Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2010] CSOH 152
P1187/10	OPINION OF LADY SMITH in the Petition of W.H. Malcolm Ltd Petitioner; for Judicial Review of the decision of an Adjudicator ­­­­­­­­­­­­­­­­­________________

Petitioner: Currie QC; Burness LLP

Interested Party: Borland, Advocate; Shepherd and Wedderburn LLP

10 November 2010

INTRODUCTION

[1] The petitioner has presented a petition for judicial review of a decision of the respondent, an adjudicator to whom a dispute between the petitioner and Amec Group Limited, the interested party, has been referred. The petitioners and the interested party entered into a sub-contract for various works to be carried out by them at Calderglen High School, East Kilbride. The petitioners sought interim interdict in the following terms:

"d. interdict against the respondent from considering in the Adjudication any submissions and representations made by the parties in support of the contention that SMM7 is the Method of Measurement to be utilised under the terms of the Sub-Contract; and interdict ad interim

e. interdict against the respondent from taking a decision contrary to that taken by Janey Milligan that SMM7 is not the Method of Measurement to be utilised under the terms of the Sub-Contract; and interdict ad interim."

BACKGROUND

[2] The present adjudication is the second adjudication arising out of the sub-contract. The Notice of Intention to Refer a dispute is dated 1 October 2010 and the Adjudication Referral Notice is dated 8 October 2010. The dispute set out in those documents is that there are three items in respect of which the petitioner states that it is entitled to payment of a total of £502,848.07, that it has sought payment of that sum but that the interested party has failed to pay it. The redress sought in the adjudication is payment of that sum of money. The adjudication is not yet complete. The adjudicator has not yet heard or received argument on the issue of whether or not the sum sought, or any part of it, is due. The interested party has lodged a response document in which they assert that the correct method of measurement is SMM7, a particular method of measurement used in building works.

[3] The petitioner's agents made representations to the adjudicator by email of 3 November 2010 in which they asserted that it is not open to the respondent to determine whether or not SMM7 applies because it was decided by the adjudicator in the first adjudication, Janey Milligan "in a manner that is temporarily binding on parties". The respondent heard submissions from the petitioner and interested party on the matter and he sought counsel's opinion. Having done so, by email of 1 November 2010 he advised parties that he had concluded that "I am not bound by Janey Milligan's comments in respect of SMM7". The petitioner says that that is a decision, that it is judicially reviewable and seeks to have it judicially reviewed.

[4] Turning then to the first adjudication, the dispute that was referred to Janey Milligan in the first adjudication was that which was set out in the petitioner's Notice of Intention to Refer dated 21 July 2010. It included a list of fourteen financial claims in respect of fourteen separate items of work. Under the heading "Crystallization of the Dispute" it is said that the petitioner had called on the interested party to make payment of the various sums referred to and that the interested party had refused to make payment of those sums. Their dispute had, accordingly, crystallised. Nowhere in the Notice, or indeed in the subsequent Referral Notice, does it state that the dispute which the petitioner was referring to adjudication was the issue of whether or not the sub-contract provided that the measurement method SMM7 was applicable.

[5] Janey Milligan's decision is set out at section 12 of the document headed "Adjudicator's Decision with Reasons" dated 29 September 2010. She states her finding, declaration and decision as being, put shortly, that the sum of £139,611.47 plus VAT, was payable to the petitioner within seven days. Provision is made for interest, for due date of payment and for the adjudicator's fees. Nothing is said in that section of the document regarding the basis on which she has arrived at her decision. She was not obliged to give reasons for her decision at the outset (see: TeCSA Rules, which applied, Rule 31). She did, however, do so. Section 7 of the document is headed "Standard Method of Measurement 7 (SMM7)" and at 7.29 she stated:

"With respect to parties' submissions and the information I gathered at the meetings and taking account of the actings of the parties during the works, I find that SMM7 does not apply to the parties' contract and is not applicable as the method of measurement when valuing the parties' contract."

RELEVANT LAW

[6] The law that is relevant to the present application can be summarised as follows.

[7] The petitioner seeks interim interdict. The grant or refusal of interim interdict is a discretionary matter and it is not open to me to grant it unless I am satisfied that the petitioner has demonstrated a prima facie case and shown that the balance of convenience favours the grant rather than the refusal of interim interdict.

