Whyte And Mackay Limited V. Blyth & Blyth Consulting Engineers Limited

JurisdictionScotland
CourtCourt of Session
JudgeLord Malcolm
Neutral Citation[2013] CSOH 54
Docket NumberCA43/12

OUTER HOUSE, COURT OF SESSION

[2013] CSOH 54

CA43/12

OPINION OF LORD MALCOLM

in the cause

WHYTE AND MACKAY LTD

Pursuers;

against

BLYTH & BLYTH CONSULTING ENGINEERS LTD

Defenders:

________________

Pursuers: Reid QC, Broome; McClure Naismith LLP

Defenders: J Wolffe QC, Balfour; Simpson & Marwick

9 April 2013

[1] The pursuers have raised an action on the commercial roll seeking to enforce an adjudicator's decision which requires the defenders to pay almost £3 million to the pursuers. The defenders are consulting engineers. In 2004 they designed the structure of a new bottling plant at the pursuers' Grangemouth premises. The pursuers state that the foundations are defective, thereby causing a high degree of settlement, with consequential damage to the building and associated offices.

[2] A claim in damages was intimated in early 2011, several years after the completion of the contract. The agreement between the parties contained a provision for the determination of disputes by adjudication. (In the absence of that, a similar provision would have been implied under and in terms of the Housing Grants, Construction and Regeneration Act 1996). On 2 March 2012 the pursuers referred the dispute to an adjudicator appointed by the Chartered Institute of Arbitrators. On 9 April 2012, after a site inspection and a hearing on factual and legal issues, he issued his decision, the sum awarded to be paid "forthwith". In the defences to the present action, it is submitted that the court should not enforce the decision. It is said that the adjudicator failed to give adequate reasons for the determination, and in any event, to enforce it would be incompatible with the defenders' rights under the European Convention on Human Rights and Fundamental Freedoms.

[3] The defenders have lodged a counterclaim seeking a declarator that the pursuers have not sustained any loss or damage as a result of any breach of contract on the part of the defenders. They are of the view that, if the award stands and is enforced, they require to take the lead in having the merits of the dispute finally resolved. There is a concern that, if and when the pursuers receive payment of almost £3 million, they might demonstrate little enthusiasm for proceeding to the next stage. In due course the counterclaim was answered by the pursuers and a debate assigned in the principal action.

[4] In an appendix to this opinion, I have narrated the procedure before the adjudicator; the pursuers' claim; the issues between the parties; the submissions made to the adjudicator; and the adjudicator's decision and reasoning.

The submissions for the defenders at the debate
[5] Mr Wolffe QC summarised the background to the case as follows.
The work was completed in January 2006. Settlement was observed in about 2009, and a claim intimated in January 2011. The adjudication began in February 2012, albeit an earlier adjudication raised in November 2011 was aborted. It was stressed that, on the adjudicator's findings, the pursuer will not be out of pocket for some 20 years. In his summary calculation of the award, the adjudicator found that £894,674 was the cost saving enjoyed by the pursuer in not incurring the additional piling work etc. As at today's date, and for many years to come, that cost saving means that, notwithstanding any remedial works, the pursuers will suffer no loss. Furthermore, the major head of claim, amounting to £1,885,227, will not be incurred until 2035/6. The two final heads allowed on page 5 of the award, namely for reinstatement and for loss of use, come close to the total amount allowed by the adjudicator, showing that the cost savings can be set against almost all of the works to be done prior to the final year of the lease. Even to take the most pessimistic view regarding the progress of litigation, this matter could be resolved through the courts to a conclusion long before the pursuer is out of pocket.

[6] Mr Wolffe suggested that to enforce this award would be a disproportionate interference with the defenders' right to their possessions. This is not the kind of dispute that construction adjudication was designed to address. It is in this context that the court requires to decide whether it is prepared to enforce the adjudicator's award. Adjudication is supposed to be an interim remedy based on a rough and ready process. A court decree is warrant for diligence against the defenders' assets. In the present circumstances the defenders have had to take the initiative by raising the merits of the dispute for consideration by the court. They run the risk of the pursuers becoming insolvent or, for some other reason, being unable to repay the award at the conclusion of the whole process. It would be a remarkable coincidence if, at the end of the day, the adjudicator's decision is correct in every respect. On the contrary, it is bound to be wrong. The court should not "rubber stamp" the award. Only a court decree can be described as reflecting "the true state of affairs", in the sense of a proper application of the law to the facts of the case. If one thinks of an adjudication as a provisional interim remedy, there are analogies to be drawn with diligence on the dependence of a court action, in which questions of proportionality and justification will predominate.

