Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2012] CSOH 79
CA156/11	OPINION OF LORD MALCOM in the cause SPECIALIST INSULATION LTD Pursuer; against PRO-DUCT (FIFE) LTD Defender: ­­­­­­­­­­­­­­­­­________________

Pursuer: G. M. Maciver, advocate; Burness LLP

Defender: G. L. MacColl, advocate; Francis Gill & Co

10 May 2012

[1] In this action the pursuer seeks to enforce an adjudicator's decision dated 30 August 2011. The adjudicator found that, in accordance with the terms of a sub-contract agreement, the sum of £85,389.46, plus any VAT properly chargeable, is payable by the defender to the pursuer. The defender has refused to make payment on the basis that the parties' contract did not provide for the dispute to be referred to adjudication. The defender asks the court to quash the decision on the ground that the adjudicator had no jurisdiction.

[2] The defender was a sub-contractor in relation to a project at Edgbaston Cricket Ground, Birmingham. The defender invited the pursuer to submit a quotation for the supply of ductwork. Having received the quotation the defender issued a purchase order dated 22 November 2010. Thereafter the pursuer supplied the ductwork to the defender. By July 2011 a dispute had emerged in relation to payments said to be due by the defender to the pursuer. The pursuer gave notice that an application was being made for the appointment of an adjudicator. Mr JD Smith was appointed as adjudicator by the RICS on 28 July 2011. Thereafter an adjudication process took place. Throughout that process the defender insisted that Mr Smith had no jurisdiction to act as adjudicator.

[3] That position was maintained at a debate. Mr McColl submitted that, in light of the subject matter of the parties' contract (being the supply of certain goods), the statutory adjudication provisions within part II of the Housing Grants, Construction and Regeneration Act 1996 (the 1996 Act) do not apply. Accordingly an adjudicator would only have jurisdiction in the event that there had been agreement between the parties that the dispute could be referred to adjudication. In Mr McColl's submission there was no such agreement between the parties, therefore the reference was ultra vires, did not confer any jurisdiction upon the purported adjudicator, and resulted in an unenforceable decision. For the pursuer Mr Maciver submitted that the parties' agreement did include an agreement to refer any dispute under the contract to adjudication. Other issues do arise, but in the first instance it is necessary to resolve the question as to the terms of the parties' contract.

The contract
[4] On 29 October 2010 the pursuer sent a quotation for the supply of ductwork in the sum of £216,819.40. The quotation stated that it was "subject to our standard terms and conditions of trading (available on request)." The pursuer's standard terms provide:

"1 The company accepts orders subject to these conditions of sale to the exclusion of any conditions of the buyer, unless otherwise agreed in writing by the company. These conditions shall prevail in the event of any inconsistency with any other terms"

"20 (v) Any dispute arising under or in connection with these conditions or the sale of the goods shall be referred to arbitration by a single arbitrator appointed by agreement or (in default) nominated on the application of either party by the President for the time being of The Chartered Institute of Arbitrators in accordance with the rules of that Institute"

"(vi) The contract between the company and the buyer shall be governed by English Law. Uniform Laws on Internal Sales are hereby excluded. No action or proceedings of any nature shall be initiated against the company except in the English Courts."

[5] The pursuer's quotation was met by a purchase order issued by the defender.

Along with the purchase order, although not referred to in it, the defender forwarded a document headed "Pro-Duct (Fife) Ltd - Material Supply only Sub-contract Agreement". That document indicated that the agreement was between "the contractor", namely Pro-Duct (Fife) Ltd, and Spirolite Insulation Ltd, "the sub‑contractor". It specified that the contractor was carrying out works under a contract on a project at Edgbaston Cricket Ground and the contractor wished to engage the sub-contractor to carry out certain work ("the sub-contract works") on a "labour only basis". The price of works to be undertaken was £211,469.12 with a commencement date of 22 November 2010, and an anticipated completion date of 30 May 2011. Retention (if applicable) was to be five per cent of the value of the work carried out. There would be a defects liability period of 12 months from the date of practical completion of the sub‑contract works.

[6] This document was executed on behalf of the defender by Brian Dempster, its managing director. Immediately below this was the heading "Executed on behalf of the sub-contractor", and then space for the name, signature and date of signature on behalf of the sub-contractor. This document was never executed on behalf of the pursuer. Furthermore it is difficult to reconcile all of its terms with the purchase order, which relates to an order for the supply of movable goods, as opposed to an agreement to carry out sub-contract works on a labour only basis. Amongst other things it provided that the "sub‑contract works" were to be "in accordance with the following schedule and conditions". It appears that this was a reference to the other forwarded document headed "Conditions of Sub-contract Agreement". It is clear that these conditions were intended to relate to construction or engineering works, or something of that nature. Reference is made to the 1996 Act; a defects liability period; interim payments; deduction of retention amounts from the value of work carried out; failures to proceed regularly and diligently with the sub‑contract work, etc.