[8] Turning to the law that is applicable in the particular circumstances of this case I note, in the first place, that the sub-contract provides that each party has the right to refer a dispute as to a matter under the sub-contract to adjudication and that the adjudication is to be conducted in accordance with the TeCSA Rules subject to certain amendments. Thus the parties to the sub-contract agreed:

"Unless the parties agree that any decisions of the adjudicator shall be final and binding any decision of the adjudicator shall be binding until the dispute is finally determined by legal proceedings, by arbitration, if the contract provides for arbitration or the parties otherwise agree to arbitration or by agreement." (TeCSA Rules para 16)

and they agreed that

"The adjudicator shall immediately resign on written notice to the parties if he becomes aware that the dispute referred to him is substantially the same as the dispute which has previously been referred to and decided by adjudication under the contract." (TeCSA Rules para 21 xiii)

[9] It follows that under their contract the petitioner and the interested party have agreed that they are bound by any adjudicator's decision in respect of the dispute referred to him. They may not reopen it in a subsequent adjudication. If a dispute or difference has already been decided by an adjudicator, no further adjudicator's decision can be sought.

[10] Two questions have to be considered. First, what was the dispute that was referred to the prior adjudication? Secondly, what is it that was decided in the prior adjudication? Both plainly matter. I draw for that analysis on the cases of Quietfield Limited v Vascroft Construction Limited 2007 BL 67, in particular at paragraphs 31 to 33, and HJ Construction Limited v Ashwell Homes (East Anglia) Limited 2007 EWHC 144. Both of those authorities were relied on by counsel in the course of the hearing before me yesterday.

[11] Regarding the question of what was the dispute that was referred to adjudication, the Notice of Intention to Refer is a key document since it defines the nature, extent and limits of the issues that the referring party seeks to have determined. The dispute is whatever is encompassed within the Referral Notice (see:, Sherwood & Casson Limited v Mackenzie 2000 TCLR 418 per HHJ Thornton QC, at paragraph 8 ). As Lord Glennie observed in the case of Barr Limited v Klin at 2010 SCLR 33, the referring party may "pick and choose". It is for him to decide what it is that he wishes to refer for adjudication. He may refer a discrete issue. He may refer several issues. He may refer a general question regarding the interpretation of the parties' contract, such as in the HJ Construction case where the Notice of Intention to Refer identified the issue as being "the validity and/or enforcement of the provisions within the contract for the deduction of liquidated and ascertained damages". As Lord Glennie says the dispute or difference referred is simply that which the referring party chooses to refer, no more and no less.

[12] It is also pertinent for the purposes of the present case to refer to what Lord Glennie said in the Barr Limited case, about the nature of the opposing party's response to a Notice of Intention to Refer. At paragraph 31 he observed:

"the party making the reference identifies the dispute or difference which he is referring to adjudication. The opposing party does not expand the scope of the reference - rather he puts in written contentions in respect of the dispute or difference which has been referred by the referring party."

[13] It seems to me that that is an accurate analysis. To put it another way, the response is not a "Counter Notice of Intention to Refer". It is an answer. It will contain the reasons why the opposing party contends that the referring party is not entitled to the redress that he seeks.

[14] As regards what was decided, that is a matter of examining the adjudicator's decision in the prior adjudication as to whether or not a subsequent adjudicator is being asked to decide the same or substantially the same dispute that was previously decided. That is a matter of considering both what the dispute was that was referred and what it was that was decided. If, on an assessment of the facts of the individual case, it can properly be concluded that the dispute referred to the prior adjudicator and the dispute which he decided was the same or substantially the same as the dispute referred in the second adjudication, then the second adjudicator does not have jurisdiction to consider it (see: Quietfield Limited v Vascroft). If however the dispute referred to a subsequent adjudicator is not, at least, substantially the same as that which was referred to the previous adjudicator and decided by him, then the subsequent adjudicator is not prevented from determining it.

[15] On a separate matter, whilst judicial review may be available to either party in respect of an adjudication, its availability is restricted by Clause 38 of the TeCSA Rules which provides:

"No party shall, save in case of bad faith on the part of the adjudicator make any application to the courts whatsoever in relation to the conduct of the adjudication or the decision of the adjudicator until such time as the adjudicator has made his decision or refused to make a decision and until the party making the application has complied with any such decisions."

[16] I note that Rules 20 to 24 of TeCSA are set out under the heading "Conduct of the Adjudication". Rule 20 is a general provision and states that "The adjudicator shall establish the procedure and timetable for the adjudication."

[17] Rule 21 of TeCSA empowers the adjudicator to carry out various acts but without prejudice to the generality of Rule 20. Rule 21xii, for instance, provides that, in the conduct of the adjudication, he may:

"Conduct the adjudication inquisitorially and take the initiative and ascertain the facts and the law".

