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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> DICKIE & MOORE LTD AGAINST RONALD JAMES McLEISH AND OTHERS [2020] ScotCS CSIH_38 (30 June 2020)
URL: http://www.bailii.org/scot/cases/ScotCS/2020/2020_CSIH_38.html
Cite as: [2020] ScotCS CSIH_38, 2020 SLT 1007, [2020] CSIH 38, 2020 GWD 23-306, 2021 SC 1
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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Menzies
Lord Drummond Young
Lord Malcolm
[2020] CSIH 38
CA65/19
OPINION OF THE COURT
delivered by LORD DRUMMOND YOUNG
in the cause
by
DICKIE & MOORE LIMITED
Pursuer and Respondent
against
RONALD JAMES McLEISH, MRS DIANE McLEISH AND CATRIONA WATT as Trustees
of the Lauren McLeish Discretionary Trust
Defenders and Reclaimers
Pursuer and Respondent: Turner, Macfarlane Law Ltd
Defenders and Reclaimers: MacColl QC; Anderson Strathern LLP
____________
30 June 2020
[1] The pursuer has raised the present proceedings in order to enforce the decision of an
adjudicator and to recover 50% of the adjudicator’s fees and expenses. The parties entered
into a building contract dated 26 May and 4 August 2016 for the construction of a large
house on a site near Armadale. The contract was subject to the terms of the Standard
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Building Contract with Quantities for use in Scotland (2011 Edition). The pursuer was the
contractor under the contract and the defenders the employer. The contract contained
standard adjudication provisions relating to any “dispute or difference” which arose under
the contract. Article 7 of the contract provided that the scheme set out in Part 1 of The
Scheme for Construction Contracts (Scotland) Regulations 1998 (as amended by The Scheme
for Construction Contracts (Scotland) Amendment Regulations 2011) should apply, subject
to modification.
[2] The pursuer constructed the house in the course of 2017 and 2018. A final
adjustment statement was produced on behalf of the employer on 17 October 2018. It
showed ascertained loss and expense of £22,934.10 and a works final account of
£1,995,802.50, but included deductions for work not done by the contractor of £18,051
(heating), £4,470 (MVHR), £28,977.84 (ground retention), £58,430.32 (externals), and £2,768
(internals), and a deduction of £11,901.52 for work not in accordance with the contract
(render to the main house). The net amount of the final adjustment statement was
£1,894,186.92.
[3] On 24 October 2018 the pursuer wrote to the architect to challenge the final
adjustment statement, on four grounds. First, estimated deductions had been included for
defective work that had been remedied by the employer, but the pursuer maintained that
actual costs of remedying the work should be vouched. Secondly, the employer had made
deductions for remedial works which the pursuer was not obliged to carry out under the
contract. Thirdly, deductions were included for remedial work where the defects had not
been notified timeously in the schedule of defects. Fourthly, excessive deductions had been
made in cases where the employer had instructed that defective work should remain. On
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the same date, 24 October 2018, the architect issued a final certificate which reflected the
calculations in the original Final Adjustment Statement.
[4] By letters dated 29 and 30 October 2018 the pursuer challenged the final certificate.
On 19 December 2018 the pursuer served a notice of intention to refer a dispute to
adjudication. It stated
“… 5.2 The rejection of sums detailed in the Final Certificate, the Final Adjustment
Statement, the Works Final Account and Architect’s Instruction numbers 31 & 32, is
sufficient to crystallize a dispute between the parties.
…
9
ITEMS REFERRED IN THIS ADJUDICATION
9.1 At present there are a number of disputes between the parties, and the
approximate scale of each dispute is as follows:
9.1.1 Further extension of time of 16.2 weeks and reimbursement of Loss and
Expense of a further £116,000 due to matters related to groundworks.
9.1.2 An extension of time of 30.3 weeks and reimbursement of Loss and Expense
of £174,000 due to matters related to the shells of the superstructures of the buildings
and their finishes.
9.1.3 The Contractor recognizes that if the Adjudicator decides in favour of the
Referring party with regard to the two submissions referred to above, then there
needs to be consideration of a credit up to £73,000 to resolve the parallel delays
included.
9.1.4 In addition a sum in the order of £15,000 is claimed for additional works to
flat roofs of the building.
9.1.5 Increased valuation of Works Final Account in the sum of £261,000.
9.1.6 Reimbursement of sums withheld in respect of the embankment adjacent to
the North Boundary in the sum of £29,000.
9.1.7 Reimbursement of deductions made under Clauses 2.38 and 3.18.2 of the
Contract Conditions in the sum of £96,000 (excluding Section 9.1.6).
9.1.8 Reimbursement of some four Windows not in Bills of Quantities in Payless
Notice in the sum of £19,000.
9.1.9 Reimbursement of Liquidated Damages in Payless Notice in the sum of
£26,000”.
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[5] The parties agreed to appoint Mr Len CH Bunton as adjudicator, under reservation
of certain objections by the defenders to jurisdiction. On 11 January 2019 the pursuer served
a referral notice. The defenders submitted that the adjudicator had no jurisdiction. The
adjudicator rejected the challenge, and proceeded with the adjudication, issuing his decision
on 15 March 2019. He held that the pursuer was entitled to payment of £324,492.60, with
interest of £16,733.59. He further found the pursuer entitled to an additional extension of
time of 11 weeks, and in relation to that he allowed £63,093.47 by way of loss and expense.
He held that the works final account should be higher by £181,607.17, that deductions for an
alleged defect, liquidated damages, ground retention and render to the main house were not
justified, and that certain other deductions that had been made were excessive.