[7] Clause 16 of the conditions is an important provision so far as the present dispute is concerned. It provides:

"(a) Either party may refer such disputes as may arise under this contract to adjudication at any time.

(b)    The adjudicator shall be a person appointed by an adjudicator nominating body.

(c)     The adjudication provisions of the scheme for Construction Contracts (England and Wales) Regulations 1998 or such other equivalent as is applicable within the jurisdiction are deemed to be incorporated into this agreement and the parties agree to abide by them."

Clause 17 provides "Unless otherwise agreed in the schedule, the law of Scotland shall be the law applicable to this agreement, and the parties shall submit to the jurisdiction of the Scottish courts."

Defender's submissions on the terms of the contract
[8] In support of his submission that the adjudication clause is not a term of the contract, Mr McColl noted that the document headed "Material Supply Only Sub-contract Agreement", which purports to incorporate the conditions, including the adjudication clause, had not been addressed to the pursuer, but rather to an entity called Spirolite Insulation Limited. Perhaps more importantly, while that document had been signed on behalf of the defender, it had not been signed on behalf of the pursuer. The pursuer quoted to provide goods to the defender, whereas the document relates to an engagement for "labour only." The pursuer's quotation was subject to the pursuer's terms and conditions, which exclude any conditions proffered by the defender (unless agreed in writing), and which are to prevail in the event of any inconsistency with any terms which the defender might seek to incorporate into the contract. The acceptance of the purchase order, which was demonstrated by the pursuer supplying the goods to the defender, was made on that basis. There is an inconsistency in the documents, in that clause 20(v) of the pursuer's standard terms provides that any dispute should be referred to arbitration, not to adjudication. The pursuer had not agreed to variation of its standard terms in writing. The pursuer rejected the mechanism which the defender put forward for acceptance of the defender's terms.

[9] For the pursuer Mr Maciver adopted the reasoning given by the adjudicator in paragraph 14 of his decision. This echoed his reasoning in a letter of 9 August 2011, in which he responded to the challenge to his jurisdiction. In that letter he said:

"While I do not have authority to decide my own jurisdiction, I am obliged to investigate the facts and form a view as to whether or not I have jurisdiction. In the event I form the view that I do not have jurisdiction, I must resign and take no further part in the reference. Having considered each parties' submissions, I have formed the view that I have jurisdiction and I will continue to act as adjudicator. Clause 16 of the responding party's 'Conditions of Sub-contract Agreement' is a contractual adjudication provision, which allows either party to refer a dispute under the contract to adjudication at any time and such an adjudication will be conducted under the procedure set out in the Scheme. This clause was put forward by the responding party in the full knowledge that the works were of a "supply only" nature and, as this is a contractual adjudication clause, there can be no reliance upon the provisions of the Act as to the fact that "supply only" contracts are not considered to be a 'construction contract.' My jurisdiction is therefore derived from the expressed terms of clause 16 of the Conditions."

The adjudicator was not faced with the same argument as presented by Mr McColl. It follows that his response is of little direct assistance. However it is clear that he derived his view on his own jurisdiction from an understanding that the adjudication clause in the defender's document headed "Conditions of Sub‑contract Agreement" was part of the contract.

[10] Mr Maciver submitted that the parties' contract should be analysed under the "normal battle of the forms analysis." The "Conditions of Sub‑contract Agreement" document forms part of the defender's counter-offer, which was accepted by the pursuer's conduct in supplying the goods. It follows that clause 16 applies and the adjudicator had jurisdiction. Counsel made reference to Butler Machine Co. Ltd. v Ex-cell-O Corporation (England) Ltd. [1979] 1WLR 401, and to Uniroyal Ltd. v Miller & Co. Ltd. 1985 SLT 101.

[11] Mr Maciver submitted that the key documents were forwarded to the pursuer with the purchase order. They all related to the same matter. They referred to the Edgbaston Cricket Ground Project. The price quoted in the purchase order was repeated. "Spirolite Insulation Ltd" was a reference to the trade mark of the pursuer, all as set out at the top of the pursuer's quotation. It was accepted that the pursuer had not signed the document headed "Material Supply only Sub-contract Agreement", however the contract was concluded by the pursuer making and supplying the ductwork. This was an acceptance by conduct of the terms and conditions enclosed with the defender's purchase order.

[12] Counsel for the pursuer also submitted that in the course of the adjudication process it became apparent that the parties were in agreement as to the terms of the contract. Reference was made to the defender's formal response to the referral notice (Production 6/10) at para 3.6 which stated:

"It is the responding party's position that the basis of the contract is per the terms of conditions of sub-contract which form part of the contract between the parties. If there is no consensus in idem that can be determined between the parties then it is submitted that there is no contract in writing, and therefore there is no facility of adjudication. Unless it is determined that there is a contract in writing, then the adjudicator has no legal jurisdiction to decide the matter."

