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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Karl Construction (Scotland) Ltd v Sweeney Civil Engineering (Scotland) Ltd, Re Application For Judicial Review [2000] ScotCS 330 (21 December 2000)
URL: http://www.bailii.org/scot/cases/ScotCS/2000/330.html
Cite as: 2001 SCLR 95, [2000] ScotCS 330
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OUTER HOUSE, COURT OF SESSION |
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OPINION OF LORD CAPLAN in the petition for KARL CONSTRUCTION (SCOTLAND) LIMITED against SWEENEY CIVIL ENGINEERING (SCOTLAND) LTD for JUDICIAL REVIEW :
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Petitioners: McKenzie, Solicitor Advocate; Masons, Glasgow
Respondents: Connell, Solicitor Advocate; McGrigor Donald
21 December 2000
[1] This petition for Judicial Review is for review of the decision by an adjudicator who in terms of the Housing Grants Construction and Regeneration Act 1996 (hereinafter referred to as "the 1996 Act") decided an adjudication that had been referred to him under a construction contract. The petitioners are the principal contractors under that contract and are hereinafter referred to as "Karl Construction". The first respondents are Sweeney Civil Engineering (Scotland) Ltd and they are hereinafter referred to as "Sweeney". Sweeney entered into a Building Sub-Contract Agreement (hereinafter referred to as "the Sub-Contract") with Karl Construction dated 30 September and 5 October 1999. Karl Construction for their part entered into a contract (the Main Contract) with the Secretary of State for Scotland and under the Sub-Contract Sweeney had undertaken to carry out certain construction works which are the subject of the Main Contract. Paragraph 5 of the Sub-Contract provided that: "If any dispute or difference arises under or by reason of breach of this Agreement either party may refer it to adjudication in accordance with Clause 38A." Sweeney made a reference to adjudication and after their Notice of Intention to refer was issued, Janey Milligan, FRICS, LLM, MCIArb (who was called to this petition as second respondent) was nominated and appointed adjudicator. The adjudicator accepted office, conducted the adjudication, and issued her decision dated 7 July on 10 July 2000. Although the adjudicator was called to the petition as second respondent, she took no part in the Hearing I am deciding. The Sub-Contract makes provision for the carrying out of construction operations and since it was signed after 1 May 1998, it falls within the definition of a construction contract in accordance with the 1996 Act.
[2] The adjudicator's said finding was to the effect that Sweeney are entitled to payment from Karl Construction in respect of contract works carried out in terms of Sub-Contract of the sum of £39,872.24 (as calculated in the Appendix C to her Decision) and exclusive of Value Added Tax. The due date for payment was stated to be the date of the Decision, the final date for payment being 7 days thereafter. It was also provided in the Decision that Sweeney are entitled to interest on the said sum at the rate of 5% over the base rate of The Bank of England rate at 17 March 2000 and that from 17 March 2000 until payment. Other provisions in the Decision related to liability for the adjudicator's fees.
[3] In this petition Karl Construction challenged the adjudicator's said Decision on the grounds that it is ultra fines compromissi et separatim ultra vires of the adjudicator. Karl Construction in the petition accordingly seek reduction of the Decision.
[4] In Appendix 1 of the Sub-Contract, there are incorporated into the Contract provisions for payment of Sweeney and in particular there are provisions for interim payment after certification for approval of the works. Section 108(1) of the 1996 Act provides that a party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with the section and for that purpose "dispute" includes any difference. Appendix 1 also incorporates in the Sub-Contract Clause 38 which relates to the Settlement of Disputes. Clause 38A relates to adjudication and in 38A.1 the Clause is said to apply when pursuant to Clause 5 either party refers any dispute or difference arising under or by reason of a breach of the Sub-Contract to adjudication. It should perhaps be noted that subsequent provisions about the adjudication of disputes do not impose the specific qualification that the dispute or difference must arise out of a breach of the Sub-Contract but the parties were agreed that nothing turns on any implication that the dispute must relate to a breach of contract. It is clear that the Sub-Contract has provisions designed to achieve expeditious results in the adjudication so that Clause 38A.2.1.1 provides that any application to the nominator of an adjudicator must be made with the object of securing the appointment of, and referral of the dispute or difference to the adjudicator within seven days of the date of the Notice of Intention to Refer. Clause 38A .3.4 makes certain provisions which apply "where a dispute varies significantly from the dispute referred to him and for that reason he is not competent to decide it". It might be noted at this point that there was some discussion as to the meaning of Clause 38A.3.4 at the Hearing on the basis that its terms are somewhat ambiguous. On the one hand the reference to competence may apply to legal competence. On the other hand the reference may be to physical competence because if an adjudicator is selected because of some special experience he might not be competent to apply his expertise to the adjudication if the referral changes the nature of the issues. However, although consideration of the meaning of Clause 38A.3.4 may be interesting in my view, it had no bearing on the final resolution of this petition. Clause 38A.5.1 provides for the party requiring adjudication of a dispute or difference giving notice to the other party of the intention to refer and provision is