Trustees of the Harbour of Peterhead V Lilley Construction Limited

Contractor entitled to have stayed to arbitration the employer's court proceedings to recover the sum awarded to the contractor notwithstanding that the employer was satisfied with the engineer's decision under the ICE Sixth Edition on which the dispute referred was based

Scotland, Outer House, Court of Session
Lord Mackay
1 April 2003
The employer brought court proceedings against the contractor to recover the sums awarded by the adjudicator in his decision in the contractor's favour under Scottish court procedure. The ground for the application was the (lack of) merits of the contractor's claims in the adjudication. The contractor applied to stay the court proceedings to arbitration on the basis that the contract incorporated the ICE Sixth Edition and its arbitration agreement.
The employer made two submissions in opposition to the contractor's application. The first was that where a dispute had been referred to adjudication and a decision had been made, the provisions of clause 66 did not admit the possibility of a subsequent arbitration in respect of the subject matter of the dispute referred by reason of the claimant in the adjudication having "stepped outside" clause 66. The second was that before there could be an arbitration, there had to be a "dispute" within the meaning of clause 66 and, as the employer was content with the engineer's decision in respect of the interim payment application that no further monies were due to the contractor, there could no longer be any dispute which could validly be referred to arbitration
Lord Mackay held that the contractor was entitled to invoke the arbitration agreement in clause 66 of the ICE Sixth Edition and stayed the court proceedings accordingly. He stated that the dispute which remained between the parties was as to the extent of the contractor's contractual entitlement to pay which could competently be dealt with in accordance with clause 66. The contractor had not "stepped outside" the provisions of clause 66 or waive or in some other way become barred from relying on its right to go to arbitration as the mechanism for bringing about a final determination of the dispute. Instead the contractor had exercised a contractual right which was open to it without prejudice to its (further) contractual right to refer the same dispute to arbitration at some subsequent date.
Advice Note
The scheme for adjudication established by the Construction Act 1996 is that decisions are enforceable pending the final resolution of the dispute by court or arbitration proceedings (or by agreement). The courts will be unwilling to endorse any attempt to circumvent a party's right to arbitration to obtain a final resolution.