At para 2.7 of its response to this document the pursuer stated: "It is agreed in para 3.6 of the response that the responding party's terms and conditions form part of the contract between the parties." Reference was made to Ale Heavy Lift v MSD (Darlington) Ltd. [2006] EWHC 2080 (TCC) for the proposition that matters stated in the course of an adjudication can have an operative effect.

Discussion on the issue of the terms of the parties' contract
[13] It would be unrealistic to hold that the parties had not reached an agreement that the ductwork should be supplied at the specified price. The question is - did that agreement include the adjudication clause? Counsel for the pursuer argued for a "last shot" approach to the problem. The last terms and conditions before completion of the contract by supply of the goods were those of the defender. They contained the adjudication clause, therefore it was part of the agreement. On Mr Maciver's analysis the supply of the goods to the defender was a final and unqualified assent to the defender's schedule of conditions as sent along with the purchase order.

[14] Chitty on Contracts 30^th ed, volume 1, at para 2-030 states:

"...conduct will amount to acceptance only if it is clear that the offeree did the act of alleged acceptance with the intention (ascertained in accordance with the objective principle) of accepting the offer. Thus a buyer's taking delivery of goods after the conclusion of an oral contract of sale will not amount to his acceptance of written terms which differ significantly from those orally agreed and which are sent to him by the seller after the making of the oral contract but before taking delivery".

This was under reference to Jayaar Impex Ltd. v The Toaken Group Ltd. [1996] 2 Lloyds Rep 437 (discussed below).

[15] In considering the application of this test to the circumstances of the present case, the following factors appear to me to be of significance.

(i) The pursuer's quotation specifically incorporated the pursuer's standard terms and conditions: the defender's purchase order made no reference to the accompanying documents, nor to any standard terms.

(ii) The pursuer's standard conditions provided that any dispute should be referred to arbitration (not adjudication), and that those conditions should prevail in the event of any inconsistency with any other terms.

(iii) The pursuer's standard terms stated that offers were accepted "subject to these Conditions of Sale to the exclusion of any conditions of the buyer, unless otherwise agreed in writing by the contractors." There was no such agreement in writing.

(iv) The document which sought to incorporate the defender's standard terms, including the adjudication clause, provided for execution by both parties. As in Jayaar (cited above), the form itself contemplated execution by the seller and, presumably, return to the purchaser - however neither occurred. The pursuer supplied and the defender accepted the goods in the absence of execution of that document by the pursuer.

(v)  The terms of the defender's schedule of conditions related to a wholly different kind of contract from that embodied in the quotation and purchase order. The schedule related to a construction contract, into which an adjudication procedure in accordance with the 1996 Act would fit quite naturally.

[16] There are similarities between the present case and that of Jayaar, not least that Jayaar concerned a challenge to the jurisdiction of joint arbitrators and to the validity of their award on the ground that the arbitration clause was not part of the parties' contract. Mr Justice Rix had regard to the full facts and circumstances before concluding that the seller's terms and conditions were not part of the contract, therefore the arbitrators lacked jurisdiction and their award was void. At page 445 his Lordship said:

"It seems to me that if the sellers' contract form is to bind the buyers it can only be because it was accepted by the buyers as a variation of an existing contract...That is the second of Mr Hamblen's three alternatives. He seeks to support it by relying on the absence of any objection to any contract form upon its receipt; on the collection of goods without objection to the contract form; and on the reference to a contract number in the fax of Nov 11, 1994. The absence of objection is not, he submits, reliance on acceptance by silence, because the context is such as to create an expectation of objection, if any there be, especially where the parties had contemplated the reduction of their oral contract to written form. It is, he says, like a charter of a vessel, where the fixture is made orally, or in fixed telexes, the parties' contemplate that that binding contract will be ultimately contained in a charter, and that the charter may well add to or otherwise vary the original terms of the fixture: if in such a context one party sends out a signed charter for signature by the other party, and that other party commences performance of the charter without objecting to the terms of the charter, he will bound by the terms of the charter."

This argument is, in many respects, similar to that advanced by Mr Maciver in the present case. So far as relevant for present purposes, the learned judge continued as follows:

"In my judgment such an analogy is only helpful if the analogy is precise. I prefer to concentrate on the facts of this case...in the present there are the following features...Fifthly, the contract form itself contemplated that it would take effect on signature and return of the addressee: it was neither signed nor returned. Sixthly, the buyers' collection of goods was not something only referable to acceptance of the terms set out in the sellers' contract form. The sellers were perfectly willing, and bound, sellers on the terms of their oral contract. They may have wanted to improve their contractual position, but they could not do so unilaterally. If without more the buyers collect goods, that collection is as referable to the existing oral contract concluded between the parties as it is to some new contract to be found in an unexecuted written contract form. If it were otherwise, the sellers would be imposing on the buyers the obligation to negate the sellers' offer to vary fundamentally the parties' contract; whereas in principle the sellers, if in doubt about whether their offer to amend had been accepted in the absence of a signed and returned document, should have been querying the mater with the buyers expressly rather than relying on silence."

