Scottish Sheriff Court Decisions

Act: Thomson, Advocate for the Appellants instructed by Simpson & Marwick

Alt: Walker, Advocate for the Respondents instructed by Dundas & Wilson

EDINBURGH, 19 February 2014

The Sheriff Principal having resumed consideration of the cause, refuses the appeal, adheres to the sheriff's interlocutors of 13 and 27 November 2013, finds the defenders and appellants liable to the pursuers and respondents in the expenses of the appeal, as taxed; allows an account thereof to be given in and remits same, when lodged, to the Auditor of Court to tax and to report and certifies the appeal as suitable for the employment of junior counsel.

(signed) Mhairi M Stephen

This is an abbreviated judgment delivered immediately after the appeal hearing on 18 February 2014

NOTE:

1. This case arises as a result of a dispute between the parties in respect of a contract which they entered into in 2011 relating to both supply and installation of screens, windows etc at Gartnavel Royal Hospital Chapel in Glasgow. The contract, as the sheriff observes, consists of the pursuers' letter dated 18 October 2011 together with bills of quantity and schedules attached along with sketch of sheets and other technical details. The contract is concluded by the defenders' purchase order which is dated 31 October 2011 and a brief acceptance of the price etc contained in the respondents' offer.

2. This places the dispute fairly and squarely in the world of building construction where any contract normally requires to be sufficiently robust and flexible to withstand the demands of the particular construction project and the imperative that buildings are built to a programme and fittings fit properly and work. In that sense the construction contract, just like the law, is a living instrument.

3. The respondents referred a dispute about an interim payment under the contract to adjudication. The adjudicator found in favour of the respondents. When the appellants declined to make payment in terms of the decision of the adjudicator the respondents raised proceedings in this court to enforce the adjudicator's decision. The sheriff heard the parties on the respondents motion for summary decree and granted decree in his interlocutor of 13 November 2013. The defenders and appellants appeal that interlocutor. The parties are agreed that the issue is whether the adjudicator had jurisdiction to determine the dispute referred to him by the respondents, Charles Henshaw and Sons Limited in respect of the contract.

4. In the course of the appeal there was no need to consider the terms of Ordinary Cause Rule 17.2 which governs motions for summary decree by either party in the Sheriff Court. In essence, if the adjudicator acted within his powers and jurisdiction the respondents were entitled to decree whereas if the adjudicator acted ultra vires the appellants were entitled to decree of absolvitor.

5. The adjudication process is governed by the Housing Grants, Construction and Regeneration Act 1996 (HGCR) otherwise known as the 1996 Act. The Scheme for Construction Contracts (Scotland) Regulations 1988 (The Regulations) also apply. I was not referred to the Act or Statutory Instrument in any detail but it is accepted that the Act and Regulations do provide the legal framework. The sheriff deals with this in paragraph 3 of his judgment and I do not propose to repeat what is said other than to make some observations on the purpose of the 1996 Act in allowing certain disputes to be referred to adjudication.

6. In the time I have available I do not propose to deal with the authorities to which I was referred in detail. However, I was referred to a line of authorities beginning in chronological order with the decision of Lord MacFadyen in Barr Ltd v Law Mining Ltd (2003) SLT 488; the decision of the Court of Appeal of England and Wales in Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2005] EWCA Civ 1358. The sheriff also refers to Lord Hodge's decision in SW Global Resourcing Limited v Morris & Spottiswood Limited [2012] CSOH 200. These cases indicate the court's approach to the objective and purpose of the 1996 Act and the manner in which the courts have approached challenges to adjudicators decisions. The Act introduces a scheme for speedy dispute resolution in construction contracts. It provides an effective mechanism to enforce payments due under a contract by reference to an adjudicator. Often there are parallel proceedings in court which may be said to be on the slow track to more detailed resolution of contractual disputes. What is clear from the decisions to which I refer and other decisions, the court will be slow to interfere with the adjudicator's decision unless there has been an affront to natural justice or the adjudicator has plainly acted outwith his jurisdiction or ultra vires.