made for the dispute or difference being "briefly identified in the notice". Within seven days of the Notice of Intention, the party wanting to refer must refer the dispute or difference to the adjudicator for his decision. There must be included in the referral particulars of the dispute or difference together with the contentions on which the referring party relies, a statement of the remedy which he seeks, and any material he wishes the adjudicator to consider. The other party will get copies of this. Within seven days the other party "may" send the adjudicator a written statement of any contentions on which he relies and any material he wishes the adjudicator to consider. Paragraph 38A.6.3 then provides that the adjudicator within 28 days of the receipt of the referral shall reach his decision and send a copy of this in writing to the parties. It is provided that he will be reaching his decision acting as an adjudicator for the purposes of section 108 of the 1996 Act. The parties may jointly extend the time allowed to the adjudicator by up to 14 days. Paragraph 38A.6.4 gives parties a right to request within seven days from delivery of the decision that the adjudicator provides reasons for his decision. Paragraph 38A.6.5 sets out various considerations which apply to the conduct of the adjudication by the adjudicator. He must act impartially. He may set his own procedure. He "
[5] By letter dated 1 June 2000 to Karl Construction, Sweeney gave notice of an intention to refer a dispute between the parties to an adjudicator. The said letter makes reference to the dispute as follows:
"The dispute has arisen over the failure of Karl Construction (Scotland) Limited to comply with the payment provisions of the aforementioned scheme, whereby Sweeney Civil Engineering's payment application of 1 February 2000 has not been honoured nor properly disputed within the prescribed period.
The dispute under this contract regards non-payment for work carried out by Sweeney Civil Engineering Limited under their contract with Karl Construction (Scotland) Limited at the above site in accordance with the written agreement created by the tender offer from Sweeney Civil Engineering Limited and accepted by Karl Construction (Scotland) Limited's correspondence dated 9 July 1999."
[6] The reference to "the scheme" is a reference to the Scheme for Construction Contracts (Scotland) Regulations 1998 (hereinafter referred to as "the Scheme"). Part II of the Scheme makes certain arrangements for payment of instalments, staged payments, or periodic payments and paragraph 3 (which provides for dates for payment) provides that where parties to a construction contract fail to provide an adequate mechanism for determining when payments under the contract become due for payment, any payment of the kind specified shall become due on whatever of the dates set out falls later, namely, the expiry of seven days following the expiry of the period mentioned in paragraph 2(1) of the payment provisions of the Scheme or the making of a claim by the payee. It has to be noted that in Sweeney's Notice of Intention to refer to adjudication there is reference to the payment provisions of the scheme but this may be due to Sweeney's failure to focus on the precise provisions warranting payment rather than an intention to rely on any specific provisions. It can also be noted that when Sweeney on 1 June 2000 write to the Scottish Building Employer's Federation seeking nomination of an adjudicator, they requested the nomination of an adjudicator with experience not only of the 1996 Act but also of the Scheme (although no doubt experience of these matters would normally go together). Redress was sought by Sweeney by way of full payment of the sum due under the application for payment they were relying on.
[7] Janey Milligan having been nominated as adjudicator by the Scottish Building Employers' Federation, by letter dated 8 June 2000 Sweeney formally referred a dispute between the parties to her adjudication. Documents were enclosed and it was requested that all these be taken into account "when ascertaining the facts and the law in this case". It is stated that the nature of the dispute and relevant points of law are as detailed in the said letter of 1 June. It was stated that "the dispute is over an outstanding interim payment in relation to an application for payment dated 1 February 2000". It is said,
"This has not been settled in accordance with the payment provisions of the Scheme for Construction Contracts (Scotland) Regulations 1998. This account represents our claim for works provided by us to Karl Construction Limited, as provided in the written contract between the two parties along with additional costs resulting from instructions issued to us by Karl Construction Limited."
Thus there is again a reference to the 1998 Scheme although Mr Connell, solicitor advocate for Sweeney, fairly conceded that this reference should not be taken as specific notification by Sweeney that their claim to interim payment was based on the Scheme alone.
[8] In a letter to the adjudicator dated 9 June 2000, Karl Construction set out certain objections to the appointment of the adjudicator. They challenged the manner of her appointment but this matter is no longer insisted on. However, they claim that Sweeney's right to interim payments is governed by Clause 21.2.4 of the Sub-Contract which provides that although interim payments to the Sub-Contractor shall become due, they shall only be payable to the sub-contractor when the value of the equivalent works are included in the certificate from the architect or contract administrator under the Main Contract or otherwise approved by the employer under that contract. Karl Construction claimed that Sweeney had already been paid more than their certified entitlement. The additional element was said to be a gesture to assist Sweeney with a cashflow problem and it was said to be the basis of the entire payment that Sweeney would complete and resource the outstanding work.
