OUTER HOUSE, COURT OF SESSION

 

[2009] CSOH 104

 

CA68/09

 

 

 

 

 

 

 

 

 

 

OPINION OF LORD GLENNIE

 

in the cause

 

BARR LIMITED

Pursuer;

 

against

 

KLIN INVESTMENT UK LIMITED

 

Defender:

 

 

________________

 

 

 

Pursuers: Smith; Pinsent Masons LLP

Defenders: Malone; Bell & Scott LLP

 

17 July 2009

 

Introduction

[1] In this action the pursuers seek to enforce the decision of an adjudicator, Mr Ian Strathdee, issued on 1 May 2009. In terms of that decision, they seek decree for the sum of 375,600 plus interest. There is no dispute about the rates of interest if decree is to be granted. For reasons which will become apparent, I shall refer to the adjudication as the third adjudication.

[2] The defenders contend that the decision of the adjudicator should be reduced ope exceptionis on the grounds that the adjudicator lacked jurisdiction, that his decision showed apparent bias and/or that he failed to comply with the rules of natural justice in failing, before issuing his decision, to put to the defenders his proposed findings of fact.

[3] The matter comes before the court for debate on the pursuers' plea in law to the relevancy of the averments in the defences. The pursuers seek decree de plano. They have also enrolled a motion for summary decree, to be heard at the same time. The defenders, for their part, move the court to dismiss the action. Neither party suggests that evidence is required for the matters in dispute to be resolved.

[4] The defenders have also sought reduction of the adjudicator's decision in a petition for judicial review (P596/09). The grounds relied upon are the same as in the defences to the action. In those circumstances, parties were agreed that the first hearing in the petition should come on at the same time as the debate and motion for summary decree in the action; and that the disposal of the petition would reflect the decision in the action. This is a course which has been followed in a number of similar applications and is to be commended.

 

The Contract

[5] The dispute arises out of a contract between the parties made on about 21 February 2005 in terms of which the pursuers (as Contractors) were to design and construct a number of flats in Kilmarnock. The contract terms comprised inter alia the Scottish Building Contract with Contractor's Design, May 1999 Edition (January 2004 revision) and Appendices I-IV (the "SBCC form") and the Conditions of the JCT Standard Form of Building Contract with Contractor's Design, 1998 Edition, together with amendments 1: June 1999, 2: January 2000, 3: January 2001, 4: January 2002 and 5: July 2003 (the "JCT Conditions"). The contract is a construction contract within the meaning of sections 104 and 105 of the Housing Grants, Construction and Regeneration Act 1996 (the "1996 Act").

[6] Clause 7 of the SBCC form provides that if any dispute or difference arises under or by reason of breach of the contract, either party may refer it to adjudication in accordance with clause 39A. Clause 39A contains detailed provisions relating to adjudication. It is agreed between the parties that those provisions are compliant with the 1996 Act.

[7] It is only necessary to mention a few of the provisions within clause 39A. Clause 39A.1 states that

"Clause 39A applies where ... either Party refers any dispute or difference arising under or by reason of breach of this Contract to Adjudication."

Clause 39A.3.2 is relevant to the arguments concerning the lack of jurisdiction. It provides that:

"An Adjudicator must resign where the dispute is the same or substantially the same as one which has previously been referred to Adjudication, and a decision has been taken in that Adjudication."

In the context of the dispute about jurisdiction, I should also mention (though they were not specifically referred to in argument) clauses 39A.5.1 and 39A.6.2, which provide as follows:

"39A.5.1 When ... a party requires a dispute or difference to be referred to Adjudication then that party shall give notice to the other party of his intention to refer the dispute or difference, briefly identified in the notice, to Adjudication. ...

39A.6.2 The party not making the referral may ... send to the Adjudicator with a copy to the other party, a written statement of the contentions on which he relies and any material he wishes the Adjudicator to consider with due dispatch ..."

Clause 39A.6.5 is relevant to the contentions about breach of the rules of natural justice. It provides that:

"In reaching his decision, the Adjudicator shall act impartially, set his own procedure and at his absolute discretion may take the initiative in ascertaining the facts and the law as he considers necessary in respect of the referral and his powers shall include the following:"

It then goes on to give a number of examples of the adjudicator's powers. They include the following:

"39A.6.5.2 subject to Clause 30.9 opening up, reviewing and revising any certificate, opinion, decision, requirement or notice issued, given or made under the Contract as if no such certificate, opinion, decision, requirement or notice had been issued, given or made;

39A.6.5.3 requiring from the parties further information than that contained in the notice of referral and its accompanying documentation or in any written statement provided by the parties ..."

Clause 39A.8.1 contains the usual provision making the decision of the adjudicator binding on the parties until the dispute or difference is finally determined by arbitration or court proceedings or by agreement.

[8] The issue between the parties in the third adjudication arose under the provisions of the JCT Conditions relating to payment and, in particular, to interim payments. The relevant provisions are contained within clause 30 "Payments". Clause 30.1.1.1 provides for Interim Payments to be made by the Employer to the Contractor in accordance with clauses 30.1 to 30.4 and whichever of the Alternatives A or B applied. In the present case it is agreed that Alternative B applied. In terms of clause 30.1.2, the amount due as an Interim Payment is the gross valuation less (i) any retention, (ii) any advance payments due for reimbursement to the Employer and (iii) any amounts paid in previous Interim Payments.

[9] The procedure governing the making of Interim Applications and responding thereto is set out in clause 30.3. In terms of clause 30.3.1.2, which deals with the case where Alternative B applies, Applications for Interim Payment have to be made on dates set out in Appendix 2, up to the day named in the Employer's Statement of Practical Completion or within one month thereafter. It goes on to say:

"Thereafter Application for Interim Payment shall be made as and when further amounts are due to the Contractor and after the expiration of the Defects Liability Period named in Appendix 1 or on the issue of the Notice of Completion of Making Good Defects (whichever is the later) provided that the Employer shall not be required to make any Interim Payment within one calendar month of having made a previous Interim Payment."

I should note that the Statement of Practical Completion was issued on 6 October 2006, the Defects Liability Period was 6 months thereafter (i.e. April 2007), and the Certificate of Completion of Making Good Defects was issued on 30 May 2007 (albeit the day named therein was 27 April 2007). Clause 30.3.2 required the Application for Interim Payment to be accompanied by relevant details supporting the application. Clauses 30.3.3 and 30.3.4 contain provision for the Employer to serve, respectively, a "payment notice" and a "withholding notice". They are in the following terms:

"30.3.3 Not later than 5 days after the receipt of an Application for Payment the Employer shall give a written notice to the Contractor specifying the amount of payment proposed to be made in respect of that Application, the basis on which such amount is calculated and to what the amount relates and, subject to clause 30.3.4, shall pay the amount proposed no later than the final date for payment.

30.3.4 Not later than 5 days before the final date for payment of an amount due pursuant to clause 30.3.3 the Employer may give a written notice to the Contractor which shall specify any amount proposed to be withheld and/or deducted from that due amount, the ground or grounds for such withholding and/or deduction and the amount of withholding and/or deduction attributable to each ground."

If the Employer does not give a valid payment notice and/or a valid withholding notice, he is required to pay the Contractor the amount stated in the Application for Interim Payment.