7. Accordingly, the objective of the legislative scheme means that a party to a construction contract with a grievance or dispute can obtain an award from the adjudicator for payment which is capable of judicial enforcement within a very short timescale. Furthermore the court have actively discouraged challenges to the adjudicator's decisions. The courts have acknowledged that mistakes are made by adjudicators. The sheriff in his judgment refers to Lord Hodge's decision in SW Global Resourcing Limited at paragraph 18. In that passage Lord Hodge states that the court is not concerned with whether the adjudicator has made errors of fact or law but only with the question of whether he has acted unfairly or ultra vires. The court is hostile to technical arguments to postpone the enforcement of the award and frustrate the purpose of the legislation. Reference has been made to the adage of "pay now argue later" which certain commentators have coined with reference to the purpose of the scheme. Any errors or mistakes in the adjudication process will be ironed out in an arbitration or litigation which would deal definitively with the parties respective rights and obligations under the contract. The adjudication award is an interim step in deciding who pays whom and the amount pending final resolution of overall disputes. That in my view appears to summarise the import of the legislation. It could be said to be a speedy and pragmatic approach to contractual disputes which promotes cash flow and does not permit one party to prejudice the other by delay by holding the whip hand in the dispute.

8. Lord MacFadyen in Barr Ltd v Law Mining Ltd had this to say at paragraph [9]:-

"I have no difficulty in accepting that adjudication is intended to provide a means of obtaining a speedy, but merely provisional, resolution of a dispute arising in the course of a construction contract. It is envisaged that ultimately, whether by litigation or arbitration or agreement between the parties, the determination of the dispute may be a different one from the provisional determination made by the adjudicator. It is, however, envisaged that the adjudicator's determination will in the meantime be implemented."

He goes on at paragraph 10:-

"I also accept that an adjudicator's decision will be enforceable even if it can be shown that the adjudicator in making his determination made an error of fact or law. On the other hand if the adjudicator has made a determination that he had no jurisdiction to make his decision will be ultra vires."

9. The sheriff sets out in his judgment the relevant paragraphs of Chadwick LJ's decision in Carillion Construction Ltd v Devonport Royal Dockyard Ltd. The sheriff correctly observes that the decision of the Court of Appeal in the Devonport Dockyard case has been cited with approval in the later Scottish authorities. Challenges to the adjudicator's decision are unlikely to succeed and simply lead to a substantial waste of time and expense unless it is plain that the question which the adjudicator has decided was not the question referred to him.

10. In the appeal before me there appears to be agreement that the general legal propositions and the proper approach of the court are as I have indicated. The issue before me was the narrow and focussed issue of whether the adjudicator had answered the correct question. Counsel were essentially pretty close as to the question which the adjudicator was being asked and had to answer - whether the sums claimed were due? (appellants) What is due under interim application 4? (respondents).

SUBMISSIONS

11. I do not rehearse in detail the submissions advanced before me.

12. Counsel for the appellants very fairly and properly indicated at the outset that he did not intend to argue paragraphs 3 and 4 of the Note of Appeal. These paragraphs appear to be directed towards the sheriff's approach to a discretionary decision and it is accepted that the issue for the sheriff did not involve the exercise of discretion. Mr Thomson's motion is to allow the appeal, recall the sheriff's interlocutor of 13 November 2013 and consequentially to recall that part of his interlocutor of 27 November 2013 dealing with the award of expenses in favour of the pursuers. Counsel did not seek to disturb the sheriff's decision on certification. Thereafter I should sustain the second plea in law for the appellants and grant decree of absolvitor together with expenses of the action to include the appeal.

13. Counsel for the appellants accepted that challenges directed towards the correctness of the adjudicator's decision were discouraged and would most likely fail. However, the challenge in the present appeal lies with the vires of the adjudicator's powers. Whether the adjudicator had jurisdiction or acted ultra vires was an issue which the court could and should determine. It followed that the sheriff's approach to the challenge and his decision in paragraph [19] disclosed an error of law. Mr Thomson relied on the simplicity of the contract and in particular condition No 27 which refers to "any variations would be subject to a re-quote." On a plain reading the interpretation of the contract would indicate that this pointed away from permitting any variation but instead changes to sizing, quantities etc would require a re-quote and therefore a separate contract or contracts.