[9] In a letter from their solicitors to the adjudicator dated 21 June 2000 Karl Construction set out their formal response to Sweeney's referral. The third paragraph of that response contains the following:
"The Referring Party suggests that the Scheme for Construction Contracts (Scotland) Regulations 1998 ('The Scheme') should be used for this adjudication. However, the parties' contract contains an adjudication clause (Clause 38) which is Act compliant. Therefore, no regard may be had to the Scheme when determining this dispute".
The Response concludes that the Referring Party had failed to demonstrate any contractual entitlement to the various sums claimed; that these sums cannot be said to be due and that the service of a Notice of Withholding Payment is irrelevant to those claims. The Response sets out in relation to "payment provisions" that to succeed with their claim Sweeney must demonstrate a contractual entitlement to the sums claimed. They then proceeded to develop the argument the interim payment shall become due (but not payable) on the date when the value of the equivalent works under the Main Contract are included in the certificate from the architect or contract administration. By reference to these provisions they claim that Karl Construction have actually paid Sweeney more money than is due under the contract at this point of time. They also specifically refute any suggestion from Sweeney that the absence of a Notice of Withholding requires the payment of the whole of Sweeney's application for payment dated 1 February 2000. They state that Karl Construction have not withheld payment on the basis that they have a claim against Sweeney which they consider they are entitled to use as a set-off but rather their reason for non-payment is that Sweeney is not due to be paid the various sums sought. By way of redress, Karl Construction requested the adjudicator to find that there was no contractual requirements for Sweeney to serve a Notice of Withholding and that Karl Construction have not sought to withhold payment from Sweeney. They also ask the adjudicator to find that Karl Construction have properly valued Sweeney's entitlement in terms of the Sub-Contract and accordingly are not due to pay the sums sought by Sweeney.
[10] In addition to the formal documents I have referred to, the parties corresponded on some of the matters raised by Karl Construction. This correspondence was usually addressed through the adjudicator. It would appear that in this correspondence Sweeney never claimed that their claim to early payment of the sums due for the work they were seeking redress for was based on the payment provisions of the Scheme rather than those of the Sub-Contract. In a letter from Sweeney to the adjudicator dated 27 June 2000, Sweeney wrote,
"We would respond as follows to the above-noted submission on behalf of the respondents (Karl Construction).
Notices. We accept that Clause 38 of the Conditions of Contract complies with requirements of the Scheme for Construction Contracts (Scotland) Regulations 1998 this, however, does not relieve the respondents of their contractual obligation to issue a written notice under Clause 21.3.2 of the conditions of their contract."
Sweeney claimed that in the absence of the necessary contractual notice it was impossible for them to know the basis upon which the interim payment eventually made had been calculated.
[11] In her Decision dated 7 July 2000, the adjudicator held that in arriving at her decision she had taken account of the Referral Notice and Response and further exchanges of correspondence submitted by the parties. She had held a meeting with the parties to determine the extent and value of the works carried out by Sweeney. She had asked parties to identify items in dispute and monies paid against each item. She determined that the nature of the dispute between the parties was the right of the sub-contractors to receive payment for the work carried out to 31 January 2000. In particular she asserted that the matters referred to adjudication were:
(1) To decide if Sweeney is entitled to the payment of their Payment Application No 5 for the sum of £65,479 excluding value added tax and as to deduction of previous payments;
(2) To decide if they are entitled to interest on that amount if awarded;
(3) To decide on liability for the adjudicator's fees and expenses in the adjudication."
The adjudicator then considered the history of the work done and the payments which were received by Sweeney. She held that the contract terms and conditions do not make adequate provisions as required by section 110 of the 1996 Act. Accordingly the default provisions of invoking the relevant stipulations of Part II of the Scheme apply to the time for payment. Thus the adjudicator held that the Sub-Contract did not make adequate provision for determining when payments became due. Applying the provisions I have mentioned, the money payable under the relevant application was due for payment on 1 February 2000 and the final date for this payment was 17 March 2000. Accordingly the adjudicator (having adjusted the total payable) found that Karl Construction were due to make payment to Sweeney of £39,872.24 exclusive of VAT and interest on the sum awarded of 5% over the base rate of the Bank of England rate at 17 March 2000 from that date until payment. She found Karl Construction had to meet the ultimate liability for her fees and expenses.
