Adjudication Item
Date: 23 June 2000 14:28
Subject: Stiell Ltd. v Riema Control Systems Ltd. (No 30) Nature of
Adjudicators decision



 EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Prosser, Lord Philip, Lord Caplan

X1/53/00


OPINION OF THE COURT
delivered by LORD PROSSER
in
APPEAL
From the Sheriffdom of South Strathclyde, Dumfries & Galloway at Hamilton
by
STIELL LIMITED Pursuers and Respondents;
against

RIEMA CONTROL SYSTEMS LIMITED Defenders and Appellants:

Act: Howie; MacRoberts (Pursuers and Respondents)

Alt: Mackenzie, Solicitor-Advocate; Masons, Glasgow (Defenders and
Appellants)

23 June 2000

[1] In or about March 1999, the pursuers in this action, Stiell Limited,
were instructed by the defenders, Riema Control Systems Limited to carry
out the supply and installation of certain control and electrical equipment at
a site known as British Telecom, Atlantic Quay, Glasgow. The original
contract price was £156,982, exclusive of VAT. The pursuers aver that the defenders
instructed them to carry out certain extra works, and that the total value of all the works carried out is £275,104.15, exclusive of VAT. Certain payments having been made, they sue for the sum of £139,375.93, which they say is the balance remaining due, including VAT.

[2] The action was raised in January 2000. Under a warrant for arrestment
on the dependence, sums in the hands of a third party were arrested. The
amount arrested was restricted, by agreement, to £160,000. It is not disputed that
the arrestment was competent and valid, at the time when it was effected in January.

[3] Prior to the raising of the action, in December 1999, the pursuers had exercised their right, under section 108(1) of the Housing Grants, Construction and Regeneration Act 1996 to refer a dispute arising under the contract for adjudication under the appropriate procedure. The dispute thus referred related to the valuation in respect of the supply and installation of control and electrical equipment, including the value of additional work.

The remedy sought was an award in favour of the pursuer, as the Referring Party, of £118,617.81 plus VAT together with interests and costs. The contract between the parties was a sub-contract, and clause 11.0 thereof dealt with adjudication. The clause provided inter alia that any adjudication was to be carried out under the Centre of Dispute Resolution (CEDR) Rules for adjudication. On 11 February 2000, the adjudicator issued his decision that the total value of the works, including the value of
additional works carried out by the Referring Party totalled £220,336.67
(excluding VAT, Retention, Interest and subject to current VAT
regulations).
The adjudicator ordered that the defenders, as Responding Party, must pay
to the pursuers as Referring Party the amount of £58,655.01, and must comply
with the decision within five working days of issue. That amount was paid,
together with the appropriate VAT.

[4] On 22 February, the sum arrested on the dependence of the action was
further restricted, by agreement, to £90,000. Thereafter, the defenders
moved that the arrestments be recalled; and having heard submissions from
the parties, the sheriff refused the motion. The defenders reclaim. They
submit that the sheriff erred, and that the arrestments are now
incompetent, or alternatively that they are nimious and oppressive.

[5] In terms of section 108(1) of the 1996 Act, the adjudication must be
"under a procedure complying with this section". Subsection (3) provides
that "The contract shall provide that the decision of the adjudicator is
binding until the dispute is finally determined by legal proceedings, by
arbitration...or by agreement."

