RBG Limited v SGL Carbon Fibres Ltd [2010] CSOH 77

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-lawnow.com/adjudication

SUMMARY

(1) Where an adjudicator has acted intra vires, the courts will not intervene even if the decision is incorrect. But where an adjudicator has acted ultra vires – for example, by acting in breach of natural justice, or in failure to exercise jurisdiction – it is for the Court to decide whether his decision is vitiated as a result.  (2) As regards jurisdiction, an adjudicator, while restricted to issues focused in the dispute, has nevertheless both the power and duty to determine whether or not a claim that is put forward in respect of valuation of work done is validly asserted under the contract.  (3) The response to the claim for payment in this case was that no payment was due because of earlier overpayment.  Even if this was not a matter encompassed within the dispute as defined in the Notice of Adjudication, it fell within the scope of the adjudication and the Adjudicator was bound to consider evidence and submissions about it. (4) In this case the Adjudicator had failed to consider the evidence and submissions of the defender on this point.  He could not properly answer the question put to him unless he did so.  Accordingly his decision was vitiated and a nullity.

Outer House, Court of Session, Lord Menzies

BACKGROUND

In 2008 the parties entered into a building contract whereby the pursuer, (“RBG”), agreed to carry out certain works in the factory premises of the defender (“SGL”).  The contract was an NEC3 Engineering and Construction Contract, June 2005, Option C, as amended, incorporating the Contract Data and Form of Tender and the Works Information.  It included Option W2 which entitled either party to refer a dispute to adjudication at any time.
 
A dispute arose over, among other things, RBG’s entitlement to be paid sums that it had included in five invoices.  RBG referred the dispute to adjudication and the Adjudicator found that SGL should pay to RBG certain sums together with interest.  SGL declined to pay these sums and RBG accordingly raised an action for payment.  In response, SGL asked the court to set aside the decision ope exceptionis, either on the ground that the Adjudicator had failed to exhaust his jurisdiction, or on the ground that he had acted in breach of natural justice.

During the course of the adjudication, SGL argued that there had previously been an overpayment to RBG such that no further sums were due even if the work charged for in the invoices had been carried out and the sums in respect thereof were accurately stated.  However, in his decision, the Adjudicator appeared to decline to have regard to evidence regarding alleged earlier overpayments because he did not regard it as being within the scope of his adjudication, but rather envisaged that it would be revisited in another adjudication or similar procedure.  On the other hand, for the purposes of the adjudication, he took as the starting point of his calculations a Price for Work Done to Date (“PWDD” – which is a cumulative figure) amounting to £9,692,261, which had been identified as the PWDD as at 31st December 2008.  He then made reductions in that sum to reflect what he found to be overpayments in respect of site labour and welding equipment.  

ISSUES

The Court had to address the following issues:

(a)  whether the Adjudicator had failed to exhaust his jurisdiction through neglecting to consider the issue of alleged overpayments raised by SGL;

(b)  whether the Adjudicator was in breach of natural justice by refusing to consider the arguments and evidence of SGL in relation to the issue of alleged overpayments;

such that, in either case, the Adjudicator’s decision was vitiated and a nullity. 

DECISION

The Court held that:

  • The Court will not intervene in a decision by an adjudicator which is incorrect but intra vires. Where, however, there is a challenge to the effect that the decision is ultra vires, e.g. in breach of natural justice, in excess of jurisdiction or failing to exercise jurisdiction, it is for the Court to consider issues such as jurisdiction and natural justice, and to decide whether the decision of the adjudicator is vitiated as a result.
  • As regards jurisdiction, an adjudicator, while restricted to issues focused in the dispute, has nevertheless both the power and the duty to determine whether or not a claim that is put forward in respect of valuation of work done is validly asserted under the contract.
  • In the present case the question which the Adjudicator had to address was focused in the Notice of Adjudication.  This raised the question of RBG’s entitlement to be paid the sums included in its invoices.  In order to answer the dispute focused in the Notice of Adjudication, the Adjudicator was required to revisit PWDD and consider whether it contained any elements of overpayment.
  • Even if the response by SGL that no payment was due because of earlier overpayment was not a matter encompassed within the dispute as defined in the Notice of Adjudication, it fell within the scope of the adjudication and the Adjudicator was bound to consider evidence and submissions about it.
  • It is only in the plainest of cases that the Court should interfere with an adjudicator's decision. However, the present case fell within that minority in which an adjudicator's decision is vitiated and is a nullity.  The Adjudicator had power to, and was bound to, consider the evidence and submissions of SGL relating to alleged earlier overpayment.  He could not properly answer the question put to him regarding RBG's entitlement to be paid unless he did so.
  • The Adjudicator’s failure to exhaust his jurisdiction was a result a misconstruction of his remit rather than a breach of natural justice. 
  • However, if there had been a breach of natural justice, the Court would have regarded it as both substantial and relevant in that it would have amounted to a denial of a fair opportunity to SGL to present its case.
  • SGL’s motion for summary decree was refused and the action was dismissed. In addition to this, the Courrt also set aside the decision ope exceptionis.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit  http://www.cms-lawnow.com/adjudication

 

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