Carillion appointed Hyder to undertake design works for the Network Rail East London Line. The Contract provided for Hyder to be paid substantially on the basis of its actual costs according to an agreed schedule of rates. This was subject to a deduction for Disallowed Costs as well as a pain/gain share provision. A dispute regarding the amount of Hyder’s fees, particularly in relation to the proper amount of Disallowed Costs and whether if the Target Costs mechanism was applicable and if so, the final value of it, was referred to adjudication.

After a meeting with the parties, the Adjudicator asked the parties to provide him with some further information, mostly consolidated numerical data relating to resource costs. Hyder provided this information and Carillion responded to it. In Carillion’s response, it complained that it this was the first time that it had been provided with any sort of breakdown of Hyder’s alternative Target Cost of £15M. As part of his decision the Adjudicator concluded that the revised Target Cost was £17M i.e. £2M higher than Hyder’s calculation. This conclusion was based on the Adjudicator’s understanding of the parties’ agreement.

Carillion argued that the Adjudicator had breached the rules of natural justice as his assessment of the Target Cost was the result of an adoption of a methodology on which he had not invited submissions from the parties and in circumstances where he should have done so. If the Adjudicator had told the parties that he proposed to take these figures, Carillion could or would have pointed out to him that they did not provide a true like for like comparison unless some adjustments were made.

The Judge considered that an Adjudicator’s decision consists of (a) the actual award (i.e. that A is to pay £X to B) and (b) any other finding in relation to the rights of the parties that forms an essential component of or basis for that award (for example, in a decision awarding prolongation costs arising out of particular events, the amount of the extension of time to which the referring party was entitled in respect of those events). In this case, the Adjudicator had decided the amount due to Hyder in respect of its Application 21a, the amount of interest payable to Hyder, his own fees and expenses and the allocation of his fees and expenses between the parties. Therefore the Adjudicator’s conclusion in relation to the value of the Target Cost was not a binding decision.

The Judge found that Carillion had not demonstrated that the Adjudicator’s failure to allow Carillion to comment on his methodology in arriving at his valuation of the Target Cost amounted to a breach of the rules of natural justice as: the calculation of the Target Cost was always an issue in the adjudication; at the meeting with the parties, the Adjudicator made it clear that he wanted further information to enable him to reach a conclusion about the Target Cost; the Adjudicator’s calculation of the Target Cost was driven primarily by his construction of Clause 9.5 of the contract, on which both parties had made submissions; the figures used by the Adjudicator when calculating the Target Cost were ones that were either agreed between the parties or had been put forward by Hyder and therefore the Adjudicator did not use any information that Carillion had not had an opportunity to consider; the arguments put forward to the court in relation to Hyder’s actual cost of carrying out the original work were arguments that could have been put to the Adjudicator on the basis of the material submitted by Hyder in the adjudication; and Carillion had requested, and been granted, further time to deal with the additional Hyder material in Adjudication and did not complain to the Adjudicator that it had not been able to deal with it. The Adjudicator was not obliged to choose one set of submissions over the other but it was open to him to adopt his own approach if he decided to reject both parties’ submissions.