[6] By virtue of section 108(5) and section 114(4), implied terms are
imported into the contract, where there is default of contractual provision
agreed by the parties. In the present case, however, as we have indicated,
the parties agreed that the CEDR Rules, which comply with section 108, were
imported into the contract. In terms of paragraph 11 of those Rules, "every
decision of the Adjudicator shall be binding on the parties and
notwithstanding paragraphs 12 and 13 shall be implemented without delay by
the parties who shall be entitled to such reliefs or remedies as are set
out in the decision." Paragraph 12 provides that if a party is dissatisfied
with the decision of the adjudicator, it may within a specified time give
written notice of its dissatisfaction. If no notice of dissatisfaction is issued within the specified period, it is provided by paragraph 12 that "the
decision of the adjudicator shall be final and binding upon the parties."
Paragraph 13 provides that if a notice of dissatisfaction is given, the
dispute "will be finally determined by court proceedings or by reference to
arbitration in accordance with the contract between the parties." The
paragraph further provides that unless otherwise agreed by the parties, the
court or the arbitrator shall not be bound by, and shall have power to
review and revise every decision of the adjudicator. Following upon the
adjudicator's decision in the present case, the pursuers gave timeous
notice of dissatisfaction, and it is not disputed that all issues raised in the
action, including that which was referred to the adjudicator, now fall to
be resolved by the court in those proceedings, without regard to the
adjudicator's decision or anything that followed thereon.

[7] As enrolled, the motion for recall of arrestments which was made to the
sheriff was upon the basis that the arrestments were nimious and
oppressive. However, the submissions advanced to him in argument were upon a wider basis, turning upon the fact of the adjudicator's decision requiring the
defenders to pay the pursuers £58,655.01. The sheriff describes the
defenders' submission as having been "that such an adjudication award
having been granted on the identical subject-matter of the present litigation,
then the arrestments should be recalled as the matter was res judicata". In the
present appeal, the defenders and appellants proceed upon the basis that
the sheriff has misunderstood the nature of the submission made to him. Their
position is that the arrestments are incompetent, the sums claimed by the
pursuers being contingent. We shall come to that submission; but it is said
that "the decision of the adjudicator renders the unsuccessful part of the
pursuer's claim contingent upon final determination by legal proceedings or
agreement between the parties". The crux of the matter is therefore the
nature and effect of the prior decision, in respect of the same matter as
is being brought before the court. At least in that respect, there is some
similarity with the situation which arises where a plea of res judicata is
taken. Whether or not the sheriff has misunderstood the precise nature of
the submission, the point was not pressed on behalf of the pursuer and
respondent, and in their submissions to this court counsel for both parties
were concerned with the primary issue of law rather than any specific
aspect of the sheriff's disposal of it.

[8] On behalf of the defenders and appellants, it was emphasised that the
provisions for referral to adjudication, and all that had followed thereon,
were contractual matters. The 1996 Act made provision for such referral,
and the contractual provisions with which we were concerned were consistent
with the statutory requirements. But it was important to bear in mind at all
times that the referral was made in terms of the parties' contract, and
that in reaching his decision, the adjudicator was essentially carrying out the
parties' bargain.

[9] As we have indicated, the defenders and appellants do not submit that
the arrestments were incompetent originally. The contention that they are
incompetent is based upon the assertion that the sums claimed are
"contingent". But it is important to note that it is not said that they
would be contingent in any sense, apart from the provisions for
adjudication. Moreover, it is not said that they are made contingent by the
mere presence in the contract of these provisions for adjudication. Nor is
it said that they had been rendered contingent by the referral to the
adjudicator. They were thus, notwithstanding that referral, not contingent
when the action was raised. The debt which was asserted in the action was
then to be regarded as a "pure" debt, and it could not be claimed that the
sum sought in the action was then anything other than a sum "due", so as to
make arrestment on the dependence competent. What is said to have changed
matters is thus neither the provision for referral, nor actual referral; it
is the decision reached by the adjudicator. Furthermore, it is not said
that the decision rendered the whole sum sued for "contingent". To the extent of
the sum which required to be paid, the original arrestments remained valid
until security became unnecessary, upon payment of that sum. It was the
remainder or balance of the sum sued for, which the adjudicator had decided
did not require to be paid, which was said thereby to have become a debt
contingent upon final determination of the pursuers' action against the
defenders. The action was now proceeding only in respect of this
"unsuccessful part" of the claim. Put shortly, the submission was that the
adjudicator's decision in relation to that part of the claim (like his
decision in relation to the amount which he said required to be paid) was
"binding" upon the parties, until finally determined by legal proceedings
or agreement. Until such determination or agreement, the sum was not due or
payable, and must be regarded as contingent upon such determination or
agreement.

