The defenders, Lilley Construction, carried out construction works for the pursuers, the trustees, at Merchants Quay Development at Peterhead Harbour. The contract was the ICE Conditions of Contract 6th Edition (January 1991) although it did not comply with requirements of sub-sections (1) to (4) of Section 108 of the 1996 Act. Therefore the provisions of the Scheme applied. In accordance with Clause 60, Lilley applied for an interim payment. The engineer, on 9 November 2001, wrote to Lilley stating that the interim application had been assessed and that no further monies were due to Lilley. On 13 December 2001 Lilley served a notice of adjudication on the trustees. The notice of referral identified 14 individual claims for payment. Six of those claims were upheld by the adjudicator in a decision dated 12 April 2002 amounting to a total of £1,217,753.34. The trustees paid Lilley the total sum together with interest.
In this action the trustees were seeking to recover a large proportion of that payment together with a sum in respect of liquidated damages from Lilley. The main issues related to the relationship between adjudication under the Act and the Scheme, and arbitration pursuant to clause 66 of the contract.

The trustees argued that where a dispute had been referred to adjudication and that adjudication had resulted in a decision, the terms of clause 66 did not provide for the possibility of subsequent arbitration in respect of the dispute that had been referred to adjudication. They argued that when Lilley had triggered adjudication they had "stepped outside" of the provisions of clause 66. As a result, the contractual route to arbitration was no longer available to them.