Elmwood engaged Profile to carry out the design and insulation of partitions and other works at NHS Lothian. Clause 27(ii) of the subcontract provided that:

• Where a dispute arising under the subcontract could not be settled by informal means, then either party could refer the dispute to adjudication.
• The provisions of the Scheme for Construction Contracts (Scotland) would apply to the adjudication save where inconsistent with any of the provisions of Clause 27(ii).
• The Adjudicator nominating body was the Scottish branch of RICS.
• The referring party would bear the whole costs of the adjudication, including the adjudicator’s fees and both parties’ legal fees.
• Finance charges associated with matters being pursued under the adjudication process would not be recovered as part of the adjudication.

A dispute arose as to Profile’s entitlement to payment. Profile referred the dispute to adjudication. The parties did not agree on an Adjudicator. Profile applied to the Scottish Building Federation to appoint an Adjudicator. Elmwood challenged the Adjudicator’s jurisdiction. The challenge was rejected.

At enforcement of the Adjudicator’s decision, Elmwood argued:

1. Clause 27(ii) was incompatible with s.108 of the Act in such a way to render it ineffective as it required the referring party to bear the costs of adjudication (i.e. a Tolent clause)?
2. If the subcontract adjudication provisions were found to be inconsistent with s.108 of the Act, did the whole contractual provisions for adjudication fall away and be replaced by the adjudication provisions of the Scheme for Construction Contracts (Scotland) Regulations 1998?
3. Had Profile applied to the wrong nominating body for the appointment of an Adjudicator?

Was Clause 27(ii) incompatible with the Act so as to render it ineffective?

The Judge considered there to be two aspects to this question: (i) the provision in Clause 27(ii) in relation to the costs of the adjudication; and (ii) the provision that associated financing charges should not be subject to award. The Judge decided:

1. This provision did not render Clause 27(ii) incompatible with s.108. s.108 required a contract to comply with certain specific requirements; if it did not then the provisions of the Scheme applied. The Judge held that whilst a provision requiring the referring party to bear the costs of adjudication may act as a discouragement, it did not act as a “disablement”; the right of action was not extinguished. In any event, Profile had clearly not considered themselves disabled as they had commenced the adjudication proceedings.
2. There was no express exclusion of the right to claim financing charges elsewhere in the subcontract. The subcontract provided for the recovery of loss and expense, and the financing charges were recoverable as a head of damages. The Judge considered that this part of Clause 27 (ii) amounted to a clear restriction on the right of a party to give notice of their intention to refer a dispute to adjudication and for that reason it did not comply with s.108.

Did the whole contractual adjudication provisions fall away to be replaced by the adjudication provisions of the Scheme?

The Judge found that adjudication could be governed partly by express contract terms and partly by the Scheme. Profile’s submissions appeared to be founded on the basis that a form of “mixed” procedure would be a recipe for confusion and chaos. Judge was unclear as to why this would be so in relation to the adjudication provisions in s.108 as it had not been proved to be the case in relation to the payment provisions in the subsequent sections. The Judge saw nothing unworkable with a result that incorporated the Scheme provisions only in relation to those contractual provisions that were non-compliant with s.108.

Did Profile apply to the wrong nominating body?

The nominating body in the subcontract was the Royal Institution of Chartered Surveyors. Profile had requested a nomination from the Scottish Building Federation. Therefore Profile had not followed the correct procedure provided by the subcontract or the Scheme.