England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Rolls Building, Fetter Lane London EC4A 1NL
		08/11/2012

The Honourable Mr. Justice Edwards-Stuart:

Introduction

1. This is an application by the Claimant in the first action, "Lidl", for summary judgment to enforce an adjudicator's decision dated 14 September 2012 ("the second Decision"), by which the adjudicator declared that Lidl was "entitled to deduct the LADs all as set out in its letter dated 12^th July 2012". Lidl was the employer under a building contract to construct a food store and 12 housing units in Chessington. The application is opposed by the defendant contractor, R G Carter Colchester Limited ("RGC").
2. The second action is a Part 8 claim brought by RGC seeking declaratory relief in relation to one aspect of Lidl's entitlement to recover liquidated damages for delay in completing sections of the Works. RGC contends that the adjudicator made an error of law which the court can and should correct by making a final determination of the relevant question. In effect, the Part 8 claim is an attempt at a pre-emptive strike to defeat the application for summary judgment.
3. However, RGC does not rely solely on its Part 8 claim. It contends that the adjudicator's decision should not be enforced because (a) he exceeded his jurisdiction by purporting to decide matters that were not referred to him and (b) he decided the relevant question without giving RGC a proper opportunity to deal with the approach that the adjudicator proposed to adopt and that this amounted to a breach of natural justice. RGC says that this breach was very material to the Decision with the result that it is unenforceable.
4. Lidl accepts that the adjudicator decided one question that was not referred to him but submits that this can be severed from the remainder of the decision.

The issues

5. The issues raised by these applications can be summarised briefly, if somewhat crudely, as follows:

(1) what was the precise scope of the dispute referred by the notice given by RGC on 2 August 2012: was it confined to the question of whether Lidl was in principle entitled to deduct or demand liquidated damages after 27 June 2011 (Section 1) and 6 July 2011 (Section 2), or did it extend to determining, in addition, the amount of any such damages?

(2) What is the consequence of the fact that the adjudicator exceeded his jurisdiction by assessing Lidl's entitlement to liquidated damages for the periods up to 27 June 2011 and 6 July 2011, in relation to Sections 1 and 2, respectively? Can this part of his Decision be severed from the remainder?

(3) Did the adjudicator fail to give RGC a proper opportunity to address the approach that he intended to adopt in relation to Lidl's entitlement to liquidated damages? If so, was this a material breach such as to render his Decision unenforceable?

(4) Should the court make the declaration sought in RGC's Part 8 claim?

6. The declaration that RGC seeks is in the following terms:

"that on the true construction of the Contract, LADs do not accrue following Part Practical Completion of the Works or a Section thereof."

7. In relation to issue (2) above, Lidl accepts that in deciding that Lidl was entitled to liquidated damages at the full rate up to the dates mentioned, the adjudicator exceeded his jurisdiction. Lidl therefore does not seek to enforce that part of the Decision, which amounts to £125,000.

The relevant provisions of the contract

8. I shall set out or summarise below the provisions of the contract between Lidl and RGC that are relevant to the present applications and then set out my understanding of what they mean.
9. The contract is a design and build contract dated 4 August 2012. The date for possession of each of the three sections of the work was 2 August 2010. The Works consisted of the design and construction of a Lidl food store, 12 affordable housing units above it and associated external works.
10. Essentially, Section 1 involved the store shell, drainage and the external envelope of the residential accommodation. Section 2 involved the fitting out of the retail shell and the external works (both in relation to the store and the residential accommodation). Section 3 was for the fitting out of the residential accommodation.
11. The dates for completion of the sections were, for Sections 1 and 2, 12 May 2011, and for Section 3, 20 June 2011.
12. Clause 2.27 of the contract, which comes under the heading "Practical completion", is central to this dispute. It provides as follows:

"The Contractor shall give the Employer not less than 21 Business Days' notice in writing of the date upon which the Contractor considers that the Works or any Section will have reached practical completion and a date or dates when the Works for the relevant Section shall be inspected . . .

. . .

When practical completion of the Works or Section is achieved then:

.1 in the case of the Works, the Employer shall forthwith issue a statement to that effect ("the Practical Completion Statement");

.2 in the case of a Section, he shall forthwith issue a statement of practical completion of that Section (a "Section Completion Statement");

and practical completion of the Works or the Section shall be deemed for all the purposes of this Contract to have taken place on the date stated in that statement. The Employer at his discretion may issue the Practical Completion Statement or a Section Completion Statement as the case may be notwithstanding that minor items of work and/or final commissioning and adjustment (which are capable of being made good without materially interfering with the beneficial use and/or enjoyment and/or occupation of the Works or any Section) remains to be completed. In which event such incomplete work and/or commissioning and adjustment shall be included in a snagging list which shall be attached to the Practical Completion Statement or a Section Completion Statement as the case may be ("the Snagging List"). The items on the Snagging List shall be completed as soon as reasonably practicable following the Practical Completion Statement or any Section Completion Statement unless items on the Snagging List are likely to cause unreasonable inconvenience to any person lawfully in occupation of or using the whole or any part of the Works or any Section or that such items are or item is likely directly or indirectly to cause any damage or further damage to the Works whereupon the Contractor shall comply with the Employer's instructions forthwith and in any event shall complete such items or item within 48 hours from receipt of those instructions."

