On 28 June 2002, an adjudicator found that Scottish contractor the Construction Centre Group was entitled to payment from its employer, the Highland Council. CCG had been building ferry terminals for the council in the Western Isles of Scotland and had submitted an interim application for payment that was disputed by the council. The adjudicator decided that CCG was due £245,469.24 from its employer. The council did not pay, so CCG went off to court.
In court, the council presented arguments saying it did not have to pay; these were rejected by Lord Macfadyen in August 2002. This decision was appealed. When it came before the Scottish appeals court – the Inner House – more arguments for non-payment were presented. These were again rejected and the appeal was refused.
In the course of this court procedure, CCG went into receivership. The council did not appeal further – depriving the jurisprudence of adjudication its first House of Lords case – and CCG sought to enforce the decision of the court by making a judicial demand for payment. No payment was made, and CCG sought to put the council into liquidation as a result of its inability to pay its debts. The council tried to stop this with an injunction and so this matter came before a court for the third time, on 1 August this year.
On this occasion, the council relied on a fresh adjudication it had raised and that had resulted in a decision on 2 July 2003. That decision found the council entitled to payment of about £640,000 in liquidated damages from CCG (which had not been raised in the first adjudication). However, the adjudicator in that instance had decided to set off CCG's claim by deducting the value of it from the council's liquidated damages.
The council contended that the latest adjudication decision wiped out CCG's claim, and so there was nothing left to enforce. CCG responded that the adjudicator had made a mistake – the council had asked for all or nothing, and the adjudicator had no jurisdiction to make an award "in between".
This meant that they didn't have to comply with the award, but in any event, a subsequent adjudicator's decision should not excuse compliance with a court decree.
Lord Carloway agreed with CCG. After a court judgment had been granted it was too late to claim set-off. The paying party could resist enforcement if it could establish that it had in fact paid the debt, or if the successful party had given up the right to pursue it. However, his lordship found no such case had been made out.
The court also commented on what lawyers refer to as the "balance of convenience" test.
The council had to satisfy this test to get its injunction before a full hearing of the case. The council claimed it should get its interim order because if it did not, and the money had to be paid to CCG, then because CCG was in receivership there was a risk that it would fall into a "black hole", never to be recovered.
The court was not impressed. The balance of convenience in fact favoured CCG. Stating that the purpose of adjudication is, after all, to secure quick payment, Carloway noted the months that had passed since the Inner House had found in CCG's favour. He was "less than impressed with a public authority failing to respond with reasonable expedition to the court's determinations on matters of law governing its relations with private contractors".
Highland council's injunction was refused.
And it may not surprise you to learn that Carloway's decision is presently the subject of an appeal …
Fraser McMillan is a partner at Masons, which acts for the Construction Centre Group.