Camden could not be in a better position by seeking to set-off against the amount made payable under the adjudicator's decision, a disputed counterclaim for defects which might have been but was not raised in the adjudication.
  104. The last and most recent of the cases cited was the decision of HH Judge Thornton QC in Domsalla (t/a Domsalla Building Services) v Dyason (2007) 112 Con LR 95. The contract in that case was not one to which Pt 2 of the HGCRA applied. It was a contract for reinstatement of fire damage to domestic premises owned by Mr Dyason under which Domsalla was the contractor. Domsalla referred to adjudication a claim for payment of sums due under the last three interim certificates issued by the contract administrator. The adjudication took place under express provisions for adjudication contained in the JCT Contract for Minor Building Works, 1998 edition, which had been incorporated into the contract. Those express provisions included the following clauses:
  105. "Effect of Adjudicator's decision
    D7.1 The decision of the Adjudicator shall be binding on the parties until the dispute or difference is finally determined by arbitration or by legal proceedings or by an agreement in writing between the parties made after the decision of the adjudicator has been given.
    D7.2 The parties shall, without prejudice to their other rights under this agreement, comply with the decision of the Adjudicator; and the Employer and the Contractor shall ensure that the decision of the adjudicator is given effect.
    D7.3 If either party does not comply with the decision of the adjudicator the other party shall be entitled to take legal proceedings to secure such compliance pending any final determination of the referred dispute or difference pursuant to clause D7.1."
  106. The adjudicator upheld all of Domsalla's claims and ordered Mr Dyason to pay Domsalla a sum of 144,000. Mr Dyason refused to pay for 3 reasons: (1) because he denied that there was an adjudication clause incorporated into the contract (2) because, if there was such a clause, that clause and the withholding notice provisions in the JCT Form which allegedly precluded him from justifying nonpayment on the ground of a cross-claim for defects and delay in completion were unreasonable and not binding on him by virtue of the Unfair Terms in Consumer Contracts regulations (UTCCR), and (3) because the adjudicator had conducted the adjudication in serious breach of the rules of natural justice. Judge Thornton dismissed the jurisdictional challenge and the argument that the adjudication clause was unenforceable under the UTCCR. He upheld the argument that the withholding notice provisions were unenforceable against Mr Dyason under the UTCCR. The court was therefore faced with an adjudication in which the adjudicator had wrongly refused to entertain Mr Dyason's cross-claims on the ground that a withholding notice had not been served, and a decision ordering Mr Dyason to make a payment to Domsalla against which he claimed to be entitled to set-off the cross-claims which the adjudicator had refused to entertain.
  107. Judge Thornton gave Mr Dyason leave to defend. The first ground of the decision was procedural unfairness. The adjudicator had declined to consider the cross-claims when he could and should have done because the withholding notice provision was unenforceable. Where the HGCRA applies, an error of law by an adjudicator within the ambit of his jurisdiction cannot be reviewed. But Judge Thornton held that this principle had no application where the adjudication arose in a purely contractual context. He had decided the point about the enforceability of the withholding notice provisions as a point of law arising on the Part 24 application. He had decided it in favour of Mr Dyason and against Domsalla. For that reason the decision would not be enforced.
  108. Judge Thornton went on to reject Domsalla's further submission that it was not in any event possible to set off or delay payment of a sum decided as due and directed to be paid forthwith by an adjudicator. He held (at para 99(5)-(6)) that this submission ignored the fact that in Gilbert-Ash the House of Lords had held that an employer could set off against sums certified under a building contract as due to the contractor cross-claims for defects and delay unless the contract expressly excluded that right. Thus, Judge Thornton concluded:
  109. "... in summary judgment, or adjudication proceedings not subject to the HGCRA, a cross-claim may be put up against a claim on interim certificates unless the contract also contains withholding notice provisions which have not been operated."
  110. Not surprisingly, Mr Kearney relies on the decision in Domsalla as strong support for RWE's contention that, where the adjudication is purely contractual and no withholding notice provisions are involved, enforcement of the adjudicator's decision can be resisted on the grounds of set-off unless the contract clearly excludes that right. Mr Brannigan submits that the Domsalla case was wrongly decided and that the outcome was in any event strongly influenced by the contractual matrix which involved an unenforceable withholding notice provision.
  111. I have not found these contentions easy to resolve. The cross-claim for liquidated damages does not logically follow from, indeed has no connection with, any of the matters decided by the adjudicator. So the justification for allowing or excluding a right of set-off must be derived from the terms of the contract and the surrounding circumstances, rather than from the scope of the adjudication or the terms of the decision itself.
  112. The express terms of the boiler contract, as amended by the Deed, are not as emphatic as those in Levolux or Balfour Beatty or Verry in requiring compliance with the decision to the implied exclusion of other rights. On the other hand they are not as emphatic as in Parsons Plastics in preserving rights of set-off notwithstanding the final and binding character of the decision.
  113. I do not think that the Domsalla case is as strong a support for RWE's position as Mr Kearney contends. The judgment in that case is readily explicable on the ground that the adjudicator had wrongly shut out Mr Dyason's entitlement to raise a set-off. That is not a feature of the present case because RWE made no attempt to raise the liquidated damages cross-claim as a defence in the adjudication. Moreover Judge Thornton did not need to consider in any depth the arguments raised in the other authorities to which I have referred about the extent to which incorporation of an adjudication provision into a contract containing the same or similar wording about the binding nature of a decision to that contained in the Scheme was apt to carry with it the imprimatur of the parliamentary intention underlying the Scheme. His conclusion that a set-off may be raised in summary judgment proceedings was reached without reference to those arguments or to the distinction that might need to be drawn between raising a cross-claim in the adjudication itself and raising it after the decision has been made.
