T CLARKE (SCOTLAND) LTD V MMAXX UNDERFLOOR HEATING LTD

T CLARKE (SCOTLAND) LTD v MMAXX UNDERFLOOR HEATING LTD

Scotland, Outer House, Court of Session

Lord Woolman

26th March 2014

THE FULL TEXT OF THE OPINION OF LORD WOOLMAN

[1] Can a party be prevented from referring a dispute to adjudication? That is the novel point that arises from the pursuer's motion for interim interdict.

[2] The pursuer is a building services company. In April 2012, it was appointed as a sub-contractor in respect of the redevelopment of WestLintonPrimary School. It was instructed to carry out certain mechanical and electrical works. Those works included the design, supply and installation of heat pumps and underfloor heating systems.

[3] The pursuer identified the defender as a potential sub-sub-contractor. After negotiation, the parties agreed terms in October 2012 and they were set out in a written document in November 2012. The parties have proceeded on the basis that it governs their contractual relationship, although it has not been executed by the defender.

[4] Clause 13.2 of the written document states:

"for the purposes of the Housing Grants Construction and Regeneration Act 1996, as amended by the Local Democracy, Economic Development and Construction Act 2009, the Sub contract shall be considered a construction contract and the Scheme for Construction Contracts (Scotland) regulations 1998 ... Shall apply for any dispute, subject to the amendments set out in clause 13.3 below."

Procedure
[5] The motion came before me on Friday, 14 March 2014, when I granted the defender's unopposed application to continue the case for one week. I indicated that I wished the defender to set out its position in writing, either by way of defences, or an affidavit from Neil McFarlane. He is a director of the defender and has presented himself throughout as its controlling mind. But at the continued hearing on 21 March, Mr Weir explained that there had been insufficient time to prepare either document. He accepted that I should proceed on the basis that the averments contained in the summons were true. I should add that the pursuer has lodged affidavits in support of its case.

The pursuer's averments

[6] The defender commenced its part of the works between late 2012 and July 2013. The parties' working relationship quickly soured. In the summons, the pursuer makes a number of averments about the attitude, approach and conduct of Mr McFarlane, acting on behalf of the defender. They can be summarised as follows:

(a) Mr McFarlane refused to address a health and safety issue that arose when a hose on the defender's drilling rig failed. Instead he claimed that the subsequent delay had been caused by the pursuer.

(b) He made unjustified threats to suspend the works.

(c) He lodged various notices claiming delay without a proper foundation.

(d) He sent a large volume of inaccurate correspondence to the pursuer's contract administrator.

(e) He claimed that the defender had negotiated different payment terms from those agreed.

(f) He required specific instructions for works that the defender was obliged to undertake.

(g) He made erratic applications for payment, sometimes seeking different sums for the same work. When queried about this, he responded by stating that he was doing so "because I can". The pursuer concluded that this was an attempt to create as much confusion as possible.

(h) By mid May 2013, the installation of the heat pumps in the plant room by the defender was critical. Until that work was completed, the whole project would be delayed. At that stage the defender made further unjustified demands for payment.

(i) Throughout May, the defender threatened to suspend the works. The pursuer sought a meeting to try and resolve matters. Mr McFarlane replied by email in which he stated (i) "what MMAXX wants is CASH, not meetings to talk about it"; and (ii) "for the record, we can both avoid a 'protracted legal dispute', if you pay us a fair and reasonable payment."

(j) On 7 June, he sent a further erroneous notice of suspension.

[7] The pursuer founds in particular upon comments made by Mr McFarlane in two telephone conversations between him and the pursuer's Mr Boyle. During the course of the first call in May 2013, Mr McFarlane said that he was the defender's only shareholder and had only invested £1 in the company, implying that it had little to lose. He threatened to commence an adjudication and added that he had prior experience of obtaining money in such proceedings and "would never give up". He also stated that the pursuer would incur expense in resisting the defender's claims.

[8] During the course of the second telephone call in early June, Mr McFarlane stated: "I'm a maverick, I don't play by the rules". He also stated that he would "do what I need to do" including suspending the works and reiterated that the pursuer would face significant legal costs.