[10] The provisions concerning the Final Account are set out in clause 30.5 to 30.8. The opening paragraphs of clause 30.5 place the onus on the Contractor, within 3 months of Practical Completion, to submit the Final Account and the Final Statement for agreement by the Employer. The pursuers did not submit either document within that time. Clause 30.5.6 provides that where the Contractor does not submit the Final Account and the Final Statement within that 3 month period, the Employer may give notice in writing that, if they are not submitted by the Contractor within 2 months from the date of the notice, the Employer may himself prepare a Final Account and a Final Statement. Such a notice was given, yet the pursuers still did not submit either document. The defenders prepared their Final Account and Final Statement in March 2007. Clause 30.5.7 makes it clear that the Employer's Final Account is to be prepared on the basis of the information in his possession. In terms of clause 30.5.8, the Employer's Final Account and Final Statement become conclusive as to the balance between the parties except to the extent that the Contractor disputes anything in them within one month after the later of (i) the end of the Defects Liability Period, (ii) the day named in the Notice of Completion of Making Good Defects or (iii) the date of submission of the Employer's Final Account and Final Statement. One of the disputes in the arbitration between the parties, to which I shall refer, is whether the Employer's Final Account and Final Statement became conclusive in this way; and one of the issues in respect of that relates to the fact that the "day named in the Notice of Completion of Making Good Defects" was a day falling more than one month before the issue of that Notice (see para.[9] above). Clause 30.6.2 entitles the Employer to serve a withholding notice on the Contractor no later than 5 days before the final date for payment of the amount due in terms of the Final Statement.

[11] I was referred in argument to two further provisions relevant to the question of the conclusive nature of the Employer's Final Account and Final Statement. They are clause 30.8.1 and clause 30.8.3. Although, in the conclusion I have reached on the issues before the court, I do not need to reach any firm view as to their precise effect, I set them out here for completeness:

"30.8 .1 ... the Employer's Final Statement when it becomes conclusive as to the balance due between the parties in accordance with clause 30.5.8, shall, except as provided in clauses 30.8.2 and 30.8.3 (and save in respect of fraud), have effect in any proceedings under or arising out of or in connection with this Contract (whether by adjudication under article 5 or by arbitration under article 6A or by legal proceedings under article 6B) as

1 conclusive evidence that where and to the extent that

any of the particular qualities of any materials or goods or any particular standard of an item of workmanship was described expressly in the Employer's Requirements or in any instruction issued by the Employer under the Conditions to be for the approval of the Employer, the particular quality or standard was to the reasonable satisfaction of the Employer, but the ... Employer's Final Account and Employer's Final Statement shall not be conclusive evidence that such or any other materials or goods or workmanship comply or complies with any other requirement or term of this Contract, and

.2 conclusive evidence that all and only such extensions of time, if any, as are due under clause 25 have been given, and

.3 conclusive evidence that the reimbursement of direct loss and/or expense, if any, to the Contractor pursuant to clause 26.1 is in final settlement of all and any claims which the Contractor has or may have arising out of the occurrence of any of the matters referred to in clause 26.2 whether such claim be for breach of contract, duty of care, statutory duty or otherwise.

30.8 .3 If any adjudication, arbitration or other proceedings have been commenced by either party within 28 days after the ... Employer's Final Account and Employer's Final Statement ... [which] would otherwise become conclusive by the operation of ... clause 30.5.8, ... the Employer's Final Account and Employer's Final Statement, as the case may be, shall have effect as such conclusive evidence save only in respect of all matters to which these proceedings relate."

I shall refer to these provisions in the course of considering the defenders' contentions concerning the Adjudicator's alleged lack of jurisdiction.

 

Previous adjudications

[12] The adjudication which is the subject of the present action is the third to have taken place between the parties under this contract. The first two are directly relevant to the issue about lack of jurisdiction, since the defenders contend that the decision of the adjudicator sought to be enforced in this action arises out of a dispute which is the same or substantially the same as the disputes which were previously referred to and decided upon in the earlier adjudications.

 

The first adjudication

[13] On 3 August 2006 the pursuers issued Interim Application 22, seeking payment of 2,225,720.77 (excluding VAT), made up of a gross valuation of 4,609,656.56 together with a claim for loss and expense incurred by them in the sum of 970,308.51, and deducting from that total the retention moneys and sums previously certified. It was the contention of the pursuers that the defenders had failed within the time allowed under clauses 30.3.3 and 30.3.4 to serve either a payment notice or a withholding notice and that, in terms of clause 30.3.5, the defenders were obliged to pay them the whole amount stated in the Interim Application. The defenders argued that the relevant notices, in the form of a combined payment notice and withholding notice, were served within time.

[14] The pursuers referred the matter to adjudication. The adjudicator was Mr Richard Eadie. Under the heading of "Redress Sought" in their Notice of Intention to Refer to Adjudication dated 8 February 2007, and in the Referral Notice of 15 February 2007, they requested the adjudicator to declare in respect of Interim Application 22:

"5.1.1 that Klin [i.e. the defenders] failed to give a payment notice in respect of Barr's [i.e. the pursuers'] Interim Application 22, in accordance with Clause 30.3.3 of the Contract;

5.1.2 that Klin failed to give a withholding notice in respect of Barr's Interim Application 22, in accordance with Clause 30.3.4 of the Contract;

5.1.3 that Klin have failed to make payment to Barr of the full sum of 2,225,720.77 (excluding VAT) sought in Interim Application 22 by the final date for payment in accordance with Clause 30.3.5 of the Contract;

5.1.4 that Klin have no entitlement to withhold the sum of 2,128,836.94 (excluding VAT) from Barr's Interim Application 22"

The pursuers sought an order for payment of the sum of 2,128,836.94 (excluding VAT), which the defenders sought to withhold, together with interest, and an order that Klin pay the adjudicator's fees and expenses.

[15] It appears from the adjudicator's decision that, in addition to advancing a jurisdictional challenge, the defenders made a number of submissions in their Response to the Referral Notice. The material part is recited by the adjudicator in paras 2.5 of his decision dated 29 March 2007 and is as follows:

"5.1 Klin requests that the Adjudicator make a finding that:

5.1.1 Klin did not fail to make a payment notice in respect of Interim Application 22

5.1.2 Klin did not fail to give a withholding notice in respect of Interim Application 22

5.1.3 Klin have not failed to pay any sum presently due in terms of the Contract

5.1.4 Klin are entitled to withhold the sum of 2,128,836.94 in terms of the Contract."

They asked the adjudicator to reject the pursuers' claim for payment and other relief.

[16] In his decision, the adjudicator found in favour of the defenders and found, as requested by the defenders and in the terms requested by them, that they did not fail to give a payment notice or a withholding notice in accordance with clauses 30.3.3 and 30.3.4 of the Contract, that they "have not failed to pay any sum presently due in terms of the Contract" and that they were entitled to withhold the sum withheld by them. He rejected the pursuers' request for payment. It is to be noted that in his Reasons, and in discussing the legal submissions made by the parties, the adjudicator focused entirely upon the arguments relating to whether or not the payment and withholding notices were served in time and did not go into the merits of the entitlement of the defenders to withhold any sums. This was because he was only addressed on the question of the timeousness of the notices.