[10] On behalf of the defenders and appellants, our attention was drawn to
the terms of chapter 9 of the Latham Report, and in particular paragraph
9.13. It was clear from the terms of that paragraph that the intention was
for adjudication to be "the normal method of dispute resolution in
construction". Holding up the flow of cash was bad for the construction
industry, and the purpose of the procedure was to ensure that cash would
flow speedily without delays in settlement. Reference was also made to
Homer Burgess Limited v. Chirex (Annan) Limited 2000 S.L.T. 277, and Lord
Macfadyen's acknowledgement at page 285E that the policy of the legislation
was to prevent payment being delayed by lengthy dispute. The defenders and
appellants acknowledged that the adjudicator's decision was an interim
determination, which could be reversed in whole or in part by the court's
subsequent determination. The adjudicator's determination was nonetheless
to be seen as an important one, determining the matter and binding upon the
parties, with provision for very early payment, subject only to the
possibility of subsequent alteration by a determination of the court. That
possibility was a contingency which could not be ignored. And it was a
contingency which meant that any liability on the part of the defenders to
pay more than the amount identified by the adjudicator must be seen, as
matters stood, as not yet in existence, and requiring a determination of
the court, contrary to the adjudicator's determination, to bring it into
existence. The sums not awarded were quite simply not presently due, and
while the Notice of Dissatisfaction had prevented the adjudicator's
decision from becoming final, that Notice did not alter the binding status of his
decision, unless and until it were to be reversed by the court.

[11] In submitting that the pursuers' claim was now for a debt which was
contingent, Mr. Mackenzie on behalf of the defenders and appellants
referred to Costain Building and Civil Engineering Limited v. Scottish Rugby Union
plc 1993 S.C. 650. No issue arises between the parties in the present case
as to the underlying principles, which are fully considered and stated by
the Lord President in Costain at pages 653 and 654. While various terms may
be used, Scots law recognises two distinct categories of debt - those which
are "pure" or immediately due, and those which are future, conditional or
contingent. If the pursuer in an action sues for a debt in the latter
category, arrestment on the dependence will be recalled (with certain
exceptions which are not here in point). And at page 654E to F, the Lord
President sets out the basis upon which the two categories are
distinguished from one another, and the reason for allowing arrestment on the dependence only where the debt is due or pure:

"For this purpose a debt is due if it is due for payment immediately ex
hypothesi of the pursuer's case. This means that, if all that is needed is
for the pursuer to prove his averments in order to enforce the debt, the
arrestment is competent. It is different, however, if the debt is payable
only in the future because the contract provides that it is to be paid on a
date which has not yet arrived, or if it is contingent because it is
subject to a condition in the contract which must be fulfilled before it becomes
payable. In regard to either of these two kinds of debt, for the debtor to
be forced by an arrestment on the dependence to provide security before it
is due is to innovate on the contract and the debtor is entitled to ask
that the arrestment be recalled."

