Neutral citation: Barhale Ltd v SP Transmissions Plc [2021] CSOH 2

NEC contract topics: Option B: Bill of Quantities, Civil Engineering Standard Method of Measurement, 3rd edition (CESMM3), Works Information

Form of contract: NEC3 Engineering and Construction Contract, Main Option B

Main areas of law: adjudicator's jurisdiction and the enforceability of adjudication decisions.

 

Barhale and SP Transmission entered into a contract in February 2018 in respect of civil engineering works at an electricity substation located in Currie, Edinburgh. The works formed part of the Currie Switchgear Modernisation and Group Reinforcement project. The contract adopted the NEC3 Engineering and Construction Contract, Main Option B.  The Contract Data specified CESMM3 as the applicable method of measurement.

Barhale undertook to carry out excavations in an area of made ground in order to construct foundations. The works involved removing the made ground to a minimum depth indicated in the Works Information, followed by reinstatement using imported fill material, with foundation construction undertaken progressively. Barhale carried out excavation beyond the precise footprint of the foundations to a level that provided adequate bearing capacity. A dispute arose as to the valuation of this excavation and reinstatement work.

Barhale sought payment based on the quantity of actual excavation undertaken. In contrast, SP Transmission contended that CESMM3 restricted the quantity to the volume beneath or vertically above any part of the foundation structure. The different approaches adopted by the parties in the remeasurement process resulted in significantly divergent valuations. Barhale initiated adjudication proceedings and succeeded in securing an award of £196,606.33 in respect of its claim for excavation, disposal and filling. SP Transmission’s counterclaim was dismissed by the adjudicator.

 

The enforcement proceedings in the Outer House of the Court of Session raised the issue of whether the adjudicator’s decision was enforceable in circumstances where a party contended that a material issue had not been determined.

SP Transmission argued that the adjudicator had failed to exhaust his jurisdiction. It submitted that the adjudicator had not engaged with its argument concerning the CESMM3 measurement rules, in particular the application of clauses M6 and M16 which, it claimed, limited the measurable volume of excavation and fill. This argument had been expressly stated in written submissions and reinforced in correspondence. SP Transmission submitted that this point constituted a fundamental dispute that the adjudicator had a duty to resolve. It contended that the failure to address it, whether deliberate or inadvertent, resulted in a decision made outside jurisdiction.

Barhale argued in response that the adjudicator had dealt with the central issue of entitlement to payment and had accepted that a bulk excavation was required. It was said that the adjudicator implicitly rejected SP Transmission’s CESMM3-based argument by accepting Barhale’s proposed valuation approach. Barhale further submitted that even if the adjudicator had omitted to address the issue, the omission was inadvertent and not a ground for refusing enforcement.

The court was therefore required to determine whether the adjudicator had failed to address a material issue, whether such a failure amounted to a failure to exhaust jurisdiction, and if so, whether the decision should be enforced.

 

The court held that the adjudicator had failed to address a material issue that formed part of the dispute referred for decision. Specifically, Lord Tyre found that the adjudicator had not effectively considered the SP Transmission’s submission regarding the proper application of CESMM3 measurement principles to the excavation works. The court held that this omission constituted a failure to exhaust jurisdiction.

It was observed that while adjudicators are not required to address every subsidiary argument raised, there is an obligation to consider the essential issues in dispute. The measurement method under CESMM3 was not ancillary but central to the valuation of the works and directly relevant to the claim and counterclaim. By failing to decide on the appropriate measurement methodology, the adjudicator had not determined the full scope of the dispute.

The court dismissed the argument that rejection of the CESMM3-based approach was implicit in the adjudicator’s reasoning. Lord Tyre stated that there was nothing in the adjudicator’s decision to indicate that the argument had been considered. The failure to make any finding on the matter could not be overlooked or inferred.

Although the Scottish courts had not previously drawn a strict distinction between deliberate and inadvertent failures to decide, Lord Tyre found it unnecessary to classify the omission as deliberate for the purpose of concluding that jurisdiction had not been exhausted. Nevertheless, the judge expressed the view that the failure was deliberate, citing two instances where SP Transmission had raised the issue in correspondence and had received a "terse response" from the adjudicator, indicating awareness and conscious disregard of the argument.

The court declared that the adjudicator’s decision was unenforceable. Decree of absolvitor was granted in favour of SP Transmission, with expenses reserved.

 

The judgment confirms the strict limits of adjudicative jurisdiction under NEC3 contracts and reaffirms that an adjudicator must address the central issues referred. Where the parties raise competing interpretations of measurement provisions under the contract, the adjudicator is required to engage directly with those arguments. Failure to do so will render the decision vulnerable to challenge.

A significant point for NEC3 practitioners is the court’s finding that the Works Information and method of measurement (in this case CESMM3) must be read and applied together. This decision reinforces the importance of reconciling scope of works with the contractual basis of valuation and emphasises that a finding on one cannot be made in isolation from the other.

Looking at this and other decisions^[1], it could be said that Scottish courts have appeared to apply a slightly more rigorous scrutiny to breaches of natural justice than the English courts.^[2] However, the Scottish courts generally adhere to the same principles as in England in that decisions will be enforced unless there is a material breach of natural justice or jurisdiction.^[3]