Scottish Court of Session Decisions

Petitioners: R. Smith Q.C., Logan; Fyfe Ireland LLP

Respondents: Howie Q.C., Walker; Halliday Campbell WS

14 July 2010

[1] In December 2006 the petitioners, Atholl Developments (Slackbuie) Limited, entered into a construction contract with UBC Group Limited, in terms of which UBC Group Limited, as contractors, undertook the construction of 51 houses and the provision of associated services on a piece of ground formerly known as Lower Slackbuie and Upper Slackbuie Farm, Inverness. Because of the confusion likely to be caused by their different roles in the disputes with which these proceedings are concerned, Atholl as petitioners herein and as referring party in one Adjudication and respondent in another, and UBC as respondents to this petition and in one Adjudication but referring party in another, I shall refer to them respectively as "Atholl" and "UBC". The contract was on the standard form SBCC Scottish Building Contract with Approximate Quantities May 99 Edition (January 2004 revision), with additional incorporations and other terms agreed by the parties. Clause 41A of the standard terms contained provisions for Adjudication.

[2] There are a number of disputes between the parties arising out of the contract which are the subject of an action in the commercial court. Of more direct relevance for present purposes is the fact that certain matters have been referred to Adjudication. There have been two Adjudications. In the first ("the First Adjudication"), Atholl were the referring party. That Adjudication arose against the background that UBC had issued a draft Final Account, to which Atholl had intimated a Response. Atholl asked the Adjudicator to "find and declare" that their Response to the draft Final Account "represents a proper valuation of the Final Account for the Contract" and "in the alternative, to find and declare the proper valuation of the Final Account for the Contract in such sum as the Adjudicator considers appropriate." In the First Adjudication, the Adjudicator, at para 8.2, found and declared that the proper valuation of the Final Account for the Contract was the sum of £6,231,353.30.

[3] That figure was greater than the figure for which Atholl had contended, but less than that put forward by UBC. On the basis of that finding, UBC commenced a second Adjudication ("the Second Adjudication"), before the same Adjudicator, seeking an order that the total amount due from Atholl under the Final Account was the sum of £6,231,353.30 (i.e. the amount determined to be due in the First Adjudication) and that, in consequence, and having regard to the sums which UBC had already received under the contract, Atholl should pay UBC the balance of £348,033.00 or such other sum as the Adjudicator might decide. The decision of the Adjudicator in the Second Adjudication was that UBC were due payment from Atholl of the gross amount to which I have referred, and that Atholl should make payment to UBC of the net amount of £348,033.00.

[4] In the Commercial Court Action, UBC, as pursuers, have amended the Summons to add a conclusion for payment of the sum of £348,033.00 awarded by the Adjudicator. They seek summary decree for that amount, leaving the remainder of their claims to go to proof. I deal with that claim for summary decree in a separate Opinion. That amendment prompted Atholl to apply, by petition for Judicial Review, to reduce the decision of the Adjudicator in the Second Adjudication. Subsequently, by amendment, they have added a prayer for reduction of his decision in the First Adjudication. It is, in fact, the First Adjudication which is the focus of their detailed criticism. They make no independent criticism of his decision in the Second Adjudication. Their point about the Second Adjudication is parasitic, namely that, since, in the Second Adjudication, the Adjudicator followed and applied his decision in the First Adjudication, and since, as they contend, the First Adjudication falls to be reduced for reasons set out in the petition, then the decision of the Adjudicator in the Second Adjudication is tainted, and must fall along with his decision in the First Adjudication.

[5] The First Adjudication was, as I have said, concerned with an assessment of the proper evaluation of the Final Account under the Contract. A large number of disputed items on the Final Account were put before the Adjudicator for his determination. As it is not uncommon, he sought and obtained an extension of 14 days on top of the original time limit of 28 days. He sought a further extension on top of that, but was only granted two more days. His decision is articulate and, on the face of it, coherent, and shows no signs of having suffered as a result of having been written under undue pressure. But it is clear that he had a lot of work to do, a lot of papers to go through, and a lot of points to consider, all within a relatively short period of just over six weeks. This is by no means uncommon in Adjudication generally; and it is in part responsible for the reputation, which Adjudication has acquired, of being a form of "rough justice". But the problem is at its most acute when the issue for consideration is not a discrete legal or factual dispute but the evaluation of a Final Account which, inevitably, contains within it a myriad of sub‑issues.