[17] Mr Justice Rix' reasoning is tailored to the particular facts of the

matter before him, however elements of his analysis are of assistance in the present case. Mr Maciver submits that by supplying the ductwork the pursuer is to be taken as having accepted the defender's standard terms, and the defender is to be taken as having accepted the goods upon that basis. However, standing the factual background as narrated above, the absence of a signed and returned document incorporating the defender's standard terms is of importance. In the absence of such execution and return, reliance upon the silence of both parties when the contract was performed is a shaky foundation for the proposition that both parties are to be taken as having agreed the defender's terms and conditions. The seller manufactured and supplied the ductwork having said and done nothing to indicate that it was doing so on the basis of the buyer's terms and conditions; and the buyer accepted the goods without having done anything to check that, notwithstanding the non-execution of the document which sought to incorporate the buyer's standard terms, the seller had accepted those terms and was proceeding upon that basis.

[18] Mr Justice Rix looked at the whole circumstances of the case before him and asked himself: what would an objective analysis demonstrate as to the parties' agreement? In my judgment a similar exercise aimed at the facts in the present case indicates that neither party proceeded upon the basis that the defender's terms and conditions were part of the agreement. At the outset the pursuer made it plain that its standard terms applied, and that any inconsistent term would be part of the contract only if accepted in writing by the pursuer. The pursuer rejected the offer to sign a document purporting to incorporate the defender's conditions. In these circumstances the subsequent supply of the goods and their acceptance by the defender did not create an agreement which included the defender's conditions. The purported reference to adjudication was inconsistent with the pursuer's standard terms, which required disputes to be referred to arbitration. The pursuer chose not to execute the document proffered by the defender, therefore the goods were supplied on the basis of the pursuer's standard terms - and, given the silence of the defender in respect of the failure of the pursuer to sign and return the said document, the buyer must be taken as having accepted the goods on the same basis. If that is correct, the adjudicator had no jurisdiction, and his award, barring any other successful argument on the point, falls to be quashed. (I have not overlooked the submission in relation to para 3.6 of the defender's submissions to the adjudicator which I will address in due course).

[19] The Court of Appeal recently considered the question whether, in what is sometimes called "the battle of the forms", there can be circumstances in which a traditional offer and acceptance analysis can be displaced by reference to the conduct of the parties over a long term relationship - Tekdata Interconnections Limited v Amphenol Limited [2009] EWCA Civ 1209. I respectfully agree with the observations of Dyson LJ at paragraph 25:

"It is not possible to lay down a general rule that will apply in all cases where there is a battle of the forms. It always depends on an assessment of what the parties must objectively be taken to have intended."

The key word is "objectively". In such cases there will be no consensus - no meeting of the minds of the parties. In Tekdata the court did apply the "last shot" approach, however there was no element of a need for written acceptance of the counter-offerer's standard terms. While the "last shot" analysis does promote certainty, it was expressly acknowledged that final standard terms could be ignored if an agreement to that effect "was necessarily to be inferred from the circumstances of the case" (para. 27).

"The question of whose conditions were intended to apply must be determined objectively on the basis of the proper interpretation of the documents which comprised the contract viewed objectively in their context. The focus must always be on what the parties must be taken, objectively, to have intended at the time when the contract was made" (Dyson LJ, para 30).

[20] In my judgment, the analysis which I have adopted is consistent with traditional principles of Scots contract law. The initial quotation was an offer to contract on certain terms, which could only be superseded on the written consent of the supplier. Assuming that the documents accompanying, though not referred to in the purchase order are to be regarded as potentially contractual documentation, they amounted to a counter‑offer, which, amongst other things, set out a specific mechanism for their written acceptance. The goods were then forwarded without return of an executed agreement that the purchaser's terms should apply. This conduct was referable to the terms of the original quotation. At that stage the purchaser remained free to reject the goods, but they were accepted without demur, thus completing the agreement.

[21] This analysis is all the more cogent given the mismatch between the nature of the parties' contract and that envisaged in the documents which accompanied the defender's purchase order. In such circumstances there was all the more reason to require their written acceptance by the supplier before they would form part of the contract. Furthermore the pursuer was all the more entitled to assume that a document aimed at a construction contract, in respect of which an adjudication clause would be normal and apposite, would not apply to the parties' contract for the sale and supply of goods unless executed and returned to the purchaser. A different analysis might have applied if the documents forwarded by the defender expressly allowed for their acceptance simply by the supplying of the goods. However, on the contrary they proceeded upon the basis that the supplier would provide express written acceptance, and plainly that would have required to be intimated to the purchasers. Again it might have been different if the sending of the goods could only have been referable to the purchaser's conditions, but this is not such a case.