(My emphasis)

13. Clause 2.28 of the contract provides that if the Contractor fails to complete the Works or a Section by the relevant Completion Date, the Employer shall issue a notice to that effect which is to be conclusive and binding on the Contractor until final ascertainment or agreement between the parties as to the matters to which it relates (a "Non-Completion Notice").
14. Clause 2.29 provides for the payment or allowance of liquidated damages. It contains a machinery by which if the Employer has issued a Non-Completion Notice for the Works or a Section and has notified the Contractor that he may require the payment of or withhold liquidated damages, he may issue a notice on the terms set out in clause 2.29.2. That provides:

"A notice from the Employer under clause 2.29.1 shall state that for the period between the Completion Date and the date of practical completion of the Works or that Section:

.1 he requires the Contractor to pay liquidated damages at the rate stated in Contract Particulars, or lesser rate stated in the notice, in which event the Employer may recover the same as adept; and all

.2 that he will withhold or deduct liquidated damages at the rate stated in the Contract Particulars, or that such lesser stated rate, from the sums due to the Contractor."

(My emphasis)

15. Clauses 2.30-2.34 concern Partial Possession by the Employer. This applies to the situation where the Employer wishes to take possession of any part of the Works or a Section and the Contractor's consent has been obtained. In that situation the Employer may take possession of the relevant part and the Contractor shall then give the Employer a notice identifying the part taken into possession ("the Relevant Part") and the date when it was taken into possession ("the Relevant Date"). Clause 2.34 provides as follows:

"As from the Relevant Date, the rate of liquidated damages stated in the Contract Particulars in respect of the Works or Section containing the Relevant Part shall reduce by the same proportion as the value of the Relevant Part bears to the Contract Sum or to the relevant Section Sum, as shown in the Contract Particulars."

16. Under these provisions, therefore, there are only two methods by which the Contractor can achieve completion of the Works or a Section. First, he can achieve practical completion under the first part of section 2.27. Practical completion is usually understood as amounting to completion of the Works subject only to minor defects, usually referred to as snagging items. However, clause 2.27 of this bespoke contract provides not only for practical completion in the usual way but also for a form of qualified practical completion, as set out in the last part of the clause that I have quoted above and emphasised. This provides that practical completion of, say, a Section can be permitted by the Employer "notwithstanding that minor items or (sic) work and/or final commissioning and adjustment . . . remains to be completed". However, the matters outstanding must be "capable of being made good without materially interfering with the beneficial use and/or enjoyment and/or occupation of . . . the Section".
17. Once practical completion of a Section is achieved by either of these means, the Employer is no longer entitled to deduct or demand liquidated damages. Instead, in either case, the Employer is required to issue a statement of practical completion of that Section, which is known as a "Section Completion Statement".
18. In relation to partial possession, by contrast, the Employer's right to deduct or demand liquidated damages is not lost when possession is taken, but instead the contractual rate of liquidated damages is reduced pro rata in the manner set out in clause 2.34.
19. One feature of clause 2.29, which may possibly have given rise to confusion in this case, is the reference to a "lesser rate stated in the notice" in clauses 2.29.2.1 and 2.29.2.2. In my view, this has nothing to do with partial possession or qualified practical completion, but is a saving that enables the Employer to claim liquidated damages at a lower rate than the amount stated in the contract if, for some commercial or other reason, he thinks it expedient to do so. If such a provision was not there, the Employer would be faced with the choice between claiming liquidated damages at the full rate stated in the contract or not at all. Whilst at first blush it may seem strange that an Employer may choose to claim liquidated damages at a lower rate than that to which he is entitled, it is not difficult to envisage situations in which it may suit him to do this - perhaps because he does not wish to penalise the Contractor unduly when the delay has not caused any real loss, or to limit the amount of LADs to the sum claimed by the contractor, or, possibly because he is concerned that the contractual rate of liquidated damages might be attacked as a penalty.

