Last week the Scots Court of Session (Outer House) refused to enforce an adjudicator’s decision for a novel and surprising reason. The judgment (which is of persuasive value in England and Wales) says that adjudicators’ decisions may not be enforced if to do so would violate the European Convention on Human Rights and Fundamental Freedoms (the “Convention”), which is enshrined in the UK’s Human Rights Act 1998. Article 1 of the First Protocol to the Convention (“A1P1”) prevents the removal of property “except in the public interest and subject to the conditions provided for by law and by the general principles of international law.” In the present case the relevant property was money.

The relevant adjudicator’s decision was for nearly £3 million against consulting engineers, Blyth & Blyth (“B&B”). Their employer (the drinks company, Whyte and Mackay (“W&M”)) adjudicated against them over their allegedly negligent design of foundations at a new bottling plant, which caused settlement and damage to the building. The relevant adjudication provision had been agreed by the parties (although absent such agreement the right to adjudicate would have been implied by the Construction Act).

The court’s refusal to enforce the adjudicator’s decision because it would violate the Convention was in fact unnecessary. That is because (as the court held) the adjudicator’s decision was unenforceable anyway on the established legal basis that he had not addressed a key defence put before him by B&B. It remains to be seen if the existence of this other ground for non-enforcement deters W&M from appealing.

Independently of that ground, the court held that enforcing the decision would violate the Convention for the following reasons (despite B&B not raising the point before the adjudicator; the court holding it was still obliged to comply with the Convention):

  1. “The dispute arose long after completion of the contract”. B&B’s design was completed in 2004. However, it was not until 2011 that W&M intimated a claim and 2012 that the adjudicator gave his decision.
  2. The dispute was “large and relatively complex” increasing the “risk of injustice” inherent in the ““rough and ready” process" that adjudication is. In addition the adjudicator had “no legal qualification” but did “possess a skill in another professional discipline”.
  3. “A large sum [was] awarded based on a finding of professional negligence”.
  4. It would be about 20 years before W&M would be out of pocket (despite having been awarded £3m in recognition of their future losses). That is, it would be 20 years until the cost savings gained by the absence of piling (which B&B had not specified) would be outweighed by W&M’s future losses.

This is unusual for a construction case. However, there is nothing unusual about a “victim” of negligence, who has yet to suffer their loss in full, being awarded a sum to cover their future losses.

  1. “There was no pressing need for a speedy provisional decision” such that “no general or public interest was served by [W&M] taking this dispute to adjudication”

The court quoted judgments that referred to the aim of adjudication being to decide disputes during live projects. While the court recognised that Parliament did not limit adjudications to such disputes, it did not cite this statement of the minister sponsoring what became the Construction Act when it was being debated (which the English Court of Appeal cited in Connex v MJ Building [2005]): “some have doubted the wisdom of allowing parties to refer a dispute to adjudication so long after work under the contract has ceased. However, as long as there is any possibility of disputes arising under a contract, parties will have to live with the fact that an adjudicator's decision may be sought. Indeed, there may be times, even at such a late stage, where it is desirable to have a quick and cheap procedure that can produce an effective temporary decision, particularly since this will not prevent parties from seeking a permanent decision through arbitration or the courts.”

  1. There was “no guarantee” that B&B would recoup any of the money paid to W&M if W&M went insolvent. In the meantime, the burden would fall on B&B to sue W&M to show it was not liable or not liable for as much as had been paid.
  2. B&B’s professional indemnity insurance did not render A1P1 inapplicable (on W&M’s argument that it was insurers’ and not B&B’s money that was at stake). This was because problems may emerge with the cover if not with insurers. Also there was a policy excess.

This judgment should not affect the recognition and enforcement of awards and decisions from processes not imposed on parties by law, such as non-statutory arbitrations (i.e. the majority of arbitrations), expert determinations and dispute boards or even adjudications under construction contracts which the Construction Act does not apply to.

However, for adjudicators’ decisions under contracts that the Act does apply to (i.e. the majority of UK adjudications), this judgment is likely to prompt challenges where one or more of the following features exist: (1) the adjudication was pursued after the relevant project was completed; (2) the claimant is unlikely to be out of pocket for some time; and (3) the claim alleges professional negligence, is complex and/or has a high value. However, it would be a rare adjudication that combined all of these features (particularly (2)) and thereby merited a challenge like B&B’s. Even then – and assuming W&M does not successfully appeal – it is hard to see other courts refusing to enforce adjudicators’ decisions due to a Convention violation, given the well-established pro-enforcement policy of the courts.

Reference: Whyte and Mackay Ltd v Blyth & Blyth Consulting Engineers Ltd [2013] ScotCS CSOH 54 (09 April 2013)