Scottish Court of Session Decisions

Pursuer: Malone, solicitor advocate: McClure Naismith LLP

Defender: Jones QC; Balfour; advocate; Simpson & Marwick

25 May 2012

[1] The pursuers have raised an action on the commercial roll seeking to enforce an adjudicator's decision requiring the defenders to pay £2.987 million to the pursuers. It is averred that in 2006 the parties entered into an agreement for the provision of design services, including structural engineering design, in respect of the pursuers' new bottling facility at Grangemouth. The defenders designed the structure of the bottling plant, including the design of the piling and foundations. The pursuers aver that the piling and foundations are defective, thereby causing a high degree of settlement. A claim in damages was intimated in early 2011. The agreement contained a provision for the determination of disputes by adjudication. On 2 March 2012 the pursuers referred the dispute to Mr Alan Cumming, an adjudicator who had been appointed by the Chartered Institute of Arbitrators. On 9 April 2012, after a site inspection and a hearing on factual and legal issues, Mr Cumming issued his decision, the sum awarded to be paid "forthwith".

[2] In the defences to the action it is averred that the court should not enforce the decision. It is said that the adjudicator did not comply with the rules of natural justice. He failed to give adequate reasons for the determination. He had no jurisdiction to adjudicate and the decision is incompatible with the defenders' rights under the European Convention on Human Rights and Fundamental Freedoms. For present purposes it is unnecessary to elaborate upon the various grounds of challenge. Reference is made to Rule 16 of the Technology and Construction Solicitors Association Adjudication Rules 2002, which has the effect that the award is binding until the dispute is finally determined by legal proceedings, by arbitration, or by agreement.

[3] The defenders have enrolled a motion asking the court to allow the lodging of a counterclaim. The counterclaim seeks reduction of the adjudicator's decision for the reasons set out in the defences. In addition it craves a declarator that the pursuers have not sustained any loss or damage as a result of any breach of contract on the part of the defenders in respect of the design and specification of the piling for the bottling facility. The averments in the counterclaim elaborate on why the defenders say that the pursuers claim is without merit. Again it is unnecessary to elaborate upon these matters. The adjudicator's award is provisional pending final resolution of the dispute. The contract was completed some years ago, and the bulk of the award relates to losses which will be sustained some years in the future. In short, the defenders are of the view that, if the award stands and is enforced, they need to take the lead in having the substance of the dispute finally resolved, hence the unusual step of seeking a declarator that the claim is without merit. All of this flows from the pursuers choosing, in the first instance at least, to proceed to adjudication, rather than to a final resolution of their claim against the defenders. No doubt the defenders are concerned that, if and when the pursuers have received payment of almost £3m, they may show little enthusiasm for proceeding to the next stage.

[4] The defenders' motion is opposed. For the pursuers Mr Malone explained that there is no objection to that part of the counterclaim relating to reduction of the award. The opposition concerns the attempt to question the merits of the claim. Reference was made to a decision of an Extra Division in Construction Centre Group Ltd v Highland Council 2003 SC 464. Mr Malone submitted that the enforcement proceedings are separate from the underlying question of the merits of the claim. To allow the counterclaim as lodged would delay the principal action. The issues should not be "tied together." The merits of the dispute should be resolved in separate proceedings. Mr Malone indicated that in due course the pursuers will raise proceedings seeking payment of a higher sum than that awarded by the adjudicator. If the counterclaim is allowed, the pursuers will require to introduce financial conclusions. The court was asked to exercise its discretion and refuse the motion.

[5] For the defenders Mr Jones QC submitted that the grounds for reduction of the adjudicator's decision are interwoven with the merits of the substantive claim. A declarator is sought which will then be res judicata as between the parties. If the decision is simply quashed, the pursuers could then renew the adjudication process. If the counterclaim is unobjectionable regarding the reduction, Mr Jones questioned whether the court has power to exclude the other part.

[6] As to the main ground of opposition, namely delay to the principal action, Mr Jones submitted that the commercial roll allows sufficient flexibility to avoid this. The court has wide powers to order whatever procedure is appropriate, including dealing with the issue of enforcement or reduction of the adjudicator's decision as a preliminary and separate matter, thereby ensuring appropriate expedition. It is not incumbent upon the defenders to wait until the outcome of the enforcement proceedings or until the pursuers choose to raise court proceedings in respect of the underlying dispute. Mr Jones indicated that if the court does refuse the counterclaim, a separate action of declarator will be raised immediately on the commercial roll, thereby resulting in two separate processes. That would be inconvenient and involve unnecessary extra expense.

