D McLaughlin & Sons Ltd v East Ayrshire Council
| Jurisdiction | Scotland |
| Judge | Lord Clark |
| Judgment Date | 16 September 2022 |
| Court | Court of Session (Inner House) |
| Docket Number | No 17 |
[2022] CSIH 42
Lord Clark
First Division
Contract — Building contract — Adjudication — Final certificate — Whether final certificate ought to be treated as conclusive of sums due to contractor in adjudication about interim payment — Whether adjudicator's decision that final certificate was not conclusive could be reversed by the court
Section 108 of the Housing Grants, Construction and Regeneration Act 1996 (cap 53) (‘the 1996 Act’) provides that a party may give notice “at any time” of his intention to refer a dispute to adjudication (subsec (2)). The decision of an adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration or by agreement (subsec (3)).
In March 2016, D McLaughlin & Sons Ltd (‘the contractor’) entered into a contract with East Ayrshire Council (‘the employer’) for an extension to Hurlford Primary School. The contract incorporated the Joint Contracts Tribunal Standard Building Contract With Quantities for use in Scotland (SBC/Q/Scot 2011). The contract provided for monthly interim payments in terms of interim certificates issued by the employer's architect, in the absence of which interim payment notices could be issued by the contractor, stating the sum considered due. The final payment, being the difference between the total sums due in the interim certificates and any amounts paid in respect of any interim payment notices, was due when a final certificate was issued by the architect.
The final certificate was issued “without affecting the rights of the Contractor in respect of any interim payment not paid in full by the Employer” (cl 4.15.2), and in any adjudication or court proceedings arising out of the contract, it was “conclusive evidence that any necessary effect has been given to all the terms of this Contract which require that an amount be added to or deducted from the Contract Sum” (cl 1.9.1.2). However, if proceedings were commenced within 60 days of the certificate, it was conclusive “save only in respect of the matters to which those proceedings relate” (cl 1.9.3). Where an adjudication had occurred and a party wished to challenge the adjudication decision, legal proceedings had to be initiated within 28 days (cl 1.9.4).
On 10 August 2017, the contractor issued an interim payment notice, which became payable in the absence of a pay less notice being issued by the employer. On 17 July 2019, a final certificate was issued. On 12 September 2019, the contractor raised proceedings (‘the first action’) to challenge the final certificate on the basis that the contract sum did not reflect the work done, including variations. The first action was remitted to the Court of Session.
On 23 March 2020, the contractor served a notice of referral to adjudication seeking a declaration of entitlement to the balance due under the interim payment notice issued in August 2017. On 6 May 2020, the adjudicator found in favour of the contractor.
On 8 June 2020, the contractor raised the present action for enforcement of the adjudicator's award. On 17 July 2020, the employer lodged a counterclaim that sought to challenge the adjudicator's decision. On 30 December 2020, decree for enforcement of the adjudicator's award was granted ([2020] CSOH 109). On 7 December 2021, the counterclaim was dismissed as out of time on the basis that it had not been raised within 28 days of the adjudicator's award ([2021] CSOH 122).
The employer sought reversal of the dismissal, and decree in terms of the counterclaim for repayment of the adjudicator's award. An overly strict approach had been adopted to the construction of cl 1.9.4; the adjudication came outside the period allowed by cl 1.9; and the final certificate was conclusive in the adjudication as to the contract sum. The amount due under the final certificate having been paid, the adjudicator ought to have issued a nil award.
In response, the contractor submitted that any challenge to the adjudicator's award came too late; the time-limit in cl 1.9 did not apply as the adjudication sought to enforce the interim payment notice and did not challenge the final certificate. If the time-limit did apply, the timeous court challenge removed the certificate's conclusive effect in relation to the contract sum, not only in those proceedings but also the adjudication.
Held that: (1) any adjudicator's decision issued after the final certificate could only be challenged within 28 days; in this case it was not, and the employer was bound by the decision, and must pay the sum awarded, which they had now done, and await the outcome of the first action on the correctness of the final certificate; that approach was the only one which was consistent with the adjudication regime ‘pay now, argue later’, and the 28-day time-limit was not overridden (per Lord President (Carloway), para 22; Lord Woolman, paras 96, 97), (2) the first action constituted the only proper vehicle to challenge the validity of the final certificate and, until it was resolved, its conclusivity would remain in limbo (per Lord President (Carloway), para 20; Lord Woolman, para 94; diss Lord Malcolm, paras 72, 86); and reclaiming motion refused.
Observed (per Lord President (Carloway)) that: (1) if the adjudication had been a challenge to the final certificate, it ought not to have been entertained by the adjudicator as it was raised too late, but the enforcement of the adjudicator's award, and the award itself, did not challenge the conclusivity of the contract sum in the final certificate (para 20); and (2) the final certificate did not supersede the interim certificates, other than in respect of the contract sum as valued at the end of the contract; and the conclusivity of the contract sum in a challenged final certificate had no bearing on what should have been paid in the interim (paras 17, 19).