[12] Presenting his argument in support of the petition Mr McKenzie, solicitor advocate for Karl Construction, indicated that, whereas he did not like the adjudicator's conclusions, the appeal was not directed against the merits of the Decision but rather to the submission that the decision was ultra vires of the adjudicator and also beyond the limits of the reference to the adjudicator. Section 108 of the 1996 Act gives a party a right to refer "a dispute" (in the singular) to adjudication. The question which the adjudicator has to answer is dependent on the nature and extent of the dispute referred to him by a valid Notice of Intention to refer. If the contract does not provide an appropriate Scheme the statutory Scheme for Construction Contracts will apply but since there has been an adjudication process it must be assumed that the Act applies. Clause 38A.4.1 incorporated by the Sub-Contract provides that the adjudicator may with the consent of all the parties to the dispute, adjudicate on more than one dispute at a time. In the present case no such consent has been given. The dispute which by consent has been referred is properly expressed in the second paragraph of the Notice of Intention to refer a dispute (that is in the Notice of 1 June 2000 given by Sweeney to Karl Construction. The dispute is expressed as having arisen over the failure of Karl Construction) to comply with the "payment provisions" of the 1998 Regulations whereby Sweeney's payment application of 1 February 2000 has not been honoured and properly disputed within the prescribed period. This Notice was said to confuse the procedure with the regulations themselves (which regulations are in fact irrelevant). Karl Construction has no opportunity to modify a dispute which has been notified to them. If they have a dispute of their own they should serve counter-notice. If that is done, parties will often agree that the same adjudicator will deal with both disputes. Karl Construction could have replied to Sweeney's referral by making a counterclaim but their position is that there is no need for such a counterclaim because all the monies they owe have been paid. The issue is not whether the contract is valid but whether or not sums due under contract have been paid. In particular in paragraph 5 of her Decision, the adjudicator has herself identified the dispute as being the right of Sweeney to receive payment for works carried out for Karl Construction up to 31 January 2000. A critical finding is said to be in the adjudicator's finding at paragraph 7.09 when she states that the Sub-Contract terms and conditions do not make adequate provision for time of payment as required by section 110 of the 1996 Act. Accordingly (so the adjudicator states) the default position of invoking the relevant provisions of the Scheme apply. The compliance of the Sub-Contract with the 1996 Act was never an issue referred to adjudication. If the applicability of the Sub-Contract had been under challenge, Karl Construction would have hotly contested the matter. They had no opportunity to do so. Mr McKenzie contended that if an adjudicator or arbiter decided a matter beyond that which is referred to him or beyond the powers conferred upon him, his decision would be void. Various authorities were cited but Sweeney's solicitor-advocate did not dispute the general principles which Mr McKenzie had advanced. Particular reference was made to Sweeney's letter dated 27 June 2000 where they specifically state that they do not dispute that Clause 38 of the Contract complies with the requirements of the Scheme. This, it was said, was conclusive of the fact that the applicability of the payment provisions of the Scheme formed no part of the dispute between the parties.
[13] Mr Connell, solicitor-advocate for Sweeney, contended that the adjudication procedure was a different process from arbitration and had to be recognised as a procedure introduced by the1996 Act with the specific object of acceleration of the resolution of interim problems in construction contracts. In particular, it was designed to accelerate the implementation of interim and staged payments where these can be shown to be due. The adjudicator made a decision as to what was to happen in the interim pending a final resolution of contractual disputes by arbitration, litigation or agreement. The adjudicator was accorded a wide discretion as to the procedures that she could employ in deciding the dispute referred. He could take an initiative in relation to the procedure in order that he could determine an issue of fact or law. He enjoyed some of the attributes of an expert to whom a dispute was referred rather than the attributes of an arbiter. Because his decision was intended to be interim only, he had to work within a compressed time scale. In the present case the essential dispute was Sweeney's entitlement to payment for particular work which it was admitted had for the most part being completed. Mr Connell contended that the formal Notices, Response and the correspondence show clearly that Sweeney's plain objective was to get immediate payment for work they had done (and detailed in their application for payment dated 1 February 2000). The solicitor advocate for Sweeney referred me to ERDC Construction Ltd v HM Love & Company 1996 SC 523 which was cited as authority for the proposition that arbitration is not precisely parallel to adjudication. More emphasis was placed on Macob Civil Engineering v Morrison Construction 1999 BLR 93. That was an adjudication case decided by Mr Justice Dyson. As he observed at p.97,
"This intention of Parliament in enacting the Act was plain. It 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 section 108(3) of the Act and paragraph 23(2) of Part I of the Scheme. The timetable for adjudications is very tight (see section 108 of the Act). Many would say unreasonably tight, and likely to result in injustice. Parliament must be taken to have been aware of this. So far as procedure is concerned, the adjudicator is given a fairly free hand. It is true (but hardly surprising) that he is required to act impartially (section 108(2)(e) of the Act and paragraph 12(a) of Part I of the Scheme). He may therefore, conduct an entirely inquisitorial process, or he may, as in the present case, invite representations from the parties. It is clear that Parliament intended that adjudication should be conducted in a manner which those familiar with the grinding detail of the traditional approach to the resolution of construction disputes apparently find difficult to accept."
