Scottish Court of Session Decisions

Petitioners:  Currie QC, Borland;  Pinsent Masons LLP

Respondents:  RW Dunlop QC, G Walker;  Morton Fraser LLP

22 July 2014

[1]        In this petition the court is asked to quash an adjudicator’s decision on the basis that it is subject to a number of defects.  The background is as follows.  In 2006 Fife Council commissioned a combined heat, power and community energy system.  The contractors were Vital Energi Utilities Ltd.  They entered into a subcontract with Bouygues E&S Contracting UK Ltd for the design, supply and installation of the mechanical and electrical parts of the scheme.  There were various allegations of poor workmanship, delays, etc.  Ultimately Vital ended the subcontract.  The matter was referred to adjudication.  In May 2013 it was decided that the termination was justified.

[2]        A second adjudication (which is the one under challenge) began in January 2014 before a different adjudicator, this time an experienced QC.  He was asked to order Bouygues to make payment to Vital of a sum in excess of £4.482 million.  The claim was in two parts:  (1) monies due in terms of condition 57 of the subcontract in respect of the cost of completion of the subcontract works;  (2) a damages claim for delays – which was dismissed by the adjudicator.  In respect of the other claim, the adjudicator ordered Bouygues to make payment of just over £1.614 million.  In this petition they seek declarator that the decision is a nullity, and the court is invited to set it aside.

The first ground of challenge

Submissions for Bouygues
[3]        Bouygues contend that before any payment order could be made, the adjudicator required to decide whether and to what extent the works they carried out were defective.  However, he failed to do so.  At paragraph 19(a) of his determination the adjudicator said:

“On a proper construction of condition 57 there is no requirement to determine a breach and no issue of causation.  What is required in relation to this element of the dispute between the parties is a determination of the cost to the employer for completion of the works.  I do not need to find that any expenditure was ‘caused’ by conduct on the part of the responding party.  I need only be satisfied that it was incurred in carrying out the subcontract works.” 

For Bouygues Mr Currie QC submitted that the adjudicator made a fundamental error in respect of his approach to condition 57.  By not addressing the question of whether any of the work was defective, and having set aside issues of causation, he adopted such a restrictive view of his task that he failed to exhaust the jurisdiction conferred upon him, and acted contrary to the rules of natural justice.  He did not entertain a relevant line of defence.  The mistake cannot be described as an intra vires error of law.  It prevented him from addressing an important part of the defence, namely that Vital had not proved that there was any defective workmanship. 

[4]        The error caused the adjudicator to decide that the sums awarded relate to works which were required to complete the subcontract, and this notwithstanding that he failed to distinguish between defective and incomplete works.  Mr Currie referred to Construction Centre Group Ltd v Highland Council 2002 SC 1274 (OH) at paragraph 19; Connaught Partnerships Ltd v Perth and Kinross Council [2013] CSOH 149 at paragraph 19; Pilon Ltd v Breyer Group Plc [2010] CSOH 77 at paragraph 26. 

Submissions for Vital

[5]        For Vital Mr Dunlop QC submitted that there was no error in the adjudicator’s approach.  Even if there was an error, it did not invalidate the decision.  The proper approach to challenges of this kind is set out in Diamond v PJW Enterprises Ltd 2004 SC 430 (IH);  Carrilion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358;  Pilon Ltd (cited earlier); and Bouygues UK Ltd v Dahl-Jensen UK Ltd (CA) [2000] CLC 927 (and the same case at first instance).  The adjudicator understood the question asked of him and answered it in a manner which was fair to both parties.  He entertained the defence, but rejected it for the reasons given.  The adjudicator was asked to quantify the costs of completion of the subcontract, all as per the parties’ agreement in condition 57.  That is what he did.  It was immaterial whether the costs related to defective or incomplete work.  He decided that all of the awarded costs fell into one or other of those categories, and were supported by invoices.  They are therefore recoverable under condition 57.  Paragraphs 24 – 35 of the determination demonstrate a careful and discriminating approach, with regard being had to all the evidence, including the competing expert reports from Mr Burns and Mr Baldwin, and to the advice of the technical assessors. 

Decision on the first ground of challenge
[6]        I am satisfied that, in essence, Mr Currie is asking the court to conclude that the adjudicator reached the wrong decision on this line of defence.  It is well established that the court will not review the merits of an adjudicator’s decision.  In Scotland that is most clearly demonstrated by the decision in Diamond.  At paragraph 31, the then Lord Justice Clerk, Lord Gill, explained that an adjudicator’s reasoning must (a) demonstrate that he has dealt with the issues remitted to him; (b) reveal his conclusion on each issue;  and (c) be understandable to a reasonable reader.  The adjudicator’s decision meets those tests.  On numerous occasions judges have emphasised that any other approach would undermine the purpose of the adjudication regime, namely to provide a swift and binding, albeit provisional, resolution to a dispute in the course of a construction contract. 

[7]        The court has intervened when an adjudicator has completely ignored a relevant line of defence – see for example Whyte and Mackay Ltd v Blyth & Blyth [2013] CSOH 54 at paragraphs 30 - 36.  But this is not such a case.  The adjudicator correctly identified the issue before him and the position adopted by the parties in respect of it.  He reached a considered decision, which was stated in clear and comprehensible terms.  Whether it proves to be a correct decision will no doubt be resolved in the on-going court action.  In the meantime I reject this ground of challenge.

[8]        I have not overlooked the complaint that the adjudicator did not make his views on condition 57 clear until he issued his final determination.  That is not a basis for a successful challenge.  I should also record that in averment, though hardly in oral argument, there was a complaint that the adjudicator’s reasons are unintelligible.  There is no merit in that proposition. 

