Applying English law in Scotland

The court’s reasoning and decision in Laker Vent Engineering Ltd vs Jacobs E&C Ltd has confused readers. It is, of course, well understood that the Technology and Construction Court will strive hard to enforce adjudicators’ decisions. The (lawyers’) codification of legal arguments that may “work” to resist an enforcement of an adjudicator’s decision is now often perceived to be theoretical or of purely academic interest. Two things appear to matter: first, a combination of extreme behaviour and facts; and second, the tangible existence of an inexplicable or indefensible error in procedure. It is the latter that applies in the case of Laker Vent.

One argument put forward by Jacobs was that the adjudicator had not been properly appointed and the adjudication had not been properly conducted because the English Scheme had been used rather than the Scottish Scheme. So which Scheme was applicable? There are of course differences between the two - a point that the court readily recognised. But the court also held that the English Scheme applied to construction operations being carried out in Scotland. Is its reasoning correct and likely to be followed?

Under the contract between Laker and Jacobs, Laker agreed to supply, fabricate and install pipe-work at Markinch Biomass Combined Heat and Power (CHP) plant in Fife, Scotland. This formed part of the work which Jacobs had agreed to carry out under a main contract with RWE Npower Renewables (Markinch) Limited. The main contract was for the design, manufacture, supply, construction, installation, testing and commissioning of the plant. The contract did not contain express provisions for adjudication. The court having decided that the contract was a construction contract because it was an agreement for the carrying out of construction operations which were not within the exclusion in s.105(2)(c) found that it was therefore a construction contract which did not comply with the requirements of s.108(1) to 108(4) of the act. 

But what if the parties had expressly agreed that the law of nigeria or brazil or delaware was the applicable law of the contract? Those laws do not, of course have statutory adjudication

This meant that, under s.108 (5) of the act, the adjudication provisions of the Scheme for Construction Contracts applies. Since the contract concerned construction operations in Scotland, readers may be tempted to think that the Scottish Scheme ought to apply.

However, the contract provided: “The sub-contract shall in all respects be governed by and interpreted in accordance with the laws of the country stated in the special conditions of sub-contract.”

The special conditions stated: “The sub-contract shall in all respects be governed by and interpreted in accordance with the laws of England and shall be subject to the jurisdiction of the English courts.”

In one referral notice Laker had referred to the Scheme for Construction Contracts (England and Wales) 1998, as amended and said that that Scheme applied to the contract. While the court discussed the feasible relevance of waiver, the decision on which scheme was correct was based purely on the fact that the parties had agreed that English Law was the applicable law. 

The court said: “Although the project was based in Scotland, the parties in the sub-contract expressly agreed that English law was to govern the sub-contract. As a matter of English law both the act and the England and Wales Scheme, as amended, apply where English law is the applicable law. This is most clearly shown by the fact that, under s.114(4) of the act, the provisions of the Scheme take effect as implied terms of the sub-contract. Matters related to implied terms depend on the proper law which governs the relevant contract. It is therefore the implied terms of the England and Wales Scheme, as amended, which apply where, as here, English law governs the sub-contract.”

But what if the parties had expressly agreed that the law of Nigeria or Brazil or Delaware was the applicable law of the contract? Those laws do not, of course, have statutory adjudication and so does that mean that there can be no adjudication? Or does it mean in that specific occurrence the Scottish Scheme would apply on a territorial basis? The court’s reasoning appears to suggest that the applicable law trumps the territorial reach of the Scottish Scheme but that reasoning may now lead to some “clever” arguments seeking to circumvent statutory and territorial adjudication. Might Laker Vent have actually fallen into the “tangible existence of an inexplicable or indefensible error in the procedure” category?

Hamish Lal is head of construction at Jones Day London