[6] In the First Adjudication, Atholl submitted that the Final Account should be valued in the sum of £5,472,125.18. Had they been successful, this would have resulted in payment to them from UBC of about £350,000. UBC produced its own Final Account, which bore the date 28 January 2010 but, as I understand it, first emerged during the Adjudication process, valuing the work at approximately £7,900,000. The difference between the two valuations of the Final Account defined the ambit of the dispute between the parties which the Adjudicator in the First Adjudication was required to decide. In the event he found the value of the Final Account to be £6,231,353.30, rather nearer Atholl's position than that of UBC, but nonetheless sufficiently above the Atholl's evaluation to result in a payment being due to UBC. He gave a reasoned decision, as requested. His decision was dated 24 March 2010.

[7] In terms of the contract, the Adjudicator's decision is binding unless and until the dispute between the parties is finally determined by the court or in arbitration or in some other manner: see Clause 48A.1. This is in line with the statutory scheme: see Section 108(3) of the Housing Grants, Construction and Regeneration Act 1996 and Clauses 21 and 23 of the 1998 Scottish Scheme.

[8] The Second Adjudication was at the instance of UBC. As I have said, they sought payment of the sum of £348,033.00. The Adjudicator published his decision in their favour on 14 May 2010. At no time prior to the publication of his decision did Atholl take any steps to challenge the decision in the First Adjudication. Nor did they indicate to the Adjudicator that they were minded to challenge it. Their contention before him was that they wished to put before him material which he had not taken into account in reaching his decision in the First Adjudication. This is material which now forms a basis of their application to reduce the decision in the First Adjudication. Whether they were, on that basis, entitled to attempt in the Second Adjudication to reargue points that were before the Adjudicator in the First Adjudication is, perhaps, a moot point, but that is what they did and I do not need to resolve it for present purposes. The Adjudicator dealt with those points on their merits by saying, in effect, on each of them, that he had taken the material into account in reaching his decision in the First Adjudication. He therefore produced a decision in the Second Adjudication wholly in line with that which he had produced in the First Adjudication.

[9] Mr Smith Q.C., who appeared for Atholl, took me carefully through a selection of the papers to demonstrate not only that, in coming to his decision in the First Adjudication, the Adjudicator had made a number of clear errors, but also to infer from this that the Adjudicator had not paid any attention to certain documents and submissions put in by Atholl. These matters fall under four different headings; and I will deal with them separately in the next four paragraphs of this Opinion.

[10] The first matter, which was given the title "Underbuilding Remeasurement/ Factual Error 1", related to the adjustment made to the Final Account for the fact that ultimately fifty houses had been built, not fifty-one as originally intended. The matter was complex, but it is sufficient for present purposes if I describe it in this way. UBC in their Final Account had sought an adjustment of £404,000 for houses and under buildings. In light of the fact that one plot had not been built upon, they conceded during the course of the First Adjudication that that figure of £404,000 required to be reduced to £383,000. They made this concession in a fresh account summary as at 11 March 2010, halfway through the course of the adjudication. Despite this, however, the Adjudicator awarded the original sum claimed for this item £404,000. This, say Atholl, is explained in part by the fact that he used as a basis for his workings the copy of UBC's Final Account of 28 January 2010, ticking or crossing various items and adjusting others. He clearly did not take into account the subsequent concession on this point. But, they say, the point goes further. Atholl had also put forward a submission that the reduction should be to £363,000, not £383,000, because of a change in the mix of houses built on the site, UBC having built one more of the cheaper houses and one less of the more expensive style. Mr Smith submitted that the clear inference to be drawn from the Adjudicator's failure to take into account a clear concession by UBC, was that he did not have regard at all to the evidence and submissions put in by Atholl. This amounted to breach of natural justice. Furthermore, the Adjudicator exceeded his jurisdiction since his decision on this point lay outside boundaries of the dispute between the parties (respectively £383,000 and £363,000).