The events leading up to these proceedings

20. On 28 June 2011 Lidl certified what it described as "Part Practical Completion (Internal store only) of the Works associated with Section 1" as having taken place on 27 June 2011. A few days later, on 6 July 2011, Lidl certified that Practical Completion had been achieved to the external works relating to the store car park, access ways and delivery bay, all forming part of Section 2. The certificate said that a further certificate would be "provided for all external elevations once completed".
21. It will be apparent from my brief summary of the relevant contractual provisions, that these two certificates were not in a form that corresponded with the contract. In relation to the first certificate, there is no such thing as Part Practical Completion in clause 2.27. In relation to the second certificate, whilst it makes no mention of the completion of the fitting out of the store, it appears that it was intended to cover all the work involved in Section 2 apart from the external works relating to the affordable housing. However, there is nothing in clause 2.27 which allows the Contractor to complete part of a section and there is nothing in the certificate which suggests that it was intended to be a certificate of Partial Possession.
22. On 11 January 2012 Lidl replied to a letter from RGC and agreed that the certificates issued on 28 June 2011 and 6 July 2011 were of no effect and, "for clarity", withdrew them. In addition, Lidl withdrew two notices of non-completion dated 22 June 2011. Instead, Lidl served notices of Non-Completion in relation to Sections 1 and 2, saying that it had taken partial possession of part of the Works within each Section, in accordance with clause 2.30 of the contract, on the dates mentioned in the earlier (and now purportedly withdrawn) certificates.
23. Thus Lidl's new position was that it was entitled to pro-rated liquidated damages from the dates when it alleged it had taken partial possession of Sections 1 and 2. In addition, it was asserting that neither Section had been completed. RGC's position at this time, as I understand it, was that it was claiming an entitlement to extensions of time in relation to all three Sections.
24. In the meantime, the store had opened for trading on 7 July 2007 and has been doing so successfully ever since.
25. On 13 June 2012 RGC referred a dispute to adjudication concerning the certification of practical completion of each Section. The adjudicator delivered his first Decision on 11 July 2012, in which he found that Practical Completion had been achieved as follows:

Section 1 26 March 2012

Section 2 30 March 2012

26. However, in the case of each Section the adjudicator found that each of the certificates that had been issued by Lidl on 28 June 2011 (Section 1) and 6 July 2011 (Section 2) "remains effective". The adjudicator went on to give his reasons for reaching these conclusions, but I have to confess that I do not really understand them. However, in paragraph 48 of his first Decision the adjudicator said, in relation to Section 2:

"As with Section 1 I have no reason to doubt that the parties reached an accommodation which enabled [Lidl] to gain access to a particular area(s) but as stated previously this is not the same as complying in full with the obligations set down under the contract. Accordingly I FIND THAT Practical Completion of Section 2 as defined under the contract was not achieved on the 6 July but on the 30 March 2012 as confirmed by [Lidl] by the issue of a certificate on 13 April 2012."

This would seem to be more consistent with a finding that what occurred in June/July 2011 was the taking of partial possession by Lidl of parts of Sections 1 and 2, but the adjudicator made no such finding: on the contrary, at paragraph 38.10 of the second Decision he said:

"I remain in agreement with RGC's statement that [Lidl] took possession by the Part Practical Completion route - as established in my first Decision."

However, later, at paragraph 38.11.3 of the second Decision, he said:

"As regards the points made by [Lidl] under paragraphs 40-42 I have previously found that neither party complied with the procedures set down in the (amended) contract and accordingly have followed what I consider to be the correct contractual provisions. The partial possession issue remains open but what is not in doubt is the fact that RGC did not respond to [Lidl's] January letter."

27. On 12 July 2012, the day following the issue of his first Decision, Lidl wrote to RGC claiming £535,650 by way of liquidated damages. This consisted of:

(1) £125,000 up to 27 June and 6 June 2011, respectively, in relation to Sections 1 and 2 at the full contractual rate of £5,000 per day.

(2) £193,050 in respect of pro-rated liquidated damages at £825/day for Section 1 from 27 June 2011 to 26 March 2012.

(3) £151,800 in respect of pro-rated liquidated damages at £660/day for Section 2 from 6 July 2011 to 30 March 2012.

(4) £65,800 in relation to Section 3.

28. This prompted a second adjudication notice on the part of RGC. On 2 August 2012 it issued a "Notice of Intention to Refer a Dispute to Adjudication". Clause 9.2 of the contract provided that the Scheme for Construction Contracts was to apply to the adjudication procedure under the contract, so this was the "notice of adjudication" within the meaning of the Scheme. A notice of adjudication has to set out, amongst other things, the nature and a brief description of the dispute and of the parties involved.
29. Paragraph 7(1) of the Scheme provides that where an adjudicator has been selected in accordance with the contractual procedure the referring party shall, not later than seven days from the date of the notice of adjudication, refer the dispute in writing to the adjudicator. The document by which this is done is the "referral notice".
30. The notice of adjudication described the dispute in the following terms. At paragraph 7:

"Lidl's entitlement to liquidated and ascertained damages ("LADs") under the Contract."