14. After considering the notice of referral; the appellants' response and the respondents' rejoinder and having regard to all these matters the adjudicator's reasoning on the preliminary jurisdictional point was plainly wrong. He had answered the wrong question by reasoning that the variation to the contractual specification set out in Part B of Interim Application 4 was part of the contract by saying the works were similar. He likewise erred by interpreting Clause 27 as providing for variation. On the contrary, a plain reading of Clause 27 pointed against variation.

15. Mr Thomson referred to a decision of Mr Justice Akenhead in ROK Building Limited v Bestwood Carpentry Limited [2010] EWHC 1409 (TCC). I was referred to RGT Consulting Engineers Ltd v DMN Engineering Ltd [2002] EWCA Civ 270 and the dicta of Lord Justice Ward at paragraph 19 who affirmed that parties challenging adjudicators' decisions with technical arguments cannot be faulted if the point is a good one. In that case it appears that the issue related to whether the agreement was in writing as required by the statute. I was also referred to the decision in Fast Track Contractors Ltd v Morrison Construction Ltd and to the approach of the Lord Justice Clerk in Diamond v PJW Enterprises Ltd 2004 SC 430. At paragraph 42 the then Lord Justice Clerk distinguishes the situation where the decision maker failed to understand the question put to him compared with the adjudicator who answers the question put to him even if the answer was flawed.

16. Due to timing constraints I have not set out fully the arguments on behalf of the respondents save to say that counsel for the respondents emphasised that the question for the adjudicator was a straightforward one namely, what is due under interim application 4? Proper consideration of the adjudicator's response and decision makes it clear that the adjudicator did consider that matter and came to a decision on the preliminary issue of jurisdiction with reference to the terms of the contract. A reading of the adjudicator's decision indicates that there was mixed issues of law and fact and in the circumstances the issue of jurisdiction necessarily trespassed on the substance of the referral. In these circumstances it would be erroneous to describe the adjudicator's decision as plainly wrong. I was referred to McBryde on the Construction of Contracts. This is a construction contract. It was not drafted with legal precision and there ought to be no presumption as to legal precision in this contract. A commercially sensible construction of the contract was called for given the nature of the contract. The words "re-quote" should be treated with caution and treated purposively rather than narrowly in the context of a construction contract. In the context of a construction contract it would be absurd to suggest there would be a separate contract for each and every small modification or alteration. I was referred to the dicta of Lord Hoffman in Fiona Trust and Holding Corporation v Privalov [2007] 4 AllER 951 where he observes that rational business people would want their disputes adjudicated by the same tribunal. Likewise parties to construction contracts would sensibly wish disputes in relation to their dealings be dealt with within the contract itself or the margins of the contract.

17. Here the adjudicator looked at the contract and got it right and decided that the contract allowed re-measurement and therefore variation.

18. Even if the adjudicator failed to interpret the contract properly he was entitled to take the view he did and having regard to the line of authorities from the TCC in England and Wales in particular the cases decided by Mr Justice Akenhead the appeal should still fail. It is clear that as in the case of Air Design there was a crossover between the substance of the referral and the jurisdiction issue. And this was in stark contrast to the case decided by the same judge of ROK where the issue was starkly whether the contract was in writing as required by the statute.

DECISION

19. An analysis of the contract documents by both parties to this appeal produces different conclusions unsurprisingly. In a sense that gives an indication that the task which faced the adjudicator in dealing with the jurisdictional challenge was equally open to a differing conclusions. He required to consider the issue of the contract and his jurisdiction over the dispute. The sheriff refers to this and I was referred to the preliminary decision given by letter of 9 September 2013 and also to his full decision which followed in September. It cannot be argued that the adjudicator failed to address the matter of jurisdiction. He gave his decision and gave it with reasons. There is no dispute that the respondents have a statutory right to refer the construction contract to adjudication. The adjudicator concludes in favour of the respondents and the reasons he gives are twofold. Both reasons relate to the terms of the contract. The first relates to the similarity of the work actually carried out to the work envisaged under the specific terms of the contract and the second relates to the interpretation of Clause 27 which according to the adjudicator permits variations.

