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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> FIELD SYSTEMS DESIGNS LTD AGAINST MW HIGH TECH PROJECTS UK LTD [2020] ScotCS CSOH_17 (05 February 2020)
URL: http://www.bailii.org/scot/cases/ScotCS/2020/2020_CSOH_17.html
Cite as: [2020] ScotCS CSOH_17, 2020 GWD 7-103, 2021 SLT 148, [2020] CSOH 17
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CA153/19
OUTER HOUSE, COURT OF SESSION
[2020] CSOH 17
OPINION OF LORD CLARK
In the cause
FIELD SYSTEMS DESIGNS LIMITED
Pursuer
against
MW HIGH TECH PROJECTS UK LIMITED
Defender
Pursuer: Barne QC; CMS Cameron McKenna Nabarro Olswang LLP
Defender: McKenzie; Clyde & Co (Scotland) LLP
11 February 2020
Introduction
[1] On 4 October 2019, following an adjudication arising from a dispute between the
pursuer and the defender, the adjudicator made an award in the pursuer’s favour. In this
action, the pursuer seeks enforcement of that decision. The defender argues that it should
not be enforced and seeks reduction of the decision. The case called before me for a debate
and also on the pursuer’s motion for summary decree.
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Background
[2] On about 27 November 2015, the parties entered into a contract for the design and
construction of electrical, control and instrumentation works at a waste plant. Various
differences and disputes arose and on about 22 January 2018 the parties entered into a
further agreement (“the Supplemental Agreement”). As part of the Supplemental
Agreement the parties agreed to value the works completed as at 3 December 2017 at
£9,600,000. They also agreed that any remaining works carried out after that date would be
valued on the basis of schedule 19 to the initial contract, as varied by the Supplemental
Agreement. Schedule 19 set out, for present purposes, two bases on which the remaining
elements of the works were to be valued. The first is the schedule of Rates listed in
clause 19.5, to be applied using Table 19.2. This basis for valuation would apply to payment
for all staff and labour directly and indirectly employed by the pursuer. The second is a
“cost plus” basis set out in clause 19.6 which involves a 7.5% uplift applied to substantiated
actual costs, in terms of Table 19.3. This would apply to supplies and services from a third
party, including bought-in plant, materials and labour. The contrast is therefore between
agreed hourly rates (Table 19.2) and actual costs plus an uplift (Table 19.3).
[3] On about 28 May 2019 the pursuer submitted an interim request for payment in
respect of the works undertaken up to and including that date. The gross value of the works
identified in that request for payment was £15,083,510.21. The pursuer’s interim request for
payment included claims in respect of work carried out by Cepha Controls Limited
(“Cepha”) and Anord Control Systems Limited (“Anord”). In all requests for payment after
the Supplementary Agreement was reached, the pursuer had applied for and the defender
had certified payment for the Cepha and Anord work on the basis of the agreed hourly rates
(Table 19.2) rather than the cost plus approach (Table 19.3). The interim request for payment
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proceeded on that basis. On 21 June 2019, the defender issued its payment notice in
response the pursuer’s request for payment. The defender valued the pursuer’s works at
£14,008,181.86. This gave rise to a shortfall of £1,075,328.35 when compared to the figure in
the pursuer’s application. The defender’s valuation also proceeded upon the basis of the
agreed hourly rates in Table 19.2.
[4] In his decision, the adjudicator narrates the following sequence of events, which
occurred prior to the hearing. On 12 July 2019 the pursuer served its Referral, containing
two lever arch files of evidence. On 26 July 2019 the defender served its Response,
containing two lever arch files of evidence. On 4 August 2019 the pursuer served its Reply,
containing one lever arch file of evidence and then on 16 August 2019 the defender served
its Rejoinder, containing further evidence. On 30 August 2019 the pursuer served a
Surrejoinder, containing further evidence. Thereafter, on 10 September 2019 a hearing was
conducted.
[5] The Referral identified twenty-five issues which were in dispute. These included
Issue 6, which related to “Cepha support”, in respect of which the deduction made by the
defender was £25,498.35, and Issue 7 which related to “Anord panel modifications”, the
deduction by the defender in that regard being £972. The defender maintained that these
deductions made by it were valid because, put very broadly, the claims for payment were
not supported by the timesheets and other data submitted with the request for payment.