At page 99 of the dispute, Dyson J. stated in relation to an adjudicator:
"If his decision on the issue referred to him is wrong, whether because he erred on the facts or the law, or because on reaching his decision he made a procedural error which invalidates his decision, it is still a decision on the issue. Different considerations may well apply if he purports to decide a dispute which was not referred to him at all."
[14] The observations of Dyson J. were cited to and apparently approved by Lord Kingarth in the Outer House in Allied London & Scottish Properties v Riverbrae Construction 1999 BLR 346. In Homer Burgess v Chirex (Annan) Ltd 2000 SLT 277, Lord Macfadyen comments on certain restrictions which would apply to the adjudication procedure. But these are very general and offer little guidance in the present case. Indeed, in respect of Scottish Authority, references to adjudication have been sparse.
[15] I was further referred to Fastrack Contractors v (1) Morrison Construction 2000 BLR 168. This is a case decided before the Queen's Bench Division Technology and Construction Court and his honour Judge Thornton, QC discusses the meaning of "a dispute". In Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd 2000 BLR 49, which reports proceedings at first instance in Queen's Bench Division Technology and Construction Court, Dyson J. indicated (page 56),
"But in deciding whether the adjudicator has decided the wrong question rather than giving the wrong answer to the right question, the Court should bear in mind that the speedy nature of the adjudication process means that mistakes will occur and in my view, it should guard against characterising a mistake in answer to an issue that was within the scope of a reference as an excessive jurisdiction."
The case then proceeded to the Court of Appeal and in a judgment dated 31 July 2000 the Court rejected the appeal on the basis that although the adjudicator made a mistake in answering the question, he had answered the right question. Lord Justice Buxton, indicates with approval (at p. 6 of his Opinion) that the matter was correctly put by Knox J. in Nikko Hotels (UK) Ltd v MEPC Plc (1991) 2 EGLR 103 at 108 where Knox J. said:
"If the adjudicator has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity."
[16] In deciding this case there is much that is not disputed in these particular proceedings. It is not disputed that Sweeney's claim to be paid an interim payment for the outstanding cost of the works they did until 31 January 2000 has triggered off the present dispute. Indeed Sweeney issued an application to be paid for this work which is based on Sweeney's Valuation No 5. In her award the adjudicator has made certain adjustments to the valuation of the sum that may be due but no question over the work or its value arises at this stage. Thus it is the case that Sweeney have done certain work on the contract and that they have received no interim payment from Karl Construction for that work to the extent of £39,872.24 (exclusive of VAT). It is not disputed that in certain circumstances Sweeney would be entitled to interim payments although the precise identification of these circumstances is disputed. The adjudicator's findings in respect of interest and fees are also not disputed, if it be the case that her main finding is valid.
[17] It is also the case that parties are in general agreement as to the law affecting the adjudicator's powers and responsibilities. It is not disputed that the adjudication procedure involved in this case came into being as a result of statutory provision. As was submitted by Sweeney's representative, the broad objective of the 1996 Act and consequential Regulations was to facilitate the interim regulation of construction contracts. Such contracts are notably capable of generating complex and extensive disputes between affected parties and it seems that the statute was particularly concerned with ensuring that parties with claims for interim payments could have the option of a procedure which would enable them to have their claim resolved quickly and practically. This could result in an order for immediate payment of any sum due albeit on a provisional basis. The final rights of the parties can be determined at the conclusion of the contract by litigation, arbitration, or agreement, as may be appropriate. Meantime the mischief of one of the relevant parties obstructing payment by raising debatable questions can be mitigated. The procedure provided by the legislation is also geared to facilitating a speedy resolution of such questions as are referred to adjudication. As Dyson J. observed in Macob,
"So far as procedure is concerned, the adjudicator is given a fairly free hand - he may therefore conduct an entirely inquisitorial process or he may, as in the present case, invite representations from the parties."
The provision for adjudication in the present case provides for adjudication of "a dispute" rather than "disputes". The timescale allowed to the adjudicator is fairly stringent and here she must issue a decision within 28 days of receipt of referral although there is provision for extension of this time for up to 14 days. The adjudicator is specifically empowered to set his own procedure and at his absolute discretion may take the initiative in ascertaining the facts and law as he considers necessary in respect of the referral. The adjudicator is bound to act impartially but there is no question about that raised in the present case. He is specifically allowed in determining any question of fact in law to use "his own knowledge and experience" (Clause 38A.6.5. of Appendix 1 of the Sub-Contract). The precise nature of the dispute referred to the adjudicator is critical as has been judicially observed in Bouigues (UK) Ltd. In that case (as I indicated earlier) the Court of Appeal approved a test in the following terms:
"If an adjudicator has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity."