[11] The second matter, referred to as "Underbuildings/ Factual Error 3", related to another aspect of the same point. The UBC's tender for the work, which was accepted and formed the basis for the agreed contract price, was a lump sum tender. For the purpose of the remeasurement exercise underpinning the Final Account, UBC had attributed a "standard" figure of £293,000 to the substructure items. UBC had originally claimed a remeasured value of £455,000, leading to a claim for payment of a further £162,000. Atholl for their part had accepted a further £89,000 above that standard figure. UBC later increased their evaluation of the remeasured value to £580,000. Had this been set against the "standard" figure of £293,000, it would have resulted in a claim by UBC for a further £287,000 (increased from £162,000) for these items. However, as part of their latest submission in their Final Account of 28 January 2010, UBC reduced the "standard" figure from £293,000 to £176,000, giving rise to a claim on that basis of £404,000. Atholl's complaint is that the Adjudicator "credulously" accepted UBC's revised "standard" figure £176,000 and, on that basis, accepted the whole of their claim under this head. Atholl had put in a document in which they argued that because of the introduction of formwork in the building of the foundations, this should either have led to some £120,000 being deducted from the remeasured value of £580,000 or have been added to the "standard" of £176,000. Either way, that would have reduced the difference by £120,000. They also put forward their own version of the "standard" measurement in a figure of £317,000. Despite this, they complained, the Adjudicator did not analyse or even mention their "standard" figure of £317,000 and, in effect, simply rubber stamped UBC's approach. This too, they say, indicates a failure to address the issues and have regard to the rules of natural justice. The Adjudicator simply did not deal with Atholl's figures. He could not have rejected their figures in full unless there had been an analysis and there appeared to have been none. He had failed to engage the issue between the parties.

[12] The third matter related to the "Retaining Walls". Here the complaint is that the Adjudicator appears to have fixed the measure by reference to the claim in UBC's Final Account without realising that it was contentious. Essentially the position was that ditches were dug for retaining walls, the escalating material was discarded, retaining walls were built in the ditches, and then the remainder of the space in the ditch was filled with granular material. The claim put forward by UBC in their Final Account was for a volume of granular material exactly equal to the volume of material excavated from the ditches. This obviously made no sense. It again showed that the Adjudicator had failed to address the issue, "resulting in manifest error". Either the Adjudicator did not realise there was an issue, or he failed to give reasons for finding against Atholl.

[13] The fourth matter, referred to as "Underbuilding - Factual Error 2", was a complaint that the Adjudicator double counted the cost of certain retaining walls for some of the plots. Again, I was taken to various figures appearing in the documents. Mr Smith pointed out that UBC's claim for retaining walls in their Final Account had this element of double counting; but the version of the Final Account put in by Atholl did not. The error, it was submitted, demonstrated that the Adjudicator had simply based his decision on UBC's figures, rather than taking into account the points made by Atholl. This too showed that he was not seriously looking beyond UBC's figures in their January Final Account. Had he addressed the primary question of the correctness of Atholl's Account, and used that as a starting point, the error would not have been made.

[14] I have some sympathy for the submission that on each of these points the Adjudicator may have fallen into error. On the face of the documents shown to me by Mr Smith, that seems probable. I stop short of saying it seems certain that he fell into error on all of these points because Mr Howie, Q.C., who appeared for UBC made it clear that this was not accepted by his clients; and he advanced explanations in respect of the second, third and fourth matters which might conceivably provide a justification for the Adjudicator's decision. I am prepared for present purposes to proceed upon the basis that in these four respects the Adjudicator was plainly wrong to accept UBC's figures in their Final Account rather than those put before me by Mr Smith, reflecting Atholl's position in the Adjudication.

