Diamond v PJW Enterprises Ltd

JurisdictionScotland
CourtCourt of Session (Inner House - Second Division)
Judgment Date24 December 2003
Docket NumberNo 32
Date24 December 2003

SECOND DIVISION

Lady Paton

No 32
DIAMOND
and
PJW ENTERPRISES LTD

Contract - Building contract - Contract for administration of building contract - Whether a 'construction contract' - Housing Grants, Construction and Regeneration Act 1996 (cap 53), sec 104

Contract - Building contract - Adjudicator - Whether adjudicator could award damages - Scheme for Construction Contracts (Scotland) Regulations 1998 (SI 1998 No 687 (S 34))

Administrative law - Judicial review - Decision of adjudicator on construction contract - Whether failure to give intelligible reasons - Whether judicial review available for intra vires error of law

Words and phrases - 'construction contract' - Housing Grants, Construction and Regeneration Act 1996 (cap 53), sec 104

Section 104 of the Housing Grants, Construction and Regeneration Act 1996 defines 'construction contract' as an agreement with a person for, inter alia, (a) the carrying out of construction operations; (b) arranging for the carrying out of construction operations by others, whether on sub-contract or otherwise. References to a construction contract include an agreement to do architectural design or surveying work in relation to construction operations. Section 108 provides that a party to a construction contract has the right to refer a dispute for adjudication under the Scheme for Construction Contracts (Scotland) Regulations 1998.

The petitioners were a firm of building contract surveyors. The respondents instructed them to act as contract administrators of a building contract. The respondent entered into a building contract with contractors. A dispute arose between the petitioners and respondents. An adjudicator was appointed and found the petitioners liable to the respondents in damages. The petitioners brought judicial review proceedings for reduction of the adjudicator's decision. The Lord Ordinary refused the petition. The petitioners reclaimed and argued: (1) the reference to adjudication was incompetent because the contract was not a 'construction contract' within the meaning of the 1996 Act; (2) the Scheme did not empower the adjudicator to award damages; (3) the respondents had suffered no loss; (4) the decision was invalidated by the failure of the adjudicator to take into account submissions made to him and give intelligible reasons; and (5) the court was entitled to review the decision on the ground of error of law, even if the error was made intra vires.

Held that: (1) the contract was a building contract (para16); (2) adjudication is not a form of arbitration but is a sui generis system of dispute resolution (para 19); (3) the legislation conferred on the adjudicator the power to award damages (para 21); (4) an adjudicator's award creates a liability that is immediately enforceable and the person against whom it is made is in a position of loss (para 23); (5) the adjudicator was under a duty to consider any relevant information submitted to him, and it should be assumed that he did so unless his decision and reasons suggested otherwise (para28); (6) a challenge to the intelligibility of stated reasons can succeed only if the reasons are so incoherent that it is impossible for the reasonable reader to make sense of them, and that could not be said in this case (para 31); (7) the means of redress for intra vires errors of law set out in the legislation were exhaustive and the availability of judicial review as a remedy for an intravires error of law would subvert the purpose of adjudication (para 40); and appeal refused.

Opinion reserved on whether if the decision was reviewable the court could and should reduce only the offending part (para 44).

Observed that the legislation had created a new set of problems, and the risks of injustice inherent in the scheme demanded a high standard of expertise from adjudicators and their advisers. As a result of the adjudicator's inept decision, the petitioners were liable to pay a substantial sum which they might seek to recover only in proceedings that might be expensive and protracted, and had been found guilty of professional negligence. The petitioners had the opportunity to challenge the adjudicator's decision in ordinary litigation now that the interim position had been established (para43).

Deko Scotland Ltd v Edinburgh Royal Joint Venture 2003 SLT 727 commented upon.

GILLIES RAMSAY DIAMOND and others raised proceedings for judicial review against PJW Enterprises Ltd. On 27 June 2002 the Lord Ordinary (Lady Paton) refused the petition. The pursuer reclaimed.

The cause called before the Second Division comprising the Lord Justice-Clerk (Gill), Lord Macfadyen and Lord Caplan for a hearing on the summar roll.

