Rbg Limited V. Sgl Carbon Fibers Limited

CourtCourt of Session
JudgeLord Menzies
Neutral Citation[2010] CSOH 77
Publication Date22 June 2010
Docket NumberCA7/10
Date22 June 2010


[2010] CSOH 77



in the cause







Pursuer: M Hamilton; Maclay Murray and Spens LLP

Defender: Howie QC; MacRoberts LLP

22 June 2010


[1] In 2008 the parties entered into a contract whereby the pursuer agreed to carry out certain works within the defender's premises. The contract was in the form of an NEC 3 Engineering and Construction Contract June 2005 Option C as amended, incorporating the Contract Data and Form of Tender and the Works Information. It included Option W2 which entitled either party to refer a dispute to an adjudicator at any time. A dispute over the pursuer's entitlement to a change in the Completion Date and to be paid sums set out in certain invoices together with interest thereon arose, and by Notice of Adjudication dated 19 November 2009 the pursuer gave the defender notice of its intention to refer this dispute to adjudication. An adjudicator was appointed, and by referral notice dated 25 November 2009 the pursuer referred the dispute to him. On 18 January 2010 the adjudicator notified the parties of his decision on this dispute (subject to a correction made on 29 January 2010, which is not relevant to the present proceedings). The contract provided that the decision of the adjudicator is binding on the parties unless revised by an arbitral tribunal, and is enforceable as a matter of contractual obligation. The adjudicator found that the Completion Date should be altered and that the defender should pay to the pursuer certain sums together with interest. The defender has declined to pay these sums, and the pursuer has accordingly raised the present action for payment of these sums.

[2] The matter came before me for debate. Senior counsel for the defender invited me to sustain the defender's first plea-in-law, being a general plea to the relevancy, and to dismiss the action. He also invited me to set aside the decision of the adjudicator ope exceptionis, either on the ground that the adjudicator had failed to exhaust his jurisdiction, or on the ground that he had acted in breach of natural justice, and to sustain the defender's fifth plea-in-law which failing its fourth plea-in-law. Counsel for the pursuer invited me to repel the defender's pleas-in-law, to sustain the pursuer's first plea-in-law and to grant decree de plano.

Submissions for the defender

[3] Senior counsel's primary submission was that the adjudicator had failed to exhaust the jurisdiction conferred on him by the Notice of Adjudication; he had failed to consider all the evidence, and had misconstrued the extent of the dispute between the parties and so unjustifiably restricted the material which he considered. Alternatively, he was in breach of the principle of natural justice that required him to hear both parties.

[4] The adjudicator was bound to decide all issues referred to him: he must exhaust the reference. If he failed to do so, his decision was as void as it would be if he had exceeded his jurisdiction. Moreover, the adjudicator could not determine with binding effect the extent of his own jurisdiction: the limits of his jurisdiction were determined by the Notice of Adjudication and could not be narrowed or extended by the adjudicator's misconstruing those limits - the determination of his jurisdiction was ultimately a matter for the court (Ballast Plc v The Burrell Co (Construction Management) Limited, 2001 SLT 1039 at paragraphs 39-42, and before the Inner House at 2003 SC 279 at paragraphs 17-20).

[5] The extent of the adjudicator's jurisdiction is to be found in Parts 3 "the dispute" and 4 "redress sought" in the Notice of Adjudication (number 6/6 of process). Clause 3.3 and following clauses set out five invoices which were the subject of applications by the pursuer for payment by the defender, together with dates on which payments were due, and interest provisions. In clause 3.11 the pursuer accepted that certain credits were due to the defender, which fell to be deducted from the payments sought in the adjudication. Clause 3.12 focused the dispute as follows:

"A dispute has accordingly arisen between the parties regarding the Referring Party's entitlement to a change in the Completion Date to 16 January 2009 and to be paid the sums set out in Invoices 1 to 5 (under deduction of the credits mentioned above), with interest."

