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Court of Session’s reminder that it’s tough to appeal an adjudicator’s decision

The astute and keen-eyed readers of this blog will have noticed the paucity of adjudication decisions coming from the TCC in recent months. They may have also noticed that Scotland’s Court of Session has fared a little bit better in the judgment stakes, giving us the odd case to write about (most recently, Jonathan looked at Miller v BDP, I considered T Clarke v MMAXX). The judgment in Charles Henshaw & Sons Ltd v Steward & Shields Ltd is therefore welcome in providing me (and others) with something more to say.

Even though Lady Smith’s judgment is mainly a restatement of existing principles, it is interesting because she sits in the Inner House, which (I understand) makes this case equivalent to an English Court of Appeal case. Just like south of the border, we seldom see appellate court decisions dealing with adjudication.

Charles Henshaw & Sons Ltd v Steward & Shields Ltd

Steward & Shields (S&S) was appointed as the main contractor in relation to refurbishment works to the chapel at Gartnaval Royal Hospital. Charles Henshaw was its glazing sub-contractor, appointed in October 2011 to supply and install glazed screens, windows, rooflights, curtain walling and canopy. Although the judgment does not state the contract value, it refers to an amount of £33,565 odd that S&S withheld from interim application number four. When S&S failed to pay, Henshaw referred the matter to an adjudicator.

In the adjudication, S&S challenged the adjudicator’s jurisdiction to deal with the claim for £33,565, arguing that nine of the items making up the £33,565 were not part of the parties’ October 2011 sub-contract, but instead were variations “outwith the contract” and arose “under some other contract”.

The adjudicator rejected S&S’s jurisdictional arguments and decided that it should pay the sum in full, along with his fees.

Still S&S failed to pay and so court proceedings equivalent to English enforcement proceedings were started in the sheriff court. When the sheriff rejected S&S’s jurisdictional argument and granted Henshaw the relief it sought, S&S appealed. That appeal was also rejected, hence the matter coming before Lady Smith in the Inner House.

Central issue in the appeal to the Inner House

The main issue in the appeal was whether the adjudicator had jurisdiction and the key to this was the interpretation of clause 27 of the sub-contract. The terms of the sub-contract included a bill of quantities, a series of product specifications and a “Technical and Scope of Works Clarifications”, clause 27 of which provided:

“Due to conflicting information between drawings, bill of quantities and specifications, we would advise you that we have quoted for sizes, quantities and details as described in the above estimate. Any variations would be subject to a re-quote.”

In the appeal, S&S raised a number of points, including that:

  • The October 2011 sub-contract did not permit variations. The word “variation” in clause 27 was not being used in the strict sense, but was to allow Henshaw to re-tender.
  • “Re-quote” meant re-tendering and that meant a fresh contract.
  • If Henshaw did not re-quote but went ahead and did the work, that work would still be outwith the original contract because there was “no power to vary, no power of re-measurement and no power to adjust payment”.

Lady Smith, perhaps unsurprisingly, rejected S&S’s arguments, describing them as “wholly lacking in substance”. She also suggested that the interpretation of “re-quote” that S&S advanced would lead to a “ludicrous proposition” whereby commercial parties would have to stop work and re-tender every time there was a difference in dimensions between those stated in the bill of quantities and what was actually found on site.

While the case may demonstrate what can happen if some items are estimated or provisional (which may occur when an old building is being renovated), on the facts, the differences were not so great that they could be classed as something other than works within the scope of the October 2011 sub-contract.

Endorsement of adjudication

Lady Smith’s comments on the nature of adjudication are also of note. She:

  • Highlighted that the courts will enforce adjudicators’ decisions unless they fall into a “very limited class”, limited to decisions that the adjudicator lacked the jurisdiction to make or where the adjudicator had breached the rules of natural justice.
  • Stressed that the adjudication process is fair, as parties have the right to have their dispute finally determined if they do not accept the adjudicator’s decision, plus the decision is made by an “appropriately skilled person who must act impartially and avoid incurring unnecessary expense”.
  • Suggested that the adjudication procedure should not be “derailed by the pursuit of technical legal arguments, particularly where those arguments are patently without merit”.

Lady Smith has once again reinforced the court’s support for the adjudication process. As the English Court of Appeal said in Carillion Construction Ltd v Devonport Royal Dockyard Ltd:

“To seek to challenge the adjudicator’s decision on the ground that he has exceeded his jurisdiction or breached the rules of natural justice (save in the plainest of cases) is likely to lead to a substantial waste of time and expense.”

As S&S was ordered to pay the costs, I’m sure it is wondering why it devoted so much time and money to these appeals, especially when the sum in dispute was only £33,565.

MCMS Ltd Matt Molloy

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