UK Grid Solutions Ltd and Amey Power Services Limited v Scottish Hydro Electric Transmission Plc [2024] CSOH 5
Introduction
The first construction case to be decided by the Scottish Courts in 2024 concerned enforcement of an Adjudicator's decision.
Scottish Hydro sought to resist enforcement on the grounds that:
- The Adjudicator failed to exhaust their jurisdiction, by not addressing Scottish Hydro's defence;
- Contrary to that, if the Adjudicator did consider but rejected Scottish Hydro's defence, they gave no reasons for doing so; and
- The Adjudicator's financial award was meaningless and unenforceable.
Lord Richardson, sitting in the Outer House of the Court of Session rejected Scottish Hydro's arguments, and took a robust approach to enforcing the Adjudicator's award.
Background
The Pursuers, as the joint venture consortium GE Amey JV, entered in to a NEC3 Engineering and Construction Contract with the Defenders (Scottish Hydro) to construct a new substation building along with related infrastructure near Fort Augustus.
During the course of the works, the delivery and installation of two transformers was delayed, giving rise to a compensation event. The Project Manager assessed that there was no effect on cost or dates. GE Amey rejected the PM's assessment, and instead submitted their own assessment. This was, in turn, rejected by Scottish Hydro. In March 2023 GE Amey referred the matter to Adjudication. The Adjudicator found that GE Amey was entitled to an increase in defined costs, along with interest, and ordered Scottish Hydro to pay c£1.8M along with interest.
When Scottish Hydro refused to comply with the Adjudicator's decision, GE Amey commenced enforcement proceedings in the Court of Session.
Arguments
In the Adjudication Scottish Hydro maintained that GE Amey had failed to meet the contract completion dates and so was obliged to pay liquidated damages (LDs). Even if the Adjudicator were to find that GE Amey was entitled to a change in the prices in relation to the transformer compensation event, Scottish Hydro argued that the Adjudicator should not grant any order for payment to GE Amey, because GE Amey was liable for LDs, which Scottish Hydro was entitled to deduct or set off from any sums otherwise due.
In the enforcement proceedings, Scottish Hydro complained that the adjudicator had not addressed this material line of defence. Or if he did, the Adjudicator failed to give reasons for his rejection of the defence. Both parties accepted that this was a material line of argument and could not be ignored by the adjudicator without giving rise to a breach of natural justice.
The court rejected both points put forward by Scottish Hydro. While it was noted that submissions to the Adjudicator were 'voluminous' and Lord Richardson's reasoning was fact-specific to this case, the court found the Adjudicator had considered the defence of set-off and that "…it is possible to discern from the adjudicator's decision, reasonably construed against the background of the submissions made to him, both what he decided and the reasons for that decision…" [50]
Separately, Scottish Hydro argued the phrasing of the adjudicator's order for payment was such as to render the order meaningless and thus unenforceable. While the court accepted that there were errors in the text of the order, it concluded that "…the reasonably informed reader would have understood that payment of that sum was to be made…" [52] and rejected this argument too.
The court granted GE Amey a decree for payment on the terms sought.
Commentary
In the judgment, Lord Richardson gave a helpful summary of the law regarding the scope of an Adjudicator's jurisdiction:
"…When considering questions of jurisdiction, the scope of an adjudication necessarily included any ground founded upon by the responding party (Hochtief Solutions AG v Maspero Elevatori SpA 2021 SLT 528 at para 27). It followed that where an adjudicator failed to address and determine a material line of defence, this will result in unfairness and a breach of natural justice (Construction Centre Group Ltd v Highland Council at 2002 SLT 1274 para 19…)
Where there has been a breach of natural justice, of course, the Adjudicator's decision will not be enforced.
Challenges to Adjudicators' decisions based on natural justice fell out of fashion for a number of years, with parties instead relying on arguments such as whether or not the parties had entered into a "construction contract" within the meaning of the Housing Grants, Construction and Regeneration Act 1996, or whether or not there was a crystallised dispute. However, in recent years we have seen a resurgence in natural justice challenges – Hochtief v Maspero Elevatori (referred to by Lord Richardson) is one such example, and this case is another.
However, there is a high bar to successfully challenge an Adjudicator's decision based on breach of natural justice. And this case did not meet it.
This case is an example of courts rejecting 'natural justice' arguments of parties looking to reverse the outcomes of adjudication. Lord Richardson favoured a generous reading of the adjudicator's decision to conclude that he had correctly dealt with the substantive arguments before him. This should give comfort that the courts continue to take a robust approach to enforcement of adjudicator's decisions.
Similarly, the generous reading of the text of the order for payment, despite the accepted errors therein, demonstrates the court's willingness to uphold the orders of the adjudicator.
This was a decision of the Outer House of the Court of Session so may yet be subject to appeal.
