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Can a party counterclaim against adjudication enforcement?

The law regarding the enforcement of adjudication decisions has been relatively settled for some time. Regular readers of the PLC blogs will be familiar with the basic concepts. Time and time again decisions from the courts have confirmed that, so long as an adjudicator asks himself the correct questions, acts within his jurisdiction and manages to keep on the right side of the rules of natural justice, his decision will be enforced, even if it is actually wrong in law or in fact.

Having said all that, it’s still possible for a surprising decision to come along every once in a while. This post looks at just such a surprise.

Adjudication enforcement separate from underlying merits

In simple terms, the courts view adjudication enforcement actions as actions regarding whether there is a contractual (or statutory) right to be paid any sums awarded by the adjudicator. In deciding this question, the court will pay no regard to the underlying merits of the claim which was the subject of the decision.

The industry appears to have reached a point where it is well understood that the provisional but binding nature of the adjudication process is quite separate from final resolution by a court or arbitrator. By and large, the evidence appears to suggest that parties will live with an adjudication outcome.

There are some reported cases where the merits of disputes have been looked at after an adjudication, but this is done so as part of an entirely separate process. (See for example, City Inn v Shepherd Construction, which I wrote about in a different context).

Sometimes, parties have chosen to adjudicate while they are in the midst of what would be finally determinative proceedings (for example, Lanes Group PLC v Galliford Try).

Common to both these scenarios is a recognition that compliance with an adjudication decision is an entirely separate issue from the underlying merits of the dispute between parties that led to the adjudication.

Whisky sour: Whyte & Mackay v Blyth & Blyth

That none of what is discussed above is in any way controversial, makes the decision of the Court of Session in Whyte & Mackay Ltd v Blyth and Blyth Consulting Engineers Ltd all the more intriguing.

In 2006, Blyth & Blyth contracted with Whyte and Mackay to provide engineering design services for the construction of a new bottling facility in Grangemouth. Early in 2011, Whyte and Mackay alleged that the piling and foundations were defective. In March 2011, the dispute was referred to adjudication. After a hearing and site inspection, on 9 April 2012, the adjudicator ordered Blyth & Blyth to pay £3 million to Whyte and Mackay.

Whyte and Mackay raised proceedings to enforce the adjudicator’s decision. This was met with the defence that the decision had been reached in breach of the principles of natural justice, that the adjudicator did not have jurisdiction and that the decision was therefore unenforceable. So far, so normal.

However, Blyth & Blyth did not stop there. Rather, they asked the court to allow them to submit a counterclaim seeking reduction of the adjudication award and a declaration that Whyte and Mackay did not sustain any loss as a result of any breach of contract.

A brief detour into Scottish procedure

At this point it is worth taking a brief detour into Scottish procedure as it relates to adjudication proceedings. In simple terms, if the successful party raises enforcement proceedings seeking payment, this may be met with a defence that the decision is unenforceable (for example, for want of jurisdiction or breach of natural justice.) Such a defence will usually ask the court to set aside the decision ope exceptionis. (For a full discussion see Vaughn v Hinkins and Frewin [2003] SLT 428.)

If successful, this defence will result in the decision being rendered unenforceable, but the decision, in theory, still exists so as to prevent a further referral to adjudication. (Note that this has been doubted by Lord Glennie in SGL Carbon Fibres). Separate proceedings would be necessary to “reduce” the decision and clear the way for a fresh adjudication. Accordingly, although not necessary to avoid payment, seeking to have the decision reduced falls within the usual categories of remedy one would associate with a challenge to the validity of an adjudication decision.

Seeking to entangle the merits of the dispute

However, Blyth & Blyth also sought leave to put the merits of the dispute in issue, effectively asking the court to determine that Whyte and Mackay had no underlying entitlement to damages. As narrated by the judge, Lord Malcolm, their strategy was to take the initiative in addressing the fundamental merits of the claim as they feared that Whyte and Mackay would choose not to do so if the decision was enforced.

Whyte and Mackay did not oppose the introduction of the reduction remedy, but invited the court to refuse to allow the counterclaim in respect of the merits. They argued that enforcement proceedings were entirely separate from the underlying question of the merits of the claim and there was a risk that these separate issues would become entwined. However, that entwinement appears to be exactly what Blyth & Blyth had in mind, given that their counsel submitted that:

“…the grounds for reduction of the adjudicator’s decision are interwoven with the merits of the substantive claim.”

If the decision was simply reduced, Whyte and Mackay could have another attempt at adjudication. It seems the inclusion of the declaration regarding liability was intended to prevent this.

The court’s consideration

Lord Malcolm concluded that there were two “related but separate issues”, that is:

  • Are Whyte and Mackay entitled to enforcement of the adjudicator’s award?
  • Are Whyte and Mackay entitled to compensation for breach of contract by the defenders?

He concluded that the wide powers available to the commercial court would allow these issues to be kept separate. He considered this was preferable to Blyth & Blyth being put to the additional procedure and expense of raising a separate action.

The court seems to have been heavily influenced by the desire to avoid the:

“…additional procedure and expense of raising a separate action.”

The decision does not set out the full basis of the challenge to the adjudicator’s decision, but it is difficult to envisage circumstances where the issues of the validity and enforceability of an adjudication decision (essentially an issue which turns only on jurisdiction and natural justice considerations) are in any way related to the merits of the underlying dispute. While the court appears confident that appropriate case management can ensure the enforcement and declaratory proceedings are kept separate, it does appear to have formed the view that they were “related but separate.”

The judgment records that Blyth & Blyth submitted that a declaratory was sought because:

“…if the decision is simply quashed, the pursuers could then renew the adjudication process.”

It is not clear if any weight was given to this submission, but if the decision is quashed, then ordinarily it would be possible for a party to raise fresh adjudication proceedings irrespective of whether or not the dispute was being addressed by a court or arbiter.

Unlikely to be followed in England but food for thought in Scotland

It is unlikely that this decision will be followed in England, where different procedural rules apply (including the possible use of the Part 8 procedure to seek a declaration, as in, for example, WW Gear Construction Ltd v McGee Group Ltd).

Of course, it would still be open to a party such as Whyte and Mackay to make an application for summary decree (the Scottish equivalent of summary judgement) on the basis that no defence is disclosed to the enforcement part of the action. They could do this at any time. At that point, the extent to which the enforcement issues and the merits were genuinely related would be thrown into sharp focus.

However, while it is not yet clear whether the decision will be followed (or whether it turns on its own facts), practitioners in Scotland should consider it carefully. For parties who wish to challenge or delay the enforcement of an adjudication decision, and who are prepared to place the merits of the dispute before the court, the approach seemingly approved by Lord Malcolm may be attractive.

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