[6] The pursuer raised proceedings for enforcement of the adjudicator’s award. The first
three conclusions were for declarators in relation to the identification of the defenders in the
contract, contractual notices and court proceedings. The fourth and fifth conclusions were
for declarator and payment of the adjudicator’s award, and the sixth was for interest on the
sums claimed from citation until payment. The action proceeded to proof before the
commercial judge on four issues: whether the adjudicator had jurisdiction to entertain a
claim advanced against “the Lauren McLeish Trust”; whether the adjudicator failed to
exhaust his jurisdiction; whether there was a material breach of natural justice, and whether
the dispute described in the notice of adjudication had crystallized before the notice was
served. The commercial judge rejected the first three grounds of challenge, but held that a
material part of the dispute described in the notice of adjudication had not crystallized
before the notice was served. He accepted that in deciding whether a dispute had
crystallized the court should adopt a robust, practical approach, analyzing the circumstances
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in a manner that was commercial and not over-legalistic. Nevertheless, he held that
comparison of the extension of time and loss and expense claims (heads 9.1.1, 9.1.2 and 9.1.3
of the notice) disclosed a marked discrepancy between the relevant valuation, valuation
no 17, and the notice referring to adjudication. In the notice these amounted to a total net
claim of £217,000, whereas in the valuation the corresponding claim was for £67,072.68. It
followed that on these matters the dispute described in the notice had not fully crystallized
before the notice was served. For that reason the adjudicator did not have jurisdiction to
determine the parts that had not crystallized.
[7] The pursuer then claimed that, as the adjudicator had jurisdiction to determine the
other parts of the claim, those parts of his decision could be enforced. The defender, in
reply, contended that the decision of the adjudicator was a unity with the result that none of
it could be enforced. The parties lodged supplementary written submissions, and the
commercial judge heard further oral submissions on the question of severance. Thereafter
he issued a second opinion, dated 8 November 2019, in which he held that the parts of the
claim in which the adjudicator lacked jurisdiction could be severed from those where he had
jurisdiction, and that the latter parts of the decision could accordingly be enforced. He
issued a detailed opinion to that effect dated 8 November 2019. The defenders have now
reclaimed against the commercial judge’s decision of that date.
The statutory and contractual context
[8] The legislation governing adjudication is found in Part II of the Housing Grants,
Construction and Regeneration Act 1996. A written construction contract must contain the
right to refer a dispute for adjudication under a procedure complying with section 108 of the
Act. If the contract does not contain a clause to that effect, the default provisions of the
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Scheme for Construction Contracts apply. The relevant Scheme for Scotland is the Scheme
for Construction Contracts (Scotland) Regulations 1998 (SI 1998/687), as amended by the
Scheme for Construction Contracts (Scotland) Amendment Regulations 2011 (SSI 2011/371)
(together “the Scheme”). Equivalent provisions apply in England and Wales.
[9] The parties’ contract makes use of the Standard Building Contract with Quantities
for use in Scotland (2011 Edition). The adjudication provisions of the Scheme are
incorporated. Article 7 of the contract provides that, if any dispute or difference arises
under the contract, either party may refer it to adjudication in accordance with clause 9.2 of
the conditions in the contract. Clause 9.2 provides that, if a dispute or difference arises
under the contract which either party wishes to refer to adjudication, the Scheme (as defined
above) is to apply.
[10] The material parts of the Scheme are as follows. Under paragraph 1, any party to a
construction contract may give written notice (“the notice of adjudication”) of his intention
to refer any dispute arising under the contract to adjudication; the notice of adjudication is
to give a brief description of the dispute and details of how it arose and the nature of the
remedies sought. Paragraph 20 of the Scheme provides that the adjudicator is to decide the
matters in dispute, and is empowered to make a decision on different aspects of the dispute
at different times. Paragraph 23(2), headed “Effects of the decision”, provides as follows:
“The decision of the adjudicator shall be binding on the parties, and they shall
comply with it, until the dispute is finally determined by legal proceedings, by
arbitration (if the contract provides for arbitration or the parties otherwise agree to
arbitration) or by agreement between the parties”.
The commercial judge’s decision
[11] The commercial judge began his consideration of the issues with a thorough and
detailed review of all of the main authorities on the severability of parts of an adjudicator’s
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award. We refer subsequently to the more significant of these cases. For present purposes it
is sufficient to note the principles that the commercial judge extracted from those cases, and
his application of them to the facts of the case.
[12] The commercial judge began (paragraph [35]) by stating that it would be wrong to
treat the statement of the law in an earlier decision of Aikenhead J dealing with severance,
passages are set out at paragraph [29] below). That case was rather concerned with
articulating general principles or guidance. Furthermore, in deciding whether a single
dispute had been decided at adjudication, it was necessary to look at substance rather than
form. In the present case the claim set out in the notice of adjudication included a claim for
extension of time and loss and expense which had not crystallized. On analysis, only the
other parts of the dispute were referred to adjudication, and the adjudicator was entitled to
adjudicate on the parts which had crystallized. Consequently his decision on the dispute
which had crystallized should be enforced in so far as it was clear that it was not tainted by
his decision and reasoning concerning the parts of the dispute which had not crystallized; in
this respect the commercial judge followed Bovis Lend Lease v The Trustees of the London
Clinic, [2009] EWHC 64 (TCC), at paragraph 53.
