Vaughan Engineering Limited V. Hinkins & Frewin Limited
| Jurisdiction | Scotland |
| Judge | Lord Clarke |
| Date | 03 March 2003 |
| Docket Number | CA202/02 |
| Court | Court of Session |
| Published date | 03 March 2003 |
| OUTER HOUSE, COURT OF SESSION | |
| CA202/02
| OPINION OF LORD CLARKE in the cause VAUGHAN ENGINEERING LIMITED Pursuers; against HINKINS & FREWIN LIMITED Defenders: ________________ |
Pursuers: Smith; MacRoberts
Defenders: Borland; Masons
3 March 2003
Introduction
[1]In this commercial action the pursuers seek to recover payment from the defenders of certain sums which they claim are due to them by virtue of a decision, dated 22 October 2002, of an adjudicator acting under the Scheme for Construction Contracts (England and Wales) Regulations 1998 S.I. 1998, No. 649 ("the Scheme"). The background to the issuing of that decision was that the parties had entered into a contract, in terms of which the pursuers agreed to execute, as sub-contractor, certain mechanical works in connection with the alteration and modernisation of research laboratories and associated areas for the University of Reading. The contract was a construction contract within the meaning of Part II of the Housing Grants, Construction and Regeneration Act 1996 ("The 1996 Act"). It is averred by the pursuers, and admitted by the defenders, that the contract, being the domestic contract DOM/1 1980 Edition with amendments, contained no provisions for adjudication and that, accordingly, by virtue of Section 108(5) of the 1996 Act, "the Scheme" applied to the contract. That subsection provides that if a contract does not have provision for adjudication in accordance with sections 108(1)-(4) of the Act "the adjudication provisions of the Scheme for Construction Contracts apply". Section 114(4) of the 1996 Act provides that "where any provisions of the Scheme for Construction Contracts apply by virtue of this Part in default of contractual provision agreed by the parties, they have effect as implied terms of the contract concerned". The effect of the foregoing provisions is, inter alia, that the parties in the present case, have a term, implied into their contract, that either of them has the right to refer a dispute arising under the contract for adjudication in accordance with the Scheme.
[2]The Scheme sets out, in some detail, how the adjudication procedure can be set in motion and the procedure to be followed by the parties and the adjudicator in the adjudication process. For present purposes, it is particularly important, in my view, to have regard to paragraphs 20 and 21 of the Scheme. They provide as follows:
"20.The adjudicator shall decide the matters in dispute. He may take into account any other matters which the parties to the dispute agree should be within the scope of the adjudication or which are matters under the contract which he considers are necessarily connected with the dispute. In particular, he may -
(a) open up, revise and review any decision taken or any certificate given by any person referred to in the contract unless the contract states that the decision or certificate is final and conclusive,
(b) decide that any of the parties to the dispute is liable to make a payment under the contract (whether in sterling or some other currency) and, subject to Section 111(4) of the Act, when that payment is due and the final date for payment,
(c) having regard to any term of the contract relating to the payment of interest decide the circumstances in which, and the rates at which, and the periods for which simple or compound rates of interest shall be paid.
21.In the absence of any directions by the adjudicator relating to the time for performance of his decision, the parties shall be required to comply with any decision of the adjudicator immediately on delivery of the decision to the parties in accordance with this paragraph."
[3]Paragraph 23(2) of the Scheme then provides that the decision of the adjudicator "shall be binding on the parties, and they shall comply with it 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 between the parties". It was a matter of agreement, in the present case, that once an adjudicator has issued his decision under the Scheme that decision may, in Scotland, be challenged by way of petition for judicial review. That was done, for example, successfully in the case of Ballast plc v The Burrell Company (Construction Management) Limited 2001 S.L.T 1309. In Naylor v Greenacres Curling Limited 2001 S.L.T. 1092, Lord Bonomy recalled an interim interdict and interim suspension granted, ex parte, in a petition for suspension and interdict directed against an adjudicator continuing to act after having been appointed to determine a dispute under the Scottish equivalent of the Scheme with which I am concerned. His Lordship did so, in part, because he considered that what in effect the petitioners were seeking was an exercise by the Court of its supervisory jurisdiction under Rule of Court 58.3(1) and the application, having been brought simply by way of ordinary petition procedure, and not under Rule of Court 58.3, was, therefore, incompetent.