The Referral, Response, Reply, Rejoinder and Surrejoinder, and the volumes of evidence
produced therewith, dealt with the parties respective positions on valuation in respect of
each one of the twenty-five issues and in particular on whether the deductions made by the
defender were valid.
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[6] At the hearing on 10 September 2019, at which these matters were the subject of
evidence and submissions, the defender brought up what it describes as a new matter. It
argued that Cepha and Anord were subcontractors to the pursuer and therefore that
Table 19.2 did not apply. The correct basis to calculate that aspect of valuation of the claim
should have been Table 19.3. In response, the representative of the pursuer argued that
Cepha and Anord were in a joint venture with the pursuer, which, it was alleged, was
known to the defender and that Table 19.2 was therefore the correct basis. This new point
(the status of Cepha and Anord) came to be referred by the parties as the “Subcontract/JV
point”. On 10 September 2019 the adjudicator gave directions about closing submissions
and stated:
“The Respondent shall on or before 16:30 hours Wednesday 18 September 2019 file
and serve its Reply to the Referring Party’s submission regarding the discrete issue
of the ‘Subcontract’/‘JV’ point.”
On 13 September 2019 the parties simultaneously exchanged closing submissions and on
18 September 2019 the defender replied to the pursuer’s position on the Subcontract/JV
point. In that Reply, the defender contended that the works of Cepha and Anord should be
valued at nil. According to the defender, this would result in a substantially higher
deduction, of greater than £890,000.
[7] In his decision, issued on 4 October 2019, the adjudicator noted that it was not
disputed by the parties that the sum of £1,075,328.35 was in dispute. He also noted that
pursuant to the provisions in the Supplementary Agreement, the defender had the
opportunity to audit and validate costs incurred by the pursuer. He listed the submissions
received from the parties, including the defender’s Reply dated 18 September 2019 (on the
Subcontract/JV point) and stated:
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“In total, there have been eleven (11) pleaded submissions complete with supporting
files of evidence and a one-day hearing. This Decision is a summary of the Parties’
arguments and for the sake of brevity although I have been unable to refer to each
and every detail thereto I have nonetheless carefully considered all documents and
submissions provided to me in reaching my Decision.”
In relation to issues 6 and 7, put broadly, the adjudicator decided that the defender had
failed to show that the timesheets did not reconcile with the other data or that the data
showed that these parts of the claim were overvalued. On issue 6, the adjudicator noted that
Cepha had accepted a reduction of £14,476.29 in the valuation thereby reducing what is
described as “the delta” (or difference) from £25,498.35 to £11,022.06. The pursuer agreed
with that position. Thus, the adjudicator determined the true gross value for “Cepha
Support” at £840,113.07 (that is, £11,022.06 greater than the defender’s certified valuation of
£829,091.01). The result was that on Issues 6 and 7, the adjudicator rejected the defender’s
contention that deductions of £11,022.06 (Issue 6) and £972 (Issue 7) should be made.
[8] The defender contends that the adjudicator’s decision should not be enforced and
should be set aside ope exceptionis because (i) the adjudicator failed to address a material line
of defence which was advanced before him (the Subcontract/JV point) and so failed to
exhaust his jurisdiction, and (ii) esto the adjudicator did address said line of defence, he
failed to provide any, or any adequate, reasons for his decision.
[9] The pursuer contends (i) that the adjudicator did address the defence advanced to
him, (ii) that in any event, any failure by the adjudicator to address the line of defence relied
upon by the defender was not material, and (iii) that the adjudicator’s reasons were
adequate. The pursuer further contends that esto the court considers that the adjudicator did
fail to exhaust his jurisdiction or failed to give adequate reasons, any such failure affects
only certain parts of the adjudicator’s decision. The pursuer argues that, on this hypothesis,
the affected parts of the adjudicator’s decision should be severed and the balance of the
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adjudicator’s decision should be enforced. In response to those arguments, the defender
contends that if the court considers that the adjudicator did fail to exhaust his jurisdiction or
failed to give adequate reasons, his decision should be set aside in its entirety.