[13] The commercial judge accepted that the foregoing approach was inconsistent with
the approach followed in Cleveland Bridge UK Ltd v Whessoe-Volker Stevin Joint Venture, [2010] BLR 415,
and he expressed disagreement with the reasoning of Ramsey J in that case. The
commercial judge considered that the Scheme contemplated that a “dispute” is a matter in
respect of which the adjudicator has jurisdiction. Under paragraph 20(1) of the Scheme, the
adjudicator was obliged to “decide the matters in dispute”, and there was no power to
decide other matters. Thus a “decision” given binding effect by paragraph 23(2) of the
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Scheme must be upon matters within the adjudicator’s jurisdiction. Where an adjudicator’s
decision was partly within and partly outwith his or her jurisdiction, only the part within
that jurisdiction could be binding.
[14] The effect of paragraph 23(2) of the Scheme, construed in context, was that the
“decision” which binds parties is the decision in its entirety where all of the decision is valid,
or such part of it as is valid and severable where part of the decision is affected by invalidity.
That construction better advanced the policy and aims of the adjudication provisions of the
1996 Act than the construction put forward in Cleveland Bridge. The primary intention was
to enable construction disputes to be settled on an interim basis, pending final resolution by
litigation, arbitration or otherwise, and to ensure that such decisions could be enforced. It
was highly unlikely that the intention underlying either the 1996 Act for the Schemes for
adjudication was to make the enforcement of such decisions more difficult than it had been
before the 1996 Act. At that time, English applications for summary judgment were
routinely decided on the basis that severance could properly be considered, and that was so
even if a single dispute was under consideration: paragraph [44].
[15] The commercial judge further thought that, regardless of the analysis in Cantillon, it
was a mistake to think that severance ought never to be available where an adjudicator’s
decision involved a single dispute. He considered that that type of approach was likely to
produce disproportionate and unjust results. It was also likely to encourage unsuccessful
parties in single dispute adjudications to search for relatively minor grounds to resist
enforcement, because success on any ground, even if relatively small, would be sufficient to
invalidate the whole of the decision. It was possible that in single dispute cases it would be
more difficult to show that the reasoning in the invalid part of the decision had no impact on
the other parts. If, however, there was no such impact, severance should be possible. The
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(TCC), at paragraph 74) should not be whether there was a single dispute or difference in
the adjudication, but whether it was clear that there was a core nucleus of the decision that
could safely be enforced. Previous Scottish decisions (which are discussed subsequently)
were consistent with that approach.
[16] On the facts of the present case, the extension of time award and associated loss and
expense award of £63,093.47 could not stand. The adjudicator’s decision that the defender
should repay £26,000 in liquidated damages followed inevitably from his decision that there
should be an extension of time for 13 weeks. A further minor deduction of £3,741.36 had to
be made, is that represented gas usage during the 13 weeks’ extension. Apart from these
matters, however, the commercial judge was satisfied that it could be said with confidence
that all other parts of the decision were untainted by the decision and reasoning in relation
to extension of time and loss and expense. The commercial judge analyzed the particular
items in respect of which claims were made, and concluded that they were independent of
the extension of time, and therefore amounted to a core nucleus which might safely be
enforced.
The defenders’ challenge to the commercial judge’s decision
[17] The defenders have reclaimed against the commercial judge’s decision. First, they
submit that he failed to follow established authority. It was agreed that this was a “single
dispute” adjudication, and the established and orthodox approach rejected the possibility of
severance in a single dispute adjudication, on the authority of Cantillon Ltd v Urvasco Ltd,
supra, at paragraph 63 (which we quote below). Counsel submitted that in the Scottish case
law that approach had been generally adopted. Furthermore, it was submitted that the
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single dispute that had been referred to adjudication had not crystallized. The result was
that the whole of the adjudication process was a nullity; the adjudicator lacked jurisdiction
to determine the single dispute referred to him.
[18] Secondly, the defenders submitted that the commercial judge had erred in failing to
hold that the parties had contracted only to be bound by a decision of the adjudicator, and
not by a decision of an adjudicator subsequently rewritten by the court. He erred in
particular in holding that the parties had contracted to be bound by any parts of an
adjudicator’s decision in respect of which a dispute had crystallized, putting aside the non-
crystallized areas of dispute. Reliance was placed in particular on the analysis in Cleveland
Bridge UK Ltd v Whessoe-Volker Stevin Joint Venture, supra. Thirdly, the commercial judge was
said to be in error in adopting a policy-driven approach to the issue of severance. The policy
considerations founded on by the commercial judge were inconsistent with the underlying
contractual position of the parties and the established law in this area. The court should
adhere to established authority rather than considerations of policy.
[19] Fourthly, it was contended that the commercial judge erred in holding that the sum
in respect of which he pronounced decree reflected parts of the determination which were
not tainted by the jurisdictional challenge. There was no basis for holding that the final
works account was to be treated as a matter that was separable from the issues found not to
have crystallized; the commercial judge had pronounced decree for the sum brought out in
the final works account. There was, it was submitted, an unexplained increase of £73,000 in
the sum brought out in the final works account following one valuation, Valuation 17.
Moreover, the extension of time was linked to the question of liquidated damages, and the
two could not be separated from each other. The same related to a claim relating to
architect’s instruction 25.
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Enforcement of adjudicators’ awards
[20] The critical question in the present proceedings is the extent to which and the basis
on which a court may enforce an adjudicator’s award where part of that award is outside the
adjudicator’s jurisdiction because the dispute purportedly considered in that part had not
crystallized. On this matter, we are in agreement with both the commercial judge’s decision
and the reasons that he gives for reaching that decision. We propose first to discuss the
policy considerations that underlie adjudication, and their bearing on the enforcement of
adjudicators’ awards that are partially invalid. Secondly, we will consider the case law,
which is extensive and discussed at length by the commercial judge. Thirdly, we will
attempt to set out the principles that a court should apply when it considers the enforcement
of adjudicators’ decisions that are partially valid and partially invalid. Fourthly, we will
consider the application of those principles to the facts of the present case, as found by the
commercial judge.