[7] Mr Jones raised a question as to whether the court has power to refuse the lodging of the counterclaim, all under reference to the terms of Rule of Court 47.7. He was doing this with some "hesitation and diffidence", since he recognised that the general practice has been to seek the leave of the commercial judge to lodge and serve a counterclaim.

[8] In a short response Mr Malone again concentrated on the concern that the counterclaim would impede resolution of the enforcement proceedings. The two processes are separate and unrelated. Although the contract was completed many years previously, and the adjudication is merely provisional, the pursuers had the right to refer the dispute to adjudication, and now to payment of the award. To allow the enforcement action to be "mixed up" with the merits of the claim would result in "a mess." Reference was made to Court of Session Practice at F3 [433] where it is suggested that, when deciding whether to allow a counterclaim to be lodged, "a commercial judge will wish to consider, amongst other things, the impact of such additional procedure upon the efficient determination of the main action." Mr Malone observed that the formal challenge to the validity of the award could be incorporated into the defences by way of a plea that it should be reduced ope exceptionis.

Discussion and decision
[9] On the basis that I have a discretion to refuse permission for the counterclaim to be lodged, I was asked to exercise that discretion in favour of the pursuers on the ground that, if allowed, the counterclaim would frustrate the efficient resolution of the challenge to the validity of the adjudicator's award and unduly delay enforcement of the pursuers' right to payment. Mr Jones short response was that a commercial judge has wide procedural powers, and that there is no good reason to conclude that the declaratory aspect of the counterclaim will impede the principal action. It is true that if the counterclaim as presently drafted is allowed, the process will include two related but separate issues, namely:

(a) are the pursuers' entitled to enforce the adjudicator's award?

(b) are the pursuers entitled to compensation for breach of contract by the defenders?

As observed in the Opinion of the Court in Construction Centre Group Limited (cited earlier) at 473H, the principal action is an enforcement mechanism which is not concerned with the underlying question of the true indebtedness of the defenders. However, while the counterclaim does raise a separate issue from those involved in resolution of the principal action, in my opinion it does not follow that it should be refused. It was not suggested that the crave for a declarator of the kind sought by the defenders falls outside the scope of a counterclaim within the meaning of Rule 25.1(1). The submission was that I should refuse the counterclaim because of the impact which it would have on future procedure. Given the wide powers available to a commercial judge to order the procedure in a commercial action in such manner as is seen fit (see for example Rules 47.5, 47.11(1)(e) and 47.15), I am not persuaded that allowance of the counterclaim will have the adverse consequences suggested by Mr Malone. The alternative is to put the defenders to the additional procedure and expense of raising a separate action. I am satisfied that I should grant the defenders' motion. None of this is either novel or peculiar to actions on the commercial roll. In Thomson and Middleton's Manual of Court of Session Procedure, published in 1937, the authors said that a counterclaim "may be heard and tried along with, or before, or after, the claim in the pursuers summons, as the court may consider just and expedient in the circumstances..." (page 79).

[10] As a result it is not necessary to resolve the question raised as to the court's powers under Rule of Court 47.7. It is true that the Rule does not specifically mention any need for the leave of the court in order to lodge a counterclaim, and I can understand that its terms might be regarded as only giving the commercial judge power to resolve any procedural consequences flowing from the lodging of a counterclaim. However, in contrast to the terms of Rule 25.1(2) so far as applicable to the open record stage, Rule 47.7 provides that if a defender is "seeking to lodge a counterclaim" he must "apply by motion to do so." To date these provisions have been interpreted as giving the commercial judge a discretion to refuse leave for a counterclaim. The same provisions in Rule 47.7 cover third party notices, which always require leave of the court (see Rule 26.1 and Rodgers v James Crow & Sons 1971 SC 155). In the context of commercial procedure, it is entirely understandable that the commercial judge should have power to refuse to sanction a counterclaim or a third party notice if it might be incompatible with commercial procedure or otherwise inconsistent with the efficient resolution of the main action. In any event, the interpretation of the Rule as requiring an application for permission to lodge and serve a counterclaim is now well entrenched, and I consider that, absent any relevant change in the Rules, only the Inner House could interpret the court's powers in a different manner. For myself I am entirely comfortable with the interpretation which has been adopted to date.