Trustees of Harbour of Peterhead v Lilley Construction [2003] CA 229/02

This summary was provided by CMS Cameron McKenna LLP.

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There was nothing in the terms of the contract to support the argument that, adjudication having taken place, a referral to arbitration was now precluded. Paragraph 23(1) of the Scheme for Construction Contracts recognises that arbitration can follow adjudication. It would be pedantic for the Court to require that a Notice of Dispute, let alone a Notice to Refer, be served before entertaining an application to stay for arbitration.

Lord Mackay, Outer House, Court of Session

1 April 2003

L undertook construction works for THP on terms incorporating ICE6. The Scheme for Construction Contracts applied to the contract. L served a notice of adjudication on THP on 13 December 2001, and referred a dispute between the parties to the Adjudicator on 21 December 2001. This dispute concerned two issues, and THP paid a sum decided by the Adjudicator to L.

THP then brought an action for reimbursement of the total sum, less three small sums that THP accepted were payable to L. THP claimed that, under the terms of the contract between the parties and the merits of the claim, this claim should not have been upheld by the Adjudicator. THP also claimed liquidated damages, on the basis that L were late in completing the contract works.

At a preliminary hearing, L had requested that the claim be sisted (stayed), to enable the dispute to be resolved by arbitration, as permitted by clause 66 of the contract. THP argued that clause 66 did not allow a matter to proceed to arbitration when its subject matter had already been dealt with in an adjudication. When L triggered the adjudication, they had 'stepped outside' the provisions of clause 66, and the contractual right to arbitration was closed to them. THP also argued that before there could be any arbitration, there had to be a 'dispute'. As THP had previously accepted an Engineer's decision in respect of an interim application for payment, which was now among the issues referred to arbitration, so there was no dispute in respect of the interim applications that could be referred to arbitration.

The Judge held that THP's claim was an attempt to achieve a final determination of the extent of LC's contractual entitlement to payment in respect of six of fourteen claims for payment, which were also dealt with in the adjudication.

The Judge also found nothing in the terms of the contract to support the argument that, adjudication having taken place, a referral to arbitration was now precluded. L had simply exercised a contractual right which was open to them, and paragraph 23(1) of the Scheme for Construction Contracts recognises that arbitration can follow adjudication.

THP argued that an application for a sist for arbitration was premature. It accepted that the second limit of the claim, for liquidated damages, was susceptible to arbitration under the Contract, and that the claim gave rise to a dispute between the parties. However, it argued that unless and until the Notice of Dispute procedure in the contract had been invoked, it was premature to sist the action. The Judge disagreed and said that it would be pedantic for the Court to require that a Notice of Dispute, let alone a Notice to Refer, be served before entertaining an application to stay for arbitration. Such a requirement could lead to abortive expense being incurred in connection with the proceedings. The Judge granted a stay and said that if THP delayed in initiating arbitration proceedings, L could apply for the stay to be lifted.

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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