OBLIGATION TO PAY COSTS OF ADJUDICATION NOT INCONSISTENT WITH REQUIREMENTS OF 1996 ACT

In Profile Projects Ltd v Elmwood (Glasgow) Ltd [2011] CSOH 64, [2011] Scot (D) 21/4 Lord Menzies, sitting in the Outer House of the Court of Session, held that a clause in a contract which imposed on a party referring a dispute to adjudication the obligation to bear the whole costs of the adjudication, including the adjudicator’s fees and costs in their entirety and both parties’ legal expenses, was not inconsistent with s108 of the Housing Grants, Construction and Regeneration Act 1996. For it to be inconsistent with the requirements of the Act, it must ‘disable’ a party from referring a dispute to adjudication; it is not sufficient that the clause acts as a ‘discouragement’ or a ‘disincentive’ to adjudication. Lord Menzies also rejected the submission that non-compliance with the requirements of the 1996 Act results in the displacement of the contract terms in their entirety and their replacement by the terms of the Scheme for Construction Contracts. In his judgment the Scheme provisions are incorporated only in respect of those contractual terms that are non-compliant with the Act. In so concluding on these two issues Lord Menzies appears to have taken the Scottish courts down a very different route from that taken in England in cases such as Yuanda (UK) Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC), [2010] BLR 435 (on which see our May 2010 issue, pp 5-9). This tension and inconsistency in the case-law will require resolution.

The facts

The pursuers were employed by the defenders to carry out the design and installation of partitions and other works for NHS Lothian. A dispute arose between the parties as to the pursuers’ entitlement to payment in terms of an interim application and the dispute was referred to adjudication. However, the defenders objected to the appointment of the nominated adjudicator and maintained that objection throughout the adjudication itself. The adjudicator rejected the objection and he issued his decision in which he concluded that the defenders were liable to make payment to the pursuers. The defenders declined to pay in accordance with the decision and so the pursuers brought the present action to enforce the decision. On behalf of the defenders it was submitted that the decision had been reached without jurisdiction and was consequently null and void.