[15] However, it is only fair to the Adjudicator to point out that that Mr Smith was able to demonstrate these points in the course of the better part of a day in court, by showing me, in a commendably lucid and coherent manner, entries in different parts of different documents found in different places in the bundles before the court. Despite the manner of its presentation, the detailed cross-referencing of one number in one document to another number in another document, and comparing that with some other figures in other documents, was not always easy to take in, still less to remember. Mr Smith was able to present the submission by reference to a few - mercifully few - documents from the documentation which had been before the adjudicator. This selection had been prepared for the purpose of the Judicial Review challenge and was designed to simplify and illustrate the case made by Atholl on these points. The Adjudicator, on the other hand, had before him some 16 lever arch files of documents, and was faced with submissions coming in throughout the course of the adjudication covering many more issues than these. There was only one oral hearing before, which I understand was relatively brief. Based on the material that I have seen, it does not seem that he had the benefit of the same detailed presentation on behalf of Atholl.

[16] Further, it has to be said, that, even on the documents which I was shown, some of the points now complained about were not "flagged up" before the Adjudicator but were left to be discovered by him in the course of comparing different documents. Thus, although the fact that UBC had reduced the "standard" figure for the Underbuildings from £293,000 to £176,000 was noted in one of Atholl's submissions, but it was not made the subject of any complaint in that same document (or any other document that I was shown), except obliquely by reference to the question of whether formwork should have been added to the standard or, alternatively, deducted from the remeasurement value. Similarly, although in respect of the double counting it is true that Atholl put forward a different figure from that put forward by UBC in their Final Account, nowhere did Atholl point out to the Adjudicator that he should watch out for was this element of double counting in UBC's Final Account. My impression from the documents put before me on the Judicial Review hearing was that the Adjudicator was left to discover many of these points for himself.

[17] I was referred to a number of well known cases concerning the approach which the court should take when faced with criticisms of an Adjudicator's decisions. These included Gillies Ramsay Diamond v PJW Enterprise Limited 2004 SC 430 and Carillion Construction Limited v Devonport Royal Dockyard [2006] BLR 15. Both were decided at appellate level. Put shortly, these cases show that decisions of Adjudicators are to be enforced unless there is good reason to refuse enforcement. It is no defence to enforcement, and no ground for reduction, to say that the Adjudicator has erred in fact or in law or, unless it results in manifest unfairness, in procedure. Where the Adjudicator has exceeded his jurisdiction, or failed to exhaust his jurisdiction, or where there has been a breach of natural justice, the court will interfere, but it will only do so in the plainest of cases. The courts recognise the statutory intention underpinning the Adjudication. It is recognised that Adjudication is conducted under pressure of time. It may therefore result in a measure of "rough justice". On the other hand, the decisions of Adjudicators, which for cash-flow purposes must be enforced, are provisional only, in the sense that it is open to parties having succeeded or failed at Adjudication to litigate in court or in arbitration at more leisure or more comprehensively. The nature of the process means that the court will not be overly critical of the reasoning put forward by the Adjudicator for his decision. It must be intelligible, and it must show that he has considered the issues before him and reached his decision on those issues for reasons which are explained in his decision. But the reasons need not be explained in great detail, nor need he refer to each document or each submission put before him. There is a presumption of regularity, or of propriety (per Lord Menzies in RBG Limited v SGL Carbon Fibres Limited [2010] CSOH 77 at para [28]). In other words, it will be assumed, unless the contrary is shown, that the Adjudicator has looked at all the relevant materials and given to them such consideration as he considered practicable (having regard to the pressure of time) or appropriate. He is not to be criticised if the scrutiny given by him to a document which comes in at a late stage of the adjudication is less thorough than might have been the case had the document been part of the original submissions to him: see Amec v Thames Water [2010] EWHC 419 at para 63).

[18] I was also referred to a number of other decisions, namely Ballast Plc v Burrell 2001 SLT 1039, 2003 SC 279, Bouygues (UK) Limited v Dahl-Jensen [2000] BLR 49, Pilon Limited v Breyer Group Plc [2010] EWHC 837, CSC Braehead Leisure Limited v Laing O'Rourke Scotland Limited 2009 SLT 454, Quietfield Limited v Vascroft Construction Limited 2007 BLR 67 and Jacques v Ensign Contractors Limited [2009] EWHC 3383 (TCC). The cases appear to me to be consistent with the propositions which I have sought to identify; and I do not purpose to refer to them each in detail.