 

The arbitration

[17] In March 2007, operating the provisions of Clause 30.5 (to which I have already referred), the defenders prepared and submitted their Final Statement and Final Account. As I have already noted, a dispute arose between the parties as to these documents, in particular as to whether they became conclusive in light of the failure of the pursuers to dispute them within the period of one month from the day named in the Notice of Completion of Making Good Defects, that period having already expired by the time that the Notice of Completion of Making Good Defects was issued. There is also a dispute as to whether, in terms of the contract, the commencement of arbitration within the period stipulated in Clause 30.8.3 prevented the defenders' Final Statement and Final Account becoming (or remaining) conclusive.

[18] The defenders' Final Statement showed a balance due to the pursuers of 507,204.64, from which the defenders sought to deduct the sum of 375,600. The defenders paid the difference between these sums.


 

The second adjudication

[19] On 6 August 2008 the pursuers served on the defenders a further Notice of Intention to Refer a Dispute to Adjudication. The dispute was still one in relation to Interim Application 22. In that notice, they identified "the dispute" as being

"whether Klin are entitled to withhold and/or pursue liquidated damages (LADs). Barr's position is that the LADs provision in the Contract is unworkable and is accordingly void and unenforceable."

They complained that the defenders had wrongfully deducted the sum of 375,600 from sums paid to them; and they sought payment of that sum with interest. The "Redress Sought" was an order that the defenders had failed properly to pay that sum and that they should make that payment together with interest at the appropriate rate within seven working days of the adjudicator's decision.

[20] The adjudicator on this occasion was Ms Janey Milligan. In her decision issued on 17 September 2008, she held that the provision for LADs in the contract were "unworkable and void and unenforceable". However, she upheld Klin's argument that she had no jurisdiction to consider the question of the amount due in respect of Interim Application 22 because Mr Eadie, the adjudicator in the first adjudication, had already determined the amount payable in respect of that Interim Application. She therefore did not make any order for payment.

 

Interim Application 23

[21] On 19 September 2008 the pursuers submitted a further Application for Interim Payment. This was Interim Application 23. The Interim Application sought payment of 1,971,094.12, made up of a gross valuation of 5,415,537.19 less 3,444,443.07 received to date. Mr Smith, who appeared for the pursuers, took me briefly through Interim Applications 22 and 23 to demonstrate that there were many differences between the two. One obvious difference was that Interim Application 23 did not make any deduction for Retention, since the Certificate of Making Good Defects had by then been issued. By letter dated 24 September 2008 the defenders said that they did not accept the pursuers' right to submit an Interim Application at that stage in the contract given that the final payment provisions had already been instigated and that there was an arbitration ongoing in respect of the Employer's Final Account and Final Statement. However, without prejudice to that position, they enclosed a payment notice in which they admitted an amount due of 375,600. They followed this on 26 September 2008 by serving on the pursuers, under the same reservations, a withholding notice. In that withholding notice they argued that since the previous adjudication had determined that the LADs provision in the contract was not enforceable, and since that determination was binding until the matter was finally resolved by arbitration, they were at liberty to submit a claim for the actual losses suffered by them as a result of the pursuers' late completion of the works in an amount of 4,864,158.18. That figure was made up of claims for replacement of the defective windows, the cost of repair of defective road surfacing, and damages for late completion comprising increased finance charges, loss of return on capital and loss of the opportunity to develop another site as a result of capital being tied up in this project.

 

The third adjudication

[22] On 13 March 2009 the pursuers served a further Notice of Intention to Refer and followed it, on 20 March 2009, with a more detailed Referral Notice. The adjudicator appointed for this adjudication was Mr Ian Strathdee. In the Notice of Intention to Refer, after reciting the details of the contract, the pursuers explained (under the heading "The Dispute") that:

"4. The dispute referred to adjudication concerns Barr's entitlement to be paid the sum of 375,600 plus interest and Klin's continued failure to pay Barr the sum which they have admitted is due (per their Final Account and Final Statement of 19 March 2007) and which they continue to admit is due (per the Payment Notice issued in respect of Interim Application 23)."

The pursuers then referred to the defenders' deduction of LADs from sums otherwise due to them in terms of their Interim Applications and from the balance due in terms of the defenders' Final Account and Final Statement. Those disputes had been referred to arbitration, but the tribunal had not as yet issued an Award. They explained that "in order to release the sum of 375,600" they had issued Interim Application 23, in response to which the defenders had issued a payment notice showing a sum due to them of 375,600 and a withholding notice. After taking a number of other points, which might best be described as technical, they said this about the withholding notice:

"In any event, the five claims presented by Klin in their Withholding Notice are fundamentally misconceived and do not justify the withholding of 375,600. Each of the claims lacks specification."

Under the heading "Redress Sought", they requested that the Adjudicator to order that Klin pay Barr the sum of 375,600 plus interest.

[23] The pursuers' criticisms of the defenders' withholding notice were amplified in the Referral Notice of 20 March 2009. In the "Executive Summary", they made the following point, amongst others:

"If claims for defects can be said to exist at all (which is denied), the losses would not be incurred by Klin (i.e. Klin Investment UK Limited, the party with whom Barr contracted). Losses would be borne by third parties with no title to sue Barr - either the owners of the flats constructed by Barr or Klin Holdings Limited (an entirely different company to Klin) who owned the land on which the development (including the flats and Heritage Centre) sit and who retained ownership of the unsold flats."

Later in that document, the pursuers give more detailed comments on each of the claims identified in the withholding notice. They make a number of points in respect of each claim. Amongst other points, they take the "no loss" or "title to sue" point in respect of each claim. Thus in respect of the claim for replacement of defective windows, they say in para.28:

"No loss

In the first instance, Klin (i.e. Klin Investment UK Limited, the party with whom Barr contracted), has suffered no loss.

Klin was the party responsible for the construction costs and the financing of those costs. However, Klin was not the heritable proprietor of the land on which construction took place or the flats, the Heritage Centre and the other parts of the development once constructed. ...

Therefore - even if there can be said to be claims arising as a result of defective windows in building B4 (which is denied) - Klin is not the heritable proprietor of any part of building B4 and therefore has no title to sue. In the absence of claims from Klin Holdings Limited, Klin has suffered no loss."

In para.29, the pursuers address the claim for the estimated cost of repair of defective road surfacing. They make a similar point:

"In the first instance there can be no loss - the roadway is not defective. Even if there was a loss (which is denied) the roadway is not owned by Klin (i.e. Klin Investment UK Limited, the party with whom Barr contracted.)"

In para.30, the pursuers deal with the defenders' claims in respect of late completion comprised of increased finance charges and alleged loss of return on capital. They again make the point that whereas Klin (i.e. Klin Investment UK Limited), with whom they contracted, was the party responsible for the construction costs and the financing of those costs, that company was not the heritable proprietor of either the site or the buildings; and that if there was any loss suffered in respect of the return to be had from the development, "it could only have been incurred by the development's owner". Finally, in para.31, the pursuers deal with the defenders' claim for the loss of opportunity to develop another site as a result of capital being tied up in this project. They make the point that Klin, the company with whom they contracted, "was not and never has been the heritable proprietor" of the other site - it was Klin Holdings Limited, not Klin, who at one stage purchased, and then sold on, the relevant site. Although the point is put more obliquely in respect of this claim, it is clear that one of the points that the pursuers were making was that, if any loss had been suffered, it had not been suffered by Klin, their opposite contracting party.

