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Adjudication should not be derailed by meritless "technical legal arguments", says Scottish court

Out-Law News | 02 Jul 2014 | 12:12 pm | 2 min. read

Courts will only overturn the decisions of adjudicators in relation to contractual disputes in "very limited" cases, such as those where the adjudicator had no jurisdiction to make that decision or where there has been a clear breach of natural justice, a Scottish court has said.

In a recent case, the Inner House of the Court of Session overturned a challenge to the decision of an adjudicator in a construction dispute. In their judgment, the panel of judges criticised the unsuccessful party for derailing the process through "the pursuit of technical legal arguments ... [which] are patently without merit".

"Adjudication ... is intended to provide for the swift interim resolution of a construction contract dispute pending its definitive resolution by litigation, arbitration or agreement," the judges said. "Fairness is provided for not only by reason of the fact that if either party does not accept the outcome and decides to litigate, matters are considered afresh but also by provisions such as those to the effect that the determination is to be by an appropriately skilled person who must act impartially and avoid incurring any unnecessary expense."

"[In the present case] the appellants' grounds of appeal have delayed payment of the sums determined by the adjudicator as being due for almost nine months. Yet they were wholly lacking in substance and it was not at all difficult to accept that the respondents' submissions were well founded," the judges said.

"It is sometimes thought that although there are lots of decisions saying what a bad thing it is to attack adjudicators' decisions, the enthusiasm with which some attacks seem to be received suggests that only lip service is being paid to this principle," said litigation expert Craig Connal QC of Pinsent Masons, the law firm behind Out-Law.com. "However, in language not often seen, the Inner House has delivered a sharp reminder that this should not be the case."

The dispute at the centre of this case arose between two building firms, a main contractor and one of its subcontractors, which were involved in the repair and adaptation of a chapel at Glasgow's Gartnavel Hospital. The contractor, Charles Henshaw and Sons, had appointed Stewart and Shields to supply and install windows, curtain walling, roof lights and other works. In 2012, the subcontractor referred Henshaw to adjudication over £33,565 due under the subcontract that remained unpaid.

During the adjudication process, Henshaw challenged the adjudicator's jurisdiction to hear and decide on the dispute – an argument which was rejected by the adjudicator. The adjudicator later found in favour of the subcontractor, Stewart. Henshaw failed to pay the amount awarded by the adjudicator, and Stewart applied to the courts to recover this money.

Upholding the original decision of the sheriff court, the judges of the Inner House said that the "focus" of Henshaw's arguments "amounted to a ludicrous proposition that showed that two commercial parties intended that every time there was going to be any difference between the dimensions stated in the bill of quantities for, say, a glazed screen and those actually required (once the space could be finally measured prior to installation), work would have to stop and a re-tendering process be entered into".

"In all the circumstances, we have no hesitation in refusing the appeal," the judges said.

Construction disputes specialist Michael Hopkins of Pinsent Masons said that the decision did not take away from the fact that there would always be "a place for valid challenges" to an adjudicator's decision.

"This latest decision of the Inner House does not go as far as to say that a party would be wrong ever to challenge an adjudicator's decision for breach of natural justice or lack of jurisdiction," he said. "However, parties would be well advised not to challenge unless it is readily apparent from the facts that there has been a breach of natural justice or the adjudicator's decision has been reached outside of the adjudicator's jurisdiction."