In ATG Services (Scotland) Ltd v Ogilvie Construction Ltd [2024] CSOH 94, the Court of Session enforced the adjudicator's decision, finding there had been no breach of natural justice as the adjudicator had not gone off on a frolic of his own.
Background
The pursuer, ATG Services (Scotland) Ltd (ATG), was subcontracted by the defender, Ogilvie Construction Ltd (Ogilvie), to carry out groundworks in constructing a housing and care facility at Newmills Road, Dalkeith.
ATG submitted an interim application to Ogilvie for payment of around £1 million, but payment was not made, which led to an adjudication. The interim application had been served as an email attachment issued to a different email address than was agreed at a pre-contract meeting and the contract, which was governed by Scots law, had stipulated service by first-class recorded delivery post.
According to Ogilvie, these factors meant the application was invalid under the Housing Grants, Construction and Regeneration Act 1996.
ATG tried, by reference to English case law, to persuade the adjudicator that parties had adopted a course of conduct that treated applications served by email, to the email address used, as valid. The adjudicator agreed and decided the application was valid and that payment should be made.
Court action
ATG raised a Court of Session action seeking enforcement of the adjudicator's decision. Ogilvie argued against payment, claiming the adjudicator had breached the rules of natural justice, based on two connected points:
- The adjudicator had gone on a frolic of his own. He applied English case law in determining an issue under a contract governed by Scots law, despite the fact ATG had not argued that (i) English law applied; (ii) Scots law and English law are the same; or (iii) a similar Scots law principle applied. Ogilvie argued the adjudicator should have notified the parties that English law would be applied, which did not happen. Therefore, Ogilvie was deprived of the opportunity to address this point. This meant a real and substantial opportunity for injustice had arisen.
- Ogilvie argued in the adjudication that ATG had not provided a basis in Scots law to justify that the failure to serve the notice in accordance with the contract was not fatal to its claim, and Ogilvie was prejudiced as it did not know why this argument was unsuccessful. The lack of reasoning showed the adjudicator had not engaged with Ogilvie's argument.
ATG argued there was no breach of natural justice; it relied expressly on English case law in its adjudication submissions, and Ogilive had not argued a positive case that Scots law was different or that enforcement would not be achievable under Scots law.
Instead, Ogilvie's argument was only that ATG had not set out a Scots law principle on which it could rely. To ATG, this meant Ogilvie's position was merely that the decision was wrong due to the adjudicator's reliance on English case lawrather than due to the adjudicator going on a frolic of his own. ATG claimed the adjudicator did not need to deal expressly with Ogilvie's argument; by expressly relying on English case-law in his decision, it was clear the adjudicator did not agree with Ogilvie.
Decision
The court's judgment was clear and unequivocal; there was no merit to Ogilvie's defence.
For the adjudicator to have gone on a frolic would require that he founded on a material point not suggested to him by the parties and on which the parties were given no sufficient opportunity to comment.
ATG submitted in the adjudication, a legal principle, with reference to English case law, that a previous course of conduct meant the recipient is incapable of denying applications received in the same manner. Both parties were therefore aware that previous conduct was a live issue in the adjudication and had the opportunity to make submissions about it. The adjudicator was entitled to agree with ATG that the English case law applied and, even if the adjudicator decided the content of the law wrongly, that error would be within the powers of the adjudicator.
The court gave short shrift to Ogilvie's argument that a breach of natural justice had occurred and reiterated that the courts do not operate as adjudication appeal tribunals.
On Ogilvie's second argument that the adjudicator's reasoning was unclear, the court found that a reasonable reader would understand that by applying English case law the adjudicator agreed that Ogilvie had accepted service outwith the contractual provisions as being valid.
The court awarded the principal sum to ATG plus interest. On expenses (costs), he reiterated the "pay now, argue later" approach to adjudications, and the courts' role to discourage "frivolous defences".
He considered the defence to enforcement in this case to be so unreasonable as to justify increased expenses to be awarded.
Key considerations
- To accuse an adjudicator of going on a frolic requires evidence the adjudicator considered a material point not raised by either party and which both parties had no sufficient opportunity to comment on. The breach of natural justice here lies in denying a party a sufficient opportunity to state its case.
- It is within the powers of an adjudicator to consider that English case law applies to a dispute concerning a Scots law contract. Even if the adjudicator is wrong when determining the applicable content of the law, that does not mean the adjudicator went off on a frolic.
- An adjudicator does not need to expressly consider each argument in the decision. If it is clear to the reasonable reader the decision was made in consideration of points clearly expressed, then the adjudicator will be held to have considered those points.
- Raising defences to enforcement that have little merit is likely to result in enforcement being ordered, with interest on any sums that have been awarded, and with expenses (costs) being ordered against the losing party at an enhanced level. It therefore pays to be circumspect in considering whether to defend enforcement of an adjudicator's decision.
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