Diamond (Gillies Ramsay) v PJW Enterprises Judicial [2003] ScotCS 354

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An adjudicator is not a statutory decision maker and adjudication is not truly an aspect of public law. Although created and made compulsory by statute, adjudication is a contractual dispute resolution process. An intra vires error of law made by an adjudicator is therefore not open to judicial review.

Court of Session (Scotland). Lord Gill, Lord Macfadyen and Lord Caplan

24 December 2003

A recent challenge to the adjudication process in Scotland has ended in failure. In this case the appeal court in Scotland upheld the decision of Lady Paton at first instance, which was noted in Adjudication Watch on 27th June 2002. The appeal court was asked to decide a further point, not raised at first instance, namely whether an intra vires error of law (i.e. an error of law made within the adjudicator's jurisdiction) provided grounds for the Courts to review an adjudicator's decision.

To recap, G were a firm of surveyors appointed to act as contract administrators by P in relation to works under a separate building contract. The appointment of G was by letter and contained no adjudication clause. P alleged that G had acted negligently and in breach of contract by failing to issue certain written instructions and by awarding an extension of time under the building contract when they should not have done so. As a result of G's failure and the wrongful extension of time award P claimed to have suffered losses. These losses were said to comprise (i) overpayments made to the contractor which PJW had been compelled to make because of an earlier adjudication decision in an adjudication between PJW and the contractor under the building contract, (ii) costs incurred as a result of the incorrect award of an extension of time and (iii) costs incurred as a result of early termination of G's appointment. The adjudicator awarded damages to P in respect of these losses. G sought judicial review of the adjudicator's decision.

In upholding Lady Paton's decision the appeal court held:

The appointment of G by P was a construction contract for the purposes of the HGCRA 1996 and accordingly P had the right to refer a dispute to an adjudicator in accordance with the Act and the Scheme.
The adjudicator had power to award damages for breach of contract. This was different to the position of a Scottish arbiter who does not have power to award damages unless the parties' contract expressly provides for this. Adjudication is not a form of arbitration but a separate form of dispute resolution which is provisional only. In any event, the language of the 1996 Act and the Scheme is wide enough to give an adjudicator power to award damages.
P could not be said to have suffered "no loss" as a result of the provisional nature of the adjudicator's decision in the earlier adjudication between PJW and the contractor. An adjudicator's award, although provisional in the sense that it can be undone by subsequent arbitration, litigation or agreement, creates a liability that is immediately enforceable. The party against whom it is made is therefore in a real sense in a position of loss.
It would be wrong to assume that the adjudicator had failed to take relevant material into account when reaching his decision simply because he did not mention the material in his decision. He had a duty under the Scheme to consider any relevant information submitted to him and it should be assumed he did so unless his decision and reasons suggest otherwise.
For the decision to be reviewed on the basis that the reasons for it were unintelligible (and therefore that the decision was, in reality, not supported by reasons at all) the "reasons" must be so incoherent that it is impossible for the reasonable reader to make sense of them. In this case although the adjudicator may have reached conclusions which were erroneous, they were at least comprehensible.
The adjudicator's reasons for making a finding of professional negligence were unsatisfactory. The legal test for professional negligence is one which pre-eminently depends on the opinions of expert witnesses. No expert evidence had been heard by the adjudicator who had nevertheless reached the sweeping conclusion that G had been guilty of professional negligence. The adjudicator had made an error of law.
Despite previous House of Lords decisions confirming that the Courts could review an intra vires error of law on the part of a statutory decision-maker, an intra vires error of law by an adjudicator was not reviewable. An adjudicator is not truly a statutory decision-maker. Adjudication is not truly an aspect of public law. Although created and made compulsory by statute, adjudication is a contractual dispute resolution process. Parliament has provided an exhaustive list of the ways in which an intra vires error of law can be reviewed; namely by subsequent arbitration, litigation or agreement. Were judicial review to be available the purpose of adjudication would be subverted.

Judicial review remains available (in Scotland) for the purposes of challenging an adjudicator's decision on the basis that the decision was made ultra vires (i.e. outwith the jurisdiction of the adjudicator).

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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