[12] The submission advanced on behalf of the defenders and appellants did
not (and indeed could not) rest simply upon this broad analysis of
principlein Costain. The reclaimers in that case argued that in terms of their
contract they were not under any present obligation to pay the sums sued
for, as that obligation was contingent on the issue of an engineer's
certificate or the decision of an arbiter. While noting that each contract
must be examined according to its own terms, the court concluded that where
the contract provides for payment for work done on the issuing of a
certificate by an engineer or architect, the issue of the certificate is a
condition precedent to the contractor's right to demand payment, and that a
claim of that kind is a contingent claim because the debt is not due until
the certificate has been issued. On behalf of the defenders and appellants
in the present case, it was submitted that the incorporation of the
adjudication procedures into the contract was analogous to the contractual
requirement of an engineer's certificate. In each case, the parties had
agreed in terms of their contract that instead of simply suing for payment,
the right to demand payment was qualified by contractual procedures
involving consideration of the matter by an outsider. It was not suggested
that the analogy was precise, since in Costain it had been held that the
pursuer could not say that the debt was due unless and until the
certificate had been obtained. But in the present case, we were no longer concerned
with the sum which the adjudicator had held to be due: there was no need to
proceed with the action for that sum, which had been paid. We were
concerned with sums for which the pursuers had sought but not obtained an order from the adjudicator. In so far as a claim had been rejected by the adjudicator,
it was analogous to a claim which had not received an engineer's
certificate. In support of the submission that the claim was thus subject
to the contingency of determination by the court, reference was also made to
the opinion of Lord McCluskey in Costain, at pages 666 to 668. While the
adjudication procedures were not contractually obligatory on the parties,
in the sense that they had to be followed in every case, it was submitted that
once the procedures had been adopted, by a reference, they had to be
followed through, and once a decision was issued, revealing that claims had
been rejected in whole or in part, the analogy with claims which were not
supported by an engineer's certificate was sound. In the present case, the
action had been in existence before the decision; but even if it had been
raised after the decision, the position would be the same: in each case,
the contractual process of adjudication having been completed, determination by
litigation had become a contingency which had to be satisfied before the
debt could be regarded as pure or due.

[13] On behalf of the pursuers, counsel submitted that the arrestments
should not be recalled. While adjudication was intended to result in early
determination of disputes where possible, it was to be noted that all
manner of disputes could be referred, and that the purpose of section 108 of the
1996 Act should not be viewed purely in terms of pecuniary claims and
cash-flow. We were referred to Lord Kingarth's decision in Allied London
and Scottish Properties plc v. Riverbrae Construction Limited 1999 B.L.R. 346,
and the case there referred to, Macob Civil Engineering v. Morrison
Construction 1999 3 B.L.R. 93; but these decisions do not appear to us to
throw any real light on the point which arises in this case. The powers of
the adjudicator are not really in doubt, and the overall purposes of the
legislation do not seem to us to help to resolve the question of the nature
of the debt in question, at any stage. Counsel drew our attention to
various differences which exist between the adjudication procedure and the status
of architects' or engineers' certificates in cases such as Costain. It is
clear that there are differences, and the usefulness of argument from analogy is
perhaps doubtful when (as was made very clear in Costain) the analysis of
the legal position depends on careful scrutiny of the particular
contractual provisions which are in issue. The analogy may be a useful starting point,
as indicating the type of approach which is said to be appropriate. But
what is required thereafter is a consideration of the contract in question.

>[14] On behalf of the pursuers, it was submitted that the appropriate
>approach was to be found in Rippin Group Limited v. I.T.P. Interpipe S.A.
>1995 S.C. 302 rather than in Costain, which the court in Rippin considered
>and distinguished. Rippin was a case in which a warrant to arrest on the
>dependence was obtained in a Sheriff Court action, which was thereafter
>remitted to the Court of Session. The Lord Ordinary recalled the
>arrestments, on the basis that the pursuers' claims were contingent upon an
>arbiter determining in the arbitration that the sums were payable in terms
>of the contract. At the same time, the cause was sisted for arbitration, of
>consent. Reversing the Lord Ordinary, the Second Division were satisfied
"that ex hypothesi of the pursuers' case, the sums claimed are due for
payment immediately."