The general policy framework
[21] The commercial judge’s decision was based on a number of policy considerations,
and one of the major grounds of challenge by the defender is related to his reliance on such
factors, rather than a strict adherence to established authority. In our opinion the
commercial judge was correct to take account of policy considerations. Indeed, in the
authorities that were founded on by both parties there are repeated references to the policy
that underlies the legislation governing adjudication.
[22] Perhaps more fundamentally, it appears to us that a scheme such as that found in
Part II of the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for
Construction Contracts (Scotland) Regulations 1998 (as amended) is based on clearly
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identifiable policy considerations. When the Scheme is applied to the facts of any particular
case, those policy considerations must be important, as they provide its fundamental
rationale. The wording of the Scheme is the basic legal text that must be applied but, as with
the application of any legal text, the context in which it operates and the purposes that it
seeks to achieve are factors of obvious importance in determining how it applies. That
approach is, intellectually, more satisfactory than a slavish reliance on the terms of
established authorities. It is, moreover, more consistent with the traditional Scottish
approach of basing legal reasoning on principle rather than mere adherence to precedent.
For these reasons we reject counsel’s contention that the commercial judge should have
confined himself to the statements of the law contained in earlier cases, without considering
the underlying policy of the Scheme.
[23] A further practical reason exists for rejecting the defenders’ contention. Examination
of the case law demonstrates that the statements of the law in different cases are frequently
inconsistent: for example, the decision of Ramsey J in Cleveland Bridge UK Ltd v Whessoe-
Volker Stevin Joint Venture, supra, is expressly inconsistent with the previous Scottish decision
in Homer Burgess Ltd v Chirex (Annan) Ltd, 2000 SLT 277 (see Cleveland Bridge at
paragraphs 117-118), and it also appears to us to be inconsistent with the approach taken in
other cases, for example Akenhead J in Working Environments Ltd v Greencoat Construction
[2019] EWHC 1591 (TCC). Those inconsistencies can best be resolved by having regard to
the underlying purpose and policy of the Scheme.
[24] The reasons for the passing of the 1996 Act and the enactment of the Scheme are well
known to all those with experience of the law governing construction contracts; they are set
out in the Latham Report (“Constructing the Team”, Final Report of the Joint Review of
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Procurement and Contractual Arrangements in the United Kingdom Construction Industry,
July 1994). In the period before 1996, it had become apparent that contractors and
subcontractors were experiencing considerable difficulty in enforcing prompt payment of
sums to which they had been found due in architects’ awards. When proceedings were
taken to enforce an award, lengthy dispute resolution procedures caused substantial delay.
This caused serious difficulties for contractors’ cash flow. The importance of cash flow to
any business should be obvious; it is essential to enable a trader to pay its debts. In the
construction industry the elaborate system of subcontracting that is normally used made the
problems of late payment particularly serious, because contractors and many subcontractors
require liquid funds to pay subcontractors further down the contractual chain. Cash flow is
essential to the survival of these businesses. Consequently it was important that sums to
which a contractor or subcontractor was found due should be enforceable without lengthy
or complicated dispute-resolution procedures. Adjudication seeks to avoid that problem.
[25] For these reasons we are of opinion that the provisions of the Scheme should be
interpreted in such a way that they achieve its fundamental purpose, which is to enable
contractors and subcontractors to obtain payment of sums to which they have been found
due without undue delay. In particular, the intention is to avoid delay caused by lengthy
dispute-resolution procedure. It is also significant that adjudicators’ awards are made on an
interim and provisional basis; clause 23(2) of the Scheme expressly provides that the
adjudicator’s decision is to be binding “until the dispute is finally determined by legal
proceedings, by arbitration… or by agreement between the parties”. Thus there is some
protection against the risk of an erroneous award, although obviously if insolvency
supervenes the unravelling of such an award may prove difficult or impossible.
Nevertheless, the fundamental point is that the procedures used are intended to be simple,
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straightforward and immediately effective. Those considerations should in our view guide
the approach to interpretation of the Scheme. In relation to an adjudicator’s award that is
partially valid and partially invalid, the valid part should in our opinion be enforced if that
is realistically practicable. That will depend on whether the valid and invalid parts of the
award can be severed from each other, but in approaching severance we consider that the
court should adopt a practical and flexible approach that seeks to enforce the valid parts of
the decision unless they are significantly tainted by the adjudicator’s reasoning in relation to
the invalid parts.
The case law
[26] The critical question in cases such as the present is the extent to which an
adjudicator’s award may be enforced when it is apparent that the adjudicator has acted
outside his jurisdiction in respect of part of the total claim. In the present case, the problem
with the adjudicator’s award is that certain parts of the dispute between the parties were
held not to have crystallized by the time of the adjudicator’s appointment, in the sense that
there was no underlying dispute capable of being referred to adjudication at that time. That
meant that the adjudicator lacked jurisdiction to deal with those parts of the claim. The
fundamental issue is accordingly whether the valid parts of the adjudicator’s decision can be
severed from the ultra vires parts, and enforced independently.
