Trust’s appeal against partial enforcement of arbitrator’s decision refused

A reclaiming motion by a trust against the partial enforcement of an adjudicator’s decision in respect of a dispute between the trust and a company contracted to build a house for the trust has been refused.

Dickie & Moore Ltd, the pursuer and respondent, originally raised the proceedings in order to enforce the decision of the adjudicator and recover 50% of the adjudicator’s fees and expenses. The commercial judge held that parts of that decision could be enforced. The defenders and reclaimers, Ronald and Diane McLeish and Catriona Watt, the trustees of the Lauren McLeish Discretionary Trust, appealed the decision.

The appeal was heard in the Inner House of the Court of Session by Lord Menzies, Lord Drummond Young, and Lord Malcolm.

Not yet crystallised

The parties entered into a building contract in 2016 for the construction of a house by the pursuer for the defenders on a site near Armadale. The contract was based on a standard form and contained adjudication procedures for dispute resolution per the Scheme for Construction Contracts (Scotland) Regulations 1998 as amended and modified.

A final adjustment statement was produced by the employer in October 2018 after construction had finished, the net amount of which was £1,894,186.92. The pursuer wrote to the architect to challenge the final adjustment statement.

The parties agreed to appoint an adjudicator, Mr Bunton, under reservation of certain objections by the defenders to jurisdiction. He held that the pursuer was entitled to payment of £324,492.60, with interest, and further found that the pursuer was entitled to an 11 week extension of time and an additional £63,093.47 by way of loss and expense.

The adjudicator also held that the works final account should be higher by £181,607.17, that deductions for an alleged defect, liquidated damages, ground retention and render to the main house were not justified, and that certain other deductions that had been made were excessive

The pursuer raised commercial proceedings for enforcement of the adjudicator’s award. The commercial judge held that a material part of the dispute, relating principally to the time extension, had not yet crystallised, and therefore the adjudicator did not have jurisdiction over those parts.

The pursuer then claimed that parts of the adjudicator’s decision over which he did have jurisdiction could be enforced separately to the part over which he did not. The defender contended that the decision was a unity, with the result that none of it could be enforced.

A second opinion was issued by the commercial judge in which he held that the parts of the claim in which the adjudicator lacked jurisdiction could be severed from those where he had jurisdiction, and that the latter parts of the decision could accordingly be enforced. The defenders reclaimed against this decision.

The defenders submitted that the adjudication was a “single dispute” adjudication, and therefore if the dispute had not crystallised the whole of the adjudication process was a nullity.

No bearing on other matters

The opinion of the court was delivered by Lord Drummond Young. Setting out the court’s position, he said: “The critical question in the present proceedings is the extent to which and the basis on which a court may enforce an adjudicator’s award where part of that award is outside the adjudicator’s jurisdiction because the dispute purportedly considered in that part had not crystallized. On this matter, we are in agreement with both the commercial judge’s decision and the reasons that he gives for reaching that decision.”

Evaluating the adjudication process under the 1998 Regulations, he said: “The wording of the Scheme is the basic legal text that must be applied but, as with the application of any legal text, the context in which it operates and the purposes that it seeks to achieve are factors of obvious importance in determining how it applies. That approach is, intellectually, more satisfactory than a slavish reliance on the terms of established authorities. “

He continued: “It is, moreover, more consistent with the traditional Scottish approach of basing legal reasoning on principle rather than mere adherence to precedent. For these reasons we reject counsel’s contention that the commercial judge should have confined himself to the statements of the law contained in earlier cases, without considering the underlying policy of the Scheme.”

On the severability of the parts of the adjudicator’s decision, he said: “In Willow Corp SARL v MTD Constructors Ltd, Pepperall J suggested that the best approach was to ignore the parts of the adjudicator’s jurisdiction where he lacked jurisdiction, to focus on the remainder and to ask ‘whether it is clear that there is anything left that can be safely enforced’. While the test of whether a particular conclusion is ‘safe’ has never attracted support in Scotland, we are of opinion that a test along these lines is appropriate.”

Applying this to the present case, he said: “The items that were held unenforceable by the commercial judge were all related to a claim for extension of time and the consequential loss and expense, and certain ancillary matters. Those matters were held not to have crystallized. It is not obvious why the treatment of a claim for extension of time and its consequences should have a bearing on other matters, such as payments for measured work or additional works. Those are for work actually performed, rather than the increase in costs caused by delay.”

He concluded: “It appears to us that, if such a matter is to be founded on as establishing non-crystallization, an explanation must be given as to the nature of the discrepancy and how it would prevent the claim from crystallizing. That was lacking. In these circumstances we are unable to discover any discrepancies in the claims made by the pursuer, other than the claim for extension of time and associated loss and expense and other elements, that would prevent the remainder of the dispute from crystallizing.”

For these reasons, the reclaiming motion was refused.