[10] Finally, the pursuer contends that it is entitled to recover from the defender one half
of the adjudicator’s fees and expenses. The defender argues that, the adjudicator having
failed to produce an enforceable decision, the pursuer’s remedy in relation to the
adjudicator’s fees and expenses lies against the adjudicator, not against the defender.
[11] At the beginning of the hearing before me, the defender sought to lodge two
affidavits. The pursuer opposed that motion. While these affidavits were presented at this
late stage, on the basis that there was at that stage a motion before the court for summary
decree and all relevant material could be considered for that purposes, and that senior
counsel for the pursuer did not, as he put it, see anything additional in the affidavits, I
allowed them to be received.
[12] At the hearing, the pursuer advanced its case on the basis of relevancy. The pursuer
made no submissions in relation to the relevant legal criteria to be satisfied in order for a
motion for summary decree to be granted. That issue does not therefore arise, but I am in
any event satisfied that a valid defence is pled by the defender and that summary decree
should not be granted. The matter to be resolved, therefore, is the relevancy of each side’s
case.
The issues
[13] The issues which I require to determine, as articulated in the parties’ joint statement
of issues, are:
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1. Whether or not the adjudicator failed to exhaust his jurisdiction in respect of
the “JV/Subcontract” issue and/or whether the adjudicator provided any, or
any proper, reasons for his decision, as described in the defences? (“Issue 1”);
2. On the hypothesis that the adjudicator failed to exhaust his jurisdiction
and/or to provide any, or any proper, reasons for his decision, whether or not
the decision is severable in respect of issues unaffected by any such failure?
(“Issue 2”)
3. On the hypothesis that the adjudicator failed to exhaust his jurisdiction
and/or to provide any, or any proper, reasons for his decision and the
decision is set aside, whether or not the defender is required to make
payment to the pursuer in respect of its half of the adjudicator’s fees?
(“Issue 3”).
Submissions
Submissions for the pursuer
Issue 1: failure to exhaust jurisdiction and/or give adequate reasons
[14] The dispute that was referred to the adjudicator was one of valuation. In the matters
relevant to this enforcement action, the adjudicator had preferred the pursuer’s approach to
valuation to that of the defender. The defence to the enforcement proceedings was entirely
without merit. It was important to note that, in both the request for payment and the
payment certificate, both parties applied the Table 19.2 rates to the work done by Cepha and
Anord. In its Response to the Referral, one of the defender’s complaints under reference to
Issue 6 (Cepha Support) was that “the actual costings incurred by CEPHA [sic] were not
issued, rather they appear to be [the pursuer’s] inflated rates”. The correct approach to
valuation (agreed rates versus cost plus) was clearly being raised. Furthermore, it had
always been the defender’s position that Cepha was the pursuer’s subcontractor, as was
clear from the defender’s Response and the witness statements.
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[15] Further, in relation to Table 19.2, it should be noted that there are columns for
“switchgear”, “Electrical” and “Controls”, which correspond respectively to the specific
work areas undertaken by Anord (switchgear), the pursuer (electrical) and Cepha (controls).
This was a matter of admission. Indeed, Anord is itself expressly referenced in Table 19.2. It
was in this overall context that the adjudicator’s decision should be read. In addition, the
defender was entirely opaque about the implications of the Subcontract/JV issue in a context
where the defender had issued a payment certificate in the sum of £14,008,181.86, which
certified particular sums on a basis inconsistent with the arguments it had later made on the
Subcontract/JV issue. At no point was it suggested by the defender that the certificate issued
by it should somehow be set aside or disregarded by the adjudicator. That was not
surprising since it would be an entirely illegitimate thing for the adjudicator to have done.
The sums comprising Issues 6 and 7 had been certified and were due for payment.
[16] In his decision, the adjudicator stated that he had carefully considered all documents
and submissions provided to him. The presumption of regularity applied: SW Global
reasons that lay behind the introduction of the adjudication process are well-known: see eg
paragraph [15]. It was to provide a swift mechanism to resolve disputes arising under a
building contract with a view to preserving cash-flow and protecting contractors and
subcontractors. As such, the courts have been and should be extremely slow to refuse to
enforce adjudicators’ decision except in the most obvious of cases. Reference was also made
on Construction Adjudication 4th ed., at paragraph 13.55; Pilon Ltd v Breyer Group plc
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430. Any failure by an adjudicator to address an issue referred to him required to be
material, in the sense that it has a potentially significant effect on the overall result of the
adjudication: Morgan Sindall Construction and Infrastructure v Westcrowns Contracting Services
Ltd 2018 SCLR 471 at [83].
