SGL Carbon Fibres v RBG (2012)

Background and the Dispute

SGL Carbon Fibres Ltd (the Employer) engaged RBG Ltd (the Contractor) under an amended NEC3 Engineering and Construction Contract (June 2005 edition), incorporating Options C and W2. The works related to constructing a new production line and associated installations at SGL's premises in Muir of Ord Industrial Estate, Easter Ross.

Instead of following the contractual payment procedures under Clause 50.1, which assigns the Project Manager the role of assessing payments, the parties adopted an informal mechanism. Each month, RBG submitted a payment claim pre-approved by SGL’s quantity surveyor (QS), and SGL then paid the agreed amount.

Disputes arose regarding overpayments made by SGL and unpaid additional sums claimed by RBG. These disputes were subject to two adjudications and later referred to arbitration. The arbitrator issued a Part Award in August 2011, corrected slightly for details, concluding that SGL bore the burden of proving any overpayments it alleged.

Clause 50.5 allowed for previous assessments to be corrected if found to be wrong. Defined Cost and Disallowed Cost, as defined by clause 11.2 applied when calculating the Price for Work Done to Date (PWDD) and the amount due.

Legal Issues

The central issue was the allocation of the burden of proof in arbitration. Specifically, whether it was for SGL to prove that payments made under the agreed QS-led mechanism were overpayments, or whether RBG bore the burden of proving the legitimacy of all amounts received.

SGL contended that the contract required RBG to justify, through accounts and records, that all sums claimed formed part of Defined Cost rather than Disallowed Cost. They argued this obligation persisted throughout the project and arbitration process. SGL further argued that the arbitrator erred by giving weight to the informal agreement between quantity surveyors, which they claimed could not override the contractual provisions that placed the burden of proof on the contractor.

RBG maintained that once interim payment amounts had been agreed (even if not binding), it was for SGL to demonstrate that these were excessive. They pointed to the arbitrator’s conclusion that such agreements were functional equivalents to assessments by the Project Manager under Clause 50, thus requiring SGL to bear the burden of persuasion when seeking corrections.

Judgement

The Outer House of the Court of Session, presided over by Lord Glennie, dismissed SGL’s appeal. It upheld the arbitrator's conclusion that the party challenging an interim certificate must bear the burden of proof. Lord Glennie reaffirmed the principle that “he who avers must prove.” He considered that even though the contractual mechanism was not followed strictly, the arbitrator was correct to treat the informal QS agreements as functionally equivalent to Project Manager assessments.

The court accepted that while interim payments under the NEC3 contract are not final and can be corrected (Clause 50.5), the fact of an earlier assessment or payment agreement creates a rebuttable presumption of correctness. Therefore, the burden shifts to the party asserting overpayment to prove their case. Importantly, the judge recognised that although Disallowed Cost refers to amounts not justified by accounts and records, the Project Manager's certification stands unless properly challenged. The assessment process and resulting certificates were not rendered void by their interim nature; they remained operative until successfully disputed.

NEC Contract Learning Points and Implications for the Construction Industry

The decision clarifies that interim assessments under NEC3, even if based on informal procedures, carry weight in subsequent dispute resolution unless corrected through established mechanisms. For those working with NEC contract this reinforces the importance of understanding how the payment mechanism interacts with dispute procedures.

This case highlights that certificates and interim payment agreements, while not conclusive, are not to be treated lightly. They establish a starting point from which challenges must be mounted, with the burden resting squarely on the challenger. It would be unrealistic and commercially disruptive if every payment required retrospective revalidation during disputes.

The judgment also affirms the wide discretionary powers of arbitrators and adjudicators under Option W2 to revise the actions or inactions of the Project Manager. However, unless and until they exercise that discretion, prior assessments remain in effect.

The implications extend to dispute strategy; parties alleging overpayment must be ready to produce clear evidence and bear the onus of persuasion, even where the original assessments deviated from the contract's formal procedures.