[24] In their Response, the defenders took a number of jurisdiction points. These included an argument that the pursuers were "seeking to recover a sum which has already been the subject of adjudication, namely the sum of 375,600, in respect of LADs", that the adjudicator in the second adjudication had held that the pursuers were not entitled to recover this sum, and that the pursuers could not simply submit a new Interim Application to get round the problem. As regards the "no loss" objection taken by the pursuers, they argued that the case fell within the line of authority which recognised that in certain circumstances the innocent party might recover substantial damages even if the loss in question had in fact been sustained by someone else.

[25] The adjudicator issued his final decision on 1 May 2009, having previously rejected the defenders' jurisdiction challenge in a letter dated 1 April 2009 (attached to his decision as Appendix B) and, in consequence, declined their invitation to him to resign. In the course of a hearing before the adjudicator on 7 April 2009, the pursuers introduced arguments to the effect that whatever the merits of the "no loss" argument, the withholding notice was itself defective in that it did not give clear notice that the defenders were seeking to withhold payment on the basis of losses suffered not by them but by others. The defenders objected to this argument (described for ease of reference, though perhaps too narrowly, as the "formal validity" point) being introduced, contending, as I understand it, that it fell outwith the scope of the dispute referred to the adjudicator. This was dealt with by the adjudicator as a "second jurisdictional challenge". In his letter dated 16 April 2009 (attached to his decision as Appendix C), he rejected this second jurisdictional challenge on the basis that the dispute referred to adjudication was the pursuers' entitlement to be paid the sum of 375,600 which the defenders had admitted to be due. He considered that it was the defenders' reliance on the withholding notice as a defence to payment which allowed the pursuers "to advance any submissions or arguments concerning that Notice of Withholding and its effectiveness." In their Notice of Intention to Refer, the pursuers had referred to the withholding notice as "fundamentally misconceived". Although the pursuers had made submissions as to the merits of the claims identified in the withholding notice, the adjudicator did not believe

"that that prevents [the pursuers] from raising further submissions and arguments concerning that Notice of Withholding in the Adjudication, providing there is sufficient time available to allow [the defenders] to respond to those submissions and arguments."

He concluded that the dispute as to the adequacy of the wording of the withholding notice "was not a new dispute, just a new argument" with which he had jurisdiction to deal. The matter was summarised in his final decision at paras.1.34 - 1.43.

[26] In his decision, the adjudicator dealt first with the question of jurisdiction and repeated, under reference to his letter appended to the decision as Appendix B, that he had jurisdiction to proceed with the adjudication notwithstanding the matters referred to earlier adjudications. He then referred to the second jurisdictional issue, as to whether the dispute before him included any issue about the validity of the withholding notice, and repeated the conclusion, already set out in the letter at Appendix C to which I have referred, that the point raised by the pursuers "was not a new dispute, just a new argument" (see para.1.42). The argument on the "formal validity" point is summarised in paras.1.35 and 1.36 of the decision. He explains it in this way:

"1.35 The Referring Party ... submitted that since the Respondent has withheld payment on the basis of a claim for the losses, it alleged to have sustained from the clear wording of the Withholding Notice and after the Referring Party's investigation of the facts, it appeared to them that the losses were in fact sustained by another company as detailed in their Referral. The Respondent explained at length that it was advancing a claim for losses sustained by Klin Holdings Limited, contrary to the wording of their Withholding Notice. Had the Respondent maintained it was advancing a claim for its own losses, this would be consistent with the Withholding Notice and no argument would have arisen.

1.36 They say that it was the Respondent's adoption of this approach which provoked the argument currently submitted by them at the Adjudication meeting on 7 April 2009 and it was clearly necessary for them to deal with this argument in order to determine the dispute, namely the Referring Party's entitlement to be paid the sum sought. The Parties agreed that I am required to issue a Part Decision, by 22 April 2009, in relation to how to construe the meaning of 'Grounds' with regard to the wording or validity or effect of the Respondent's withholding notice in accordance with cl.30.3.4."

The reference to a Part Decision being required by 22 April 2009 is of no concern here, since the reasons were repeated in Section 4 of the Final Decision. As appears from para.1.36, the argument on the "formal validity" point was focused upon whether the withholding notice adequately set out the grounds upon which the defenders claimed to be entitled to withhold payment. After reciting the contractual background to the dispute and the parties' arguments, the adjudicator dealt with the "formal validity" point in Section 4. It is necessary to quote a number of paragraphs from that Section concerning this point:

"4.6 I note that the Parties agree that the purpose of the Notice is to give the payee adequate Notice of the grounds, and therefore I have to construe the word 'grounds'.

4.7 I consider that there is a lack of clarity in the Notice, even giving it a broad interpretation and not relying on fine textual analysis. I therefore do not consider that the Respondent did comply with the requirements for Withholding in the Contract and the 1996 Act.

4.8 I do not believe that the Notice enables the Contractor to know immediately and with clarity why a payment is being withheld to enable [him] to decide whether they should dispute the Employer's right to Withhold and provide information for the purpose of any other action which may depend on knowing the reasons why payment is being withheld.

4.9 There is certainly lack of clarity in the provision of this information. If the Respondent's claims for damages in the adjudication were in respect of their own losses there would be no issue as to the validity of the Withholding Notice.

4.10 It is not a fine distinction between claims for one's own losses and claims for losses of others, it is a fundamental difference in the nature of the claim. The two positions are therefore irreconcilable and not interchangeable. It is essential to specify who sustained the damages/losses.

4.11 I consider that the clarity required goes beyond matters of causation and remoteness of loss and causal and technical legal links, more properly found in detailed pleadings. I consider the grounds must state how the breach caused the loss and where the loss has fallen, being the foundational basis on which the action rests, the reason or cause.

4.12 I considered again paragraph 14 of the Notice of Intention to Refer a Dispute to the Adjudication, where the Referring Party said ' ... the five claims presented by Klin in their Withholding Notice are fundamentally misconceived and do not justify the Withholding of 375,600.00', this is wide enough for the referring party to run a legal argument concerning the validity of a Withholding notice.

4.13 I therefore construe the word 'grounds' in this instance to mean the breaches, the entitlements and the causation of the breaches to the losses."

The above paragraphs set out the essential reasoning of the adjudicator on this point. He concluded that the withholding notice was insufficient to give the pursuers clear notice of the claims in respect of which the defenders sought to withhold payment. In particular, it failed to show any causative link between the breaches and any loss suffered by the defenders; and it did not state that the loss was in fact suffered not by the defenders but by others within the group; and how that loss, if sustained by others, could be claimed under this contract by the defenders. Accordingly, since the defenders had not served a valid withholding notice within the time allowed by the contract, the amount set out in the defenders' payment notice (375,600) became due and payable. In those circumstances the adjudicator ordered the defenders to pay the pursuers the sum of 375,600 plus interest (both accrued and continuing).

[27] In their defences, the defenders criticised a number of paragraphs in the adjudicator's decision. I should set out those paragraphs:

"4.16 I agree that the Referring Party had Notice of the amounts to be withheld and the breaches which the Respondent was relying upon but the Referring Party were probably wondering as to how these amounts to be withheld could be the Respondent's losses.

