Adjudication enforcement in Scotland: some lessons for NEC Users

Key Points

• NEC parties taking disputes to adjudication should clearly set out all defences and cross-claim disputes to avoid the need for a subsequent adjudication or other legal proceedings.
• Defences and cross-claims can also be discussed by the dispute advisory board or senior representatives before going to adjudication.
• To avoid multiple adjudications, parties should agree that linked or contemporaneous disputes are determined at the same time by the same adjudicator.

Two recent NEC adjudication enforcement decisions of the Scottish courts show how adjudicators may be asked to tread a fine line in considering a defence.

UK Grid Solutions and Amey Power Services v. Scottish Hydro Electric Transmission [2024] CSOH 5

Scottish Hydro Electric Transmission (the ‘defender’) engaged a joint venture of UK Grid Solutions and Amey Power Services (the ‘pursuer’) under an NEC3 Engineering and Construction Contract (ECC) Option A (priced contract with activity schedule) to construct a sub-station building and carry out installation and commissioning. Responsibility for delivery and installation of two transformers remained with the defender.

Delivery and installation of the transformers was delayed. The project manager made an assessment that this compensation event under the contract did not result in any increase to the defined cost, nor affect completion nor the meeting of key dates (all as defined in clause 16.1). The pursuer rejected the assessment and submitted its own assessment and claim for delay to the completion date. This was rejected by the defender, which issued a nil-payment notice, giving rise to an adjudication.

The pursuer claimed delay to the completion date and payment based on the ‘prospective approach” saying that as the completion date had not been reached, there was no question of liability for delay damages. The defender argued that it was the ‘retrospective approach’ which the project manager and adjudicator should adopt. The defender claimed to set off delay damages in excess of the payment claimed by the pursuer.

The adjudicator found for the pursuer and awarded an extension of time and payment of £1.85 million. The defender opposed the enforcement application on the grounds that the award failed to deal with a ‘material defence’, to state any discernible reasons for rejecting the set-off defence and was ‘meaningless’ due to the way the redress was expressed.

The Scottish Court of Session Outer House (SCOH) judge Lord Richardson stated an adjudicator was obliged in fairness to consider and determine any material line of defence. He rejected the complaint that the adjudicator had failed to consider the defence of set-off. In accepting the pursuer’s case, the adjudicator had accepted their approach and rejected any right of set-off for delay damages since this was not a claim which had by then arisen.

The judge said it was not necessary that the adjudicator dealt expressly with every allegation. It was discernible from the decision both what he decided and why. Despite acknowledged and uncorrected errors in the final part of the decision, it would have been clear to the ‘reasonable reader’, what sum the adjudicator intended to award and that payment was to be made within 7 days.

Engenda Group v. Petroineos Manufacturing Scotland [2024] CSOH 36

Petroineos Manufacturing Scotland (the ‘respondent’) engaged Engenda Group (the ‘petitioner’) to undertake works at its Grangemouth refinery under an NEC3 ECC Option C (target contract with activity schedule). The petitioner sought a judicial review, claiming an excess of jurisdiction by the adjudicator in his fourth adjudication between the parties.

The petitioner said the adjudicator was not entitled to find that the respondent could plead a right to set off a claim for delay damages in its fourth adjudication to defeat the petitioner’s right to payment of its final account. This was because the adjudicator had decided in a third adjudication that the respondent’s claim for delay damages had not been proved.

In the third adjudication, the adjudicator found the petitioner in breach of its obligations in relation to key dates and liable for certain periods of delay. While this may have led to loss of revenue, liability for the failure to meet key dates was restricted by clause 25.3, under which no claim had been made. That left a possible liability for failure to meet the completion date under clause 30.1, but the respondent had neither framed its case on that basis, nor provided any expert evidence demonstrating the consequences of that failure. Accordingly, while entitled to recover delay damages in principle, the respondent had not proved any entitlement and its case failed.

The court was asked to decide whether the adjudicator had already decided in third adjudication that the claim for delay damages could be raised by way of set-off in the fourth adjudication. The adjudicator accepted he was bound by his previous decision. However, he decided that the question he was asked to determine was not the same as that which he had decided in the third adjudication. The claim for delay damages had not been fully articulated in the third adjudication and it was now put on a different basis, with different evidence.

SCOH judge Lord Young said that while the court should give due weight to that view, it was not bound by it and that view in the fourth adjudication was ‘clearly wrong’. He felt no need to resort to the presumption of regularity, in other words that an adjudicator who deals with an issue in a decision leaves no scope for a gap between what was referred and what was decided.

The judge said there was no difficulty in finding objectively that the decision in the third adjudication did deal with the respondent’s claim for damages due to a failure to complete by the completion date. The existence of new evidence in the fourth adjudication did not of itself indicate a different dispute.

Conclusions for NEC users

There may be an opportunity when a dispute is being formulated for a recommendation by a dispute advisory board (NEC3 and NEC4 contracts), or for discussion between senior representatives (under NEC4 options W1 and W2), to broaden the agenda to include any set-off defence and other existing or (if option W1 applies) potential cross-claim disputes.

In such a case, a dispute later referred to adjudication will or may be tailored to encompass the set-off defence, or possibly separate crossclaim. In any case, in light of the various time bars applicable to NEC dispute resolution procedures for contracts not within the ambit of the Housing Grants, Construction and Regeneration Act 1996, it is prudent to notify such disputes as soon as possible and in any event within the specified periods for notification in the option schedules.

To avoid multiple sets of adjudication proceedings, with attendant delay, additional cost and inconvenience, either running in parallel or ‘serialised’, parties might sensibly agree that ‘linked’ or contemporaneous disputes can be determined at the same time by the same adjudicator.

Responding parties defending on the merits should clearly set out and particularise each and every defence in the response. Doing so later may risk them being overlooked. The response should state the relief or remedy claimed and remind the adjudicator of the defence by a line or two in subsequent submissions.

A defence by way of set-off will usually require the paying party to have given a payment or pay-less notice to preserve the right to rely upon the set-off. Failing all else, it may be possible to commence a separate adjudication to establish an enforceable right, which, if obtained in time, could be enforced in its own right or in answer to a prior decision.