Specialist Insulation Ltd V Pro-Duct (Fife) Ltd
Scotland, Outer House, Court of Session
10th May 2012
The supplier of ductwork referred a payment dispute to adjudication and was awarded a specified sum. The sub-contractor challenged the adjudicator’s jurisdiction on the ground that whilst its conditions of contract, including their adjudication clause, had been incorporated into the supply contract, they nevertheless did not authorise the adjudication since the supply contract did not concern "construction operations". It repeated its challenge on three occasions during the course of the adjudication and reserved its right to renew its challenge in the event of the supplier succeeding and bringing court enforcement proceedings. When the supplier brought such proceedings, the sub-contractor did renew its challenge but this time on the ground that the supplier’s terms, which required disputes to be referred to arbitration, had been incorporated into the supply contract, assuming that it was held that those terms had indeed been incorporated. The supplier contended in response that it was not open to the sub-contractor to renew its challenge on this different ground which contradicted the ground it relied on in the adjudication.
Lord Malcolm held that the supplier’s terms had been incorporated into the supply contract with the result that the adjudicator did not have jurisdiction conferred under that contract. He further held that the sub-contractor was not personally barred from opposing enforcement and had not waived its right to so challenge. In the circumstances the adjudicator would only have had jurisdiction in the event that there had been an ad hoc agreement between the parties that the dispute could be referred to adjudication. However, there was no such agreement between the parties. If both parties had accepted the adjudication process without demur, it would no doubt have been difficult for either of them later to rely on its invalidity due to lack of jurisdiction and there would have been an implied agreement to be bound by the outcome of the process rather than waiver by one or both parties. However, the sub-contractor from the earliest stage effectively made a full and express reservation of its position that it did not accept the jurisdiction of the adjudicator and reserved the right to challenge the validity of any award in favour of the supplier in any subsequent proceedings.