The Scottish courts have confirmed a robust approach to adjudication enforcement and reinforced the high evidential bar required to make a successful natural justice challenge.
In Atalian Servest AMK Ltd v B W (Electrical Contractors) Ltd [2023] CSIH 18 the Inner House of the Court of Session (CSIH) confirmed the previous decision of the Outer House, rejecting a series of challenges to enforcement of an adjudication decision based on (i) jurisdictional and natural justice grounds, and (ii) the effect of a final account statement on the adjudication.
The adjudication related to a £2 million final account dispute between a subcontractor Atalian Servest AMK Ltd ("AMK") and its sub-subcontractor, B W (Electrical Contractors) Ltd ("BW").
Background
AMK was instructed to carry out construction work at Lord’s Cricket Ground in London in 2020 and engaged BW as a sub-subcontractor for certain elements of the project. The contract was for a ‘fixed price lump sum’, with BW applying for monthly payments.
Once the works had completed, the parties followed the contractual procedure to determine the final account due to BW. With the respective valuations some distance apart, the dispute crystallised and BW referred the matter to adjudication. Notably, the first adjudicator resigned on the basis that the dispute was "absolutely incapable of proper resolution within the timescales set by the Construction Act".
The second adjudicator decided that AMK should pay BW circa. £1.4m. He determined that a new "beck and call" arrangement had developed between the parties during the course of BW's works, which was distinct to the lump sum, fixed price sub-subcontract recorded in writing.
AMK failed to make payment of the award to BW and defended enforcement of the decision on the basis that it was invalid. AMK argued that by finding that there was a new contract between the parties, the adjudicator had breached the rules of natural justice by deciding the dispute on the basis of factual and legal findings which had not been put forward by either party during the course of the adjudication. It also raised a separate action seeking payment of £1.04 million, which AMK considered it was entitled to on the basis of its Final Account Statement (FAS), which they argued was valid and binding on the parties and the second adjudicator.
Decision of the Court
The CSIH confirmed the previous decision of the Outer House, and rejected AMK's attempts to challenge enforcement.
The court noted that the question referred to the adjudicator had been wide in scope, i.e., what sum (if any) was due to BW by AMK under the contract?
The court did acknowledge, however, that the adjudicator may have complicated matters by referring to a "beck and call" contract, as neither party had suggested a that a new contract had been entered into in their submissions. However, whilst sections of the decision could have been worded differently in order to set out the adjudicator's reasoning in a more explicit way, the court did not consider that this in itself amounted to a breach of natural justice sufficient to merit a stay of execution.
The valuation carried out by the adjudicator could not be described as a "frolic", as contended by AMK, but was a genuine attempt to answer the question posed. The court found that the adjudicator had allowed the parties sufficient opportunities to make submissions during the course of the adjudication, and had fairly considered the respective arguments in reaching the decision.
Take away
The case serves as a reminder to the draconian approach of the courts in adjudication enforcement and reinforces the principle of "pay now, argue later". Parties considering challenging enforcement on natural justice grounds should be aware of the high evidential bar.