And at paragraph 17:

"[RGC] seeks the appointment of an Adjudicator to confirm that Lidl is not entitled to partial LADs in respect of Sections 1 and 2 of the Works whether as claimed in their letter of 12 July 2012, or otherwise."

31. In addition, at paragraph 13 the notice said this:

"However, it is in fact disputed by [RGC] that full LADs (as described in paragraphs 11.1 and 11.2 above) are payable due, principally, to [RGC's] entitlement to an extension of time, which is the subject of a separate dispute falling outside the scope of this adjudication. Accordingly, the claim for LADs as described in paragraphs 11.1 and 11.2 above is also outside the scope of this adjudication."

This made it abundantly clear that the £125,000 claimed by Lidl by way of liquidated damages at the full contractual rate was outside the scope of the dispute being referred.

32. RGC served its Referral Notice a few days later, on 10 August 2012. Paragraph 4 of the Notice described the dispute in the following terms:

"The issue for determination in this Adjudication concerns Lidl's claim to be entitled to partial and pro-rata liquidated and ascertained damages ("LADs") under the Contract."

33. At paragraph 29 of the Notice RGC claimed the following relief:

"A declaration that Lidl is not entitled to pro-rata LADs in respect of Sections 1 and 2 of the Works as claimed in their letter of 12 July 2012, or at all"

34. The same adjudicator was appointed to determine this referral.
35. In its Response, which was served on 24 August 2012, Lidl asserted that the Referral was confused and confusing, and that it was necessary for RGC to break down the Notice and the Referral so as to understand the precise scope of the jurisdiction for the referral.
36. Later, at paragraph 21, Lidl said:

"Therefore this reference is limited to a dispute regarding the liquidated damages for the period after a partial possession of Section 1 and Section 2 had taken place."

37. At paragraphs 40 and 41 of its response, Lidl explained that it had taken partial possession of parts of Section 1 and Section 2 in accordance with clause 2.30 of the contract and accordingly that it was entitled to liquidated damages in relation to those Sections at a reduced daily rate calculated in accordance with clause 2.34 of the contract.
38. In its Reply to Response to RGC said, paragraph 8:

"The purpose of this Adjudication is to determine whether or not Lidl is entitled to levy the pro-rata damages as claimed (or at all). [RGC] say they are not. In the event that the Adjudicator finds against [RGC], [RGC] would commence a separate adjudication to determine the quantum of such LADs."

39. Lidl took issue with this statement in its Rejoinder, saying that it reserved its position.

The second Decision of the adjudicator

40. In his second Decision the adjudicator concluded, at paragraph 33:

"I FIND THAT in the first instance [Lidl] is entitled to recover the sum of £125,000 in respect of LADs in connection with Sections 1 and 2 made up as follows . . ."

And, at paragraphs 36 and 37, he concluded:

"I FIND THAT [Lidl] is entitled to claim a "lesser rate" in respect of LADs under Clause 29.2.1 as on the face of it [Lidl] has complied with the procedure set out under the clause.

"I FURTHER FIND THAT even though no specific mechanism for calculating (my emphasis) this "lesser rate" is incorporated under clause 29.2 it is sufficient under the contract for [Lidl] to set out the "lesser rate" in the Notice. [Lidl] has already set out the basis of the calculation and it was always open to RGC to challenge this back in January 2012."

41. He then went on to make findings in relation to the liability for costs and expenses and the amount of his fees.
42. The Decision concluded at paragraph 45, under the heading "SUMMARY", in the following terms:

"As regards the declarations sought by RGC I have found as follows:

45.1 Declaration 1 LADs - [Lidl] is entitled to deduct the LADs all as set out in its letter dated 12 July 2012."

45.2 . . ."

In this context, it is to be noted that, at paragraph 27 of the Decision, the adjudicator had stated that Lidl had claimed LADs "totally (sic) £469,850 in respect of sections 1 and 2 all as set out in its letter dated 12 July 2012 which was issued following publication of my Decision in the first adjudication involving the parties." In saying this, the adjudicator was clearly leaving out of account altogether the £65,800 that Lidl was also claiming in relation to Section 3. In doing that he was correct.

