| Date | 20 September 2007 |
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| Judgment | Stiell Ltd -v- Riema Control Systems Ltd. Court of Session Inner House 23 June 2000 |
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| The Issue | Whether an adjudicator's decision alters the nature of a debt which is the subject of a court action and against which an arrestment has been granted. |
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| Implication |
An adjudicator's decision is temporarily binding only and an adverse decision does not render any debt conditional upon a contrary decision by the court. |
printThe Court of Appeal had its first look at adjudication in the recent case of Bouygues -v- Dahl Jensen. The decision reinforced the view that the courts in England and Wales will robustly enforce the provisions of the Construction Act in relation to adjudicators' decisions. In Scotland the courts have been slightly more cautious and the Scottish Court of Appeal also recently became involved in adjudication when the Inner House of the Court of Session examined the case of Stiell Ltd v Riema Control Systems Ltd. In the particular circumstances of this case it was held that an adjudicator's decision was not analogous to that of a certifying engineer or architect. Such an analogy has constantly been drawn south of the border. The case concerns the effect of an adjudicator's decision upon the process of arrestment. Arrestment is a peculiarly Scottish process by which property due or belonging to a debtor, but in the hands of a third party, may be attached by a creditor. For example a creditor will commonly attempt to arrest balances due to the debtor by his bank. An arrestment prohibits the third party from paying the debtor although the creditor needs to take further steps if he himself wishes to be paid or take possession of the subjects arrested. Stiell had argued that in the course of carrying out certain works for Riema they had been engaged to undertake extra work for which they had not been paid. They commenced proceedings in court for payment of the sums claimed and, on the strength of that action and as security for their claim for payment, obtained an order from the court for the arrestment of sums due to Riema but currently in the hands of a third party. Scots law recognises two distinct categories of debt. Those which are "pure" or immediately due and those which are future, conditional or contingent. An arrestment may only be obtained in respect of a debt which is "pure" or immediately due at the time that the action is commenced. One does not have to wait until judgment is given. The judgment in the action merely constitutes the debt which existed at the commencement of the case. An arrestment cannot be obtained against debts which are said to be future or contingent. This is where the adjudicator enters the fray. Prior to commencing the action Stiell had exercised its right under the Construction Act to refer the dispute over the value of extra work to adjudication. After the action had been raised and the arrestment served, the adjudicator had decided that part of the claim for extra work was justified and should be paid, but had disallowed the balance of the claim. The amount awarded had been duly paid by Riema and Stiell had accordingly restricted the sum arrested. Riema however now sought the lifting of the arrestment in its entirety. Their argument was simple. The adjudicator had decided that the remainder of the sum sued for did not require to be paid. It was argued that therefore this sum had become a debt which was contingent upon the final determination of Stiell's action against them. Riema drew attention to the fact that under section 108 (1) of the 1996 Act, the parties' contract had to "provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration or by agreement". Riema argued that the adjudicator's decision in relation to the unsuccessful part of the claim was binding upon the parties until finally determined by legal proceedings. In other words, what was binding was not only the adjudicator's decision to order payment in respect of parts of the claim, but also the adjudicator's decision to disallow the remainder of the claim. Accordingly until legal proceedings had been concluded in respect of the parts that the adjudicator had disallowed, such sums were not due or payable and had to be regarded as contingent upon the legal determination. Another strand to Reima's argument was that where a contract provided for the issue of a payment certificate by an engineer or architect, the certificate was a condition precedent to the right to demand payment. It followed that in the absence of a payment certificate, a claim for moneys due was a contingent claim because the debt was not due until the certificate had been issued. According to Reima, the adjudicator's decision was analogous to the requirement for an engineer's decision. A claim rejected by an adjudicator had the same status as a claim which had not received an engineer's certificate. Taking all these points into account, Reima argued that the arrestment was improper and required to be recalled by the court. The court disagreed with these contentions. The fact that an adjudication had been carried out did not mean that the subject matter of the court action had been changed. Since the determination by the adjudicator had only an interim binding nature and could be replaced by a determination of the court, it was clear that the issues remained the same throughout. Stiell had raised an action for a pure debt, a sum said to be immediately due. The adjudicator's adverse decision in respect of part of that amount had not changed that basic premise. Stiell were therefore entitled to maintain the arrestment on the dependence of the court action. All they had to do was to prove their case in respect of the debt.
CJ-0037
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