Building contractor successfully enforces adjudicator’s decision in school extension dispute

A building contractor that was hired to construct an extension at a school in Ayrshire has succeeded in an action to enforce an adjudicator’s award following a dispute with the local authority.

Building contractor successfully enforces adjudicator’s decision in school extension dispute

The pursuer, D McLaughlin & Sons Ltd, was contracted by the defender, East Ayrshire Council, to build a single-storey extension at Hurlford Primary School in 2016. A dispute then arose as to the valuation of the work.

The case was heard in the Outer House of the Court of Session by Lord Clark.

Errors of law

The contract between the parties incorporated the 2011 edition of the Standard Building Contract with Quantities for use in Scotland (the Standard Conditions). Following completion of the work, a dispute arose concerning sums the pursuer claimed the defender owed to them. The defender’s Final Certificate valued the works in the sum of around £3.34 million, while the pursuer alleged that the true value should have been around £3.7 million. An action for payment of the difference was raised in the sheriff court in 2019.

One of the due dates for an interim payment under the contract was 27 July 2017. The defender’s architect did not issue an Interim Certificate stating the sums he considered to be, or have been, due within five days after 27 July 2017 in accordance with the Standard Conditions. Nonetheless, the pursuer issued an Interim Payment Notice to the defender in August 2017.

In the adjudication, it was determined that the Interim Payment Notice, which was not followed by a Pay Less Notice per the standard conditions, was valid, and that the defender was liable to make payment to the pursuer of £513,094.50 including VAT, plus interest. The defender refused to make payment.

In seeking to enforce the adjudicator’s decision it was submitted for the pursuer that the defender was objecting to errors of fact or law made within the adjudicator’s jurisdiction. Previous authorities made it clear that there was no possible defence against an award based on the decision being wrong. The method of recovery would be an unwinding action under section 108 of the Housing Grants, Construction and Regeneration Act 1996.

In its counterclaim, the defender submitted that there was authority in England that there could be an exception to the general principle that errors of law or fact by an adjudicator do not permit a challenge to enforcement where an application for final determination has been made and is capable of being dealt with around the same time as the enforcement action. The defender’s position fell within this exception as they had paid the sum in the Final Certificate, and the Scottish courts should recognise and follow it.

Issue of final determination

In his opinion, Lord Clark began by noting the limited scope for challenges in respect of adjudication errors in England, saying: “The preliminary question that arises in this case is whether the court should follow the principle behind [the English authority] which I interpret as allowing an application for final determination, if that is suitable for swift disposal, to be dealt with at or around the time of the enforcement hearing.”

He continued: “[This] approach should be treated with respect and as a broadly helpful indication of the circumstances in which final determination can be reached in the context of there also being enforcement proceedings. However, I go no further than repeating that in this jurisdiction it will be a matter for the judge dealing with the case to decide if that can occur.”

Turning to the facts of the case, he went on to say: “The sheriff court action was raised by the pursuer in 2019. If, as seems clear, it is to be viewed as seeking resolution of the final sums to be paid to the pursuer by the defender, it is an action for final determination of their dispute.”

He continued: “If I were to apply the approach taken in [the English authority] I would conclude that the counterclaim does not fall within the criteria set out therein. Firstly, the issue raised is about the proper timing, categorisation or description of the relevant application for payment, payment notice or payless notice. Secondly, it is not possible to conclude that the adjudicator’s decision is ‘beyond rationally justifiable’.”

Lord Clark then addressed the defender’s counterclaim, saying: “There are extant proceedings raised originally in the sheriff court and now before this court about the overarching issue of the sums said to be due to the pursuer based upon at least some of that documentation. It was not suggested that these extant proceedings can somehow be ignored for the purposes of final determination of the parties’ dispute or that the contention in the counterclaim about conclusive evidence would itself allow final determination of the dispute.”

He concluded: “Given that the conclusive evidence issue could potentially be a matter raised in that action, it would not be appropriate for me to reach a decision upon it. In short, the matter of final determination is not before the court at this point.”

For these reasons, Lord Clark held that the defender’s challenge to enforcement must fail.

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