Indeed the authorities referred to by Mr Connell were not challenged and I have no difficulty in accepting them. As been seen, a number of judges have expressed reservations about the fairness and workability of the adjudication procedure set out by the 1996 Act and Scheme but I agree that this is immaterial to the present appeal.
[18] The issue in the present appeal is therefore reduced to: what precisely was the dispute referred to the adjudicator in this case? Karl Construction contended that the dispute between the parties was whether or not they were entitled to delay the relevant interim payment because the prerequisites for payment set out in Clause 21.2.2 in the Appendix 1 to the Sub-Contract were not fulfilled. Sweeney on the other hand argued that Karl Construction could only invoke Clause 21.2.2 to govern when interim payment became due of they had given written notice under Clause 21.3.3. indicating their intention to withhold payment. Karl Construction contend that no notice of withholding was necessary because the relevant provisions only applied where there was non-payment of sums otherwise due. They contend that at the stage at which the contract had arrived the sums in the Application for Payment No 5 were not yet due so that there was nothing to withhold. Karl Construction further submit that by finding the Sub-Contract did not make clear provisions for determining when an interim payment was due and therefore relying upon the payment provisions of Part II of the Scheme, the adjudicator strayed beyond the bounds of what had been referred to her. Sweeney on the other hand submit that the dispute referred to adjudication was wider in scope and that it was a dispute which arose from the fact that Karl Construction had failed to pay the sums due for work which had been done and valued and was the subject of the claim incorporated in the application for Payment No 5. I would agree that if the narrow and restricted view of the dispute advanced on behalf of Karl Construction is correct, then the adjudicator trespassed beyond the boundaries of the issue referred to her and her decision is a nullity. On the other hand, merely deciding the dispute referred to her, whether or not her decision was correct on based on error would not matter. If she was deciding what was referred to her, her decision must stand and this petition must fail.
[19] In forming a view of the nature and extent of the adjudication proceedings a number of factors have to be kept in mind. The objective is to get a practical provisional decision in proceedings where the parties are likely to have commercial considerations in mind rather than to have a concern for extensive legal analysis. The timescale both for the development of, and decision in, the adjudication is both strict and exacting. Thus a degree of procedural requirement that might be expected in litigation or arbitration is neither appropriate nor likely to be achieved. Moreover in the background is the fact that any resolution of the dispute in the adjudication is only a provisional result to deter stalemate but that errors can eventually be corrected.
[20] The first important document was Sweeney's Notice of Intention to refer to the adjudicator as contained in their letter to Karl Construction dated 1 June 2000. The document does not appear to have been written by a professional adviser but it would seem that Sweeney themselves handled the preparations for the adjudication. The Notice is in itself far from being an exact document. The second paragraph sets out:
"The dispute has arisen over the failure of Karl Construction (Scotland) Limited to comply with the payment provisions of the aforementioned scheme whereby Sweeney Civil Engineering's payment application of 1 February 2000 has not been honoured, nor properly disputed within the prescribed period."
It should be noted that the only scheme which had been mentioned was the 1998 Scheme. However, future communications from Sweeney would suggest that they were not intending specifically to found their claim on this Scheme but rather on the terms of the Sub-Contract. However, when they apply on the same day to the Scottish Building Employers Federation for the appointment of an adjudicator, they request a person not only with working knowledge of the 1996 Act but with such knowledge of the Scheme as well. Where they require in the application to set out the nature and a brief description of the "disputes" (sic), they say:
"As a result of Karl Construction (Scotland) Ltd failing to honour interim payments applications as stipulated in the payment provisions of the Construction Act Scheme for Construction Contracts (Scotland) actual details are contained in the attached two letters."
The formal referral notice which follows is dated 8 June 2000 and goes to the adjudicator who by this time has been appointed. A description of the dispute must be given in the Notice and the adjudicator is referred to the said letter to Karl Construction dated 8 June 2000. Sweeney also state in their letter that the dispute is over an outstanding interim payment in relation to their application for payment dated 1 February 2000. They say that this had not been settled in accordance with the payment provisions of the Scheme for Construction Contracts (Scotland) Regulations 1998. They indicate that the account represents their claim for works provided by them to Karl Construction, as provided for in the written contract between the two parties, along with additional costs resulting from instructions issued to Sweeney by Karl Construction. They actual Notice of Referral indicates that "redress is sought in this dispute as follows". Then reference is made to the payment application dated 1 February 2000 and to Karl Construction's payment certificate dated 3 February 2000.
