Castle Inns (Stirling) Ltd v Clark Contracts Ltd [2005] ScotCS CSOH_178

This summary was provided by CMS Cameron McKenna LLP.

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

S.108 of the HGCRA provides that an adjudicator’s decision is binding pending final determination of the dispute by legal or arbitral proceedings.  In this case, the court held that liability for the adjudicator’s fees and expenses did not constitute a “dispute” for the purposes of the HGCRA and therefore any decision by the adjudicator on fees did not relate to a dispute capable of being finally determined by the court.  The legal basis for repayment of any sums following final determination of a dispute would be pursuant to an implied term for the purpose of giving business efficacy to the contract.

Lord Drummond Young - Outer House, Court of Session

Background

Castle appointed Clark to carry out certain works.  Although no formal contract was ever signed, the tender and acceptance that took place did incorporate the conditions of the Scottish JCT Building Contract without Quantities, Contractors Design Portion (Jan 2000 revision), subject to certain amendments and modifications. 

Various disputes arose between the parties, which resulted in two separate referrals to adjudication by Clark.  In both adjudications, the adjudicator found in favour of Clark, deciding that it was entitled to an extension of time, payments in relation to direct loss and expense and payment of sums that had been withheld by Castle.  Castle was held liable by the adjudicator for payment of his fees and expenses.

Castle commenced proceedings seeking final determination by the court of the matters forming the subject-matter of the adjudications.  Lord Drummond Young had to decide several issues, including whether the court had the power to order repayment of sums paid in respect of the adjudicator’s fees and expenses and what the legal basis for recovery of any sums might be.

Decision

Castle’s claim to recover the sums paid in respect of the adjudicator’s fees and expenses was based on the principle of unjust enrichment.  Lord Drummond Young found that, given that the contract remained in full force and effect, the use of an implied term of the contract was a more natural mechanism upon which to found a claim for recovery of any sums that a party had paid pursuant to an adjudicator’s decision rather than a restitutionary claim based on unjust enrichment.

The contractual provisions were based on the requirements of s.108 of the HGCRA, which provided parties to a construction contract with the right to refer a “dispute” to adjudication.  It followed that a dispute was something that had to be in existence prior to the reference to adjudication.  Given that liability to pay an adjudicator’s fees and expenses only arose subsequently, it did not constitute a “dispute” for the purposes of the HGCRA. 

Section 108(3) grants courts and arbitrators with the power to determine disputes, which have previously been adjudicated upon.  This did not extend to a power to determine a decision regarding liability to pay the adjudicator’s fees and expenses.  Further, no appeal is possible against an adjudicator’s decision on the grounds that it was wrong on the facts or in law.  It followed that an adjudicator’s decision in relation to liability for his fee and expenses was a decision that the court did not have the power to review. 

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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