The second ground of challenge

[9]        The next ground of challenge relates to an episode when the adjudicator sought and received advice from one of the assessors, all as related at paragraph 35 of the determination.  The adjudicator is a layman in engineering terms.  He asked for an assessment from a consulting engineer as to whether, on their face, the invoices, of which there are a large number, relate to matters which required to be carried out for the completion or rectification of the subcontract works.  Based on a sample of 10% of the invoices, the assessor said yes.  The adjudicator accepted this advice. 

Submissions for Bouygues

[10]      Mr Currie submitted that the adjudicator should have found out which invoices were considered by the assessor; the criteria adopted to select the 10%; and the basis on which it was thought that this sample was representative of the whole.  This “goes to the heart of the adjudicator’s decision”, since it allowed an extrapolation from 10% of the invoices to an award of over £1.6 million.  In the absence of such information Bouygues were not given a fair opportunity to respond to the assessor’s review of the invoices and his consequential advice.  Guidance is found in Costain Ltd v Strathclyde Builders Ltd 2004 SLT 102 at paragraphs 20 and 23/4, in the context that the adjudicator’s failure created “a possibility of injustice”. 

Submissions for Vital

[11]      It was submitted that the assessor reviewed the same invoices which had been relied upon by Vital’s expert.  They had been made available to Bouygues and to their expert.  This was not a case of the assessor or the adjudicator having regard to extraneous evidence of which the parties were unaware.  The real complaint is that the evidence before the adjudicator, namely all the invoices, the two experts’ reports and the advice from the assessors, including that based upon a review of 10% of the invoices, is not good enough.  However the adjudicator was entitled to come to the view that the evidence is sufficient to support the award, not least after the careful analysis contained in paragraphs 24 and following.  He did not need to ask for further information from the assessor, nor give an opportunity for additional comment/submissions.  Bouygues took advantage of an opportunity to respond to the assessor's advice about the invoices.  Reliance was placed upon the case of Farrelly (M & E) Building Services Ltd v Byrne Bros [2013] Bus LR 1413 (QBD) at paragraphs 55 – 62.

Decision on the second ground of challenge
[12]      I am satisfied that Mr Dunlop’s submissions are to be preferred.  In the whole circumstances of this adjudication there was no unfairness in the adjudicator taking into account the assessor’s advice based on a sample of the invoices.  He did not have to seek additional information, nor give the parties an opportunity for further comment.  He had Bouygues’ views on the assessor’s sampling exercise in their response to the draft determination.  He was entitled to proceed as he saw fit. 

[13]      Again essentially this is a complaint as to the merits of the adjudicator’s decision, and as to the quality of the information upon which he relied.  Costain was a very different kind of case.  In any event, the adjudicator followed Lord Drummond Young’s guidance at paragraph 20(8), by giving the petitioners an opportunity to comment upon the assessor’s advice. 

[14]      In my view there was no possibility of injustice of the kind discussed in Costain.  The assessor’s advice related to invoices which had been in the possession of Bouygues for a long time.  It did not relate to something beyond the evidence presented to the adjudicator.  To borrow the phraseology used in some of the cases, the adjudicator did not “go off on a frolic of his own”.  In Farrelly, Ramsey J emphasised that it will only be in an exceptional case that an adjudicator must give the parties an opportunity for further submissions before finalising his decision.  A similar sentiment was expressed by Edwards-Stuart J in Roe Brickwork Ltd v Water Construction Ltd [2013] EWHC 3417(TCC)  at paragraph 24. 

[15]      Particularly given that the assessor was an expert, the adjudicator was entitled to accept his advice without seeking more information.  While Bouygues might disagree with his decision to rely on the assessor’s advice, there was nothing manifestly unfair in the way he went about his task. 

The final ground of challenge
[16]      In respect of the assessor’s sample of 10% of the invoices, the adjudicator said “In my experience of similar disputes in court, the court may resolve the issues by consideration of a sample of invoices/claims etc.  I consider that such an approach is all the more acceptable in the context of adjudication” (paragraph  35(c)).  This last comment probably refers back to his observations at paragraph 20, and to the quotation from a judgment of Chadwick LJ that the adjudication scheme “was not enacted in order to provide definite answers to complex questions”.

[17]      Mr Currie submitted that the parties should have had an opportunity to comment on the adjudicator’s intention to rely upon his own experience in this regard, having been given specification as to the particular circumstances of that experience.  Counsel referred to the judgment of Lord Glennie in SGL Carbon Fibers Ltd v RGB Ltd 2011 SLT 417 at paragraph 30. 

[18]      In response Mr Dunlop submitted that this is not a case of an adjudicator adding to the evidence.  Had there been an unauthorised inspection, or use of any undisclosed personal knowledge of the adjudicator as to the details of the Fife Council energy project, that would be different.  However it was unobjectionable for the adjudicator to use and refer to his own experiences as an advocate to the effect that judges accept sampling exercises of the kind carried out by the assessor.  It is common for a decision-maker to draw on his own experience without giving advance notice of this to the parties for their comment.  According to Mr Dunlop, the problem in SGL was the introduction of new matters. 

[19]      Suffice to say that I accept all of Mr Dunlop’s submissions on this matter. 

Outcome

[20]      Having rejected all the grounds of challenge put forward in support of the petition, I shall uphold Vital’s plea-in-law, repel those of Bouygues, and refuse the prayer of the petition.  The hearing also concerned a motion for summary decree in a commercial action at the instance of Vital, but parties agreed that the appropriate course was to put that case out by order for a discussion as to further procedure in the light of the decision in the petition process.