[6] The adjudicator's jurisdiction was therefore to determine, in respect of each of the five invoices, what sum of money, if any, the pursuer was entitled to be paid under the contract. (The point about a change in the Completion Date is not relevant to the present proceedings). This required the adjudicator to consider each invoice individually and consecutively; he had to consider all arguments for the pursuer that the whole amount was payable, but he also had to consider the arguments for the defender - Construction Centre Group Limited v Highland Council 2002 SLT 1274 at paragraph [19]. The adjudicator was therefore bound to consider the argument advanced by the defender that there had been overpayment to the extent that even if the work charged for in these invoices had been carried out and the sums in respect thereof were accurately stated, no further payment was due. It does not appear that the adjudicator did this. He appears to have decided that this was beyond his jurisdiction. He misconstrued the extent of his jurisdiction.

[7] The contractual mechanism for assessing the amount due at each assessment date, and for payment thereof, is set out in clauses 50 and 51 of the NEC 3 Option C Contract. The amount due is stated to be the Price for Work Done to Date, ("PWDD") plus other amounts to be paid to the Contractor, less amounts to be paid by or retained from the Contractor. Clause 11.2 (29) defines the PWDD as "the total Defined Cost which the Project Manager forecasts will have been paid by the Contractor before the next assessment date plus the Fee." Clause 11.2 (23) and (25) give the definitions of Defined Cost and Disallowed Cost as follows:

"(23) Defined Cost is

the amount of payments due to Subcontractors for work which is subcontracted without taking account of amounts deducted for

· retention,

· payment to the Employer as a result of the Subcontractor failing to meet a Key Date,

· the correction of the Defects after Completion,

· payments to Others and

· the supply of equipment, supplies and services included in the charge for overhead cost within the Working Areas in this contract and

· the cost of components in the Schedule of Cost Components for other work

less Disallowed Cost.

(25) Disallowed Cost is cost which the Project Manager decides

· is not justified by the Contractor's accounts and records,

· should not have been paid to a Subcontractor or supplier in accordance with his contract,

· was incurred only because the Contractor did not

· follow an acceptance or procurement procedure stated in the Works Information or

· give an early warning which this contract required him to give

and the cost of

· correcting Defects after Completion,

· correcting Defects caused by the Contractor not complying with a constraint on how he is to Provide the Works stated in the Works Information,

· Plant and Materials not used to Provide the Works (after allowing for reasonable wastage) unless resulting from a change to the Works Information,

· resources not used to Provide the Works (after allowing for reasonable availability and utilisation) or not taken away from the Working Areas when the Project Manager requested and

· preparation for and conduct of an adjudication or proceedings of the tribunal"

[8] The assessment of what requires to be paid to the contractor at each assessment date therefore involves an exercise in calculating an accumulating total. Assessing the PWDD requires consideration of Defined Cost less Disallowed Cost. The amount is accumulating and the contract provides for correction of mistakes by the project manager. In determining the dispute referred to him, the adjudicator required to consider the accumulating balance, and decide whether the PWDD was correctly stated in the relevant invoices. In terms of clause W2.3(4) he was entitled to review and revise any action or inaction of the project manager related to the dispute. He was therefore obliged to consider whether the project manager had made any errors when calculating the PWDD, and to revise or correct these errors. The position of the defender before the adjudicator was that the pursuer had already been paid too much, and there was an error in the accumulating value of the contract. This alleged overpayment was something which the adjudicator was obliged to consider when reaching his decision.

[9] It does not appear that the adjudicator did consider this argument about earlier overpayment. He confined his consideration to the sums sought in the invoices, but did not have regard to disallowed costs or overpayments (or at least most overpayments) at an earlier stage of the works. He appears to have adopted this position because he believed that it was beyond his jurisdiction to look to earlier overpayments, and that this would require to be determined in another procedure. In paragraph 3.12 of his decision letter (number 6/3 of process) he stated that he did not accept the assertion for the pursuer that having agreed PWDD, the agreement is final and PWDD may not be revisited. However, at paragraph 3.14, in relation to a file regarding disallowed costs, the adjudicator states:

"I have taken account of the content of this file in respect of the invoices forming the matters in dispute, but have not taken account of its content in relation to earlier invoices except in connection with labour charges. Its other content relating to earlier invoices will have to be progressed outside this adjudication."

[10] Senior...

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