Cases referred to:

A v B 2003 SLT 242

Aberdeen Ry Co v Blaikie Bros (1853) 15 D (HL) 20

Anisminic v Foreign Compensation CommissionELR [1969] 2 AC 682

Ballast plc v Burrell Co (Construction and Management) Ltd 2001 SLT 1039, affd 2003 SLT 137

Barr v Law Mining Ltd 2003 SLT 488

Boddington v British Transport PoliceELR [1999] 2 AC 143

Bouygues (UK) Ltd v Dahl-Jensen (UK) LtdUNK [2001] 1 All ER (Comm) 1041

C & B Scene Concept Design Ltd v Isobars LtdUNK [2002] BLR 93

Codona v Showmen's Guild of Great Britain 2002 SLT 229

Construction Centre Group v Highland Council 2002 SLT 1274

Deko Scotland Ltd v Edinburgh Royal Joint Venture 2003 SLT 727

Duncan's Trs v A & P StevenUNK (1897) 24 R 880

Garvie's Trs v Still 1972 SLT 29

Heyman v Darwins LtdELR [1942] AC 356

Homer Burgess Ltd v Chirex (Annan) Ltd 2000 SLT 277

Hunter v HanleySC 1955 SC 200

Joinery Plus Ltd v Laing LtdUNK [2003] BLR 184

Karl Construction v Sweeney Civil Engineering (Scotland) LtdUNK 2001 SCLR 95

London, Income Tax Commissioners for the City of v GibbsELR [1942] AC 402

McAlpine v Lanarkshire and Ayrshire Ry CoUNK (1889) 17 R 113

Mackay v Barry Parochial BoardUNK (1883) 10 R 1046

Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] CLC 739

Merton, London Borough of v Stanley Hugh Leach LtdUNK (1985) 32 BLR 51

Mitchell v CableUNK (1848) 10 D 1297

O'Reilly v MackmanELR [1983] 2 AC 237

R v Hull University Visitor, ex p PageELR [1993] AC 682

Racal Communications Ltd (Re)ELR [1981] AC 374

Royal Brompton Hospital NHS Trust v Hammond and Ors (No 7)UNK [2001] 76 Con LR 148

SL Timber Systems Ltd v Carillion Construction Ltd 2002 SLT 997

Saltoun (Lord) v Advocate General for ScotlandUNK (1860) 3 Macq 659

Save Britain's Heritage v No 1 Poultry LtdWLR [1991] 1 WLR 153

Sherwood & Casson Ltd v Mackenzie (2000) 2 TCLR 418

Stevenson v Pontifex & WoodUNK (1887) 15 R 125

Watson Building Services v Harrison 2001 SLT 846

Watt v Lord AdvocateSC 1979 SC 120

Wordie Property Co Ltd v Secretary of State for Scotland 1984 SLT 345

Textbooks etc referred to:

D Chappell and V Powell-Smith,The JCT Minor Works Form of Contract: A Practical Guide (2nd ed, Blackwell Science, Oxford, 1998), p 156

Rt Hon The Lord Clyde and D Edward,Judicial Review (1999, W Green/Scottish Universities Law Institute, Edinburgh), para 22.4

Stair Memorial Encyclopaedia: The Laws of Scotland (Butterworths/Law Society of Scotland, Edinburgh, 1991 and 2002), 'Interpretation of Statutes', vol 12, para 1188 and 'Arbitration', vol 1, para 50

H W R Wade and C F Forsyth,Administrative Law (8th ed, Oxford University Press, Oxford, 2000), pp 270-274

At advising, on 24 December 2003 -

LORD JUSTICE-CLERK (GILL) -

Introduction

[1] This is a reclaiming motion from an interlocutor of Lady Paton, dated 27 June 2002, in a petition for judicial review of a decision of an adjudicator appointed under the Housing Grants, Construction and Regeneration Act 1996 (the '1996 Act').

Statutory provisions
The 1996 Act

[2] Section 104 of the 1996 Act provides, inter alia, as follows:

'(1) In this Part a "construction contract" means an agreement with a person for any of the following -

  • (a) the carrying out of construction operations;

  • (b) arranging for the carrying out of construction operations by others, whether under sub-contract to him or otherwise; …

  • (2) References in this Part to a construction contract include an agreement-

    • (a) to do architectural design, or surveying work … in relation to construction operations.'

Section 108 of the Act provides, inter alia, as follows:

'(1) A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section.

For this purpose "dispute" includes any difference. …

  • (3) The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement. …

  • (5) If the contract does not comply with the requirements of subsections (1) to (4), the adjudication provisions of the Scheme for Construction Contracts apply.

  • (6). For England and Wales, the Scheme may apply the provisions of the Arbitration Act 1996 with such adaptations and modifications as appear to the Minister making the scheme to be appropriate.

For Scotland, the Scheme may include provision conferring powers on courts in relation to adjudication and provision relating to the enforcement of the adjudicator's decision.'

Section 111(4) provides as follows:

'Where an effective notice of intention to withhold payment is given, but on the matter being referred to adjudication it is decided that the whole or part of the amount should be paid, the decision shall be construed as requiring payment not later than -

  • (a) seven days from the date of the decision, or

  • (b) the date which apart from the notice would have been the final date for payment,

whichever is the later.'

Section 114(4) provides as follows:

'Where any provisions of the Scheme for Construction Contracts apply by virtue of this Part in default of contractual provisions agreed by the parties, they...

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