| Date | 20 November 2002 |
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| Judgment | Gillies Ramsay Diamond -v- PJW Enterprises Limited, Court of Session 27 June 2002 |
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| The Issue | Whether professional services are subject to adjudication under the Construction Act and whether liabilities incurred in adjudication proceedings constitute recoverable loss. |
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| Implication |
Professional services agreements, such as design and contract administration, will generally be caught by the provisions of the Construction Act. Sums awarded by an adjudicator may be regarded as a recoverable loss in third party proceedings. |
printPJW Enterprises entered into a building contract with R & R Construction, to carry out the extension and refurbishment of premises at 40 Stanley Street, Kinning Park, Glasgow. The contract was based on the SBCC Scottish Minor Works form of contract. Matters did not proceed as smoothly as intended. In the course of the works, PJW and R & R resorted to adjudication on no less than five occasions. PJW were ordered to make certain payments to R & R, which it did. PJW had also instructed a firm of surveyors, Gillies Ramsay Diamond, to act as contract administrator during the works. The terms of appointment of Diamond were contained in a simple letter between the parties, which did not contain an adjudication clause. Nevertheless, having fallen into dispute with Diamond resulting in the termination of Diamond's appointment, PJW considered that it was entitled to treat the appointment as a 'construction contract' within the meaning of the HGCRA 1996. Accordingly, PJW notified its intention to refer the disputes to adjudication. The complaints against Diamond were wide ranging. According to PJW, Diamond had failed to exercise the degree of skill and care to be expected of an ordinarily competent surveyor. It had failed to issue written instructions or to carry out the remeasurement of the works in accordance with the terms of the building contract. Furthermore, it was alleged that Diamond had granted an extension of time after the completion of the works, which PJW argued was improper. PJW contended that the result of these failings was that it had been bound to pay its contractor, R & R, in accordance with the earlier decisions of the adjudicator and had incurred additional costs in engaging a replacement professional firm to administer the contract, having terminated Diamond's employment. An adjudicator was duly appointed and various procedural steps then followed. Diamond advised the adjudicator that in its opinion the dispute was not a dispute under the contract, but was an action for professional negligence. It invited the adjudicator to resign. The adjudicator rejected these contentions and confirmed that he considered that he had the necessary jurisdiction. The adjudicator then proceeded to make his decision and held against Diamond awarding some £15,000 in respect of overpayments made by PJW to its contractor, £5,000 incurred as a result of an incorrect grant of extension of time, and £10,000 in respect of losses incurred on the early termination of Diamond's contract. Unhappy with this result, Diamond sought judicial review of the adjudicator's decision in the Court of Session in Scotland. Diamond contended that PJW had not yet suffered loss in respect of the sums paid to the contractor pursuant to the adjudicator's earlier decisions, given the provisional nature of those decisions. Diamond also argued that the role of contract administrator could not be described as work under a construction contract and hence the matter could not be the subject of adjudication. In particular, Diamond argued, a contract administrator was not carrying out 'construction operations' within Section 104(1) of the Construction Act, neither was the contract administrator 'arranging for others' to carry out such work. Instead, he was taking decisions about the parties' rights under the contract, for example by granting extensions of time or by issuing instructions. A contract administrator was the man in the middle. He had to determine the parties' rights and it was wrong that such a man should have claims made against him. Diamond complained that it was one thing for an adjudicator to order that a contractual payment should be made. It was quite another matter to have claims for damages for professional negligence being decided by an adjudicator. In the Court of Session, Lady Paton first of all considered whether the work to be carried out by Diamond meant that its contract of employment was caught by the HGCRA. There was no doubt in her mind that the contract administration services to be provided by Diamond amounted to "arranging for the carrying out of construction operations by others" in the terms of Section 104(1)(b) of the Act. Accordingly, the contract between PJW and Diamond was a construction contract within the meaning of the Act. The essence of a contract administrator's function was that he "arranges" for the carrying out of construction operations by means of advising on consultations required, orchestrating tenders, programming, certifying and controlling finances. "In my view, there is nothing in the 1996 Act or the adjudication scheme or in precedent or principle to suggest that an adjudicator seeking to resolve a dispute arising under a construction contract is not entitled to reach conclusions about the manner in which a professional person has carried out his or her duties in the course of the construction contract and that includes conclusions as to whether there might have been any professional negligence". Lady Paton concluded that if Parliament wished to exempt professional persons from the adjudication scheme, further legislation would, in her view, be necessary. The court also considered the argument put forward by Diamond that PJW had suffered no loss. Lady Paton held that PJW had indeed suffered a loss as soon as payments had been made to the contractor in compliance with the earlier adjudicator's decisions. In conclusion, the adjudicator's decision should stand.
CJ-0245
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