[17] The adjudicator had answered the dispute referred to him. He had set out his view
on what the proper valuation was on each of the issues (1-25) dealt with in the Referral. The
two payment mechanisms under schedule 19 and their correct application were central
points throughout the adjudication. This was reflected in the fact that the adjudicator set out
ad longum, in paragraphs 15 to 25 of the decision, the relevant parts of schedule 19. It was
therefore clear that the adjudicator gave careful consideration as to how the particular
mechanisms should be applied in the context of the dispute and the issues referred to him.
[18] In finding that the Table 19.2 rates applied, it was obvious that the adjudicator
rejected the defender’s argument: SW Global Resourcing Limited v Morris & Spottiswood
Limited [2012] CSOH 200 (at para [17]) . That was sufficient for the purposes and validity of
his decision. It is not necessary for an adjudicator expressly to address every point taken by
(paras [24] –[26] ; Morgan Sindall Construction and Infrastructure Limited v Westcrowns
Contracting Limited (paras [83], [88], [96], and [98]).
[19] Moreover, the adjudicator identified in his narration of the arguments the defender’s
key complaint on the Subcontract/JV issue: that the actual costs incurred by Cepha had not
been provided (para 109). The adjudicator had accepted the pursuer’s position, that the
appropriate approach to valuation for the Cepha and Anord works are the agreed hourly
rates set out in Table 19.2 (paras 357 and 360). Furthermore, the adjudicator correctly found
that the defender had waived any right to argue that the materials submitted for payment
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were noncompliant with the contract (para 454). The adjudicator had determined the
Subcontract/JV issue that was referred to him.
[20] It was at least implicitly clear that the adjudicator considered that the correct
approach to valuation was that put forward by the pursuer. In this regard, when
considering whether an adjudicator has given sufficient reasons on a particular issue, a
distinction should be drawn between something that is a standalone defence, such as a claim
to set off, and an issue that is raised as a potential alternative manner of valuation. The
argument made on the Subcontractor/JV point was wholly opportunistic and entirely
without merit. It was blatantly a misguided attempt to seek a tactical advantage.
Issue 2: Severability
[21] In relation to the law on the severability of adjudicators’ decisions, reference was
made to the analysis given by Lord Doherty in Dickie & Moore Ltd v The Lauren McLeish
Discretionary Trust [2019] CSOH 87. If the court considered that the adjudicator did fail to
exhaust his jurisdiction then in respect of Issues 6 and 7, the sum certified by the defender
would apply instead of the sums allowed by the adjudicator.
Issue 3: Responsibility for the adjudicator’s fees
[22] Under the adjudicator’s terms and conditions, the pursuer and the defender were
jointly and severally liable for the adjudicator’s fees. Accordingly, even if the decision was
set aside, the defender would still be liable to relieve the pursuer to the extent of 50% of the
adjudicator’s fees in circumstances where the pursuer has discharged the defender’s liability
to the adjudicator for his fees.
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Submissions for the defender
Issue 1: Failure to exhaust jurisdiction and/or give adequate reasons
[23] The scope of an adjudicator’s jurisdiction is defined by the Notice of Adjudication
together with any ground relied upon by the responding party to justify its position:
Pilon Ltd v Breyer Group plc, per Coulson J at [25]. If a responding party in adjudication
proceedings raised a line of defence which could be a defence to the claim made against it,
the adjudicator is required to deal with it and could not ignore it (even if he or she
considered that there were difficulties or problems in the way in which a matter had been
raised): Joint Administrators of Connaught Partnership v Perth & Kinross Council 2014 SLT 608,
per Lord Malcolm at [19]. Failure by an adjudicator to deal with a material line of defence
amounts to a failure to exhaust the adjudicator’s jurisdiction, rendering the decision
unenforceable: Gillies Ramsay Diamond v PJW Enterprises Ltd, per Lord Gill at [25]; Carillion
Construction Ltd v Devonport Royal Dockyard Ltd, per Chadwick LJ at [52]; RGB Ltd v SGL
Renfrewshire Council [2017] CSOH 143 per Lord Doherty at [24].