[7] Mr Wolffe made reference to the relevant statutory framework, including sections 104 and 108 of the 1996 Act, and to the judgment of Dyson LJ in Connex South Eastern Limited v MJ Building Services Group PLC [2005] 1 WLR 3323. Counsel accepted that the Act allows a party to a construction contract to require a dispute to be referred to adjudication "at any time" - even long after the completion of the work. Despite the underlying purposes and benefits of adjudication, Parliament chose not to limit the compulsory process to disputes arising during the progress of the construction works. However, none of this prevents the court from holding that Convention rights prevent enforcement by the court of an adjudicator's award. Reference was made to section 6 of the Human Rights Act 1998. Given the compulsory nature of the statutory scheme, no issue of waiver arises. The tight timescales for an adjudication create an obvious risk of injustice. Reference was made to the cases of Ritchie Brothers v David Philip (Commercials) Ltd 2005 1 SC 384 at paragraphs 27/8, Diamond v PJW Enterprises Ltd 2004 SC 430 at paragraphs 36 and 43, and Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2006] BLR 15 at paragraphs 84/8. Reliance was also placed upon Lord Hodge's decision in Integrated Building Services Engineering Consultants Ltd v Pihl UK Ltd [2010] BLR 622.

[8] Turning to the challenge based upon the terms of the decision itself, the submission was that the adjudicator did not address the contention that it was for the pursuers to prove that they would have carried out the piling works, had they been specified by the defenders. The adjudicator had simply failed to apply his mind to this line of defence, which could provide an answer to the whole claim. In addition, there was no indication that he had considered the submission concerning a discount for the immediate payment of damages in respect of sums to be incurred by the pursuers many years in the future. Counsel also observed that the adjudicator had adopted an odd approach to the question of deducting the extra cost of the project, had piling been both specified and constructed. Mr Wolffe relied upon Carillion Construction, (paragraph 85); Pihl UK Ltd v Ramboll [2012] CSPH 139, (paragraphs 23/4); Ballast plc v Burrell Co (Construction Management) Ltd 2003 SC 279 (paragraphs 19/20); and Carillion Utility Services Ltd v SP Power Systems Ltd [2012] SLT 119, (paragraph 26).

[9] Mr Wolffe then turned to his submission based upon article 1 of the first protocol to the Convention (A1P1). He stressed that this would have been presented even had the adjudicator's reasoning been flawless. The relevant law is set out in Lord Reed's judgment in AXA General Insurance Ltd v The Lord Advocate 2012 SC (UKSC) 122, especially at paragraphs 107/8 and 114. The question comes to be whether the interference with the defenders' possessions involved in enforcing the award is justified, is in accordance with the law, and is a proportionate act in pursuit of a legitimate aim. An exercise by the court of its powers prima facie engages A1P1. The adjudication requirements for construction contracts are compulsory, notwithstanding the inability of an adjudicator to identify the true legal rights and obligations of the parties.

[10] In the present case enforcement of the award would not promote any of the legitimate aims and purposes which underpin the 1996 Act. There is no issue of ensuring cash flow during the progress of the works. There is no need for an interim or provisional award. The whole matter could be litigated to a conclusion many years before the pursuers sustain any loss in terms of remedial works, both interim and final. This is a very unusual aspect of the present case. It provides a clear point of distinction from the circumstances in Diamond.

[11] Even if a legitimate aim can be identified, an unfair burden would be placed upon the defenders if the award were to be enforced. Enforcement would be a disproportionate act. The defenders would have no security for repayment after final determination of the matter. Reference was made to the case of Aston Cantlaw and Wilmcote Parochial Church Council v Wallbank [2004] 1 AC 546 (paragraphs 71/2, 91 and 133/4). Mr Wolffe did not attack the legality of the legislation itself, given the court's ability to refuse enforcement and thereby prevent a breach of Convention rights. In the particular circumstances of the present case, there is no proper justification for enforcement. The adjudicator's award does not identify the parties' true legal rights and obligations. There is no other...

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