Submissions for the Petitioner

[18] Mr Currie QC submitted that there was a strong arguable case that the respondent was about to decide an issue that had already been decided by Janey Milligan in the first adjudication. He was not entitled to do so as her decision was binding on him. He should have declined to consider the issue. He relied on the discussion in HJ Construction in support of his submissions, it having been approved in the case of Benfield Construction Limited v Trudson (Hatton) Limited 2008 EWHC 2333. He also referred to the passage in Quietfield to which I have referred. As to the particular circumstances of this case, he said that the petitioners had no notice of the argument about the applicability of SMM7 until the interested party lodged their response in the first adjudication. Parties then, he said, joined issue on the matter and the question was decided by the adjudicator. It was not the sine qua non of a decision having binding effect that the Notice of Intention to Refer ask for a general declarator. It was not fair to criticise the referring party for failing to put such a request in the Notice, when they did not, at the time, know that it was going to be raised in the response. He submitted that the parties clearly agreed, which failing they impliedly agreed to extend the scope of the first adjudication to cover the general issue of whether or not SMM7 applied to measurement in the sub-contract. The interested party was not entitled to re-litigate that point of principle. It had already been litigated before the first adjudicator.

[19] Regarding Rule 38 of TeCSA Mr Currie submitted that the present application was not in respect of the conduct of the adjudication. The respondent had made a discrete decision on 1 November and it was susceptible to judicial review. It was a decision as to his substantive jurisdiction. Ouster of the jurisdiction of the court required to be in the clearest of terms. It was not clear that the jurisdiction of the court was ousted by Rule 38 and it followed that the petitioners were not barred from having recourse to the court.

[20] Regarding the balance of convenience Mr Currie referred to it being understood that the earliest date available for a first hearing was February 2011. By that time it would be too late. The respondent would have decided the issue. The next hearing dates are currently set for 25 and 26 November.

Submissions for the Interested Party

[21] Mr Borland submitted that the petitioner and interested party were involved in an ongoing adjudication, a matter which was not disputed by Mr Currie. His primary position was that the petitioner was contractually barred from making the present application to the court. That was the effect of Rule 38 of TeCSA. The petitioners were in breach of the sub-contract by having presented this petition. The adjudicator had to be allowed to make his decision on the dispute that had been referred to him. No recourse to the court could be had at this stage. Adjudication was intended to be a speedy process. The adjudicator is required to decide the dispute referred within 28 days. Rule 38 was intended to protect against action being taken by one party to prejudice its expeditious progress.

[22] Mr Borland's secondary submission was that even if the petitioner was not barred from presenting the petition in the present application for interim interdict it had not been shown that there is a prima facie case. That was because the general question of whether or not the sub-contract provided for measurement to be in accordance with SMM7 was not part of the dispute referred to Janey Milligan, nor did it feature in her decision. On his submission it was not even a question of comparing the two disputes referred and exercising a judgment as to whether they were substantially the same, unlike the circumstances in HJ Construction. The issue was simply absent from the first referral and decision. What was set out in paragraph 7.29 was part of Janey Milligan's reasons, nothing more. The reasoning of an earlier adjudicator could not be said to be binding on a later adjudicator. It was only the decision of the first adjudicator that could be binding. He referred to the case of Castle Inns Stirling t/a Castle Leisure Group v Clarke 2007 CSOH 21 as an example of a case where the court was not persuaded that one element in a party's claim could be regarded as elevated into a distinct dispute and accordingly the relevant adjudicator's decision was not binding on the subsequent adjudicator. Lord DrummondYoung did not, in that case, accede to a submission which amounted to inviting him to treat the earlier decisions containing implied declarators because of certain aspects of the first adjudicator's reasoning. Likewise that should not, Mr Borland submitted, be the approach in the present case.

[23] Finally, he submitted that if somehow Janey Milligan's views on the applicability of SMM7 did amount to a binding decision, it could only relate to the fourteen items which were the subject of dispute before her. To do otherwise would afford it a width of application which would be unwarranted given the narrowness of the dispute. To do so would be to convert it into a general declarator which had never been sought. Overall, as Lord Glennie observed in the petition of Atholl Developments (Slackbuie) Limited 2010 CSOH 94 it is only in the plainest of cases that the court will interfere with an adjudication. This was not one of them. As to balance of convenience, if the petitioner had shown a prima facie case it was a distinctly weak one and that should weigh in the balance.