[15] In delivering the Opinion of the Court in Rippin, the Lord Justice
Clerk refers to a passage in Graham Stewart on Diligence, at page 81, to
the effect that claims which depend on the issue of a suit are not truly
contingent debts "for decree in the action merely constitutes the debt
which existed at the commencement of the case." In Rippin, there was nothing in
the pursuers' pleadings to suggest that there was any condition in the
contract which had to be fulfilled before these sums became payable. While
there was an arbitration clause, it contained no condition which required
to be fulfilled before any of the sums became payable. The parties were not
bound to go to arbitration, and if, after the action had been raised,
neither party had chosen to found upon the provision providing for
arbitration, then no arbitration would take place. "It accordingly cannot
be asserted that the arbitration clause contains conditions which must be
fulfilled before any sum becomes payable." Nor did going to arbitration
alter the position. "On the pursuers' pleadings, the sums claimed are
outstanding and debts thus exist although a decree arbitral may be required
to constitute the debt."

[16] In our opinion, what is said in Rippin shows the correct approach to
the present case, although the adjudication provisions with which we are
concerned are of course different from the arbitration provisions which
were in point in Rippin. The issue between the parties, which requires to be
determined in the action, is one which involves no condition or
contingency. All the pursuers have to do is prove what they aver. Upon that basis, it is
conceded that at the outset of the action, the sums claimed were
outstanding and debts thus existed. If the action proceeded without recourse to
adjudication, the action would merely constitute the debt which thus
existed at the commencement of the case. The fact that the issue in an action may
in certain circumstances require to be determined by an arbiter, or indeed by
an adjudicator, does not mean that there is any change in the issue which
is to be determined, and accordingly does not mean that the claims which were
pure become contingent. And if, as in this case, the determination by the
adjudicator is binding only ad interim, and can be replaced by a
determination by the court, it is all the clearer that the issue remains
the same throughout, regardless of whether it is determined by the adjudicator,
or by the court, or partly by the one and partly by the other. All that is
happening, in either event, is the constitution of a debt which existed at
the commencement of the case, and still exists to the extent that it has
not been paid.

[17] As the Lord Justice Clerk observed in Rippin, the real basis of the
decision in Costain was that the claims were contingent because no amount
could be said to be due until the engineer or an arbiter had made a
decision to that effect. That being so, they observe that any expression of opinion
by Lord McCluskey, apparently suggesting that no debt could exist until the
conclusion of the arbitration process, is obiter. We do not find it
necessary or appropriate for us to comment on other situations in which the
particular terms of a contract might be said to render claims contingent.
We are entirely satisfied that the terms of the contract with which we are concerned are such as to provide different ways of constituting the debt,
ad interim or finally, but that the debt in question is that which existed at
the commencement of the case, and which was not and is not contingent.

[18] The alternative argument that the arrestments should be recalled
because they were nimious and oppressive is in our opinion without
substance. The contention appeared to be that in the light of the
adjudicator's decision, it could be said that the pursuers' claim in the
action was at least prima facie excessive or even extravagant. There was a
decision, at present binding, to the effect that the balance of what they
sought was not due. For the pursuers to obtain payment of money in
accordance with the adjudicator's decision, and yet still to be able to
freeze the balance which he had held not to be due, would be unfair and
lacking in proper proportion in its treatment of the parties. Even if the
debt were regarded as due, notwithstanding the proceedings before the
adjudicator, his decision should at least be given effect as a prima facie
indication that what was sought was excessive. We are not persuaded by this argument. There is no suggestion that the claim was made with anything
other than a proper motive and a normal basis. Counsel for the pursuers submitted
that there was nothing unusual in arrestments remaining in place, despite a
view having been taken that the claim was bad, or bad in part. A decision
which went against pursuers in the Outer House did not lead to arrestments
being recalled if the matter was reclaimed and taken to a decision of the
Inner House. The position remained the same, that the action was one for a
pure debt which was due, and until there was a final determination of that
matter, whether after an adjudication or upon a decision being appealed,
the arrestments were performing their proper function of giving security for a
debt which was not contingent. We are satisfied that that is indeed the
position.

[19] In the whole circumstances we are satisfied that the debt for which
the pursuers sue was and is a pure one, and that there is no good ground for
recalling the arrestments. The appeal is accordingly refused, and we will
remit the matter to the Sheriff Court, for the sheriff to proceed as
accords.