[24] In the present case, the adjudicator was invited to decide the gross value of the
pursuer’s interim request for payment dated 28 May 2019. The adjudicator therefore also
had jurisdiction to consider any ground advanced by the defender which might affect the
gross value of that application in a material way. Importantly, the adjudicator’s jurisdiction
was not confined merely to deciding upon the differences between the amount applied for
by the pursuer and the amount certified by the defender. The substance of the
Subcontract/JV point advanced by the defender in the adjudication was, therefore, that the
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sums claimed in the pursuer’s interim application of 28 May 2019 in respect of each of these
three issues should be valued at nil, because the pursuer’s application proceeded on the
wrong contractual basis (i.e. Table 19.2 when it should have been Table 19.3). The
adjudicator manifestly had not made any explicit reference to the Subcontract/JV point in his
decision on Issues 6 and 7 at the adjudication, either in his rehearsal of parties’ submissions
or in the operative parts of his decision. Indeed in his rehearsal of parties’ submissions on
these issues, the adjudicator did not reference anything after the pursuer’s Surrejoinder of
30 August 2019.
[25] In relation to the points made by the pursuer about specific paragraphs of the
adjudicator’s decision, it was clear, in context, that the adjudicator did not address the
defender’s position that the claim should be valued at nil as the pursuer had no entitlement
to valuation on the basis of Table 19.2. As to the waiver argument, the adjudicator was
merely determining that the defender had waived the right to withhold payment on the
basis that the information contained within the pursuer’s timesheets did not provide
sufficient detail.
[26] The adjudicator’s failure to deal, explicitly, with the Subcontract/JV point was
remarkable in light of his directions of 10 September 2019 in which he directed the defender
to serve a discrete Reply on the Subcontract/JV point. It was all the more remarkable in light
of the defender’s specific request in the discrete Reply that the adjudicator should address
the issue. Moreover, it simply did not follow that because the adjudicator had approached
the valuation of Issues 6 and 7 on the basis advanced by the pursuer he must be taken to
have addressed and rejected the Subcontract/JV point. That outcome was equally consistent
with him not having addressed the Subcontract/JV point at all. In a nutshell, the adjudicator
failed to ”reach a decision which was responsive to the issues referred in the adjudication”,
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which included the Subcontract/JV issue: AMEC Group v Thames Water Utilities Ltd
court should adopt a similar line of reasoning to that of Lord Doherty in DC Community
Partnerships Ltd v Renfrewshire Council, at [26].
[27] The adjudicator’s failure to address the Subcontract/JV point was plainly material. If
the adjudicator had addressed and upheld the defender’s argument and valued Issues 6 and
7 at nil, as he was invited to do, the effect would have been an overall reduction in the gross
value of the pursuer’s interim application of 28 May 2019 of over £890,000.
[28] In any event, the adjudicator simply gave no reason or indeed any indication why he
rejected the Subcontract/JV point (on the hypothesis that he considered it). It was impossible
for the parties to understand, in the context of the adjudication procedure, what it was that
he had decided in relation to the Subcontract/JV point and why: c/f NKT Cables A/S v SP
Power Systems Ltd, per Lady Wolffe at [115], referring to Thermal Energy Construction Ltd v AE
not sufficient to show that he had dealt with the Subcontract/JV point and to show what his
conclusions on that point were: c/f Gillies Ramsay Diamond v PJW Enterprises at [31]. Again,
the court was invited to adopt a similar approach to that adopted by Lord Doherty in DC
Community Partnerships Ltd v Renfrewshire Council.
Issue 2: Severability
[29] The decision in Dickie & Moore v McLeish (No. 2) relied upon by the pursuer is the
subject of a reclaiming motion, but in any event should not be followed in the present case.