43. Thus it is quite clear that the adjudicator was deciding that Lidl was entitled to, first, £125,000 in relation to the initial delays to Section 1 and Section 2 at the full contractual rate, second, that Lidl was entitled to a "lesser rate" thereafter until practical completion of Sections 1 and 2 in March 2012 and, third, the amount of the LADs to which Lidl was entitled at the "lesser rate" was as stated in the letter of 12 July 2012 in respect of those sections.
44. Both parties accept that in making the finding that he did in respect of RGC's liability for liquidated damages in the sum of £125,000, the adjudicator was answering a question that was not put to him and on which he had no jurisdiction to make a decision. However, the parties are not agreed as to what the consequences of this should be. Mr Andrew Kearney, who appeared for Lidl, submits that that RGC does not have to comply with this part of the Decision either because it was outside the adjudicator's jurisdiction or, if this is wrong, because it is entirely independent of the remainder of the Decision and can therefore be severed leaving the rest of the Decision as enforceable.
45. Mr Steven Walker QC, who appeared for RGC, submits that since there was only one dispute before the adjudicator his Decision is not severable. This is a question that I will have to determine.
46. But there is a further point upon which the parties do not agree: that is the question of precisely what was referred to the adjudicator in the second adjudication. Mr Walker submits that the adjudicator was required to determine only whether or not Lidl had any entitlement to deduct lesser or pro-rated damages in respect of Sections 1 and 2 following the "Completion Statements" that were issued in June and July 2011, and not the amount of any such damages.
47. Mr Kearney disagrees. He submits that the adjudication notice and the notice of referral, properly understood, referred to the adjudicator not only the question of liability in principle for lesser or pro-rated damages but also the amount. He submits that the words "as claimed in their letter of 12 July 2012, or otherwise" (in the adjudication notice) or "as claimed in their letter of 12 July 2012, or at all" (in the referral notice) extended the adjudicator's jurisdiction to determining the amount of the damages as well as the entitlement in principle.
48. I will deal with this question first.

What was referred to the adjudicator in relation to the pro-rated LADs?

49. This is a short question of construction of the documents and, like many such questions, is largely a matter of impression.
50. In Coulson on Construction Adjudication, 2^nd Edn, the author states, at paragraph 3.33:

"Although it is important for the referring party to ensure that the referral notice is as clear and detailed as possible, it is important to ensure that, unless there is express agreement otherwise, the referral notice does not seek to enlarge the dispute that was the subject of the notice of adjudication."

The author then goes on to refer to the number of cases, including KNS Industrial Services (Birmingham) Ltd v Sindall Ltd [2001] 17 Const LJ 170, in which HHJ Humphrey LLoyd QC warned that the further documents that came into existence following the notice of adjudication, such as the referral notice, "do not cut down or, indeed, enlarge the dispute (unless they contain an agreement to do so)". Whilst I accept entirely that neither the referral notice nor any subsequent document should be permitted to enlarge the dispute described in the notice of adjudication, I am less certain that it is right to say that the referral notice cannot narrow it. However, for the reasons that I shall give that has not happened in this case, and so I express no further view about it.

51. It seems to me that, if the notice of adjudication and the referral notice had simply sought a declaration that Lidl was "not entitled to pro-rata LADs in respect of Sections 1 and 2 of the Works", RGC would have been on strong ground. However, the reference to "pro-rata LADs . . . as claimed in their letter of 12 July 2012 or otherwise/at all" in my opinion widens the issue from simply being one of entitlement to one of both entitlement and amount. I consider that what Lidl was claiming in its letter of 12 July 2012 was pro-rata LADs over particular periods at particular rates. A reasonable man, if asked: "what was Lidl claiming in its letter?" would, I suggest, answer "LADs for [such and such] a period in [such and such] an amount".
52. In my judgment, the wording of the notice of adjudication (and the almost identical wording in the relevant part of the referral notice) left it open to the adjudicator to determine not only the question of entitlement to pro-rata LADs, but also the amount of them. To this extent, therefore, he answered the question that was put to him by RGC. Whether he answered it rightly or wrongly is irrelevant because it is well established that an adjudicator's decision is enforceable even if the adjudicator makes a mistake of fact or law: see Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 522, and the numerous cases that have followed it.
53. Accordingly, I decide this issue against RGC. I now turn to the question of the effect of the adjudicator's finding, in excess of his jurisdiction, in relation to the entitlement to LADs in the sum of £125,000.

What is the effect of the adjudicator's finding in excess of his jurisdiction?

54. As I have already indicated, in this action Lidl does not seek to enforce the adjudicator's Decision in so far as it concerns the £125,000 because it accepts that this part of the Decision was made without jurisdiction. However, it submits that the remainder of his Decision in relation to LADs for Sections 1 and 2 was within his jurisdiction (as I have now found) and that therefore RGC is required to comply with it.
55. To this end Mr Kearney relies on an observation of Akenhead J in Redwing Construction Ltd v Wishart [2010] 135 Con LR 119, at paragraph 27, to the following effect:

". . . where an adjudicator, in court terms, offers an obiter opinion on a point or topic which is not part of the dispute for which he does have jurisdiction, that opinion is not jurisdictionally part of his decision."

