RBG Ltd v SGL Carbon Fibers Ltd (Scot, OH, CS - 22.6.2010)

The adjudicators wrongful refusal to take into account any overpayments made by the employer in awarding the contractor a specified sum in respect of the five unpaid invoices it had submitted constituted a failure to exhaust his jurisdiction

Scotland, Outer House, Court of Session
Lord Menzies


22nd June 2010

The contract incorporated NEC3 and its target cost option and provided a mechanism for assessing the amount due at each assessment date (the Price for Work Done to Date or “PWDD”). A dispute arose as to the contractor’s entitlement in respect of five invoices. The contractor set out the invoices in its notice of adjudication and accepted that certain credits were due to the employer which fell to be deducted from the sums invoiced. The employer argued that (i) There had been errors in the calculating the PWDD with the result that the contractor had already been paid too much and (ii) Even if the work which was the subject of the five invoices had been carried out properly, no further payment was therefore due. The adjudicator in awarding sums in respect of the invoices held that he was only entitled to consider amounts due in the invoices without taking into account any earlier overpayments since this was not part of the subject matter of the dispute and was beyond his jurisdiction.
Lord Menzies held that the adjudicator’s refusal to take into account any overpayments constituted a failure to exhaust his jurisdiction. The question which the adjudicator had to address was raised in the contractor’s notice of adjudication, namely its entitlement to be paid the sums set out in the five unpaid invoices (albeit under deduction of credits). The employer’s response was that no payment was due because of its earlier overpayments, whether or not the invoices themselves were correctly vouched. Even if this was not a matter encompassed within the dispute as defined in the notice of adjudication (i) It fell within the scope of the adjudication and (ii) The adjudicator was bound to consider evidence and submissions about it. Even if this matter did not fall within the scope of the adjudication, the question of earlier overpayment was clearly a relevant defence relied on by the employer and should have been dealt with by the adjudicator.
Lord Menzies went on to state obiter that if it had been necessary to decide the employer’s contention that the adjudicator was in breach of the rules of natural justice, the requirements for a substantial and relevant breach had been made out on the basis that the adjudicator had denied the employer a fair opportunity to present its case.