[22] Mr Maciver relied upon the decision in Butler Machine Tool Co. That decision turned very specifically upon its own facts - and in particular on the seller's signature and return of the tear-off acknowledgement form attached to the order, by which the seller expressly accepted the order upon the purchaser's terms and conditions. The point of distinction in the present case is that the equivalent of that express acceptance was not signed and was not returned to the supplier. I have considered the opinion of Lord Allanbridge in Uniroyal Ltd but find nothing in it which dissuades me from the above views. So far as relevant for present purposes, it was a case where the sending of the goods could only be referable to the purchaser's counter-offer.

[23] It is a noteworthy feature of this case that both parties are insisting that the other side's terms and conditions should apply. The defender enclosed its schedule of conditions with the purchase order, yet now finds itself in the curious position of arguing (in the event successfully) that they do not form part of the contract. While at first sight this is surprising, it is consistent with the objective approach to the determination of the formation and the terms of a contract. The question at issue is not decided by reference to how the parties would have answered if asked at the time. No doubt the pursuer would have insisted that, in the event of an inconsistency, its conditions should apply, yet now it wants the opposite. As stressed in Tekdata, the subjective intentions or beliefs of the parties give way to an objective interpretation of their communications when viewed in the context of the circumstances of the case. Thus an absence of consensus, even on an important issue, need not prevent the court from deciding that there is a contract and then resolving its terms.

Personal bar
[24] If the contract did not give jurisdiction to the adjudicator, counsel for the pursuer submitted that the defender was nonetheless personally barred from contesting the award. It was accepted that from the outset the defender had challenged the legality of the proposed adjudication. However the argument before the adjudicator assumed that the defender's terms applied. The defender had therefore waived the right to rely upon the ground of challenge presented by Mr MacColl in the present proceedings. Counsel for the pursuer noted that the defender's position before the adjudicator was that its conditions, including the adjudication clause, were part of the contract, but did not authorise the adjudication since the agreement did not concern "construction operations" under the 1996 Act. The parties' contract did not relate to such operations, therefore there was no jurisdiction. This approach has been disowned by Mr MacColl, who now submits that the adjudication clause never formed part of the agreement.

[25] Mr Maciver's submission is that, having presented a challenge on one basis in law, the defender cannot now admit the error and proceed upon a different and inconsistent legal basis to the same ultimate end result, namely an absence of jurisdiction. I pause to observe that it is common for a court's decision to be appealed upon legal arguments which are different from those presented at first instance, without any protest of personal bar or waiver, though issues of expenses may arise. To my mind it is of some importance that, if I am correct that the contract did not include the adjudication clause, it follows that, in law, the adjudicator did not have jurisdiction. No doubt if both parties had accepted the adjudication process without demur, it would be difficult for either of them later to rely upon the invalidity. I would analyse this as an implied agreement to be bound by the outcome of the process, as opposed to waiver by one or both parties - though no doubt it would not matter if the situation was addressed in terms of personal bar. However, whatever else, from the earliest stage the defender made it crystal clear that it did not accept the jurisdiction of the adjudicator, and reserved the right to challenge the validity of any award in favour of the pursuer in any subsequent proceedings. Can the fact that the defender chose the wrong legal basis for this challenge, in effect, create a jurisdiction which in law did not exist? I would find this a surprising result. Essentially Mr Maciver is suggesting that, having constructed an argument which included the proposition that the contract included the adjudication clause, the defender cannot now be heard to contradict that specific assertion, even on the receipt of different legal advice which corrects the earlier mistake.

[26] Counsel for the pursuer referred to The Construction Centre Group Limited v Highland Council 2003 SC 464. In my view there are important points of distinction between that case and the present. The Inner House affirmed that proceedings to enforce an adjudicator's award do not afford an opportunity to present new lines of defence upon the merits of the claim, in that case a plea of compensation or retention founded upon a liquidated damages claim based upon an alleged delay by the contractor. To allow that would elide the purpose of the adjudication, which had proceeded under the terms of the 1996 Act. The adjudication was a provisional determination pending ultimate resolution of the dispute by arbitration, court action or agreement. In enforcement proceedings the employer could not, for the first time, raise the issue of the contra debt - but could do so at the stage of final resolution.

[27] The Construction Centre Group case involved a typical adjudication relating to a construction operation. It was designed to regulate matters speedily and on a provisional basis in respect of an interim application to an employer for payment. The engineer had refused to certify the application thereby triggering the adjudication. The parties' contract included a provision that the adjudicator's decision would be binding until the dispute was finally determined by legal proceedings, by agreement or by arbitration, and that if either party was dissatisfied with the adjudicator's award, the dispute could be referred to arbitration. The Division stressed that if the employer was allowed to raise a new point on the merits in respect of proceedings to enforce the adjudicator's award, that agreed mechanism would be defeated. The mischief which this decision prevented is obvious. However, and leaving aside that it is more difficult to see the current adjudication as interim or provisional, in the present case the defender does not seek to introduce a new defence on the merits. The defender has always challenged the validity of the adjudication proceedings. The only question now is whether, in defence of these enforcement proceedings, it should be allowed to maintain that challenge on different grounds. In The Construction Centre Group case there was no challenge to the adjudication proceedings themselves. I find nothing in it which requires a negative answer to the above question.