56. Whilst I do not dissent from that observation in the context in which it was made, namely where an adjudicator's reasoning in a first adjudication effectively establishes a proposition which impinges on a different dispute in a second adjudication, I am not certain that Akenhead J would have reached the same conclusion if the adjudicator had made a finding in the first adjudication that had impinged on the second, even if that finding was outside his jurisdiction (but had not been challenged at the time). However, since my conclusion in the next section of this judgment is that this part of the Decision is severable, I will say no more.

Can the adjudicator's finding in excess of his jurisdiction be severed?

57. The criteria that are relevant when considering when an adjudicator's decision can be severed were summarised by Akenhead J in Cantillon Ltd v Urvasco Ltd (2008) 117 Con LR 1, where he said at paragraph 65:

"On the severability issue, I conclude, albeit obiter in the result, as follows:

(a) The first step must be to ascertain what dispute or disputes has or have been referred to adjudication. One needs to see whether in fact or in effect there is in substance only one dispute or two and what any such dispute comprises.

(b) It is open to a party to an adjudication agreement as here to seek to refer more than one dispute or difference to an adjudicator. If there is no objection to that by the other party or if the contract permits it, the adjudicator will have to resolve all referred disputes and differences. If there is objection, the adjudicator can only proceed with resolving more than one dispute or difference if the contract permits him to do so.

(c) If the decision properly addresses more than one dispute or difference, a successful jurisdictional challenge on that part of the decision which deals with one such dispute or difference will not undermine the validity and enforceability of that part of the decision which deals with the other(s).

(d) The same in logic must apply to the case where there is a non-compliance with the rules of natural justice which only affects the disposal of one dispute or difference.

(e) There is a proviso to (c) and (d) above which is that, if the decision as drafted is simply not severable in practice, for instance on the wording, or if the breach of the rules of natural justice is so severe or all pervading that the remainder of the decision is tainted, the decision will not be enforced.

(f) In all cases where there is a decision on one dispute or difference, and the adjudicator acts, materially, in excess of jurisdiction or in breach of the rules of natural justice, the decision will not be enforced by the Court."

58. In Working Environments Ltd v Greencoat Construction Ltd (2012) 142 Con LR 149 (TCC), Akenhead J again had to consider the question of whether part of an adjudicator's Decision could be severed. In that case, the adjudicator purported to decide two issues which were outside his jurisdiction. The answer was that the part of the decision dealing with those two issues was severed, and the remainder enforced. Akenhead J said, at paragraph 34:

"I see no good reason why the substance of the adjudicator's decision should not be enforced albeit that the amended decision relating to the sum of £250,860 plus VAT should be reduced by £21,149 plus VAT which would produce a net sum of £229,711 plus VAT which remains as the figure due at 14 January 2012. Since he did not have jurisdiction to reject or accept items 11 and 12, he had no jurisdiction to produce a decision which adjudicated upon them. It follows that in principle Greencoat was entitled to put forward as at 14 January 2012 set-offs in respect of items 11 and 12. Effectively, what the adjudicator did was, doubtless with good intentions, to decide upon to further disputes (items 11 and 12) which were not within his jurisdiction. The court is therefore enforcing the large bulk of the adjudicator's decision; to do so is consistent with the authorities set out in Cantillon Ltd v Urvasco Ltd (2008) 117 Con LR 1."

59. As Akenhead J put it, at paragraph 32 of his judgment:

"These two items were not part of or within the confines of the dispute as it had crystallised as they had not been mentioned before they emerged 22 days into the adjudication process."

60. In the same way, it seems to me, the two items of liquidated damages that totalled £125,000 were clearly not part of or within the confines of the dispute. The reasoning which underpinned them (as advanced by Lidl) had no bearing on the issues before the adjudicator. I conclude, therefore, that the rest of the Decision can be severed from them so that - subject to the natural justice point relied on by RGC - it remains enforceable.
61. I would add only this. At first sight it may appear that the decision in Greencoat conflicts with the general principle that a decision cannot be severed where only one dispute or difference has been referred. The rationale underlying this principle is, I think, that where a single dispute or difference has been referred it will generally be difficult to show that the reasoning in relation to the part of the decision that it is being sought to sever had no impact on the reasoning leading to the decision actually reached, or that the actual outcome would still have been the same. If this is the case, the part cannot safely be severed from the whole. However, where, in the case of the referral of a single dispute additional questions are brought in and adjudicated upon, whether by oversight or error, there should be no reason in principle why any decision on those additional questions should not be severed provided that the reasoning giving rise to it does not form an integral part of the decision as a whole. However, failing this, the entire decision will be unenforceable.