DISCUSSION AND DECISION

[24] I consider that Rule 38 of TeCSA contractually bars the petitioner from bringing the present proceedings. Its intention is plain and is to prevent parties to an ongoing adjudication having recourse to the court at any time prior to the adjudicator making his decision on the issue that has been referred to him or, where relevant, prior to that decision having been complied with, except in the extreme circumstance of litigation in respect of an allegation of bad faith on the part of the adjudicator. If the adjudicator's decision is that one party is liable to pay a sum of money to the other party, recourse to court, however justifiable, cannot be had until the debt so declared has been paid. That would apply even in a case of apparent bias (see: Porter v Magill 2002 AC 357) on the part of the adjudicator in his conduct of the arbitration. The process has been referred to in some of the authorities as rough justice and that may be so, but the quid pro quo is that parties know where they stand so far as the dispute referred is concerned without delay and its undesirable effects, not least of which could be on their respective cash flow and budgeting considerations. The emphasis is plainly on expeditious progress and the removal of obstacles that might otherwise be placed in the pathway of the adjudication towards resolution of the dispute referred in a tight timescale.

[25] I do not accept Mr Currie's submission that Rule 38 bars only recourse to the court in respect of the conduct of the adjudication on the basis that the phrase "conduct of the adjudication" should be given a narrow interpretation. In my view, the step taken by the respondent in intimating to parties that he will approach the adjudication on the basis that he is not bound by Janey Milligan's comments in respect of SMM7 is very much a matter of the conduct of the adjudication. If it were not to be regarded as covered by the reference to conduct of the adjudication in Rule 38 then neither would an adjudicator's own ascertainment of facts or law be caught by the Rule. Yet that is something that is specifically covered in the description of the sort of matters that might occur in the conduct of an adjudication, as provided for at Rule 21xii. Indeed, on one view, all that the respondent has done here is ascertain for himself what the law is regarding the question of whether or not he is bound by Janey Milligan's views on SMM7.

[26] In all the circumstances, it seems to me that the phrase "conduct of the adjudication" should clearly be given a wide interpretation. It requires to be given an interpretation which has regard to the clear overall intention of the Rule, which is, as I have said, that no litigation is to be set up as an obstacle to the expedition progress of the adjudication, save in the extreme case of bad faith on the part of the adjudicator. I would add that it is also apparent from the examples of the conduct of the adjudication that are set out in Rule 21 that the phrase applies to a wide range of matters, including some which are not purely a matter of deciding procedural steps but are rather more substantive in nature, such as ordering the production of documents, often a hotly disputed matter with potential for having a substantive effect on the outcome of a dispute, or the obtaining of advice from specialist consultants with a view to relying on it in the adjudication.

[27] I cannot, accordingly, conclude that the petitioner has demonstrated a prima facie case and for that reason the motion for interim interdict falls to be refused.

[28] I would, however, add that, I would have concluded that, if not solely absent, the petitioner's prima facie case was a weak one, even without the Rule 38 point. I accept that there is considerable force in Mr Borland's submissions that the dispute referred to Janey Milligan was not the issue of whether or not the sub-contract provided for SMM7 measurement. Nor was it what she decided. Her view of that matter is part of the reasoning employed in reaching her decision as to the sum due. But that of itself does not seem to me to be capable of being relied on as making it part of her decision. It was manifestly not an issue which was referred to her, although it could have been. Nor was it part of her decision. The case of HJ Construction can, I agree, be distinguished for that reason.

[29] Nor do I accept that matters can be approached on the basis that because it was debated before her, parties joined issue on it and it became part of the dispute referred and decided upon. As I have explained above, it seems to me that the correct analysis is that the interested party opposed the grant to the petitioners of the redress they sought on the basis inter alia that they were using the wrong method of measurement and that SMM7 should have been applied. But that did not make that element of their opposition part of the dispute referred or part of the dispute determined. At best for the petitioners, their prima facie case is, to my mind, a weak one.

[30] What is there then that would have weighed in the balance of convenience, had I required to get to that stage? There is the petitioner's weak prima facie case and their desire to avoid the situation whereby the present adjudicator will approach his decision making on the basis that he is not bound by Janey Milligan's views of the applicability of SMM7. It will, of course, be open to them to argue before him that her views are correct. He may agree with her views. Also, it was not suggested to me that the applicability of SMM7 will affect all three elements of the petitioner's claim. I was only referred to its effect on the third and smallest element, which is headed: "Trimming". No submissions were made as to any other prejudice that might be suffered by the petitioners.

[31] In all the circumstances I would not have been satisfied that the balance of convenience favoured the grant of interim interdict. In these circumstances I will pronounce an interlocutor refusing the motion for interim interdict.