[27] There have been considerable differences of judicial opinion on this question,
especially in the Technology and Construction Court in England and Wales. One major
issue is whether, if a single dispute is referred to adjudication and the adjudicator makes an
error that taints part only of that dispute, the remaining parts can be enforced. Initially there
was considerable resistance to the idea that a single dispute reference could be enforced in
this way, but more recent cases have moved towards a flexible approach that concentrates
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on whether severance is possible at a practical level. The latter type of approach clearly
requires the development of a test, other than the simplistic single dispute test, as to when
severance may be effected. Moreover, it is accepted in the case law that the existence or
otherwise of a single dispute is a factor that is relevant to whether or not severance is
possible in practice.
[28] In an early decision following the 1996 Act, Homer Burgess Ltd v Chirex (Annan) Ltd,
supra, Lord Macfadyen held that an adjudicator’s decision was to a substantial extent
beyond his jurisdiction as a result of a misconstruction of the word “plant” in section 105 of
the 1996 Act. Lord Macfadyen then considered the question of whether he should give
effect to that decision by reducing the adjudicator’s award in its entirety or should consider
the extent to which the decision was intra vires and therefore temporarily binding in terms of
paragraph 23(2) of the Scheme. He held that it was competent to adopt the latter course,
although he did not do so on the facts of the case. In choosing between the two possible
courses of action Lord Macfadyen considered that he ought to give weight to practical
considerations, in particular enabling the contractor to obtain enforcement of the part of the
decision that was intra vires (page 287B-F).
repeatedly relied on in later cases. We should note, however, that the law has developed
since that case was decided, and we agree with the commercial judge that the case cannot be
regarded as laying down immutable rules relating to severance. The approach to severance
was stated, albeit on an obiter basis, in the following terms (paragraph 63):
“(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.
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(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.…
(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).
…
(e) There is a proviso to (c) … which is that, if the decision as drafted is simply
not separable in practice, for example on the wording, … the decision will not be
enforced…”.
On the issue of severance, Akenhead J added (at paragraph 78) that, had severance been
necessary on the ground of a breach of natural justice by the adjudicator, he would have
given judgment in favour of the contractor “in respect of all other parts of the decision
which could be said with confidence were unrelated to and untainted by any such
breaches”.
[30] Akenhead J commented on the last case in Bovis Lend Lease Ltd v Trustees of the London
Clinic, [2009] EWHC 64 (TCC). Although his decision on the merits of the case did not rely
on severance, he commented (at paragraph 53) on the correct approach that should be taken
to questions of severance. In that paragraph, he stated:
“The starting point is the analysis of what is the referred dispute (or disputes). If
there is a disputed claim A and there is another claim B which has not yet got to a
stage of being disputed, and the claiming party refers A and B to adjudication, there
is on analysis only one dispute being referred, namely A because that is all that is in
dispute. Even if, mistakenly, the adjudicator adjudicates on A and B, that part of his
decision which addresses dispute A will be enforced unless it is simply not possible
verbally or mathematically to identify what his decision on A alone is”.
[31] Cantillon Ltd v Urvasco Ltd was followed by Lord Menzies in CSC Braehead Leisure Ltd
case involved a single dispute, relating to the design and construction by contractors of
auditoria within the cinema, and following analysis of the dispute Lord Menzies concluded
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that “having regard to the terms of the contract and to the notice of adjudication, … in
substance only one dispute was referred to adjudication”. Thus the critical question does
not turn on niceties of form but rather on the underlying substance of a dispute. On the
facts of the case, it was held accordingly that if there were a successful challenge to one part
of the decision the whole decision should be reduced.
[32] In Cleveland Bridge UK Ltd v Whessoe-Volker Stevin Joint Venture, supra, Ramsey J held
that, if any part of an adjudicator’s jurisdiction was outside his jurisdiction, the whole
decision was not enforceable and the contractual agreement to be bound by the decision
does not apply (paragraphs 117-118):
“I do not think that in the context of the agreement to be bound by a temporary
decision, the decision can be dissected to impose a separate and separable obligation
to be bound by the adjudicator’s decision on each of the component issues on which
the adjudicator based that decision. Otherwise, the process of adjudication
enforcement could be diverted into satellite litigation which is not appropriate when
the court is concerned with the enforcement of a decision which has temporarily
binding effect”.
Ramsey J thus rejected the possibility of severance. He expressly disagreed with the
decision of Lord Macfadyen in Homer Burgess Ltd v Chirex (Annan) Ltd, supra; and rejected
the suggestion made in that case that a court might enforce a decision restricted to the sum
reflecting the part of the decision for which the adjudicator had jurisdiction. On this issue,
we prefer the approach taken by Lord Macfadyen. Ramsey J’s approach, which is based on
the supposed construction of a contract containing an adjudication provision, would have
the result that any significant flaw in a decision led to its total invalidity. That, it seems to
us, is contrary to the fundamental purposes of the Scheme, which envisages the rapid and
effective enforcement of sums due under a construction contract, without the delays caused
by lengthy dispute-resolution procedures.
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considered similar issues, and concluded (at paragraphs [39]-[40] ) that it was “clear that the
fact that parties have contracted for a decision by an adjudicator does not prevent the court
severing parts of his decision if he has determined separate disputes in the one decision”. It
was unnecessary to consider severance in that case, however, because the adjudicator had
acted in breach of the principles of natural justice, and that tainted his whole decision. Lord
Hodge further observed that at present the case law had set its face against allowing the
severance of parts of a decision in one dispute, but he noted doubts that Coulson J had
expressed on that matter. The policy of encouraging the speedy provisional resolution of
construction disputes might support pragmatic arguments in particular cases in favour of
separating liability and quantum in an adjudicator’s decision where he has fallen into error
in relation to quantum alone. That could support Coulson J’s approach. It was not
necessary, however, to reach a final decision on that matter. Coulson J’s views are set out in
Group Ltd, [2010] BLR 452, at paragraphs 40-42.
