Practical Law

A couple of weeks ago I went to Edinburgh to give a talk to the Society of Construction Law on global claims in the wake of Walter Lilly v Mackay. However, both before and after the talk, a number of the Scottish delegates were more interested in talking about their very own Mackay case, White and Mackay v Blyth & Blyth, as Lord Malcolm’s latest judgment had been published the day before.

Round One

As some of you may remember, these parties were also before Lord Malcolm last year. I won’t go into the detail now (both Matt and Alastair Wall blogged about it), but that case threw up a number of surprises. This latest instalment concerns the enforcement of the adjudicator’s decision and it doesn’t disappoint.

Round Two

The adjudicator found Blyth & Blyth liable to pay the sum of £2.9 million in respect of defective piles. However, as the major loss would not be incurred for over 20 years (the remedial works would be undertaken at the end of the lease), Blyth & Blyth resisted enforcement, arguing a breach of the rules of natural justice and that any enforcement would be incompatible with its rights under Article 1 of the First Protocol to the European Convention on Human Rights (ECHR).

Lord Malcolm refused to enforce the adjudicator’s decision:

• The adjudicator had failed to deal with Blyth & Blyth’s key defence which, if made out, would have been a complete answer to the claim. Lord Malcolm said that “one looks in vain for any indication that the adjudicator considered and reached a decision on this line of the defence”. Lord Malcolm considered this omission amounted to a breach of natural justice “sufficient to justify reduction of his award”.
• The adjudicator’s decision was an unjustified interference with Blyth & Blyth’s possessions (in this case Blyth & Blyth’s money) in contravention of Article 1 of the First Protocol.

Lord Malcolm was of the view that:

“There was no pressing need for a speedy provisional decision in respect of the pursuers’ large claim based upon the alleged professional negligence of the defenders. The dispute arose long after completion of the contract. By then the premises were leased by the pursuers from a third party. The settlement problem does not and will not prevent the use of the premises for their intended purpose. While relatively modest sums may require to be expended over the next few years by way of inspection and remedial works, no major losses will be incurred for many years to come. In the meantime, the pursuers are considerably in pocket, in the sense that they did not incur the extra costs involved in the piling works. If ultimately the defenders are successful, there is no guarantee that the defenders will recoup any monies paid to the pursuers, and there is no provision for state compensation for any such loss. Furthermore, none of the public interest justifications which underpin the compulsory statutory scheme set out in the 1996 Act apply in the present case, unless they are given the most extended definition.”

Alastair Wall has written an excellent piece on the Article 1 issues and I would urge you to read it. However, I want to pick up on Alastair’s comment that the English courts are unlikely to follow this decision.

Why the English courts are unlikely to follow the decision

I suspect that it won’t be long before a jurisdictional argument is raised in the TCC along the lines of the successful Article 1 arguments in White and Mackay v Blyth & Blyth. However, not being adverse to the occasional flutter, I would imagine that it’s a pretty safe bet that the TCC judges won’t follow their Scottish counterparts because:

• As Alastair pointed out, the English court’s “favour a presumption of enforceability”. Chadwick LJ made it clear in Carillion v Devonport that adjudicators’ decisions must be enforced even if they result from errors of fact, procedure or law. It will only be where there is an excess of jurisdiction or a serious breach of the rules of natural justice that they will not be enforced. Lord Malcolm went beyond this.
• The complexity of the dispute is irrelevant. It is clear that Lord Malcolm took issue with the use of adjudication to resolve complex professional negligence disputes. However, similar challenges have failed in England and, in my view, for good reason. Professional services contracts are expressly included in section 104 of the Construction Act 1996. If Parliament had intended negligence claims to be excluded, it would have said so. In any event, as HHJ Toulmin stated in CIB Properties v Birse Construction, the test is not whether a dispute is too complicated to refer to adjudication, but whether the adjudicator is able to reach a fair decision within the time allowed by the parties.
• There is no restriction on when disputes can be referred to adjudication. While Lord Malcolm acknowledged that the right to adjudicate was not limited to disputes arising during the course of works on site, he certainly indicated that the overriding purpose of adjudication was “to preserve the cashflow of contractors and sub-contractors during the contract”. I respectfully disagree, and refer to Dyson LJ’s (as he was then) response to a similar argument that was raised in Connex v MJ Building:

“The phrase ‘at any time’ means exactly what it says… It is clear from Hansard that the question of the time for referring a dispute to adjudication was carefully considered, and that it was decided not to provide any time limit for the reasons given by Lord Lucas. Those reasons were entirely rational.”

In addition, cashflow is not only relevant during the course of the works. If a contractor has been underpaid, its cashflow can be affected long after completion of the work leading to a “pressing need for a speedy provisional decision”.

Increased cost of enforcement proceedings

This case may turn on its facts and Lord Malcolm may not have intended for the Article 1 points to have a more general application. However, the problem is that, particularly in Scotland, parties will now have to deal with jurisdictional challenges made along similar lines, thereby increasing the costs of adjudication yet further.

I can’t help feeling that it might have been more prudent for Lord Malcolm to have stopped at the natural justice issue.

PS I appreciate that I appear to have forgotten the points I made in my last blog on brevity!