20. In that regard it is difficult to suggest that the adjudicator has plainly fallen into error as to his jurisdiction and that the sheriff has likewise fallen into error. The interpretation of the contract urged on me by the respondents' counsel is a compelling one especially set in the factual context of a construction or building contract where drawings and bills give specification as best can be given on the drawing board which have then to be converted into the practical environment of the construction site. A realistic and practical approach to the wording of the product specification is sensible and necessary. It appears that the wording of the product specification allows that leeway. However it is not, in my view, necessary for me to express my view as to the interpretation of the contract but rather to look at the approach taken by the adjudicator and then by the sheriff.

21. In other words a purposive interpretation of the contract and Clause 12 of the technical and scope of works clarifications is entirely open to the adjudicator as it would be open to any court.

22. It therefore follows that it is my view that the sheriff was entitled to take the approach he did as set out at paragraph [19] of his decision when he states:-

"In the present case, it is a matter of agreement that there is a 'commercial contract' and that there is a 'dispute'. To that extent there is jurisdiction in terms of the 1996 Act. What is in dispute is whether the claim can be said to fall within these definitions. Whether it does or not may be an issue of fact or law or a mixed issue of fact and law. The adjudicator considered that it did and gave reasons for his decision. He may be right about that or he may be wrong. It seems to me to be very much a technical matter of the type the courts have fought shy of reviewing. It cannot be said plainly that the adjudicator has no jurisdiction. The correctness or otherwise of the adjudicator's conclusion will be tested in the proceedings which have been raised in Glasgow Sheriff Court. In reaching the conclusion he did I do not consider that the adjudicator has acted beyond his jurisdiction."

23. In my view that appears to be the short answer to this question raised on appeal. In any event consideration of the line of authorities in the TCC in London by Mr Justice Akenhead would appear to support that view in the sense that without hesitation I agree with the submission made by counsel on behalf of the respondents that the adjudicator's decision on jurisdiction involves an overlap between jurisdiction and substance. The case of Air Design (Kent) Ltd v Deerglen (Jersey) Ltd [2008] EWHC 3047 (TCC) is a case which on its facts comes closer to the circumstances of the current appeal. In the Air Design case the adjudicator had to decide whether the dispute had been referred not under one contract but under three if not four. The adjudicator there agreed with the referring party that the works were all instructed and carried out as part of a single contract with variations. In dealing with the challenge to the adjudicator's decision Mr Justice Akenhead referred to the factors which effectively overruled the considerations on jurisdiction. Obviously, the decisions of Mr Justice Akenhead are not binding however he is an experienced judge of the TCC who has contributed significantly to the jurisprudence in this area. And I consider that the observations he makes in the Air Design case to be correct and apt to the current appeal. At paragraph 22 he states:

"There may be cases, and this is clearly one, where substance and jurisdiction overlap so that it is within the adjudicator's jurisdiction to decide as matters within his or her substantive jurisdiction whether there have been in effect variations to the contract pursuant to which he or she has properly been appointed an adjudicator. It cannot then, in those circumstances be a valid challenge to his or her jurisdiction that upon analysis he or she may be wrong as a matter of fact or law in determining that such variations were made to the originating contract as opposed to a series of later legally unconnected contracts."

24. In the course of the appeal I made reference to Mr Justice Akenhead's trilogy of decisions which dealt with challenges to adjudicators' decisions under the 1996 Act. I was also referred to Camillin Denny Architects Limited and Adelaide Jones & Company Limited and of course the case of ROK Building Limited v Bestwood Carpentry Limited [2010] EWHC 1409 (TCC) was relied upon heavily by the appellants. Having reviewed the case of ROK there is no inconsistency in the manner in which Mr Justice Akenhead has dealt with such challenges. The facts and circumstances of ROK are readily distinguishable from the other cases and the present appeal. The issue in ROK related to the contract on which the referral was based and in particular the essential point of whether the contract was in writing as is required by the statute and regulations.

25. Accordingly, I consider that the adjudicator's decision in the present appeal falls squarely within the area of substance and jurisdiction upon which he has determined with reasons and which cannot clearly be categorised as plainly wrong.

26. I will accordingly refuse the appeal and adhere to the sheriff's interlocutors. Both counsel agreed that expenses should follow success and that the cause and therefore the appeal is suitable for certification of junior counsel. I agree.