The Summary
In Engenda Group Limited (‘EGL’) v Petroineos Manufacturing Scotland Limited (‘PMS’) [26 March 2024], a judge in the Court of Session held that the dispute decided in a later adjudication was the same or substantially the same dispute as the adjudicator had decided in an earlier adjudication. In the circumstances, the Court reduced (set aside) the later decision.
Background
The general rule in construction adjudication is that an adjudicator cannot decide a dispute which has already been decided in an earlier adjudication. The test is whether the dispute in the later adjudication is the same or substantially the same as the dispute decided in the earlier adjudication.
While that test is relatively easy to state, it’s not always easy to apply it in the particular circumstances of a case. A recent Scottish case has demonstrated just how difficult things have become for adjudicators when faced with arguments of this kind.
The Facts
EGL had entered into a contract to carry out work for PMS at its premises in Grangemouth.
The case related to the decision issued in the fourth adjudication between the parties (Adjudication 4). It was argued that the adjudicator was not entitled to find that PMS could plead a right to set off a claim for unliquidated damages in Adjudication 4 to defeat EGL’s right to payment of their final account since the adjudicator had decided in a previous adjudication (Adjudication 3) that PMS’s claim for unliquidated damages had not been proved.
The essential issue for the court to determine was: what had the adjudicator actually decided in Adjudication 3 and whether that was the same or substantially the same dispute which he was being asked to determine in Adjudication 4.
The answer to that issue involved a careful consideration of the adjudicator’s decision in Adjudication 3. That adjudication had been commenced by PMS, who sought over a million pounds due to EGL’s alleged breach of contract. While the adjudicator found that EGL was in breach of contract, he refused to order payment of damages for the breach. EGL then issued its own claim for over a million pounds which PMS refused to pay and served a pay-less notice on EGL for that amount. EGL then referred the dispute about its entitlement to payment to adjudication.
In Adjudication 4, the adjudicator acknowledged that he was bound by his decision in Adjudication 3. However, he concluded that the position of PMS in Adjudication 4 was sufficiently different to that advanced in Adjudication 3. PMS had produced new evidence that was not available in Adjudication 3.
The Court’s Decision
The Court noted that the adjudicator had concluded that in Adjudication 3 he had not previously determined the entitlement of PMS to unliquidated damages for a failure by EGL to complete the works by the completion date. However. the judge considered that the adjudicator’s reasons for that position ‘did not stand up to scrutiny’.
The dispute to be decided in Adjudication 3 had included such a claim for unliquidated damages. The adjudicator had considered whether there was expert evidence to prove the extent of the damage caused by EGL’S failure, and he concluded that PMS’s expert had not analysed loss on the appropriate basis for that particular breach and, accordingly, PMS had not proved entitlement to an award of damages. The judge said that he ‘had no difficulty finding on an objective assessment of the decision itself that Adjudication 3 did purport to deal with [PMS’s] claim for damages due to a failure [by EGL] to complete by the completion date’.
The judge indicated that, from the earliest authorities, the courts had been alert to the risk of an unsuccessful party seeking to make good a shortcoming in an earlier adjudication by re-raising the matter in a subsequent adjudication with the benefit of improved evidence.
The fact that different or additional evidence is deployed in the later adjudication will not normally alter what the decision in an earlier adjudication was about and whether the later adjudication gives rise to the same or substantially the same dispute. Insofar as the adjudicator had viewed the existence of a new expert report for PMS as a factor in support of the proposition that a different issue was before him in Adjudication 4, the judge considered that to be an error.
Comment
This case highlights that, despite the huge body of case law from the courts on this topic, arguments are still raging about whether or not a dispute referred to adjudication is one which is the same or substantially the same as one decided in an earlier adjudication.
This is particularly so where there have been a large number of adjudications in connection with the same contract – what has become known as ‘serial adjudication’. Some argue that the process of adjudication is not ideally suited to serial adjudication. Accordingly, careful consideration should be given to whether a later adjudication raises the same or substantially the same dispute as was decided in an earlier adjudication. If it does, and the adjudicator’s decision on the matter in the later adjudication is invalid as a result, a lot of time, energy and cost will have been wasted.
