Iain Drummond: Challenging adjudicator’s decisions and imprecise drafting

Iain Drummond: Challenging adjudicator’s decisions and imprecise drafting

Iain Drummond

Iain Drummond analyses Lord Sandison’s recent opinion in Atalian Servest AMK Limited v BW (Electrical Contractors) Limited, an Outer House case which outlines the difficulty of challenging adjudicator’s decisions and the importance of precise drafting when deviating from standard form contracts.

Atalian Servest AMK Limited (AMK) was engaged as subcontractor to carry out construction works at Lord’s Cricket Ground in London. AMK appointed B W (Electrical Contractors) Limited (BW) as subcontractor to AMK to assist with electrical works. The works did not go as planned and the parties advanced financial claims against each other. An action was raised by BW against AMK at the Court of Session, but not lodged for calling, pending resolution of the case before Lord Sandison, which sought to determine the interim financial position between the parties. The parallel actions which were considered by Lord Sandison, concerned: (i) BW’s claim for enforcement of an award by an adjudicator in favour of BW against AMK; and (ii) AMK’s action for declarator that a Final Account Statement (FAS) issued by AMK was final and binding on both BW and the adjudicator, and that decree of payment for the amount stated in the FAS should be awarded in favour of AMK.

First action – BW v AMK – Was the Adjudicators Award Enforceable?

The circumstances in which a court will refuse to enforce the decision of an adjudicator are exceptionally limited, with the court tending to promote the aims of the statutory scheme for adjudication provided in the Scheme for Construction Contracts (Scotland) 1998.

One of the limited grounds for challenge of an adjudicator’s position is that there has been a breach of natural justice. AMK argued that the adjudicator went on a “frolic of his own” and had not answered the question that was referred to him by (i) deciding that a new contract had been created by the parties and assessing what he regarded as a fair price to be paid to AMK under that new contract; (ii) considering a matter not raised by either party in addressing the validity of the FAS; and (iii) failing to exhaust his jurisdiction by failing to address various lines of defence advanced by AMK.

However, Lord Sandison, preferred BW’s position in this case. He agreed that the adjudicator had answered the question referred, albeit his Lordship acknowledged that the question “… could scarcely have been wider in scope – essentially what sum (if any) was due to BW by AMK under the subcontract” [para.18]. He further held that parties had been given “every opportunity” to advance their case in respect of the FAS [para. 19], and that, if anything, the adjudicator “over-indulged” parties in respect of what was intended to be a streamlined method of dispute resolution.

Accordingly, decree was granted in BW’s favour.

Second action – AMK v BW – Was the Final Account Statement (FAS) validly issued by AMK and binding on both BW and the adjudicator?

AMK sought declarator that (i) the FAS issued by it was validly issued in terms of Clause 33.3 of the subcontract; (ii) that it was final and binding on BW until and unless determined otherwise in the substantive action; and (iii) therefore, payment in terms of the amount sought under the FAS should be awarded to AMK.

On the first point, AMK’s position was that the FAS had been validly issued because it provided the sum considered to be due to BW and was submitted within the time limits imposed by the contract. The Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts (Scotland) 1998 which requires additional information to be included in a FAS, such as the basis upon which the sum due was calculated (an argument advanced by BW), was argued not to apply, or alternatively, to have been complied with. The court favoured AMK’s argument that the FAS had been validly issued in terms of the requirements under the contract, and that, even if the Scheme implied further requirements of the FAS, these had been satisfied.

On the second point, AMK contended that the finality of the FAS should be interpreted by way of analogy of the treatment of equivalent clauses in standard form contracts such as JCT and SBC, which holds a Final Certificate to be conclusive save as to where it is the subject of proceedings itself, the practical effect of which would have been to hold the FAS as binding, pending the conclusion of the substantive action between the parties. However, the court disagreed, finding that the sub-contract in question, being bespoke, had no “…standard form hinterland from which one can objectively derive an intention to take the finality… to the extent contended for by AMK” and that the focus must be on the contractual wording itself. It was therefore held that the FAS was not final and binding upon BW. Therefore, payment of the amount sought under the FAS was not awarded.

Key Takeaways

  • Lord Sandison’s judgment reaffirms the court’s strict approach to challenges of an adjudicator’s decision. Such challenges are only likely to succeed in very particular circumstances.
  • Parties should be careful when drafting bespoke contracts as an alternative to standard forms. Contracts which depart from the standard forms will not be as susceptible to having implied commercial intent applied by the courts, with potentially negative consequences.

Iain Drummond is a partner at Shepherd and Wedderburn

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