Was there a breach of natural justice?

62. The complaint here concerns the adjudicator's reasoning in relation to the "lesser rate" at paragraphs 36 and 37 of the Decision which, for convenience, I will set out again:

"I FIND THAT [Lidl] is entitled to claim a "lesser rate" in respect of LADs under Clause 29.2.1 as on the face of it [Lidl] has complied with the procedure set out under the clause.

"I FURTHER FIND THAT even though no specific mechanism for calculating (my emphasis) this "lesser rate" is incorporated under clause 29.2 it is sufficient under the contract for [Lidl] to set out the "lesser rate" in the Notice. [Lidl] has already set out the basis of the calculation and it was always open to RGC to challenge this back in January 2012."

63. The complaint by Mr Kirkpatrick, RGC's solicitor, is that here the adjudicator was relying on an entirely new contractual provision without giving either party an opportunity to comment on his proposed analysis. Mr Kirkpatrick says that if RGC had been offered the opportunity to comment on this analysis, it would have pointed out the following matters to the adjudicator:

(1) That this approach would involve acting outside his jurisdiction.

(2) The fundamental legal flaws in the reasoning.

(3) The inherent contradiction in reliance on a document as a "contractual" document when, in the first adjudication, he had ruled that the purpose of that document had failed.

(4) The factual inaccuracies and flaws in Lidl's calculations.

(5) Without prejudice to the generality of the above points, RGC would have submitted that any lesser amount would be de minimis given the store was open for business throughout this period.

64. In response to these points Mr Kearney submitted that if the adjudicator had indicated what he was proposing to do:

(1) So far as the excess of jurisdiction is concerned, RGC would merely have made the same point that it made in paragraph 8 of the Reply to Response, where it wrote:

"The purpose of this Adjudication is to determine whether or not Lidl is entitled to levy pro rata damages as claimed (or at all). [RGC] say that they are not. In the event that the Adjudicator finds against [RGC], [RGC] would commence a separate adjudication to determine the quantum of such LADs."

So here it is submitted that RGC is clearly making the point that the adjudicator is confined to determining the point of principle as to whether or not Lidl is entitled to claim pro-rated liquidated damages.

(2) As to flaws in the reasoning, Mr Kirkpatrick would have been able to say no more than RGC had already said at paragraphs 14 to 17 of the referral notice, in which it pointed out that the "lesser rate" can only be levied in respect of the whole of the Works, or the whole of a Section.

(3) In relation to the letter of 11 January 2012, RGC had already pointed out that in the first adjudication the adjudicator said that he saw no justification for withdrawing the certificates previously issued (as Lidl's letter said it was doing) so, as it put it, the letter "failed". Mr Kearney submitted that the letter of 11 January 2012 was raised in the Response and that RGC had the opportunity, if it wished, to make the relevant points in its Reply to Response.

(4) Although Mr Kirkwood asserts that RGC would have pointed out the flaws in Lidl's calculations, they have never done so even to this day. Further, Lidl's case was that the calculations in the letter of 11 January 2012 had never been challenged - a point that RGC picked up at paragraph 7 of its Reply to Response - yet RGC never pointed out what, if anything, was wrong with the calculations, as calculations.

(5) As to the point about any lesser amount being de minimis, RGC had already pointed out in its adjudication notice that, even if there were an entitlement to levy partial LADs, the amount of any such LADs "would properly be negligible".

