UK: Crystallisation Of Disputes: Notice Of Adjudication Deemed Premature By Court Of Session

Last Updated: 4 December 2019
Article by Colin Archibald

In the recent case of Dickie & Moore v McLeish and others [2019] CSOH 71, the Outer House of the Court of Session considered whether the material parts of a Contractor's claim had 'crystallised' prior to service of a Notice of Adjudication.

It was against this background that Lord Doherty went on to consider the question of 'severability' in his recent judgement of 9 November 2019.

Background

In August 2016, Dickie and Moore Limited ('D&M') entered into a contract with the Trustees of The Lauren McLeish Discretionary Trust ('the Trust'), in terms of which they were employed to construct a large residential property near Armadale, Scotland.

In October 2017, D&M submitted a claim for payment to the Trust in respect of Interim Valuation no 17, in which they sought to recover £2,264,609.73. Shortly thereafter, the Trust produced a Final Adjustment Statement taking account of all sums claimed by D&M, together with all necessary deductions for incomplete or defective works. The net amount of the Final Adjustment Statement was £1,894,186.92.

D&M subsequently challenged the Final Adjustment Statement but, on 24 October 2018, the Architect issued a Final Certificate adopting the Trust's assessment of the final contract sum. On 19 December 2018, D&M served a Notice of Adjudication (the "Notice") in which they claimed, amongst other things, Extensions of Time and reimbursement of Loss and Expense.

Following D&M's success at adjudication, the Trust challenged enforcement of the adjudicator's decision on a number of grounds, one of which being that the dispute referred to adjudication by D&M had not 'crystallised' prior to service of the Notice.

Crystallisation

It is well-established that, before a Notice can be served, a crystallised dispute or difference must exist between the parties. Where, therefore, a Notice introduces a dispute where one did not exist previously, the Notice will be deemed to be premature. Certainly, this was the reasoning adopted by Lord Doherty in the present case, where he concluded that the claims set out in D&M's Notice were "of a different nature, order and magnitude" to any pre-notice disagreement between the parties.

In their Notice, D&M claimed reimbursement of deductions, liquidated damages and sums withheld by the Trust; all items which, the court held, had been in dispute between the parties prior to service of the Notice. After all, it was evident from D&M's challenge to both the Final Adjustment Statement and Final Certificate that the Final Account for the Works was in dispute. The fact that D&M claimed £73,447.81 more in the Notice than had been sought in its earlier Interim Valuation no 17 did not go so far as to fundamentally change the nature of the disagreement.

In contrast, the Court identified a marked discrepancy between the Extension of Time and Loss and Expense claims advanced prior to service of the Notice, and those submitted in the Notice itself. Specifically, where D&M had previously only sought a four-week Extension of Time on account of weather, and 13 weeks for prolongation, they claimed in the Notice a further 16.2 weeks for delays to groundworks, and an additional 30.3 weeks for matters related to the building shell and finishes. In relation to Loss and Expense, previously D&M had claimed around £67,000, but they claimed £217,000 in the Notice. Crucially for D&M, Lord Doherty concluded that no dispute in anything like those terms had crystallised before the Notice was served.

A pragmatic approach

In reaching his decision, Lord Doherty echoed the words of Lord Justice Coulson, who previously discouraged an "over-legalistic analysis" or "nit-picking comparison between the dispute described in the notice and the controversy which pre-dated the notice". At first glance, these words might lead one to assume that the disparities between the Extension of Time and Loss and Expense claims made by D&M in Interim Valuation no 17 and in the Notice would be of little consequence; but that was not the inference drawn by the Court. Why? Because, even when looking at the matter broadly, it was clear that those claims were 'essentially different' from one another.

Comment

The court's decision in this case may come as a surprise for prospective claimants, but it can legitimately be understood as a development of the statutory requirement for a 'dispute'. Indeed, whilst each case will inevitably turn on its own facts, the law is clear that a party opposing a claim must be aware of the subject matter of that claim, and have had the opportunity to admit, modify or reject it, before a 'dispute' can arise. As this case serves to demonstrate, the court's reluctance to carry out a critical comparison between the terms of a Notice of Adjudication and the scope of the disagreements pre-dating it will not preclude them from finding, in certain circumstances, that material parts of a dispute have not crystallised.

Whilst this case will offer claimants some reassurance that courts will not interfere too readily with their ability to enforce an adjudicator's decision, it serves as an important reminder that, before referring a dispute to adjudication, the parameters of any pre-existing disagreements between the parties must be carefully reviewed. Only then will a referring party be in a position to satisfy themselves that the dispute referred in the Notice has 'crystallised'.

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