[21] It is not difficult to accept that when the adjudicator looked at the documents I have referred to she got the impression that Sweeney's main interest was to obtain immediate interim payment of the amount relating to the work set out in the Application for Payment No 5. She would also have concluded that Karl Construction were not paying that application so that the question of whether or not judgment should now be made was in itself a dispute and given that Sweeney was clearly interested in getting payment for the work done and valued, the apparent dispute would not be resolved or decided until the adjudicator determined whether Sweeney were entitled to immediate payment or not. It is obviously not difficulty to envisage situations where disputes arise in construction contracts which might be essentially different from one another. A claim for delay in getting access to the site leading to loss on the part of the sub-contractor would clearly be different from a claim for non-payment under a certificate valuing work done. The present matter, however, is certainly not in such a clear cut category. It should be noted that the referral relates to payment under a specific application and the adjudicator's decision does not refer to some different application but rather to the same one.
[22] A question might arise as to whether during the course of an adjudication parties can adjust or change their contentions. Thus it is difficult to see why when confronted with Karl Construction's Response Sweeney should not, if they had been so advised, had added an esto contention that if they were not due payment under the terms of the contract because the contract did not contain a mechanism for determining when payment was due, then they would be entitled to payment under Part II of the Scheme. Parties continue to correspond after the formal notices and these letters were referred to the adjudicator. The adjudicator had a meeting with the parties (relating to valuation questions) but it is surely to be expected in flexible procedures such as apply here that the adjudicator herself could raise new questions of fact or law if she thought that they were relevant to the dispute. Thus it is important to distinguish between the dispute (which will turn on the practical implications for the parties) and the contentions and support of each party's stance over the material issue which might be adjusted in the course of communications between them.
[23] Eventually after an attempt later abandoned to impugn the appointment of the adjudicator, Karl Construction on 21 June 2000 sent through their solicitors their response to Sweeney's referral. In this the solicitors state that no regard need be had to the Scheme when determining the dispute. The response was essentially that the payment claimed by Sweeney was not due and that accordingly no notice of withholding payment was required under the contract. The respondents (Karl Construction) stated their position as being,
"To find that there was no contractual requirements for the respondents to serve a Notice of Withholding, that the respondents have not sought to withhold payment from the referring party and to find that the respondents have properly valued the referring party's entitlement in terms of the Sub-Contract and accordingly are not due to pay the sums sought by the referring party. Reference is made to the terms of Clauses 21.2.1 to 21.2.3A of the Appendix 1 to the Sub-Contract."
[24] The high point of Karl Construction's case may be a letter from Sweeney to the adjudicator dated 27 June 2000. In that letter Sweeney write:
"We accept that Clause 38 of the conditions of contract complies with the requirements of the Scheme for Construction Contracts (Scotland) Regulations 1998. This, however, does not relieve the respondents of their contractual obligation under Clause 21.3.2 of the Conditions of their Contract."
Later in relation to "when payments are due" Sweeney write:
"We set down below the elements of our Application for Payment No 5 which will relate to the two mechanisms provided for in the Contract (Clauses 21.2.2 and 21.2.3A.) for determining when payments become due. As stated above however, there is only one mechanism under the Contract for determining which accounts are due to us."
I think it would be fair to say that at least in the later period of the adjudication process Sweeney considered that Karl Construction could be regarded as withholding payment and that any right they had to do so was affected by the withholding payments Notice required by the Sub-Contract.
[25] The adjudicator received a referral notice on 8 June 2000. The formal Response was dated 21 June 2000. On 29 June she held a meeting with the parties confined to queries about the extent and value of the works. The letter from Sweeney to the adjudicator dated 27 June 2000 would not have been received by her until on or after that date. Her decision, which is fairly extensive, was issued on 7 July 2000. It is therefore clear that the adjudicator had to work quickly to decide the adjudication within the permitted timescale.
[26] In paragraph 5 of her Decision the adjudicator finds that the nature of the dispute between the parties is the right of the sub-contractor (Sweeney) to receive payment for works carried out for the contractor (Karl) to 31 January 2000 (as set out in Sweeney's Valuation No 5 dated 1 February 2000). She also indicates that she is asked to decide if Sweeney is entitled to payment of the Payment Application No 5. Unless the adjudicator's view of the dispute is baseless, Karl Construction's petition must fail. However, given the terms of the referral it may be difficult to contend that Sweeney were not seeking as their main objective to get an immediate interim payment arising from the said application.
[27] At paragraph 7.09 of her Decision the adjudicator finds:
"The Contract terms and conditions do not make adequate provision as required for section 110 of the Housing Grants, Construction and Regeneration Act 1996. Accordingly the default position of invoking the relevant provisions in Part II of the Schedule to the Scheme for Construction Contracts (Scotland) Regulations 1998 apply."
This is amplified in paragraph 7.11 as follows:
"The contract makes provision for instalments (monthly) payments but did not provide an adequate mechanism for determining when payments became due."
