Castle Inns (Stirling) Ltd t/a Castle Leisure Group v Clarks Contracts Ltd [2007] CSOH 21

This summary was provided by CMS Cameron McKenna LLP.

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This Scottish case looked at the meaning of “dispute or difference” in the context of an adjudication. 

The court held that the dispute referred to an adjudicator should normally be identified by reference to the claim that had been made by one party and rejected by the other.  It was the totality of the claim rather than its constituent parts that was referred to adjudication. 

Lord Drummond Young – Outer House, Scottish Court of Session

Background

Castle Inns appointed Clark to carry out certain construction works on their nightclub.  Certain disputes arising between the parties were referred to adjudication, including, in Adjudication No.2, a dispute referred by Castle Inns over liquidated damages due as a result of delays.  The adjudicator awarded liquidated damages under the contract on the basis that the defects would take only one week to remedy (and not the four weeks submitted by Castle Inns). 

The construction contract provided that any party who wished to have a dispute on which an adjudicator had given his decision on a date after the date of issue of the final certificate finally determined by arbitration or by court proceedings, then it had to do so within 28 days of the date upon which the adjudicator had given his decision.

When Castle Inns subsequently commenced proceedings for damages for loss of profit due to the late opening of the nightclub (which had specifically been excluded from the scope of the adjudication), Clark contended that a critical element in the loss of profit claim (i.e. the length of delay) had already been conclusively determined by the adjudicator and could not be reopened by the court. 

Present proceedings

The key issue was the identification of the dispute that had been referred to the adjudicator in Adjudication No.2.  Castle Inns contended that the dispute referred had been confined to the computation of the sum due by way of rectification of the work, including loss and expense in consequence of the defective work; it did not extend to a determination of the length of delay that was binding for all purposes, including Castle Inns’ claim for loss of profit.  Clark disagreed.

Lord Drummond Young held that this was an issue that had to be determined by reference to general contractual principles – the adjudication should be interpreted in accordance with the standards of a reasonable man with a knowledge of the construction industry.  In his view, the meaning of “dispute or difference” should normally be identified by reference to a claim made by one party and rejected by the other.  Thus, it was the totality of the claim rather than its constituent parts that was referred to adjudication. 

In the context of the claim before him, Lord Drummond Young held that the “dispute or difference” referred to adjudication was Castle Inns’ claim for damages for breach of contract in respect of the rectification of defective work and payments by way of loss and expense.  That dispute did not extend to the determination of Castle Inns’ claim for loss of profit in consequence of the late opening of the premises, nor did it extend to a determination of the delay caused by the need to rectify the defective work that was binding for all purposes.  It was not appropriate to isolate one element of the referring party’s claim.  Further, although the two periods were related and might be the same, they were conceptually different.  Thus, the court found that the issue before the adjudicator in Adjudication No.2 and the issue before the court were distinct: although the parties were bound by the decision in Adjudication No.2, the court was not bound by the adjudicator’s decision. 

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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