[28] Mr Maciver referred to an opinion of Lady Paton in Skanska Construction UK Limited, Petitioners 2003 SCLR 296. Her Ladyship refused an application for interim interdict of a "final" adjudication on the basis of, amongst other things, an argument that because of the expiry of a six month time limit on the production of supporting documentation, etc., only the documentation before an earlier adjudication could be relied upon, and thus there was no utility in a second adjudication. It was confirmed that documentation forwarded outwith the six months period had been before the first adjudicator. In a short opinion her Ladyship observed that, having provided information outwith the six months period to the first adjudicator, the company had waived any right to present a time bar argument. That remark was not essential to the decision since the court had already held that the contract did not impose any such time limit. I do not find this decision, which turned upon its own facts, of any real assistance in the present case. In any event once again there is the obvious point that, throughout, the defender has challenged the validity of the adjudication procedure.

[29] Mr Maciver next drew attention to the decision in Paul v Henderson (1867) 5M 613. The case concerned an action brought to reduce a decree-arbitral on the ground that the submission had fallen at a date prior to that of the decree in consequence of the arbiter having neglected to prorogate it. Another issue did arise, which ultimately was referred to a court of seven judges. However, on the matter of relevance to the present case, there was a difference of view among the judges of the Second Division as to the proper basis for the agreed outcome. On the failure to prorogate the submission, neither party took any point on this, but continued to plead the matter before the arbiter long after the alleged lapse. Unsurprisingly it was held that the pursuer could not rely upon the want of prorogation. One judge talked of prorogation by consent. Another contrasted judicial and arbitral proceedings. It may be easier to treat the former as a nullity, notwithstanding the parties' apparent acquiescence - but an arbitration rests entirely on the consent of the parties. Having been constituted by consent, it could be continued in the same way. The present adjudication, if valid, could only have been based upon the consent of the parties. However, I have decided that there was no prior agreement to adjudicate, and the defender protested against the adjudication from the outset, thereby making it clear that there was no consent to the process. It is true that in Paul one judge preferred to rest his opinion upon personal bar, but again this was against the background of an absence of any objection at the earlier stage by the now complaining party.

[30] Mr Maciver then turned to certain English decisions, which he said did not all point in the same direction. Firstly he referred to a decision of Judge Toulmin QC in Ale Heavy Lift v MSD (Darlington) Limited [2006] EWHC 2080 (TCC). The dispute concerned the requirement in the 1996 Act for a written contract and the proper interpretation of section 107(5) of the Act. The case was decided on the basis that no challenge had been made to the jurisdiction of the adjudicator until the enforcement proceedings themselves (paras. 55 and 88).

[31] Mr Maciver then turned to Bothma v Mayhaven Healthcare Limited [2006] EWHC 2601 (QB), a decision of Judge Havelock-Allan QC. An adjudicator repelled the two grounds upon which his jurisdiction was challenged. It was held that an expressly general challenge to his jurisdiction, which reserved any other basis of challenge until any later proceedings, was sufficient to allow a new argument to be presented to the court. There was no impediment to raising the new ground, presumably because it was clear that at no stage did the party consent to the adjudication or waive any ground of challenge to the jurisdiction of the adjudicator.

[32] Finally Mr Maciver referred to Aedifice Partnership Limited v Shah [2010] EWHC 2106 (TCC). Mr Justice Akenhead observed that the case raised "an issue of some importance as to the extent to which and how reservations as to jurisdiction (of an adjudicator) can and should be made by a respondent to an adjudication." Again the case related to a construction operation under the 1996 Act. The dispute concerned whether there was or was not a contract between the parties, and if there was, whether it was in writing, as required by the statute. The respondent wrote to the adjudicator saying, in effect, that he had no dealings with and no liability to the other party. He was unaware of any contractual documentation. He submitted that the adjudicator had no jurisdiction. Subsequently Mr Shah elaborated in writing upon his reasons for challenging jurisdiction. On behalf of the company it was argued that Mr Shah had participated in the adjudication without any further reservation of jurisdiction, therefore he had accepted jurisdiction. At one point he asked the adjudicator to give reasons for his decision.