Lord Menzies noted (at paragraphs [41]-[46]) that it was not disputed that partial reduction
is a competent remedy in an appropriate case; Homer Burgess supported that view. Partial
reduction had not been granted in any case. Nevertheless, in light of the view of Coulson J
that severance would be possible in some cases, it might be appropriate to review whether
severance could properly be considered in an appropriate single dispute case. In doing that,
however, the court should not try to dismantle and reconstruct the adjudicator’s decision in
a manner that intruded on the adjudicator’s area of decision-making. The case under
consideration, however, was not one that was capable of severance.
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[35] The commercial judge in his opinion also made reference to further decisions of
Akenhead J in Working Environments Ltd v Greencoat Construction Ltd, supra, and Beck Interiors
cases parts of an adjudicator’s decision were enforced, notwithstanding that he had
exceeded his jurisdiction in respect of other parts of the decision. In each case it was held
that it was possible to sever the decision into the valid parts and the parts that were ultra
vires. In the last of these cases Edwards-Stuart J observed (at paragraph 61) that the decision
in Greencoat might be regarded as conflicting with the general principle that the decision
could not be severed where only one dispute or difference had been referred. The rationale
underlying the principle, however, was that, where a single dispute or difference has been
referred, it will generally be difficult to show that the reasoning in relation to part of the
decision had no impact on the remainder of the decision, or that the actual outcome would
have been the same. In some cases, however, even in a single-issue adjudication it may be
possible to effect severance provided that the reasoning giving rise to a lack of jurisdiction
did not form an integral part of the decision as a whole.
[36] Such an approach is supported by the reasoning in Beck Interiors, where Akenhead J
stated (at paragraph 21), commenting on his earlier remarks in Cantillon:
“The Court needs to bear in mind that there are many different types of jurisdictional
challenge. They include issues as to whether a dispute has crystallized, whether two
disputes have been referred to adjudication, whether the adjudicator has been
properly appointed, whether there is an effective adjudication provision, whether
there is a contract at all between the parties, whether the subject matter of the
contract is exempt from the statutory provisions for adjudication and numerous
others. Different considerations as to severability may arise in relation to different
jurisdictional challenges”.
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In that case the decision was severed, on a practical basis. A subcontractor was sued for the
increased cost of flooring works, and the claim as presented was made up of two parts, the
cost of the work itself and a liquidated damages claim. Nevertheless both of those flowed
from delay in completion. It was held that severance was possible, as the arguments in
support of each element were separate (paragraphs 32-33).
Lord Malcolm held that there had been a breach of natural justice, in that the adjudicator
had failed to deal with an important line of defence put forward by the engineers, and he
accordingly reduced the award. He made reference to severability on an obiter basis, and
concluded that even if the award had not been vitiated as a whole it would not have been a
suitable case for severance. A single dispute had been referred to adjudication, and the
adjudicator had produced a single financial award in relation to that dispute, albeit that it
was made up of a number of separate constituent elements. Severance of the offending part
of the award from the rest was impossible. There had, moreover, been a significant breach
of the principles of natural justice; the adjudicator had failed to mention the most important
part of the defence, which was central to the engineers’ position.
[38] The commercial judge made reference to the decision of Lord Tyre in Bell Building
Projects Ltd v Arnold Clark Automobiles Ltd, [2017] CSOH 55, and to his own decision in
DC Community Partnerships Ltd v Renfrewshire Council, [2017] CSOH 143; in both of these
cases it was decided that severance was not possible. Finally he referred to the decision of
Pepperall J in Willow Corp SARL v MTD Constructors Ltd, supra. In that case it was held that
the adjudicator had erred in law in his construction of the contract, which led to the
dismissal of a liquidated damages claim. Nevertheless the judge decided that severance was
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appropriate, and the remainder of the award was enforced. He expressed agreement with
Edwards-Stuart J (at paragraph 74) that
“… in the context of a single dispute or difference it can often be difficult to divorce
any significant flaw in the adjudication from the balance of the decision. Indeed,
significant breaches of natural justice are particularly prone to infect and therefore
undermine the entire decision. In my judgment, the proper question is not, however,
to focus on whether there was a single dispute or difference but upon whether it is
clear that there is anything left that can be safely enforced once one disregards that
part of the adjudicator’s reasoning that has been found to be obviously flawed. Such
analysis would not be detailed and, in many cases, it may remain the position that
the entire enforcement application should fail. It would, however, further the
statutory aim of supporting the enforcement of adjudication decisions pending final
resolution by litigation or arbitration if the TCC were rather more willing to order
severance where one can clearly identify a core nucleus of the decision that can be
safely enforced”.
In the case under consideration, applying the foregoing test, severance was held possible.
[39] It was on the basis of a very full analysis of the foregoing authorities that the
commercial judge came to the conclusions that we have summarized at paragraphs [12]-[17]
above. As we have already indicated, we consider that both his conclusions and his
reasoning were correct
The current law on enforcement of adjudicators’ awards
[40] In the foregoing authorities it is perhaps possible to discern a development in the
attitude of courts to the possibility of severance and the manner in which it can be carried
out. Initially, there is a potentially rigid distinction between “single dispute” cases and cases
where more than one dispute is referred to adjudication. In the later cases, however, a more
nuanced and flexible approach is taken. The distinction between single-dispute and other
cases ceases to be decisive, but rather becomes a factor in a flexible and practical approach.
