UK Grid Solutions Ltd & Anr v Scottish Hydro Electric Transmission plc

[2024] ScotCS CSOH_5

The pursuers, a joint venture, entered into a contract with Scottish Hydro, the defender, in respect of works to be carried out at an existing electricity substation on the outskirts of Fort Augustus. The contract was based on NEC3 Option A.

The delivery and installation of the two transformers was delayed, which gave rise to a compensation event (“CE”). The project manager made an assessment that the CE had no effect upon the defined cost, completion or meeting a key date, and the JV gave notice of adjudication, seeking an order for payment of the sum due in respect of the alleged increased defined cost. The JV asked that the adjudicator provide reasons for their decision.

The adjudicator’s decision included: 

"12.13. I declare that the Contractor is entitled to an increase in the Defined Costs (including Fee) in the sum of £1,834,573.43.
12.14. I order for payment of £1,834,573.43, or such other sum as the Adjudicator may decide, within 7 days of the Adjudicator's. 
12.15. I declare that the Contractor is entitled to interest on the sum noted at paragraph 12.14 …
12.16. I order for payment of the interest noted in paragraph 12.15 above, within 7 days of the Adjudicator's decision".

The defender refused to comply with the decision saying that:

1. The adjudicator had failed to exhaust their jurisdiction by failing to address certain relevant and material defences advanced by the defender relating to delay damages and deductions or set-off.
2. Contrary to that, if the adjudicator did, in fact, address and reject the defender's argument, they gave no reasons for doing so.
3. The adjudicator's purported financial award was meaningless and unenforceable.

The defender said that, where required to give reasons, an adjudicator was obliged to make clear that they had decided all essential issues properly put forward by the parties. The parties should be able to understand from the adjudicator’s reasons: “in the context of the adjudication procedure, what it was that the adjudicator had decided and why”.

In the adjudication, the defender denied that the JV were entitled to any extension of time. The JV was in critical and culpable delay caused by the pursuers’ lack of progress, poor coordination, and defects in their works. Accordingly, the defender was entitled to recover liquidated damages which they were entitled to deduct/set off against any sums otherwise due to the JV.

The adjudicator had not “referred to, let alone determined” these arguments. As such, the adjudicator had failed to address a material line of defence advanced by the defender. Although the adjudicator, in their decision, noted that they agreed with the contractor saying that if the compensation event had been assessed in accordance with the contract, payments would have been made accordingly, this did not address the defender's arguments in respect of liquidated damages and set-off. 

Further, paragraph 12.14 of the decision was “meaningless and thus unenforceable”. This paragraph did not order the defender to make payment of a specified sum. Nor did it specify the time period within which any such payment was to be made. The NEC3 contractual conditions contain a mechanism whereby the adjudicator could correct clerical errors within 14 days of the decision. No correction had been made. It was not for the court to try to correct the adjudicator’s error at this stage. To act in this way would usurp the role of the adjudicator.

Lord Richardson repeated the well-known approach of the courts to summary enforcement. The court will only interfere in the plainest of cases, it is “chary” (i.e., cautiously reluctant) of technical defences, and if the adjudicator has answered the right questions, the decision will be binding even if it is wrong in fact or law.

There was no dispute between the parties that where an adjudicator has failed to address and determine a material line of defence, this will result in unfairness and a breach of natural justice which will mean that the court will not enforce the adjudicator’s decision. Lord Richardson was satisfied that the defence of set-off had been put before the adjudicator. It was also a material line of defence that could not be ignored by the adjudicator. 

However, the judge was satisfied that the adjudicator did address and determine this line of defence. The adjudicator referred to the arguments advanced by the defender in the Rejoinder submission in respect of the redress by the pursuers. It was “reasonably clear” that the adjudicator had concluded, in agreement with the JV’s arguments, that they ought to have been paid by the defender following the assessment of the compensation events in accordance with the parties’ contract. Had this been done, the payment by the defenders would have pre-dated the defender’s claims for liquidated damages. On this basis, had the contract been complied with, the defender’s arguments, including set-off, based on its entitlements for liquidated damages could not have been advanced at the time payment ought to have been made by the defender.

Lord Richardson said that it was clear it was not necessary for an adjudicator to deal in their decision expressly with every argument made to them. That is, provided that the adjudicator deals with the arguments which are necessary and sufficient to establish the route by which they reached their decision. Here, it was: “possible to discern from the adjudicator's decision, reasonably construed against the background of the submissions made … both what [the adjudicator] decided and the reasons for that decision”.

Lord Richardson agreed that it was clear that both paragraphs 12.14 and 12.15 of the adjudicator's decision contained errors. However, he did not consider that any “reasonably informed reader” of the decision would have any doubt that the adjudicator intended to order payment by the defender to the pursuers of the sum of £1,834,573.43. That is the sum which the adjudicator had declared the JV were entitled to as an increase in the defined costs (including fee). The judge further had no doubt that the same reasonably informed reader would have understood that payment of that sum was to be made, along with the interest awarded in paragraph 12.15 of the decision, within seven days of the decision.

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