4.22 In considering the Respondents position that they suffered the losses since they are the top holding company of the group and therefore it is a loss to them since their assets have diminished, since any drop in the value of Klin Holdings Limited is a loss to Klin Investments UK Limited. I consider that there was a requirement for the Notice to specify that the Respondent's accounts were dealt with on a group basis with the other subsidiary group companies since this information would probably not be available to the Referring Party and they required fair Notice of it.

4.23 With regard to Respondent's submission that a loss suffered by Klin Holdings Limited is a loss suffered by the Respondent since it's the sole shareholder or it is more accurate to say that both companies suffered the loss. They go on to say that the law probably states that the Respondent cannot recover Klin Holdings Limited's losses as their own losses. If that is correct and the law does say that the Respondent cannot recover the losses of Klin Holdings Limited as their own then since I have to interpret the Contract, the Act and Law. I have to consider the meaning of the word, 'grounds' and the words used in the Respondent's Notice of Withholding and apply the common meaning to all these words that commercial contracting parties would have understood with their knowledge each of them had at the time the Referring Party received the Respondent's Notice of Withholding. That knowledge includes the knowledge of the Referring Party that the Employer/Respondent did not own the property. I decide that where the Respondent is referring in the Notice to 'our losses' they are referring to the Respondent's losses and the Respondent cannot be meaning in that Notice Klin Holdings Limited Losses. Therefore I do not find the narrative in the Notice accurate and the factual sense. It is not clear and it does not give fair Notice to the Referring Party.

4.24 I do not consider that the Respondents referencing to 'we' and 'our losses' in their Notice are therefore entirely correct and factually accurate. The Referring Party, probably, knew that the losses were not incurred by the Respondent and when they read the Withholding Notice they could have wondered what losses the Respondent was referring to.

4.26 I consider that the Referring Party were prejudiced by this lack of clarity because once the Referring Party had defeated the Respondent's right to apply liquidated and ascertained damages, it would not have been unreasonable for them to consider that the Employer/Respondent might not have much in the way of Common Law damages/losses since they were fully aware that the Employer/Respondent did not own the property. Therefore, when they received the Notice of Withholding and read the words 'our losses' it would not have been unreasonable for them to consider that there couldn't be much in the way of Employer/ Respondent losses for their alleged breaches of Contract, even although the Respondent had applied sums of money/amounts to each of the Referring Party's alleged breaches of Contract. When in the Adjudication they found that it wasn't the Employer/Respondent's losses, but Klin Holdings Limited's losses, I can see how they could have been prejudiced.

4.28 It is not fair Notice to now say that the grounds for withholding are the damages and losses incurred by any one or more of several Klin Companies."

 

The application to enforce the adjudicator's decision

[28] The pursuers seek decree in the sum of 375,600 plus interest as awarded by the adjudicator. In other words, they seek to enforce his decision. Clause 39A.8 of the contract makes the decision of the adjudicator binding on the parties and immediately enforceable pending the final determination of the dispute or difference by arbitration, court proceedings or agreement. If the contract had not contained a clause to that effect, the adjudication provisions of the Scheme for Construction Contracts would have applied by reason of s.108(5) of the 1996 Act; and para.23(2) of the Scottish Scheme would have applied to make the decision binding and enforceable until the dispute was so determined. The intention of Parliament in the enacting the provisions of the Act concerning adjudication is well known. It was explained by Dyson J in Macob Civil Engineering Ltd. v. Morrison Construction Ltd. [1999] BLR 93, 97, a passage approved in a number of judgments including that of the Court of Appeal delivered by Chadwick LJ in Carillion Construction Ltd. v. Devonport Royal Dockyard Limited [2006] BLR 15 at para.26. Decisions of adjudicators are to be enforced unless there is good reason not to do so. It is no defence to enforcement to say that the adjudicator has erred in fact or law or even, unless it results in manifest unfairness, procedure. The court will not review a decision on the basis of an intra vires area of law: see e.g. Gillies Ramsay Diamond v. PJ W Enterprises Ltd. 2004 SC 430 at para.[32]. But the court will not enforce the decision where the adjudicator has acted in excess of his jurisdiction or in a serious breach of the rules of natural justice: see e.g. Carillion (supra) at para.52, quoting with approval the summary of the principles set out by Jackson J at first instance.

[29] These principles were not in dispute before me. Mr Malone, who appeared for the defenders, carefully presented his case so as to fall within them. He put forward four grounds in support of his argument that the decision here should not be enforced.. They were as follows:

A. That the adjudicator had no jurisdiction to deal with any part of the dispute;

B. That the adjudicator had no jurisdiction to decide the matter on the basis on which he did decide it, since the argument which he accepted was not part of the dispute referred to him;

C. That the decision fell to be reduced on grounds of bias;

D. That the adjudicator acted in breach of natural justice by failing to put to the parties, prior to finalising his decision, his proposed findings of fact.

I shall deal with each of these points in turn.


 

The defenders' submissions

A. The adjudicator had no jurisdiction to deal with any part of the dispute

[30] The defenders argue that the dispute referred to adjudication in the third adjudication is the substantially the same dispute as that which was referred to and decided in adjudication at an earlier stage. In those circumstances the adjudicator here had no jurisdiction to consider the matter. Mr Malone argued that in the first adjudication the pursuers sought payment in terms of their Interim Application 22 on the grounds that no valid withholding notice had been issued by the defenders. The adjudicator in that adjudication had held that the withholding notice was served in time and that no sums were due to the pursuers. In the second adjudication, the pursuers sought an order that the LAD provisions relied upon by the defenders in their withholding notice were invalid. The adjudicator in that adjudication found that the LAD provisions were indeed invalid; but she refused to order payment of the sum withheld on the basis that the question of the defenders' liability to make payment under Interim Application 22 had already been the subject of a decision in the first adjudication. In the third adjudication the pursuers were again seeking payment of that sum. This time they had issued Interim Application 23 but this was merely a pretext; the contract did not allow for a further Application for Interim Payment at the stage where the Final Account had been produced and disputes concerning the Final Account had been referred to arbitration. The pursuers were simply dressing up an old claim and pretending that it was a new one. They were manufacturing a new dispute in an effort to avoid the consequences of the adjudicator's refusal to order payment in the first and second adjudications.

[31] The starting point for the defenders' argument is Clause 39A.3.2 which provides that an adjudicator must resign where "the dispute is the same or substantially the same" as one which has previously been referred to adjudication "and a decision has been taken in that Adjudication". The requirement that he resign in such circumstances is another way of saying that an adjudicator has no jurisdiction over a dispute which is the same or substantially the same as one which has previously been referred to adjudication and in respect of which a decision has been taken in that adjudication. Such a clause is necessary to prevent serial adjudication, with parties constantly re-adjudicating the same point until they succeed, or as part of a war of attrition. In considering the arguments in this case, I consider that it is necessary, before one can seek to characterise a claim as being (or not being) "the same or substantially the same, to understand what is meant by "the dispute" which is referred to adjudication. The contract provides guidance on this. Clause 39A.1 speaks of a party referring any dispute or difference to adjudication. Clause 39A.5.1 uses similar language: if a party "requires a dispute or difference to be referred to Adjudication" then he is required to give notice of his intention to do so. This is to be contrasted with the position of the other party, which is dealt with by clause 39A.6.2: the party not making the referral sends to the adjudicator a written statement of the contentions upon which he relies and any supporting material. In other words, the party making the reference identifies the dispute or difference which he is referring to adjudication. The opposing party does not expand the scope of the reference - rather he puts in written contentions in respect of the dispute or difference which has been referred by the referring party.