65. Mr Walker's retort to these points was to say that it is all very well to assert that some or all of the matters had already been referred to, but that is not the same as having the opportunity to remind the adjudicator of them in the context of a particular argument or line of reasoning. This is a fair point.
66. Point (1) falls away, since I have now held that the adjudicator was not confined to considering the principle of entitlement to pro-rata LADs, but also that he was entitled to consider the amount.
67. In relation to point (2), I consider that Mr Kearney's response is a good one.
68. As to point (3), it seems to me that at this point was addressed fairly forcibly in RGC's Reply to Response which pointed out that Lidl's Response was entirely predicated around its assertion that Partial Possession took place - a position that completely failed to take into account the fact that the adjudicator had decided that the certificates of "Part Completion" issued in June and July 2011 remained effective.
69. As to point (4), again I regard Mr Kearney's point as a good one. No suggestion was made during the hearing that there was some error in the calculations that RGC would have pointed out if it had realised that the adjudicator might have adopted them. The reality, it seems to me, is that the calculations carried out according to the methodology in clause 2.34 were wholly inappropriate in relation to completion pursuant to clause 2.27, which is what the adjudicator seems to have found took place. There has been no suggestion that, as calculations under clause 2.34, they are in any respect inaccurate (although I should make it clear that I make no finding either way as to whether or not those calculations were both correct and appropriate).
70. As to (5), this point had already been made by RGC, but I can see that it would not have been in the forefront of the adjudicator's mind and it may be that RGC would have made it again if it had realised that the adjudicator was intending to deal with the amount of the pro-rata LADs. However, the adjudicator was clearly aware of the fact that the store had been open and trading since 7 July 2011 - which was RGC's point - and so I do not think it likely that the want of this opportunity made any material difference to the outcome.
71. It is settled law that in order for a breach of natural justice to invalidate a decision it must be sufficiently material or of significance to the decision so as to taint the decision as a whole: see Primus Build Ltd v Pompey Centre [2009] BLR 437; Herbosch-Kiere v Dover Harbour Board [2012] BLR177, at [21-22]. If one stands back and looks at this adjudication in the round, the central issue was whether or not there could be an entitlement to LADs following a so-called "Part Practical Completion" of a section. Building on this confusing terminology and relying on the letters issued by Lidl under clause 2.27 in June/July 2011 (which, in the first adjudication, the adjudicator had said remained effective), RGC's case was that there was no room for the imposition of LADs, at a lesser rate or otherwise. The adjudicator simply misunderstood this or, contrary to his own conclusions in the first adjudication, decided that the position was in some way analogous to a case of partial possession. His reference to the use of a lesser rate seems to me to have been no more than a vehicle for giving effect to this erroneous reasoning. However, in my view the two sides could not have put their cases more forcefully in their written submissions to the adjudicator and I consider that RGC had every opportunity, which indeed it took, to put its case on the central issue.
72. The real difficulty facing RGC was that the letter issued by Lidl on 28 June 2011, with its reference to "Part Practical Completion", was, on its face, not describing a situation that fell within clause 2.27. However, RGC - no doubt for very good tactical reasons - chose not to address this difficulty but, instead, to capitalise on the use of the term "Part Practical Completion" and to erect an argument on the back of it to the effect that under clause 2.27 there could be no entitlement to LADs once a certificate of "Part Practical Completion" had been issued.
73. For all these reasons, therefore, I consider that RGC's challenge on the basis of a breach of natural justice fails.

The Part 8 claim

74. I have already referred to the declaration that RGC seeks by this claim, but for convenience I shall set it out again. It is that:

"on the true construction of the Contract, LADs do not accrue following Part Practical Completion of the Works or a Section thereof."

75. As I have just explained, it seems to me that what has bedevilled these entire proceedings was the incorrect issue by Lidl on 28 June 2011 of the document entitled "PART PRACTICAL COMPLETION STATEMENT", purportedly under clause 2.27 of the contract. As I have said before, there is no such thing as Part Practical Completion under this contract. Clause 2.27 provides for a form of qualified Section Completion (at Lidl's discretion) where there are items of work that remain outstanding that are more than mere snagging items.
76. The commercial purpose of having such a provision was, I assume, to enable Lidl to take possession of a nearly completed section of the Works without waiving any of its rights in relation to the rectification of defects and so on. However, whether I am right about this does not matter because what is perfectly clear is that when Section Completion takes place under clause 2.27 any entitlement to liquidated damages in respect of non-completion of that Section disappears. For the purposes of the employer's right to liquidated damages, it makes no difference whether the Section Completion Statement is issued as of right or at the employer's discretion in accordance with the final (bespoke) paragraph of clause 2.27.
77. The real issue here is whether what took place on 27 June 2011 was a Partial Possession of part of Section 1 or Section Completion of Section 1 (but in its qualified form). The former would leave Lidl with its entitlement to pro-rata LADs, the latter would not.
78. Mr Walker submitted that the reference to Part Practical Completion in RGC's submissions in the adjudication was a reference to qualified Section Completion under clause 2.27 - as he put it, it was just a short hand. If he is right, and if that is in truth what happened, then there can be no pro-rata liquidated damages thereafter in relation to that section. The problem is that the adjudicator never really addressed this question or, perhaps, thought that it was not one that had been referred to him.
79. However, so long as a fundamental dispute exists about whether what happened was Section Completion or Partial Possession, there is no useful purpose in making hypothetical declarations. Indeed, the view that I have expressed in the previous paragraph is effectively the answer that RGC wants: but it cannot take them anywhere until the underlying dispute of fact has been resolved.
80. In these circumstances, I consider that these Part 8 proceedings serve no useful purpose. I would have thought that the sensible course, if RGC wants an early resolution of the issue about Partial Possession, is for the claim to be treated as a claim under Part 7 and for appropriate Part 7 directions to be given under CPR 8.8.
81. However, I have not heard the parties on these issues and I will make no directions or other orders until counsel have had a proper opportunity to be heard in the light of this judgment.