The adjudications

[9] Since 21 June 2013, there have been nine separate adjudications in relation to the contract. Eight have been initiated by the defender and one by the pursuer. In the summary below, the date in brackets is the date of commencement of each proceeding.

(a) Adjudication 1 (21 June 2013) The defender sought payment of £184,740. The adjudicator declined jurisdiction and resigned on 4 July 2013, on the basis that the defender had failed to refer the dispute to adjudication in the contractually stipulated manner.

(b) Adjudication 2 (19 July 2013) The defender again sought payment of £184,740. The adjudicator again declined jurisdiction and resigned on 30 July 2013, on the basis that the defender had failed to refer the dispute to adjudication in the contractually stipulated manner.

(c) Adjudication 3 (31 July 2013) The defender again sought payment of £184,740. The adjudicator determined that the sum sought was significantly exaggerated. The defender was awarded £17,028. The parties were each found liable for 50 per cent of the adjudicator's fees.

(d) Adjudication 4 (8 August 2013) The adjudicator declined jurisdiction and resigned on 19 August 2013, on the basis that the defender had failed to refer the dispute to adjudication in the contractually stipulated manner.

(e) Adjudication 5 (20 November 2013) The defender sought to maintain that the contractual payment mechanism did not comply with statutory requirements and that in consequence, it was entitled to further payments from the pursuers. The adjudicator rejected the claim and ordered the defender to pay her fees.

(f) Adjudication 6 (20 December 2013). This pursuer commenced this adjudication, in which it unsuccessfully sought to recover monies relating to the defender's delays. The parties were each ordered to pay 50 per cent of the adjudicator's costs. The adjudicator levelled various criticisms at the conduct of the defender.

(g) Adjudication 7 (19 February 2014) The defender contended that it was entitled to further payments, because the pursuer had failed to serve certain notices. The defender dropped this adjudication on 25 February after the adjudicator asked it to demonstrate that it was in a position to meet his fees

(h) Adjudication 8 (27 February 2014) The defender sought the same determination as in adjudication 7. The pursuer challenged the jurisdiction of the adjudicator on the ground that she had not been appointed in accordance with the contract and she subsequently resigned.

(i) Adjudication 9 (11 March 2014) The adjudicator resigned on 20 March 2014 after queries had been raised about the validity of her appointment.

Housing Grants, Construction and Regeneration Act 1996

[10] Sec 108 (1) of the Housing Grants, Construction and Regeneration Act 1996 provides:

"A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section. For this purpose 'dispute' includes any difference."

[11] The applicable procedure is set out in paragraph 1 of the Scheme for Construction Contracts (Scotland) Regulations 1998, which also refers to the referral of "disputes".

The rival contentions

Prima facie case

[12] MrMacColl contended that there was a prima facie case to grant interim interdict. Parliament had granted a right to refer genuine disputes for adjudication. That did not extend to sham disputes. In the present case, the defender had acted in an improper manner in respect of the earlier adjudications. The pursuer was reasonably apprehensive that the defender would continue to do so. In those circumstances, the court should intervene.

[13] MrMacColl rested his argument on three streams of jurisprudence. First, he submitted that the court can restrain proceedings which amount to an abuse of process: Shetland Sea Farms Ltd v AssuranceforningenSkuld 2004 SLT (Notes) 30; Walker The Law of Delict in Scotland (2nd ed) p 850. Secondly, an analogy can be drawn with the law relating to diligence on the dependence. Under the old law, a warrant for diligence could be obtained as of right. If a party had a reasonable apprehension that such diligence would be sought on grounds that were nimious and oppressive, however, it could seek interdict: Beattie & Son v Pratt (1880) 7 R 1171; Stuart Diligence p195; Burn Murdoch Interdict p186. Third, the English courts are prepared to grant an injunction to prevent an adjudication proceeding if it is unreasonable and oppressive. In this connection, MrMacColl cited two decisions of Edwards-Stuart J in the Technology and Construction Court: Mentmore Towers Ltd v Packman Lucas Ltd[2010] EWHC 457 and Twintec Ltd v Volkerfitzpatrick Ltd[2014] EWHC 10.