[33] The learned judge made reference to the decision in Pilon Limited v Breyer Group Limited [2010] EW HC 837 (TCC). In that case Mr Justice Coulson said:

"12. The law on this topic is clear. Jurisdictional issues often arise during the course of an adjudication, and it is usually sensible for the parties to ask the adjudicator to investigate the issue and state his conclusion. But, unless the parties have also agreed to be bound by the result of the adjudicator's investigation into his own jurisdiction, his ruling on that issue will not be determinative, and the challenger can defeat any subsequent enforcement proceedings by showing a respectable case that the adjudicator had reached an erroneous conclusion as to jurisdiction: see, in particular, paragraph 10 of the judgment of May LJ in Pegram Shopfitters Limited v Tally Weijl (UK) Limited [2003] EWCA Civ 1750.

13. Accordingly, there needs to be either an express agreement between the parties that the adjudicator's decision on jurisdiction is to be binding or, at the very least, an implied agreement to the same effect, which may arise where the objecting party fails to reserve its position or there has been a unilateral waiver of any jurisdictional objection. In both JW Hughes Building Contractors Limited v GB Metal Work Limited and Nordot Engineering Limited v Siemens plc, the court found an ad hoc agreement between the parties that they would be bound by the adjudicator's decision as to jurisdiction, but such cases are rare. Generally speaking, as Dyson LJ put it in Amec Projects Limited v Whitefriars City Estates Limited, 'the decision of an adjudicator as to his jurisdiction is of no legal effect and cannot affect the rights of the parties ...'"

[34] Reference was also made to a decision of Simon Brown LJ in Thomas-Fredrics (Construction) Limited v Keith Wilson [2003] EWCA Civ 1494:

"33. The position can I think be summarised in the following two propositions. (1) If a defendant ... has submitted to the adjudicator's jurisdiction in the full sense of having agreed not only that the adjudicator should rule on the issue of jurisdiction but also that he would then be bound by that ruling, then he is liable to enforcement in the short term, even if the adjudicator was plainly wrong on the issue. (2) Even if the defendant has not submitted to the adjudicator's jurisdiction in that sense, then he is still liable to a part 24(2) summary judgment upon the award if the adjudicator's ruling on the jurisdictional issue was plainly right."

[35] Mr Justice Akenhead then summarised the law which emerges from these and other cases. He indicated that there may be an express or an implied agreement giving an adjudicator the authority to decide in a binding way upon whether he has jurisdiction. For there to be an implied agreement to that effect, the court requires to look at everything material that was done and said in order to determine whether the parties must be taken to have agreed that the adjudicator could reach a conclusive decision on the issue. There would be no such implied agreement if, at any material stage, there was a clear reservation made by the party objecting to the jurisdiction of the adjudicator. A waiver can be said to arise where a party, who knows or should have known of grounds for a jurisdictional objection, participates in the adjudication without any reservation of any sort. That party's conduct would be such as to demonstrate that its active participation and non-objection on jurisdictional grounds was intended to be and was relied upon by the other party (and indeed the adjudicator) in proceeding with the adjudication. I consider that Mr Justice Akenhead's analysis is equally consistent with Scots law.

[36] Applying this approach to the present case, the challenge to the adjudicator's jurisdiction was first raised in a letter of commercial attorneys acting on behalf of the defender dated 8 August 2011 addressed to the adjudicator. That letter stated: "For reasons set out below, it is the position of Pro-duct (Fife) Limited that you have no legal jurisdiction and must resign forthwith." The adjudicator refused to resign and the adjudication proceeded. In its initial response to the referral notice (production 6/10) the defender repeated the objection to jurisdiction and expressly reserved its position in the following terms:

"Pro-duct (Fife) Limited reserve the right to challenge any decision or enforcement proceedings arising therefrom, and the submission of this response document should not be taken either express or implied that there is agreement in any way to the legality of the adjudication proceedings."

In the subsequent rebuttal to the reply to the response (production 6/12) the defender again stated:

"For the avoidance of any doubt the responding party reserves its position on the matter of jurisdiction and contends that the adjudicator, for the reasons set out in the response, has no jurisdiction."

[37] It is quite clear that the defender made a full and express reservation of its position and reserved the right to challenge the legality of any award in the current enforcement proceedings. The only issue remaining is whether the change of front on the legal basis for the challenge is sufficient to justify Mr Maciver's submission of personal bar/waiver. I have already expressed my doubts as to this proposition. Mr MacColl relied upon the traditional test as set down in Gatty v Maclaine 1921 SC (HL) 1, per LC Birkenhead:

"Where A has by his words or conduct justified B in believing that a certain state of facts exists, and B has acted upon such belief to his prejudice, A is not permitted to affirm against B that a different state of facts existed at the same time."

Mr MacColl submitted that the pursuer cannot demonstrate that it has acted in any way in reliance upon the specific terms of the representations made by the defender regarding the adjudicator's lack of jurisdiction. As to waiver, Mr MacColl made reference to Armia Limited v Daejan Developments Limited 1979 SC (HL) 56 per Lord Keith at 72:

"The word 'waiver' connotes the abandonment of right ... the abandonment may be express, or it may be inferred from the facts and circumstances of the case."

