Costain Limited v Strathclyde Builders Limited
Case reference:
[2003] ScotCS 352
Wednesday, 17 December 2003
Key terms: SBCC Form of Contract - liquidated and ascertained damages - summary decree - natural justice - legal advisor - species of arbitration
In December 2001 the parties entered into a contract for the construction of 45 flats and associated works at 1544 Great Western Road, Glasgow. The terms of the contract were the Scottish Building Contractor's Designed Portion, Sectional Completion Edition with Quantities (January 2002 revision), which has been amended by the parties. Strathclyde deducted liquidated damages from the Architect's Certificate Nos. 20-25. A variety of disputes then arose, in particular Strathclyde's ability to make those deductions. The dispute was referred to adjudication, and the adjudicator issued a decision on 17 June 2003. He decided that Strathclyde should immediately pay all amounts withheld as liquidated damages in respect of Certificate Nos. 20-25, together with interest.<
Costain argued that the adjudicator had breached the rules of natural justice, and therefore his decision should not be enforced. This was on the basis that the adjudicator had sought an extension of time in order to discuss a point with his legal advisors. The results of those discussions were not made known to either party. However, the adjudicator did not invite comment nor submission from either party. Further, neither party requested details of the discussions, or a copy of the Advice. Costain argued that the adjudicator's failure to disclose the material of the Advice or invite comment or submissions was a breach of the principles of natural justice.
Lord Drummond Young considered that adjudication was a summary and "sometimes a blunt procedure". He noted that an adjudicator should arrive at his decision in a manner that was "basically fair" and that the adjudicator should treat each party equally.
He referred to Discain Project Services Limited v Opecprime Developments Limited [2001] BLR 285 for the proposition that the breach of the principle of natural justice must be substantial and relevant. He also considered that the adjudicator should be regarded as a "type of arbiter", and that adjudication was in this respect a "species of arbitration". He noted that the relevant principles should depend on the individual case, but came to the conclusion that the overriding principle was that each party must be given a fair opportunity to present its case, and that "everything else is subservient to natural justice ".
Subject to that overriding principle and the express provisions of the contract, the procedure was entirely within the control of the adjudicator. If the adjudicator was to use his own knowledge and experience, then it will be appropriate to make those propositions known to the parties in order to allow the parties an opportunity to comment, despite the short timescale. He distinguished advice from information, and considered that the giving of advice involved the imparting of information and without disclosure by the adjudicator it was not possible to know what had been discussed nor to know whether any breach of natural justice was substantial and relevant. Nonetheless the mere possibility of the prejudice was sufficient and he was of the opinion that there was a breach of natural justice. That in itself was sufficient to refuse the motion for summary of decree.
In respect of the finality of adjudication, he noted with interest that:
Costain argued that the adjudicator had breached the rules of natural justice, and therefore his decision should not be enforced. This was on the basis that the adjudicator had sought an extension of time in order to discuss a point with his legal advisors. The results of those discussions were not made known to either party. However, the adjudicator did not invite comment nor submission from either party. Further, neither party requested details of the discussions, or a copy of the Advice. Costain argued that the adjudicator's failure to disclose the material of the Advice or invite comment or submissions was a breach of the principles of natural justice.
Lord Drummond Young considered that adjudication was a summary and "sometimes a blunt procedure". He noted that an adjudicator should arrive at his decision in a manner that was "basically fair" and that the adjudicator should treat each party equally.
He referred to Discain Project Services Limited v Opecprime Developments Limited [2001] BLR 285 for the proposition that the breach of the principle of natural justice must be substantial and relevant. He also considered that the adjudicator should be regarded as a "type of arbiter", and that adjudication was in this respect a "species of arbitration". He noted that the relevant principles should depend on the individual case, but came to the conclusion that the overriding principle was that each party must be given a fair opportunity to present its case, and that "everything else is subservient to natural justice ".
Subject to that overriding principle and the express provisions of the contract, the procedure was entirely within the control of the adjudicator. If the adjudicator was to use his own knowledge and experience, then it will be appropriate to make those propositions known to the parties in order to allow the parties an opportunity to comment, despite the short timescale. He distinguished advice from information, and considered that the giving of advice involved the imparting of information and without disclosure by the adjudicator it was not possible to know what had been discussed nor to know whether any breach of natural justice was substantial and relevant. Nonetheless the mere possibility of the prejudice was sufficient and he was of the opinion that there was a breach of natural justice. That in itself was sufficient to refuse the motion for summary of decree.
In respect of the finality of adjudication, he noted with interest that:
"It is not an easy answer to say that an adjudicator's decision may be reopened at the conclusion of the contract by arbitration or litigation: It is clear that the industry does not regard such a course as generally desirable and a multiplicity of proceedings is obviously to be avoided. It is accordingly vital that basic standards of fairness should be applied to adjudicators and rigorously enforced". (Para 21)
Finally, Costain argued that Strathclyde could not now complain even if there were any breach of natural justice because they failed to complain during the course of the adjudication. Drummond Young considered that the principles of natural justice were more important, and that place an undue burden on party advisors during the course of an adjudication. As a result he refused Costain's motion for a summary decree.