That finding is clearly central to the adjudicator's final decision. In paragraph 7.18 the adjudicator finds:
"I find that making no payment to Sweeney on the basis of Clause 21.2.2 is not in compliance with the Housing Grants Construction and Regeneration Act (1996)."
Accordingly in paragraph 8 she finds Sweeney entitled to payment from Karl Construction of £39,872.24 exclusive of VAT but with interest. The due date for payment is the date of her decision with a final date of seven days thereafter. There are findings in relation to the adjudicator's fees and the expenses.
[28] Given the terms of the referral itself it is not surprising that the adjudicator was persuaded that Sweeney were invoking any feature of the Sub-Contract or adjudication legislation which would entitle them to payment of their Application for Payment No 5. It was equally clear that Karl Construction were disputing their obligation to make such a payment. Both parties appear to have got at least their principal contentions in support of their respective cases wrong. Sweeney considered it was apt for them to rely on the contractual provisions because they believed that the notice of withholding provisions applied. Karl Construction on the other hand thought they could delay payment on the application under what they perceived as their right to get a certificate on the Main Contract was satisfied. However, looking at the issue more broadly, the parties were in dispute as to when was the time for payment of the outstanding works set out in Application for Payment 5. This is certainly what Sweeney, at least, would want to resolve. The gravamen of the petitioners' case in the petition is that instead of confining her decision to the contentions advanced by the parties the adjudicator has strayed beyond her remit and based her decision on an issue not referred to her. However, it is fairly clear that if the Sub-Contract does not contain an adequate mechanism for determining when payments become due, then Part II of the Schedule to the Scheme applies and provides a default mechanism for payment. The solicitor-advocate for Karl Construction did not really contend that if there was no contractual mechanism then Part II of the Scheme would not be applicable as a default provision. What Karl Construction strongly object to is the adjudicator's finding within the boundaries of this adjudication that the contract contained no adequate mechanism for determining when the relevant interim payment became due. However, the express contentions advanced by the parties in the adjudication procedure contain competing views of the construction and applicability of the payment provisions for interim payments which are contained in the Sub-Contract. The adjudicator therefore required to give consideration to the relevant provisions of the Sub-Contract to see what she made of them. The adjudicator rightly or wrongly concludes that the Sub-Contract does not provide an adequate mechanism for deciding when instalment monthly payments become due. In the circumstances the adjudicator's position seems to be that she could not answer the central issue in the referral which was when in terms of the Sub-Contract provisions the relevant instalment becomes due and payable. She could not give effect to one or other of the parties' respective contentions because the Sub-Contract did not permit her to do this. Accordingly she would require in her decision to make a finding explaining why she was not going along one or other of the paths suggested to her by the parties. Such a finding would be an integral part of her decision on the reference. If the adjudicator rejects a suggestion that the Sub-Contract contains provisions about when payments become due then because of the implications of this on her resolution of the referral it is difficult to say that the question of whether or not the Sub-Contract contains an adequate provision for governing when payment of instalments is due is not part of the dispute which has been referred and that the matter constitutes a separate and independent dispute requiring a different referral. Sweeney's claim for payment in terms of the Application for Payment No 5 is inextricably linked to the construction of the Sub-Contract. If the construction and application of the Sub-Contract payment provisions required (even in part) separate adjudication, it is easy to see what a tangle could result if a different adjudicator reached a different conclusion. We should find the very protracted wran
[29] The adjudicator is no doubt experienced both in the application of the 1996 Act and of the Scheme. Once she decides that the Sub-Contract in fact contains no adequate mechanism for deciding when instalment payments become due, her knowledge of Part II of the Scheme is no doubt sufficient to permit her to make a finding that in the circumstances Sweeney were entitled to the redress they have claimed in the adjudication.
[30] Prima facie when a case is decided even provisionally, on a point which the parties may have had no opportunity to address, the Court is left feeling uncomfortable. Indeed this case may well illustrate the severe problems that can arise when a truncated summary procedure is applied to problems requiring complicated preparation and considerable care in presentation. It may be suggested that having seen how the matter referred to has developed, the adjudicator should have made arrangements to give parties an opportunity to address her on her view that there was no adequate mechanism in the Sub-Contract for determining when a monthly instalment became due. On the other hand she may have decided that Karl Construction had made submissions to her on the applicability of the Sub-Contract to the situation she was considering, and that their contentions were erroneous because the Sub-Contract in fact did not have an adequate payment mechanism. She may also have had problems about extending the referral procedures because of the strict timescale she had to observe. On the other hand should it be the case that the procedures followed by her were unsatisfactory, or that her decision regarding the effect of the payment provisions in the Sub-Contract were not adequate, then these problems would represent mistakes she had made in her treatment of the referral rather than a venture beyond her jurisdiction.
[31] In the whole circumstances I repel the petitioners' plea-in-law and refuse the petition.