Mr MacColl submitted that at no stage did the defenders abandon the ground of challenge now maintained before the court. In any event, given that the decision is a nullity through lack of jurisdiction, there is no room for waiver or personal bar to operate. This submission can be interpreted or extended to the general effect that, in the absence of a grant of jurisdiction at the time of the contract, the adjudicator could only gain this power through the subsequent agreement of the parties, either express or implied. In my opinion Mr MacColl's submissions based on these authorities are well founded.

[38] I have decided that the parties' contract did not include an adjudication clause. Thereafter the defender challenged the adjudicator's jurisdiction from the outset and expressly reserved the position as to the legality of any award. In all the circumstances, and notwithstanding the different basis for the argument presented, in my opinion the defender is not barred from relying upon the absence of an adjudication clause in the parties' contract, nor has the defender waived any such challenge. There being no adjudication clause in the contract, and the adjudicator deriving no authority from any agreement or conduct by the parties thereafter, the submissions of waiver and personal bar on behalf of the pursuer fall to be rejected.

The submissions made to the adjudicator

[39] Earlier in this opinion (at paragraph 12) I recorded a submission made my Mr Maciver to the effect that certain submissions made to the adjudicator demonstrated that the parties were in agreement that the defender's conditions applied to the contract. I have decided that, as at the time of the contract, those conditions did not form part of the agreement. I have also held that, having consistently challenged the adjudicator's jurisdiction, the defender is not barred from presenting the argument made by Mr MacColl. In these circumstances this final submission can only alter the outcome of the debate if it can be maintained that, during the course of the adjudication process, the parties reached a separate agreement that the defender's terms should apply, and thereby, by virtue of clause 16, the adjudicator was given authority to act.

[40] Whatever else, it is clear that the defender was not agreeable to the adjudication, so such a proposition faces immediate difficulties. In my view the key to answering this submission is to understand the nature and effect of the documents relied upon by Mr Maciver. The documents presented to the adjudicator, including productions 6/10 and 6/11, are not contractual documents. They are submissions made to the adjudicator by the respective parties. They include submissions as to the terms of the parties' contract. It is true that if one concentrates only on paragraph 3.6 of 6/10 and paragraph 2.7 of 6/11 it might appear that at that stage there was at least a measure of agreement that the defender's terms applied to the contract. However, as I have held above, that was a mistaken position, and there is certainly no agreement to that effect now. In my opinion, when preparing the submissions to the adjudicator, including 6/10 and 6/11, the parties were not entering into a new and separate agreement. There was no fresh offer and acceptance. They were simply making submissions on, amongst other things, the terms of the contract made earlier. There was no intention to create any new obligations. As mentioned earlier, a submission can be, and often is withdrawn. Furthermore, it is clear that, at the stage of the submissions, one defender was not agreeable to the dispute being referred to adjudication. That must have been obvious to the other party, and to the adjudicator.

[41] In any event, if one looks more broadly at the terms of the various submissions presented to the adjudicator it is far from clear that the parties were demonstrating a united and common front on the question of the terms of their contract. For example I refer to paragraphs 3.9 and 3.10 of 6/9; paragraphs 2.2 and 2.3 of 6/11; and paragraphs 2.2, 2.3 and 2.7 of 6/12. If one looks at all the submissions as a whole, the danger of isolating two short passages becomes apparent. The position adopted by the pursuer was relatively complex and nuanced. The defender was pointing to a perceived ambivalence in the pursuer's position. That equivocation extended to the precise wording of paragraph 2.7 of 6/11 which, strictly, concedes only the terms of the defender's response as set out in paragraph 3.6 of 6/10.

[42] In summary I am of the view that nothing contained in the submissions to the adjudicator prevents the defender from challenging the adjudicator's jurisdiction on the basis presented to the court by Mr MacColl. Reference was made to the decision in Ale Heavy Lift (cited earlier). That decision turned upon the proper interpretation and application of section 107 of the 1996 Act, and in particular of the phrase "agreement in writing." I find nothing in it of assistance to the resolution of the issues in the present case.

Concluding remarks and decision
[43] Given the view which I have taken, the final issue raised by parties does not require to be decided. However I will make a few observations about it. Mr MacColl submitted that, if he failed on his other arguments, the adjudicator's decision should still be reduced because he said that he was applying the adjudication scheme applicable in England and Wales rather than that in force in Scotland. According to Mr MacColl, and on the hypothesis that the defender's conditions were part of the contract, given the terms of clause 17 of the defender's standard terms, the latter were the relevant regulations. Counsel accepted that there are no material differences between the two schemes and that the result would have been exactly the same under either set of regulations. In my view this submission has no merit. I was presented with neither precedent nor justification for such a purely technical error, if error it was, having such a radical impact upon the validity of the decision. However, I have upheld Mr MacColl's other submissions, and in the whole circumstances I shall grant the defender decree of absolvitor.