Court warns against “frivolous” challenges to adjudication decisions

In ATG Services (Scotland) Limited v Ogilvie Construction Limited [2024] CSOH 94, Lord Sandison delivered a stark warning about ‘unjustified’ challenges to the enforcement of adjudication decisions.

In this case, ATG Services (a subcontractor) had launched a “smash and grab” adjudication after Ogilvie (the main contractor) failed to issue a payment notice or pay less notice in response to an interim payment application.  Ogilvie defended the adjudication on the basis that ATG Services’ payment application had not been served correctly under the contract.  Specifically, it had neither been sent by recorded delivery post to a specified address or, as further agreed at a pre-contract meeting, emailed to two specified email addresses.  ATG Services disagreed that the application was invalid.  It argued that the parties had adopted a course of conduct whereby interim payment applications issued to a different email address (still associated with Ogilvie) were treated as valid.  In support of this argument, it referred to an English case (Jawaby Property Investment Ltd v Interiors Group Ltd [2016] EWHC 557 (TCC)).

The adjudicator agreed that the interim payment application was valid and awarded ATG Services over £1.05 million.  However, when ATG Services sought to enforce that award, Ogilvie challenged the adjudicator’s decision on the basis that it breached the requirements of natural justice.

Ogilvie’s arguments regarding enforceability

Ogilvie relied upon two alleged breaches of natural justice, asserting that:

1. The adjudicator “went off on a frolic of his own”. To reach his decision he must have decided (without any submissions from the parties) that the dispute was to be determined according to English law, that the law was the same between England and Scotland or that there was an equivalent Scottish principle.  That ‘frolic’ deprived Ogilvie of the opportunity to put forward responsive submissions or defences; and
2. The adjudicator hadn’t provided reasons why he had rejected Ogilvie’s argument that ATG Services had failed to provide a basis in Scots law for its submissions.

Outer House Decision

Lord Sandison determined that the Employer’s submissions were “entirely without merit.”

In respect of the first argument, Lord Sandison explained that it was not the role of the Court to act as a “general appeal tribunal” and that an argument that an adjudicator had breached the requirements of natural justice by going off on a frolic of his own would only be established where the decision was dependent “to some material extent on a ground which is not suggested to him by the parties and on which he gave them no sufficient opportunity to comment”.  Here:

• both parties accepted that the key question was whether Ogilvie’s prior course of conduct prevented it from insisting on strict compliance with the contractual terms regarding service of interim payment applications;
• each party was given ample opportunity to comment on this; and
• Ogilvie could have argued that the principle in Jawaby did not exist in Scots law or differentiated the case on its facts but, for whatever reason, decided not to do so.

He therefore concluded that “…the suggestion that he went off on a frolic of his own is nothing less than an inversion of reality. No opportunity for injustice to be done was afforded”.

In relation to the second argument, Lord Sandison held that “any reasonable reader” would “readily understand” that the adjudicator’s decision was based upon the principle that Ogilvie could not take issue with service of the interim payment application due to its previous conduct and that this explanation “amply exceeds” what is required from adjudicators.

Lord Sandison held that no breach of natural justice had occurred and granted decree for the sum claimed by ATG Services with interest.

In respect of expenses, Lord Sandison stated that

Judicial policy ought to be to discourage, so far as properly possible, the statement of frivolous defences, such as those advanced here, to actions seeking to enforce adjudicators’ decisions.

He noted that enforceability actions can result in further lengthy delays to payment to contractors and unwarranted questioning regarding the competence and professionalism of adjudicators.

In light of this, Lord Sandison held that Ogilvie had acted unreasonably and awarded expenses in accordance with the agent and client, client paying scale would be able to recover almost all of its costs.

This decision emphasises the narrow grounds on which the enforceability of an adjudicator’s decision can be challenged and demonstrates the importance of ensuring that, should a party contest the relevance of case law from another jurisdiction, this is clearly set out in its submissions during the adjudication process.