The fact that the dispute is presented as a single dispute is clearly a matter of some relevance
to the important question of whether severance is possible, but there may be cases where, as
in Beck Interiors, what is presented as a single dispute flowing from a single cause can be
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analyzed into component elements, in that case actual loss and liquidated damages, which
are conceptually independent of each other. Consequently the existence or otherwise of a
single dispute should not be conclusive.
[41] In our opinion the more recent approach is correct. It is in large measure anticipated
by the remarks of Akenhead J in Bovis Lend Lease Ltd v Trustees of the London Clinic, supra,
which we have quoted at paragraph [30] above. Under that formulation of the relevant
principle, if an adjudicator erroneously adjudicates on one dispute and validly adjudicates
on another dispute, the latter will be enforced “unless it is simply not possible verbally or
mathematically to identify what his decision” on the other matter is. That points to a strong
practical test. A generally similar approach is followed in later decisions, notably Working
Environments Ltd v Greencoat Construction Ltd, Beck Interiors Ltd v UK Flooring Corporation Ltd,
and Lidl UK GmbH v RG Carter Colchester Ltd, all referred to at paragraphs [35]-[36] above. In
all these cases the court had regard to the substance of the underlying dispute, rather than
the question of whether, formally, it could be classified as a “single dispute” case or a case
involving multiple disputes. In Scotland, in CSC Braehead Leisure Ltd v Laing O’Rourke
Scotland Ltd, referred to at paragraph [31], Lord Menzies examined the substance of the
dispute rather than its form in deciding whether severance is possible. In our opinion that is
clearly correct; indeed the distinction between a single dispute and more than one dispute
frequently turns on how claims are classified rather than anything going to their underlying
substance.
[42] If the single/multiple dispute test is rejected, it is important to determine the test for
severability. In Willow Corp SARL v MTD Constructors Ltd, supra, Pepperall J suggested that
the best approach was to ignore the parts of the adjudicator’s jurisdiction where he lacked
jurisdiction, to focus on the remainder and to ask “whether it is clear that there is anything
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left that can be safely enforced”. While the test of whether a particular conclusion is “safe”
has never attracted support in Scotland, we are of opinion that a test along these lines is
appropriate. In considering whether a decision which is partially ultra vires of the
adjudicator can be severed and the valid part enforced, the correct approach in our opinion
is that the court should make the assumption that the parts of the decision that are invalid,
for example because the dispute had not crystallized, did not exist. On that basis, it should
then consider whether the remainder of the decision can be enforced without its being
tainted by the invalid part of the decision.
[43] The subject matter of the intra vires and ultra vires parts of the decision will normally
differ substantially, but there may be some overlap, either in the facts or in the process of
legal reasoning – applying the provisions of the contract and the general law to those facts.
To the extent that there is overlap, the court must consider whether the adjudicator’s
reasoning in the ultra vires part of his decision affects his conclusions in the intra vires part to
any material extent. Obviously, the greater the overlap, the more likely it is that there will
be an influence. If there is a significant influence, the ex facie intra vires part of the decision
will be tainted, and cannot be enforced. That might happen, for example, because inferences
of fact drawn in the uncrystallized part of the dispute are relevant to the remainder, or
because reasoning on the application of the law developed in the uncrystallized part is
treated as relevant to the remainder.
[44] In this connection it is pertinent to bear in mind the remarks of Akenhead J in Beck
Interiors, supra, at paragraph 21, quoted at paragraph [36] above, to the effect that many
different types of jurisdictional challenge can exist, in addition to non-crystallization, and
that different considerations as to severability may apply to each of them. For example, in
the case of a breach of the principles of natural justice (which is not in Akenhead J’s list), it is
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much more likely that the whole of the award will be tainted than in the case of a
straightforward non-crystallization. The decisions of Lord Hodge in Carillion Utility Services
Ltd v SP Power Systems Ltd and of Lord Malcolm in Whyte and Mackay Ltd v Blyth & Blyth
Consulting Engineers Ltd, discussed at paragraphs [33] and [37] above, are pertinent; these
were cases where the adjudicator acted in breach of the principles of natural justice. Breach
of the principles of natural justice inevitably casts an element of doubt over the whole of the
adjudicator’s reasoning.
[45] Acting outwith jurisdiction in respect of one aspect of the dispute, however, does not
necessarily taint the remainder. The whole relationship of the intra vires and ultra vires parts
of the decision must be examined, to determine how far the reasoning in the latter has
influenced the former. Influence may take a range of forms. Some of the evidence of
primary fact may be the same, although it must be borne in mind that primary facts such as
the terms of the contract will almost inevitably be relevant to both the intra vires and ultra
vires parts, and should not taint the intra vires part. Inferences of fact, based on the primary
facts, are perhaps more liable to taint the reasoning in the intra vires part of a decision if they
are adopted in the ultra vires part, although that is not inevitable if the inference appears to
have been drawn independently in each part. The application of the law to the facts is a
separate area where influence is possible, and here again each case must be considered on its
merits. “Law” for these purposes includes the terms of the parties’ contract. The critical
question is whether the adjudicator’s reasoning in the invalid part of his decision has had a
significant effect on his reasoning in the ex facie valid part. If there is a significant influence,
it is likely that severance will be impossible, with the result that the whole decision must fall.
We should add, in agreement with the views of Edwards-Stuart J in Lidl, quoted at
paragraph [38] above, that the existence of a single dispute or difference is relevant in that it
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25
may make it more difficult to show that the reasoning in the invalid part of the decision had
no effect on the reasoning in the ex facie valid part.