[32] It is not uncommon, as I understand it, for there to be a number of references to adjudication during the lifetime of a contract. In submitting a dispute or difference to adjudication, a party is not required to submit all the disputes or differences which have arisen up to that date. He may pick and choose. He may, for example, refer to adjudication a discrete issue affecting a claim for an extension of time, in the hope that, if he is successful on that discrete issue that success will enable him to claim payment of part or all of what he alleges to be due to him. If he is unsuccessful, his chosen route to unlocking that payment will have failed; but that does not prevent him referring to a second adjudication another discrete issue, possibly affecting the same claim, with a similar hope that success on that issue will unlock payment of some or all of the sums which he claims to be due. It is important to have this in mind when seeking to identify the dispute or difference which the referring party has submitted to adjudication on any particular occasion. The dispute or difference referred is simply that which the referring party chooses to refer, no more and no less. That is quite different from serial adjudication. There is no good reason why the court should seek to discourage attempts by a party to a construction contract from seeking an interim decision in his favour by referring sequentially legal points, or short points of disputed fact on a narrow issue, rather than having to engage in what would, in effect, be a dress rehearsal for the full arbitration.

[33] I am fortified in this analysis by the remarks of HH Judge Thornton QC in Fastrack Contractors Ltd. v. Morrison Construction Ltd. [2000] BLR 168 at para.20. Dealing with the requirement for there to be a "dispute", the learned judge said this:

"During the course of a construction contract, many claims, heads of claim, issues, contentions and causes of action will arise. Many of these will be, collectively or individually, disputed. When a dispute arises, it may cover one, several or many ... some or all of these matters. At any particular moment in time, it will be a question of fact what is in dispute. Thus, the 'dispute' which may be referred to adjudication is all part of whatever is in dispute at the moment that the referring party first intimates an adjudication reference. In other words, the 'dispute' is whatever claims, heads of claim, issues, contentions or causes of action that are then in dispute which the referring party has chosen to crystallise into an adjudication reference. ..."

The learned judge then makes it clear that in, identifying the dispute referred to adjudication, the referral notice must be construed against the underlying factual background from which it springs, which will include the background of the whole range of disputes then existing between the parties. I respectfully agree with this analysis, with this caveat; that it should not be taken from the reference to "contentions" (in the last sentence of the passage quoted) that the referring party can by the terms of his referral limit the arguments or contentions which the opposite party may seek to deploy at the adjudication in opposition to his claim.

[34] If the dispute which is referred to adjudication may be as wide or narrow as the referring party chooses, it would be dangerous, so it seems to me, and contrary to the intention underlying the process of adjudication in construction contracts, to give an extended meaning to the expression "substantially the same" in clause 39A.3.2 of the contract. If a party refers to adjudication a narrow point of construction so as to enable him to claim payment turning upon that point without having to go to the trouble and expense of a contested hearing on the whole of the underlying facts, but fails on that point of construction, he cannot in my opinion be barred from thereafter referring to adjudication the disputed factual basis upon which the other party says that he should not be paid. The sum sought to be recovered as a result of the adjudication might be the same in each case, but that would not make the dispute referred to adjudication in the second case either the same or "substantially the same" as that referred to in the first adjudication. Such a construction would make little sense. The expression "substantially the same" is designed, in my view, to catch a case where the actual dispute referred is almost the same as that which had earlier been referred; since disputes or differences may encompass a wide range of factual and legal issues, a bar on re-adjudicating "the same" dispute, i.e. one in which there was a complete identity of factual and legal issues, without including the words "substantially the same" would be ineffective: c.f. HG Construction Ltd. v. Ashwell Homes (East Anglia) Ltd. (unreported, [2007] EWHC 144 (TCC), Ramsey J). That expression is not intended, however, to cover a case where the particular dispute referred to adjudication is another separate and distinct way of seeking to unlock the door to payment of a particular sum.

[35] In the present case the position seems to me to be quite clear. In the first adjudication the pursuers sought a declaration that the defenders had failed within the required time to give either a payment notice or a withholding notice and that, in those circumstances, the defenders had no justification for failing to pay the sum claimed in Interim Application 22. The "dispute" which was referred was the question of whether the combined payment and withholding notice was served in time. If it was not, then the pursuers were entitled to payment. However, if it was served in time, it did not follow that no payment was due - that would require investigation into the facts underlying the payment and withholding notices. In their Response, the defenders requested the adjudicator to make findings to the opposite effect from those sought by the pursuers. Where the pursuers, consequent upon their request for a declaration that the defenders had failed to give a payment notice and a withholding notice in time, sought a declaration that the defenders had failed to make payment of the full sum claimed in the Interim Application and that they had no entitlement to withhold the sum stated in the withholding notice, the defenders in their Response asked the adjudicator to find that they had not failed to pay any sum presently due in terms of the contract and were entitled to withhold the sum referred to in the withholding notice. Properly understood, this was merely saying that because the notices were served in time, the pursuers were not entitled to the declarations which they sought in the adjudication; and, indeed, this is how it must have been understood, since the only issue considered by the adjudicator was the question of whether the notices were served in time. The adjudicator's decision must be understood in the same way. But even if the defenders had wished to extend the scope of the dispute referred to adjudication, and to include within it a general consideration of whether there were sums which they were bound to pay as at that date, they could not have done so without the consent of the pursuers (as the referring party), since it is up to the referring party, not the opposite party, to choose what dispute it wishes to refer to adjudication.

[36] In the second adjudication, the pursuers, as the referring party, chose to submit the question whether the defenders were entitled to withhold and/or pursue a claim for liquidated damages. That was the claim in respect of which the defenders served a withholding notice. The pursuers' argument was that the LADs provision in the contract was void and unenforceable. That was the dispute referred to adjudication. If the pursuers were correct, it would follow that they would be entitled to payment of the sum withheld (375,600); but if they were not correct, it would be necessary at some stage to consider the factual basis upon which the defenders claimed that they were entitled to liquidated damages in that sum. However, it would be wrong to say that the dispute referred to the second adjudication was a claim for 375,600. Had that been the dispute referred to adjudication, it would have been open to the parties to expand the argument to include not only the question of construction of the contractual provisions but also the facts underpinning the claim for LADs. That neither party thought to do this suggests that they too recognised that the dispute referred was simply the legal question of whether the clause was void and unenforceable. In her decision, the adjudicator upheld the pursuers' argument that the clause was void and unenforceable. But she went on to say that she had no jurisdiction to consider the question of whether any payment was to be made in respect of Interim Application 22 because that had already been determined in the first adjudication. In my opinion she was wrong about this. The first adjudication, as I have said, was about whether the payment/ withholding notice was served out of time, with the consequence, if it was, that certain sums were due in respect of Interim Application 22. It was not a general dispute about what sums were due in respect of Interim Application 22. It follows that there was no general determination about whether any payment was to be made in respect of Interim Application 22. But it does not matter, for present purposes, that the adjudicator in the second adjudication was wrong on this point, since the only effect of her error was that she declined jurisdiction and did not make a decision upon what sums were due.