[14] Mr Weir submitted that the proposed order was far too broad and would innovate upon the parties' contractual position. Whatever had happened in the past did not mean that any future reference to adjudication would be in bad faith. The defender should not be deprived of its statutory right.

Balance of convenience

[15] On balance of convenience, MrMacColl argued that the defender has incurred significant expenses in respect of each of the adjudications that have taken place to date. These are irrecoverable, as an adjudicator can only make an award in respect of his own fees, not an award of expenses. Moreover, the defender is not prejudiced, because it could vindicate its rights by way of court action. Mr Weir took the opposite stance. He maintained that the defender would suffer prejudice, because the cost of litigation is significantly greater than the cost of adjudication.

Discussion
[16] The pursuer's averments disclose a troubling picture. Given the various statements made by Mr McFarlane and the slew of adjudications, it understandably queries the defender's underlying motives. A cloud of suspicion hangs over its conduct. However, as Professor Walker stated in The Law of Delict in Scotland (2nd ed) p 848:

"It is ... not automatically a wrong for one person to initiate legal proceedings of any kind against another, even though the proceedings turn out to be mistaken, unfounded or unjustified."

[17] What is necessary is for the initiation of legal proceedings to be "so unjustifiable as to be an abuse of legal process" (ibid). Even in that event, the court's drastic power to dismiss a claim should be exercised sparingly: Shetland Sea Farms per Lord Gill at para 143. In my view, it would only be in the most exceptional circumstances that a court would deprive a party of an express right conferred by Parliament. I do not say that the court will never pronounce such an order, but rather that it will hardly ever do so.

[18] The circumstances in the present case do not yield the clear inference that the defender has acted unreasonably and oppressively. Most of the earlier adjudications foundered on procedural problems. In adjudication 3, the defender had a measure of success. The pursuer itself initiated adjudication 6 after five earlier procedures. Further, Mr McFarlane's conduct and the comments attributed to him are also consistent with a robust approach.

[19] The key consideration is that the grant of interim interdict would prohibit the defender from initiating any further adjudication, no matter how genuine, no matter how well vouched. MrMacColl suggested that, if interim interdict was granted, the defender could apply to the court for partial recall when it sought to initiate a further adjudication. In my view that would be cumbersome, expensive, and be a difficult question for a court, rather than an adjudicator, to determine.

[20] Diligence on the dependence is an ancillary and protective remedy. It does not provide a direct parallel with adjudication, which is a primary remedy. But even in the case of diligence, Lord Justice Clerk Moncreiff stated that interim interdict was only granted if "the malicious and oppressive intent can be instantly proved": Beattie & Son at p1176. That test is not satisfied here.

[21] Turning to the two English authorities, Mentmore concerned an adjudication that had already begun. It is not authority for the proposition that a party can be prevented from referring any future dispute to adjudication. The following propositions can be drawn from the judgments of Edwards-Stuart J:

(a) each case is fact specific;

(b) a party should not be prevented from referring a dispute to adjudication, save in the most exceptional circumstances; and

(c) it would have to be shown that the conduct was both unreasonable and oppressive.

He also observed that:

"Parliament has in effect expressly approved a party's right to start an adjudication in circumstances that can effectively amount to an ambush of the responding party. That, of itself, does not justify the interference of the court." (Twintec at para 70)

[22] I hold that the pursuer has failed to establish a prima facie case. It has not passed the high threshold required. I also conclude that the balance of convenience tips in favour of the defender. It would be significantly prejudiced if it could not take advantage of the speedier and cheaper means of dispute resolution provided by adjudication. Further, it would be unjust if the pursuer but not the defender could refer a dispute to adjudication. The other factor that weighs in the balance is that the pursuer does have a remedy; it can raise an action seeking damages for abuse of process.

[23] I therefore decline to grant the motion.