[46] We agree with the commercial judge in his reasoning on this matter, which is
generally along the lines that we have suggested. He commented (paragraph [46]):
“A blanket ban on severance in single dispute cases is likely to be productive of
disproportionate and unjust results in a not insignificant number of cases. In my
opinion it is also likely to encourage unsuccessful parties in single dispute
adjudications to scrabble around for grounds to resist enforcement, because success
on any ground (even if it relates only to a relatively small part of the decision) will
suffice to invalidate the entirety of the decision”.
We agree with those observations. The commercial judge further referred to the underlying
policy aims of the 1996 Act and the Schemes that had been provided under that Act, and
expressed the view that it would be unfortunate if the courts’ approach to the enforcement
of adjudication awards made it more difficult to enforce such awards. We agree with that
policy.
[47] We should note one further submission for the defenders. Their counsel submitted
that the result of the commercial judge’s decision was that the parties would be bound not
by the decision of the adjudicator but by the decision of the adjudicator as rewritten by the
court. They had not contracted to submit to such a decision. In our opinion this submission
is misconceived. If parties have agreed to a particular dispute-resolution procedure, and
under that procedure the court has power to review a decision, on legal or factual grounds,
the parties have agreed to any decision as so reviewed. That is all that has happened in the
present case. Moreover, the adjudication in this case is governed by the Scheme, which
derives from a statutory instrument promulgated under the 1996 Act. A provision of that
nature should be construed as analogous to legislation, rather than turning on niceties of
what the parties have agreed.
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26
Enforcement of the present adjudicator’s award
[48] The commercial judge concluded that the question that he required to address was,
following Willow, whether there existed a “core nucleus” of the adjudicator’s decision that
could safely be enforced. The adjudicator’s extension of time award, of 13 weeks, and the
associated award for loss and expense of £63,093.47 could not stand. A number of other
elements, summarized at paragraph [17] above, followed from those conclusions.
Otherwise, however, the commercial judge thought that the decision could properly be
enforced, as they were untainted by the decision and reasoning in relation to extension of
time and loss and expense. We are in agreement with that conclusion.
[49] The defenders’ primary challenge to the commercial judge’s reasoning on this issue
was to the effect that the Final Works Account should not have been treated as a matter
separable from the issues that had not crystallized, in particular the extension of time and
resulting claim for loss and expense. This is ultimately a practical question, depending on
the particular facts of the case. The commercial judge held that it could be said with
confidence that all parts of the decision other than those founded on the claims for an
extension of time and resulting loss and expense were untainted by the adjudicator’s
decision on those matters.
[50] The items that were held unenforceable by the commercial judge were all related to a
claim for extension of time and the consequential loss and expense, and certain ancillary
matters. Those matters were held not to have crystallized. It is not obvious why the
treatment of a claim for extension of time and its consequences should have a bearing on
other matters, such as payments for measured work or additional works. Those are for
work actually performed, rather than the increase in costs caused by delay. The commercial
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judge draws attention to paragraph 303 of the adjudicator’s decision, when he states that he
had decided to deal with issues of quantum first and then the issues relating to extension of
time and the entitlement to recover loss and expense. That appears a sensible way to
proceed, and indicates that the adjudicator considered basic issues of quantum, other than
delay and its consequences, separately, and only then moved on to the extension of time and
consequential loss and expense.
[51] Counsel for the defenders drew attention to particular features of the adjudicator’s
award. The first of these was paragraph 323, which dealt with the consequences of
architect’s instruction 25. The adjudicator stated that for completeness he mentioned that
item in dealing with measured work, but he had also considered it in the extension of time
sections of his decision. He describes this as a “major issue” on which the parties were
diametrically opposed. The instruction related to certain landscaping works, and the
adjudicator was satisfied that the pursuer had carried out certain works but found the
quantification difficult to assess. He found, however, certain evidence to be credible, and on
that basis he apportioned the costs in the Scott schedule. Delay in the landscaping works
could clearly have an effect on request for extension of time, which would explain why the
adjudicator had considered this item in that context, but additional landscaping works
would in all probability be ordinary measured works, and that part of the claim would be
independent of the extension of time. For this reason we cannot fault the approach taken by
the adjudicator, which clearly separated those two aspects of this item.
[52] The defenders also founded on a reference made by the commercial judge (at
paragraph [45] of his first opinion) to discrepancies in the pursuer’s claim in relation to the
works final account. In respect of valuation no 17; an unexplained increase of £73,447.81
occurred when the amount certified for the works final account was compared with the
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notice of adjudication. The commercial judge notes, however, that the reasons for such a
difference were not explored by counsel for the defenders, and he did not understand
counsel to found upon the discrepancy. Furthermore, as the commercial judge noted, while
the difference was a significant sum it did not necessarily follow that the disagreement prior
to the notice of adjudication in relation to the works final account and the claim made in the
notice were essentially different. It appears to us that, if such a matter is to be founded on as
establishing non-crystallization, an explanation must be given as to the nature of the
discrepancy and how it would prevent the claim from crystallizing. That was lacking.
[53] In these circumstances we are unable to discover any discrepancies in the claims
made by the pursuer, other than the claim for extension of time and associated loss and
expense and other elements, that would prevent the remainder of the dispute from
crystallizing. We are accordingly of opinion that the commercial judge reached the correct
decision on this matter.
Conclusion
[54] For the foregoing reasons we are of opinion that the commercial judge’s decision and
reasons are correct. We will accordingly refuse the reclaiming motion.