[37] By contrast, the dispute referred to the third adjudication was the pursuers' entitlement to payment of the sum of 375,600 referred to in the withholding notice. Leaving to one side the fact that the claim was made in terms of Interim Application 23, whereas the previous adjudications had concerned Interim Application 22, the fact is that this was the first occasion on which the pursuers had referred to adjudication the question of their entitlement to payment of that sum. That claim had not been the subject of the first adjudication, which was concerned only with the question of whether the payment/ withholding notice had been served in time, the claim for payment (of a different amount, i.e. the amount claimed in Interim Application 22) being consequential only upon a decision in the pursuers' favour on that point. Nor was it referred to the secondary adjudication, which was concerned only with the validity of the LADs provision in the contract, the claim for payment of the amount withheld on account of the claim for LADs (375,600) being consequential only upon a decision in the pursuers' favour on that point. Nor, in any event, did the adjudicator in either case decide any question relating to the withholding of the sum of 375,600 - indeed the second adjudicator held, albeit wrongly in my opinion, that she had no jurisdiction to deal with this question.

[38] Accordingly, I am of the opinion that the defenders' first ground of objection to enforcement of the decision, namely that the adjudicator had no jurisdiction over the dispute referred to him since it, or a substantially similar dispute, had already been referred to adjudication and been made the subject of a decision, must fail.

[39] I was referred to a number of other authorities on the question of whether disputes were the same or different in different adjudications. Those authorities were Fastrack (supra), Sherwood & Casson Ltd. v. Mackenzie [2000] TCLR 418, Benfield Construction Ltd. v. Trudson (Hatton) Ltd. (unreported, [2008] EWHC 2333 (TCC), Coulson J) and Holt Insulation Ltd. v. Colt International Ltd. (unreported, 2008, HH Judge Mackay). Each of those cases appeared to me to turn on its own facts, but nothing in them suggests a different approach to that which I have sought to apply in this case.

[40] I also heard detailed submissions from Mr Malone on the question whether at this stage of the contract it was competent for the pursuers to issue Interim Application 23. He took me carefully through the terms of the contract relating to the Final Statement and Final Account and, in particular, the provisions relating to the conclusive nature thereof. He argued that at the stage where the Employer had served a Final Statement and Final Account which, failing a dispute within the relevant period by the Contractor, had become binding on the parties, there was no longer any scope for the contractor to make any further Application for Interim Payment. He also addressed me on the question of whether the commencement of arbitration subsequently had the effect, retrospectively, of opening up the Final Statement and Final Account which had by then otherwise become conclusive. As I understand it, this last point is the subject of a dispute before the arbiter and I would not wish to express any view on it in this case unless it were necessary so to do. I do not in fact think that it is necessary for me to express a view on any of these points. Mr Malone accepted that these were not strictly jurisdictional points. He accepted that, even if it were shown that the pursuers had not been entitled to issue Interim Application 23, it would not affect the validity of their referral of their claim to the third adjudication - it would be for the adjudicator to determine (if asked) on a provisionally binding basis whether or not such an Application for Interim Payment could be issued at that stage. Mr Malone relied on these arguments simply to show that the issue of Interim Application 23 was a contrivance to make it look as though the claim for payment was a new claim and not simply a repeat of that which had been before the previous adjudications. I have decided against the defenders on this objection for the reasons set out above. Even if Mr Malone were correct in his characterisation of Interim Application 23 as a contrivance or a device, it would not affect those reasons.

 

B. The adjudicator had no jurisdiction to decide the matter on the basis that he did decide it, since the argument which he accepted was not part of the dispute referred to him

[40] The defenders' argument under this head is that the sufficiency or validity of the withholding notice was not a matter which was in dispute prior to the referral to adjudication and did not form part of the dispute referred to adjudication. The argument about the terms of the notice emerged only at the adjudication hearing which took place after the initial exchange of written documents; and, when the point was raised, the defenders expressly reserved their position on jurisdiction and did not agree to extend the ambit of the dispute.

[41] It is quite clear that the issue between the parties prior to the referral to adjudication was as to whether the defenders could legitimately claim damages in circumstances where it was another company within the same group which was the heritable proprietor of the land and the owner of the buildings on it. The pursuers sought payment of the sum withheld (375,600) as referred to in the withholding notice, and there was a dispute about the pursuers' entitlement to payment of that sum. I have already made it clear that, in my opinion, the dispute referred in the third adjudication was the pursuers' claim for that sum which had been withheld under cover of the withholding notice. In those circumstances, it was open to both parties to advance before the adjudicator any arguments one way or the other about the defenders' entitlement to withhold that sum. I agree with the adjudicator that the issue about the sufficiency or validity of the withholding notice - whether the notice set out the ground or grounds for the withholding in such a way as to enable the contractor to know immediately and with clarity why a payment is being withheld - was not a new dispute but was just a new argument relevant to the existing dispute. This objection therefore fails.

[42] I should add this. Whilst any question of the adjudicator's jurisdiction is a matter of law for the court to decide, the court will nonetheless give some weight to any expression of opinion on the point by the adjudicator himself. There is, of course, some circularity about this, because in the case where there is a root and branch challenge to the jurisdiction of the adjudicator, unless the court decides that he does have jurisdiction his opinions on the issues between the parties are neither here nor there. Nonetheless, even in such a case the adjudicator has relevant experience to bring to bear on the question and his assessment of, for example, the overlap between disputes referred to different adjudications is likely at the very least to merit careful consideration: c.f. Sherwood & Casson Ltd. v. Mackenzie at para.30, Benfield Construction Ltd. v. Trudson (Hatton) Ltd. at paras.23-24. It seems to me that the weight to be attached to his views is, if anything, greater in a case where the objection to his jurisdiction is not a root and branch one, but is limited to whether a certain point is or is not included within the dispute referred to him, since in such a case he clearly has jurisdiction and cannot be regarded as, even potentially, a stranger intermeddling in the affairs of others.

 

C. The decision falls to be reduced on grounds of bias

[43] In pressing this part of his objection to enforcement of the adjudicator's decision, Mr Malone emphasised that he was not suggesting that the adjudicator was in fact biased against his clients. Rather he was relying upon apparent bias, in this case the appearance of bias arising not from any particular aspect of the conduct of the adjudication but from the terms of the decision itself. Under reference to Porter v. Magill [2002] 2 AC 357, as applied to adjudications in, for example, AMEC Capital Projects Ltd v. Whitefriars City Estates Ltd (unreported, [2004] EWHC 393 (TCC), HH Judge Toulmin QC), he said that the court must ask whether the circumstances relied upon would lead any fair-minded and informed observer to conclude that there was a real possibility that the tribunal was biased. That seems to me to be the right test.