[19] Applying these considerations, it seems to me that Atholl fall far short of demonstrating that the Adjudicator in the First Adjudication either exceeded his jurisdiction, failed to exhaust his jurisdiction, or was in material breach of the rules of natural justice. Put simply, I am not persuaded from the material put before me that any inference can properly been drawn that he consciously or unconsciously disregarded Atholl's submissions or the documents which they put before him. The material may well show that he made clear mistakes. As it is apparent from the decision in Diamond, that happens sometimes in Adjudications and is not a basis for reducing the decision. The fact that there is no reference in his reasons to a particular document or set of figures or submission put in by Atholl cannot give rise to the inference that the Adjudicator omitted altogether to take them into account. Otherwise the Adjudicator would have to set out his references and reasons in exhaustive detail, a quite impossible burden for him to assume, given the time constraints inherent in adjudication; see Jacques at para 26(d). He may have failed to notice a point made by Atholl, or a matter of detail appearing in their own version of the Final Account. If so, so be it. That is adjudication, for good or ill.

[20] A discrete point was taken, under the first head of challenge, that the Adjudicator had awarded more in respect of a particular item on the Final Account than UBC were claiming (see para.[10]) above. To my mind this submission is based on a misapprehension of what is encompassed within a dispute. In the First Adjudication the parameters of the dispute were the rival figures for the Final Account. He could legitimately reach a figure somewhere in between, as he did. In a Final Account dispute, there are many sub-issues. It does not follow, however, that each one is a separate dispute, so that an error of the type alleged means that there has been an excess of jurisdiction. I would apply the reasoning, in a different context, of Lord Drummond Young in Castle Inns (Stirling) Limited v. Clark Contracts Limited (6 February 2007, unreported, [2007] CSOH 21) at para.[14]).

[21] Accordingly, I see no basis for reducing the decision in the First Adjudication. It follows that the decision in the Second Adjudication is not tainted. The first decision stands, and therefore so does the second. But I should add this. Even had I been of the view that Atholl had established grounds upon which the decision in the First Adjudication might properly be reduced, it would not follow that the Second Adjudication would necessarily fall. The decision in the First Adjudication was final and binding unless and until it was reduced. It matters not that the effect of reduction, if granted, may be that the decision is to be treated as if it had never been made: Boddington v British Transport Police [1999] 2 AC 143 at 155 b-d. I express no view on whether or not that reasoning applies to Adjudication. But in the Second Adjudication, the Adjudicator was bound to proceed upon the basis that he had already made a decision in the First Adjudication and that that decision was binding upon the parties and upon him. He was not even told that there was any intention to seek to challenge or reduce that first decision. And the challenge to that first decision was not in fact instituted until after he had made his decision in the Second Adjudication. How is he to be criticised for applying, in the Second Adjudication, his decision in the first, which was binding upon him? He would have been subjected to legitimate criticism had he not applied that first decision. No other ground is put forward for reducing the decision in the Second Adjudication and, to my mind, that is fatal to that part of the Judicial Review proceedings.

[22] This gives rise to no unfairness. If a party wishes to challenge a decision made by an Adjudicator, he will often need to act promptly. In a case, such as the present, when an action is raised in the Court of Session to enforce the Adjudicator's decision, the party seeking to resist it will promptly put forward his grounds of challenge either as part of his defences in that action, or by way of a petition for Judicial Review, or both. If he does not to do so, there will be no defence to a motion for summary decree; and it will avail him little to say afterwards that there were grounds upon which he could have had the decision reduced. So also, if after the First Adjudication, the successful party commences a Second Adjudication, seeking in effect an order for payment of the balance due resulting from the decision in the First, any challenge to the First Adjudication should be made then. It is too late to make that challenge after the Adjudicator has made his decision in the Second Adjudication based upon his decision on the First. For those reasons, I would, if necessary, have refused to interfere with the decision in the First Adjudication on the grounds that the challenge to it came after it had been acted upon and therefore came too late.

[23] That point, however, does not arise for decision. For the reasons set out earlier, namely that I am not satisfied that any good challenge was made out to the decision in the First Adjudication, I shall refuse the prayer of the petition.