Observed (per Lord Woolman) that the adjudicator had erred and ought to have made a nil award, on the basis that the adjudication had been a challenge to the final certificate and the adjudication had not been raised within 60 days (para 94).
Dissenting (per Lord Malcolm) that: (1) the adjudication was a challenge to the terms of the final certificate (para 74); (2) the only valid challenge to the conclusive effect of the final certificate is the pending court action (para 85); (3) the contractor had an unfettered and unqualified right to refer the dispute on that matter to adjudication (para 73); (4) the adjudication was not compliant with the terms of cl 1.9 thus cl 1.9.4 was not in play (para 81); and (5) the sum due in terms of the final certificate having been paid, decree ought to be pronounced in terms of the counterclaim requiring repayment of the adjudicator's award (para 86).
Trs of the Marc Gilbard's 2009 Settlement Trust v OD Developments and Projects Ltd [2015] BLR 213 approved.
Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015] UKSC 38; [2015] 1 WLR 2961; [2015] 4 All ER 482; [2015] 2 All ER (Comm) 965; [2015] Bus LR 830; [2015] 2 CLC 203; [2015] BLR 503; 160 Con LR 28; [2015] CILL 3696; The Times, 22 June 2015
Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25; [2021] 1 All ER 697; [2021] 1 All ER (Comm) 661; [2020] Bus LR 1140; [2020] BCC 906; [2020] 2 BCLC 147; [2020] BLR 497; 190 Con LR 1; [2020] BPIR 1078; The Times, 2 July 2020
Castle Inns (Stirling) Ltd (t/a Castle Leisure Group) v Clark Contracts Ltd [2005] CSOH 178; 2006 SCLR 663; 2006 GWD 19-396
Galliford Try Building Ltd v Estura Ltd [2015] EWHC 412; [2015] BLR 321; 159 Con LR 10
Grove Developments Ltd v S & T (UK) Ltd [2018] EWHC 123; [2018] 2 All ER (Comm) 925; [2018] Bus LR 954; [2018] BLR 173; 177 Con LR 30; 34 Const LJ 539
Grove Developments Ltd v S & T (UK) Ltd [2018] EWCA Civ 2448; [2019] Bus LR 1847; [2019] BLR 1; 181 Con LR 66; [2019] CILL 4238
Harding (t/a MJ Harding Contractors) v Paice and anr [2015] EWCA Civ 1231; [2016] 1 WLR 4068; [2016] 2 All ER 819; [2016] 2 All ER (Comm) 656; [2016] CP Rep 10; [2015] 2 CLC 1003; [2016] BLR 85; 163 Con LR 299; [2016] CILL 3785
Hopkins (J & B) Ltd v Trant Engineering Ltd [2020] EWHC 1305; [2020] BLR 534; 190 Con LR 233
Hutton Construction Ltd v Wilson Properties (London) Ltd [2017] EWHC 517; [2018] 1 All ER (Comm) 524; [2017] Bus LR 908; [2017] 1 CLC 620; [2017] BLR 344; 171 Con LR 228; [2017] CILL 3949
ISG Construction Ltd v Seevic College [2014] EWHC 4007; [2015] 2 All ER (Comm) 545; [2015] BLR 233; 157 Con LR 107; [2015] CILL 3598
Jerram Falkus Construction Ltd v Fenice Investments Inc (No 4) [2011] EWHC 1935; [2011] BLR 644; 138 Con LR 21; [2011] CILL 3072
Marc Gilbard 2009 Settlement Trust (Trs of the) v OD Developments and Projects Ltd [2015] EWHC 70; [2015] BLR 213; 159 Con LR 150; [2015] CILL 3651
Rupert Morgan Building Services (LLC) Ltd v Jervis [2003] EWCA Civ 1563; [2004] 1 WLR 1867; [2004] 1 All ER 529; [2004] BLR 18; [2004] TCLR 3; 91 Con LR 81; (2003) 153 NLJ 1761; The Times, 26 November 2003; The Independent, 20 November 2003
Scottish Equitable plc v Miller Construction Ltd 2002 SCLR 10; 83 Con LR 183; 2001 GWD 28-1119
D McLaughlin & Sons ltd raised an action in the commercial court against East Ayrshire Council for enforcement of a decision of an adjudicator to whom a dispute arising out of a building contract between the parties had been referred. The defenders lodged a counterclaim seeking orders contrary to the adjudicator's findings. On 30 December 2020, the commercial judge (Lord Clark) granted decree for enforcement of the adjudicator's award ([2020] CSOH 109).
On 9 August 2021, the cause called before the commercial judge (Lord Clark) for a debate on the relevancy of the counterclaim. On 7 December 2021, the commercial judge dismissed the counterclaim ([2021] CSOH 122). The defenders reclaimed.
Coulson, PDW (Sir), Construction...
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