[4]In the present case the position is the not uncommon one of a party who has had a decision in his favour pronounced by an adjudicator seeking to have it enforced by the Court, once the other party has failed to pay in terms of it within the mandatory period allowed under the Scheme. The pursuers in this case are seeking payment in terms of the adjudicator's decision and do not seek to challenge it in any respect. They bring a commercial action (and it could as well have been an ordinary action) to have payment enforced in terms of it. The defenders, however, seek to resist payment and recognise that to be successful in doing so, they have to be able to challenge the validity of the decision on grounds which are those arising from the substantive law applicable in applications for judicial review. In Answer 3 they set out averments attacking the adjudicator's decision as being ultra vires. The thrust of the attack is that the adjudicator has failed to exhaust the jurisdiction conferred on him by failing to take into account a set off claim placed before him by the defenders in the adjudication. They then aver in Answer 5 as follows:
"Explained and averred that in respect that the defender challenges the Decision, and wishes and requires to invoke the supervisory jurisdiction of the Court in so doing, the present action should be sisted to allow judicial review proceedings to be raised. In the event that the Court is minded to grant a sist as aforesaid, the defender undertakes to serve the relevant judicial review petition within 3 days of the date of interlocutor granting the sist".
Those averments are supported by the following pleas-in-law for the defenders:
"1. In respect that the defender challenges the pretended decision of the adjudicator, and wishes and requires to invoke the supervisory jurisdiction of the Court in so doing, the present action should be sisted.
2. Esto the present action is not sisted, the pretended decision of the adjudicator founded upon by the pursuer, having been arrived at by the adjudicator without his exhausting the jurisdiction conferred upon him, should be set aside ope exceptionis.
[5]The pursuers, at the earliest stage, in the preliminary hearing procedure, in this commercial action, intimated that they took issue with the defenders' position that a sist should be granted because they wished to attack the adjudicator's decision and could only do so by way of bringing a petition for judicial review. The pursuers' position was that the defenders could, and should, simply seek to have the decision set aside ope exceptionis in the commercial action. Both parties sought a debate on the question.
[6]At first sight the point, no doubt, has the appearance of a somewhat esoteric and sterile procedural dispute. But it does raise, in my judgment, quite sharp and important questions as to the supervisory jurisdiction of the Court and, when, and how, it requires to be invoked. What is manifest is that standing the popularity of the adjudication procedure in construction contracts and the number of applications that are made to the Court for the enforcement of adjudicators' awards, it is of some importance that parties to such proceedings know what the appropriate procedure is to be adopted in relation to challenges to such decisions. I, accordingly, allowed the parties a debate on these questions.
[7]I should say that from the outset both parties were agreed, and proceeded on the basis, that the issue which arose, and the law which fell to be applied, would apply equally as well to decisions of arbiters as they would to decisions of adjudicators under the statutory schemes.
The Defenders' Submissions
[8]In opening his submissions, counsel for the defenders focused on the role of the adjudicator under the Scheme. This, he said, came about because there had been conferred on him a decision making power by the operation of the Scheme. He adopted the analysis of Lord Reed in the case of Ballast, cited above, where his Lordship saw the decision making power of the adjudicator as one which properly arose out of the contract rather than as a function of a statutory decision maker. At page 1046F to 1046I his Lordship explained his reasoning in that respect as follows:
"Section 108 of the 1996 Act envisages that adjudication procedure may be agreed between the parties, provided that their agreement fulfils the requirements of sub-sections (1) to (4); or, in default, it will be imposed under the scheme promulgated by the responsible minister, in which event the procedure is deemed to be a matter of implied agreement, by virtue of section 114(4). In either event, although the provisions have contractual effect, they cannot be regarded as terms to which the parties have freely agreed: In one form or another, they are compulsory contract terms imposed by statute. Nevertheless, I do not propose...
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