| Date | 11 September 2002 |
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| Judgment | The Construction Centre Group Ltd -v- The Highland Council. Court of Session 23 August 2002 |
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| The Issue | Enforcement of adjudicator's decisions and raising set-off claims. |
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| Implication |
Where a responding party fails to put forward an available defence in adjudication, it cannot rectify the situation by raising a withholding notice to resist paying the sums ordered by the adjudicator. |
printThe Construction Centre Group Limited were engaged as contractors by The Highland Council to undertake the design, construction and maintenance of works involved in the Small Isles and Inverurie Ferry Scheme, on the West Coast of Scotland. Disputes arose, and these were referred to adjudication under the HGCRA 1996. The Adjudicator ordered the Highland Council to pay the Construction Centre the sum of approximately £250,000. The money was not paid, and the parties ended up in the Court of Session in Edinburgh. The Construction Centre sought enforcement of the adjudicator's decision. The Council raised two arguments to resist enforcement. It failed on both, reinforcing the view that unless an adjudicator lacks proper jurisdiction or authority, his decision will be enforced, regardless of any wider disputes which may exist between the parties. The two issues raised by the Council have been tried in other courts before, and to an extent, doubts raised about whether such arguments might be valid in certain circumstances. Lord Macfadyen had no doubts however that the arguments did not hold water. Firstly, the Council questioned the nature and effect of enforcement proceedings. The effect of the court's enforcement of the adjudicator's decision, the Council argued, would be to give a final judgment in the place of an interim decision. The court's enforcement of the adjudicator's decision would remove the provisional quality of that decision, and prevent the Council from obtaining a different determination of the dispute by arbitration. In Lord Macfadyen's view, there was no merit in this argument. It failed to appreciate the nature of an action to enforce an adjudicator's decision. In such an action, the claimant does not ask the court to endorse the soundness of the adjudicator's decision on the merits of the dispute. Rather the claimant merely asks the court to recognise that the parties have bound themselves contractually to implement the adjudicator's decision. A claimant seeks the judgment of the court, not because it is in the right in the dispute, but because it is contractually entitled to require the other party to implement the adjudicator's provisional determination of the dispute, whether it be right or wrong. The judgment of the court will thus have no effect upon the final determination of the dispute by an arbitrator, although, of course, any payment made as a consequent of such a judgment would have to be taken into account by an arbitrator. A second strand to the arguments raised by the Council concerned its right to apply a deduction or set-off for liquidated damages for delay, which it quantified in the amount of £420,000. Within 7 days of the adjudicator's decision, the Council had issued a section 111 withholding notice in respect of liquidated damages. Its reasoning was plausible, although perhaps contorted. A withholding notice could not have been issued prior to the adjudication, the Council argued, because the Engineer had issued a "nil" valuation. There was no "sum due under the contract" against which a withholding could be made. Against such a background it would be manifestly unjust now to deprive the Council of its right to make a deduction for liquidated damages against the sum now awarded by the adjudicator. Nor was there anything in the HGCRA, argued the Council, to suggest that the Council should be deprived of its right to make such a deduction. Lord Macfadyen recognised the difficulty posed by the Council. The Council was not in the position, prior to the adjudication, to raise a withholding notice. However, it did not need a withholding notice to argue in the adjudication that it had a right to apply liquidated damages for delay against any sums which the adjudicator might subsequently award, as a defence to that claim. This may cause some ideas about the effect of the absence of a section 111 notice to be revisited. No monies were due prior to the adjudication, because there was no certificate for payment. No withholding notice therefore required to be issued. However, the Responding Party remained entitled to raise before the adjudicator its defence or cross-claim for liquidated damages. On Lord Macfadyen's view, in such circumstances an adjudicator would be bound to entertain any such relevant defence. Despite these observations, Lord Macfadyen was of the view that the Council could not resist enforcement of the adjudicator's decision by raising a section 111 withholding notice immediately upon receipt of the decision. "It would, however, in my view be destructive of the effectiveness of the institution of adjudication if a responding party could decline to put forward an available defence in the course of the adjudication, then give a section 111 notice seeking to withhold on that ground the sum awarded by the adjudicator. For these reasons I am of the opinion that section 111 does not permit the giving of a withholding notice in respect of an adjudicator's award." Accordingly The Construction Centre Group were entitled to enforcement of the adjudicator's decision for the payment of £250,000.
CJ-0235
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