  114. Judge Thornton also did not have to consider in Domsalla whether the wording of clause D7 in the JCT Form was such as to preclude a set-off being raised after the decision had been made. If the adjudicator had considered Mr Dyason's cross-claim and rejected it on its merits, Judge Thornton might not have held that it could be raised a second time in summary judgment proceedings. Equally he might have agreed with Ramsey J in the Verry case that if Mr Dyason had not raised the cross-claim in the adjudication proceedings, he should not be allowed to improve his position by relying on it as a set-off against enforcement of the decision.
  115. A further point is that it does not appear to have been argued in Domsalla that the phrase "Without prejudice to their other rights under the Agreement" in clause 7D7.2 of the JCT Form did not qualify the enforceability of the adjudicator's decision but, rather, meant that compliance with the adjudicator's decision should not have the effect of prejudicing other contractual rights (cf. Ramsey J's approach to the "without prejudice" reservation in clause 9A.7.2 of the contract in the Verry case, which does not seem to have been cited to the court in Domsalla).
  116. The conclusion I have come to is that the boiler contract does preclude a setoff from being raised. The effect of clause 11 of the Deed was to incorporate the provisions of the Scheme. In my judgment an officious (nowadays referred to as an "informed") bystander would conclude that, by choosing to incorporate the provisions of the Scheme rather than their own bespoke provisions for adjudication, the parties intended to import into the contract the parliamentary intention underlying the Scheme. That intention does not apply by virtue of an implied term (and none is pleaded by Alstom). It applies as a matter of construction. The incorporated wording is to be given the same interpretation as it has when the Scheme has statutory force, unless (and this is the sole qualification which distinguishes the statutory application of the Scheme from the contractual) there are background matters concerning the incorporation of the Scheme, or there is wording elsewhere in the contract, which compels a different conclusion.
  117. No specific background matters are relied upon to contradict this inference. Mr Kearney suggests that it cannot be assumed that RWE or Alstom knew anything about the parliamentary intention underlying the Scheme because they operate in the power industry, which was expressly excluded from the ambit of the HGCRA by section 105. However the test of intention is not subjective. It is an objective test to be derived from all circumstances. Those circumstances include fact of which I am entitled to take judicial notice. It is clear to me that the parliamentary intention underlying the Scheme is widely known in the construction industry and understood by most surveyors and lawyers representing the parties to contracts for major construction works (whether in the power industry or in other industries). It is therefore reasonable to conclude that, by expressly choosing to incorporate the Scheme into the boiler and feed system contracts, the parties in this case and their legal advisers (whom it may be assumed gave assistance in the drafting of the Deed because of the formal wording used) appreciated that they were adopting a regime for interim dispute resolution which requires adjudication decisions to be honoured without resort to the set-off of cross-claims. I therefore do not find it incongruous to be invited to attribute the parliamentary intention behind the Scheme to clause 11 of the Deed, notwithstanding that I have to assume for present purposes that the HGCRA has no statutory application to the boiler contract. The express choice of the Scheme, rather than of any other set of adjudication provisions, brings with it the purpose underlying it and the interpretation it has received in its statutory context.
  118. As for construing the wording of the Scheme with the other provisions of the boiler contract and the Deed, it is not in my view possible to interpret clause 39 as allowing a right of set-off against the amount awarded by the adjudicator without contradicting the purpose of the Scheme, which is to require prompt payment in full of the decisions of adjudicators. It would only be right to interpret clause 39 as having that effect if it is plain that that was the parties' intention. That would require more explicit wording, for example of the kind found in clause 31 in the Parsons Plastics case, than appears in clause 39 or elsewhere in the boiler contract.
  119. I regard the preservation of rights in clause 5 of the Deed as meaning no more than that compliance with the provisions of the Deed shall not deprive the parties of any of their other legal rights (cf. Ramsey J in Ferry). Compliance with the provisions of the Deed entails that a decision made by an adjudicator in accordance with the Scheme must be honoured without recourse to defences or cross-claims not raised in the adjudication. If there is any inconsistency between that obligation and the right of set-off in clause 39 which is preserved by clause 5 (and for the reason I have given I do not believe there is), clause 6 of the Deed makes plain that the rights and obligations arising under the Deed are to prevail.
  120. I must deal with one last argument of RWE. It is that it is ironic that, if Alstom had chosen to submit its claim to arbitration rather than to adjudication, RWE would be better off because it could raise a set-off as a defence to enforcement of the arbitrator's award. I detect no irony in this result. The argument ignores the difference between arbitration and adjudication. The former is a final process within which any countervailing right can be raised at any time up to the point of enforcement. The latter is an interim solution, designed to give rise to a speedy, but provisional, payment once a decision has been made.
  121. Conclusion
  122. I answer the preliminary issues by holding that the decision made by the adjudicator on 10 April 2009 is enforceable and that, on the assumption that the HGCRA does not apply to the boiler contract, RWE is not entitled to a set off against the adjudicator's decision of any sum due to it from Alstom, in particular the sum of 747,513.69 claimed by way of liquidated damages.
  123. I will hear counsel as to what form of order should follow from this conclusion.


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