[44] Referring to the terms of section 4 of the decision, Mr Malone submitted that it was obvious that the adjudicator had construed the withholding notice by reference to the pursuers' knowledge at the time of the notice. If the pursuers' knowledge was thought to be relevant, then, he submitted, it was incumbent upon the adjudicator to enquire of the parties what the true position was. The pursuers did not aver that they lacked knowledge of the basis upon which the defenders were putting forward the claims in the withholding notice, nor did they allege that they had suffered prejudice of some kind by reason of the withholding notice not having spelled out the fact that the loss alleged had been suffered by another company in the group rather than by the defenders themselves. Yet the adjudicator made findings to this effect in order to support his decision. In so doing he gave the appearance of wishing to help the pursuers in their arguments rather than simply deciding between the parties on the arguments which they had put to him.

[45] Specific complaint was made of paragraphs 4.16, 4.22, 4.23, 4.24 and 4.26. I have quoted those paragraphs earlier in para.[27] of this Opinion. The complaint about para.4.16 is that the adjudicator appeared to have speculated as to the pursuers' state of mind upon receiving the withholding notice. I do not agree. It seems to me that the adjudicator is doing no more than expressing, albeit in a direct and personalised way, the point that a person receiving this notice, and knowing (though it was not stated in the notice) that the loss had been suffered by someone else other than the defenders, would wonder how it could be said that the defenders themselves had suffered a loss. As to para.4.22, Mr Malone complained that it was irrelevant to speculate about the pursuers' knowledge of whether the defenders' accounts were dealt with on a group basis. That may be so, though as a question of construction it is for the adjudicator and not for this court to make that decision. But looking at the matter more broadly, all the adjudicator is saying, in my opinion, is that if the defenders had wanted to establish that their withholding notice should be understood in a way which went beyond its ordinary meaning, then they should have sought to establish that the recipient had some special knowledge which would have given him the relevant insight and enabled that meaning to be attributed to it. That seems to me to be an entirely proper approach, though again I emphasise that the decision is his, not mine. So far as concerns para.4.23, the complaint is that at no time prior to the adjudicator's decision did the pursuers say that, when they received the withholding notice, they knew that the defenders did not own the property; and that the adjudicator has therefore made a factual assumption regarding the state of the pursuers knowledge without any averment by either party and without having investigated the factual position - and all this to the detriment of the defenders. This is entirely without merit, for two main reasons. First, as is recited at para.3.81, the defenders themselves argued that the pursuers were aware that they (the defenders) did not themselves own the property. The finding in para.4.23, therefore, was a finding which the defenders themselves had sought. Secondly, far from being a finding to the detriment of the defenders, it was, if anything, a finding in their favour, since it gave the defenders at least the basis for arguing that the pursuers, with that knowledge, ought to have appreciated that the losses referred to in the withholding notice were losses suffered not by the defenders but by a company within the group. The complaint about para.4.24 is that the adjudicator was guilty of speculating as to what the pursuers must have thought or wondered when they received the withholding notice. It seems to me that this complaint is very similar to that made in respect of para.4.16 and I reject it for the same reason. Finally, complaint is made about the reference in para.4.26 to the possibility that the pursuers might have been prejudiced by the terms of the withholding notice. I do not understand this to be a separate point - it seems to me that this is another way of the adjudicator expressing the same point as he has made on a number of occasions, namely that anyone reading the withholding notice would have thought it referred to losses suffered by the defenders; and, to that extent, the withholding notice would not have given them fair notice of the real claim made against them, a point which the pursuers made in the adjudication (as recorded at para.3.73 of the decision). This, after all, is the purpose of the withholding notice: Melville Dundas Ltd. v. George Wimpey UK Ltd. 2007 SC HL 116, per Lord Hoffman at para.[19].

[46] Whether one takes these points singly or together, there is nothing in them which, to my mind, would lead any fair-minded and informed observer to conclude that there was a real possibility that the adjudicator was biased. It seems to me that he has attempted to construe the withholding notice according to its terms and against the background of the knowledge that pursuers had as to the ownership of the property. This is the right approach to construction.

 

D. The adjudicator acted in breach of natural justice by failing to put to the parties, prior to finalising his decision, his proposed findings of fact.

[47] The defenders say that the adjudicator ought to have put his proposed factual conclusions to the parties before issuing his decision. Had he done so, the defenders would have had an opportunity to refute the findings and to point out inconsistencies in them. He has therefore denied the defenders the opportunity of making appropriate representations prior to the issue of his decision. They say that such a denial is a breach of the requirement of natural justice and, in particular, of the requirement that the adjudicator hear both parties. Mr Malone explained in his submissions that this point related to the same paragraphs as the complaint about bias with which I have just dealt.

[48] It seems to me that the conclusions I have reached on the question of bias in relation to these paragraphs goes some way to answering this point also. I have found the complaint about para.4.23 to be entirely without merit. As to the other paragraphs, read sensibly they do not involve findings of fact so much as the application of well-known rules of interpretation of documents. But in case I am wrong about that, I should make it clear that in my opinion it is not incumbent upon an adjudicator to put his proposed findings of fact to the parties to give them an opportunity of commenting on them. Of course, if he has taken account of something within his own knowledge, and the parties have not been made aware of that, he should give them an opportunity of commenting. But that is not this case. In this case the adjudicator heard the parties and read their submissions and was fully entitled to proceed to a decision without giving a further opportunity for the parties to comment upon his findings. As was pointed out in Carillion (supra) at para.53, approved at para.81, it is often not practicable for an adjudicator to put to the parties his provisional conclusions for comment. I would go further and say that the pressure of time upon an adjudicator to reach his decision means that it will very rarely be practical for him to do so. Provided that his factual conclusions are based upon the material put before him, he cannot be expected to go through the process of submitting them for further comment before finalising his decision, even in a case where his conclusions represent something of a middle position between those of the opposing parties for which, inevitably, neither has contended. I also agree with the remarks made in Carillion (supra) that it will only be in an exceptional case that an adjudicator's failure to put his provisional conclusions of the parties, even if established, will constitute such a serious breach of the rules of natural justice that the court will decline to enforce his decision.

[49] Accordingly I reject this ground of complaint also.

 

Disposal

[50] Mr Smith, for the pursuers, moved the court, if it was in his favour, to grant summary decree in terms of the conclusions of the summons. In the alternative he asked the court to sustain the pursuers' third plea in law, a plea to the relevancy of the defences, and grant decree de plano. I propose to grant summary decree. As the House of Lords has made clear (see Henderson v. 3052775 Nova Scotia Ltd 2006 SC HL 85, at paras.[14]-[15]) the procedure is intended to be used where the matter can be determined in a summary fashion, without there being any need for a prolonged examination of matters of fact or law. There were no issues of fact to be examined other than those set out in the documents before the court. There was no suggestion that any other facts might be relevant or that there would be a need for evidence. Nor was any difficult point of law discussed in the course of the hearing. As Mr Malone recognised at the outset, neither the law nor the facts were in dispute - it was simply a case of applying the one to the other. Although the debate and the motion for summary decree proceeded in parallel, as the arguments progressed it became clear that the points under discussion did not require the detailed legal analysis appropriate only to the debate. The time taken in hearing the case, and the length of this Opinion, results less from any complexity in the legal and factual issues than from the extent of the documentation and the need to refer to three adjudications. Ultimately, despite Mr Malone's capable arguments, I have come to the clear view that the defenders have put forward no arguable basis for saying that the adjudicator's decision should not be enforced.

[51] In those circumstances I shall grant summary decree in favour of the pursuers in terms of the conclusions of the summons.