It runs counter to the orthodox approach which has hitherto been taken in Scotland to issues
of severability: see e.g. Carillion Utility Services Limited v SP Power Systems Limited 2012 SLT
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119, per Lord Hodge at [39]; CSC Braehead Leisure Limited v Laing O’Rourke Scotland Limited
[71] ; and Bell Building Projects Limited v Arnold Clark Automobiles Limited [2017] CSOH 55, per
Lord Tyre at [33]. The orthodox approach should be followed. Parties have contracted to be
bound by a complete decision from their adjudicator, not a part of that decision or a decision
that has been re-written by the court. If the whole decision cannot stand, parties have not
agreed to be bound by that which may be left over. Nor do the policy considerations
underlying the adjudication process compel enforcement of only part of a decision, if the
whole cannot stand. Moreover, the adjudicator’s determination in relation to his fees and
expenses may have been different had he addressed the Subcontract/JV point, and so his
decision cannot safely stand.
Issue 3: The adjudicator’s fees and expenses
[30] If the court held that the adjudicator had failed to exhaust his jurisdiction or to
provide adequate reasons and his decision was set aside in its entirety, the defender would
be under no obligation to pay a half-share of the adjudicator’s fees and expenses, which
arises by virtue of an obligation to comply with the adjudicator’s decision: PC Harrington
to pay to the pursuer a one-half share of the adjudicator’s fees and expenses. The pursuer
would, however, be entitled to seek restitution from the adjudicator on the basis of the
mutuality principle. If the court held that the offending parts of his decision could not be
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severed, it could not be said that if the adjudicator had addressed the Subcontract/JV point,
or provided adequate reasons, it was clear and obvious that his apportionment of fees and
expenses would have been the same: cf Dickie & Moore, at [57].
Decision and reasons
Issue 1: Failure to exhaust jurisdiction and/or give adequate reasons
Deliberate failures and inadvertent failures
[31] The circumstances in which a failure by the adjudicator to consider an issue will
result in his decision being successfully challenged (whether as a failure to exhaust
jurisdiction or a breach of natural justice) are discussed in both the Scottish and English case
law. In the present case, senior counsel for the pursuer relied upon the following comments
by Coulson J in Pilon Ltd v Breyer Group plc:
“22.2 If the adjudicator fails to address the question referred to him because he has
taken an erroneously restrictive view of his jurisdiction (and has, for example, failed
even to consider the defence to the claim or some fundamental element of it), then
that may make his decision unenforceable, either on grounds of jurisdiction or
natural justice: see Ballast, Broadwell, and Thermal Energy.
22.3 However, for that result to obtain, the adjudicator's failure must be deliberate.
If there has simply been an inadvertent failure to consider one of a number of issues
embraced by the single dispute that the adjudicator has to decide, then such a failure
will not ordinarily render the decision unenforceable: see Bouygues and Amec v
TWUL.
22.4 It goes without saying that any such failure must also be material: see
In other words, the error must be shown to have had a potentially significant effect
on the overall result of the adjudication: see Keir Regional Ltd (trading as Wallis) v City
[32] It is clear that Coulson J views the distinction between a deliberate failure and an
inadvertent failure as significant. In that case, he concluded that the adjudicator deliberately
restricted his own jurisdiction. However, having stated that the failure “must be deliberate”
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rather than inadvertent, he does qualify that by stating that an inadvertent failure will not
“ordinarily” render the decision unenforceable. In Amec, Coulson J referred to the decision
of the Inner House in Ballast plc v The Burrell Co (Construction Management) [2001] BLR 529
(also referred to in Pilon) as one where the adjudicator “wholly failed” to deal with the issue
that had been referred to him, and that it was a deliberate failure. Thus, in AWG
para 128), HHJ Toulmin referred to Ballast as a case where “the adjudicator did not reach a
decision which was responsive to the issues referred in the adjudication.” In his textbook,
Coulson on Construction Adjudication (4th ed., at para 13.51), the author states that it is
relatively easy to see why a deliberate failure to consider an issue (particularly a defence)
which the adjudicator should have considered may well amount to a breach of natural
justice. He then refers to the Scottish case of Whyte and Mackay v Blyth and Blyth Consulting
Engineers, describing the adjudicator’s error as inadvertent and certainly not appearing to be
deliberate. He states that this case “took the matter considerably further”. The author then
states that this decision is perfectly understandable on its own facts but it might be regarded
as “something of an inroad into the general principle that an adjudicator can make errors of
law and fact without affecting the validity of his decision”. He suggests that the case should
be considered as a case on its own facts, in particular because the point raised by the
defenders was so important and the adjudicator’s failure to deal with it was so complete that
in these unusual circumstances a breach of natural justice was made out. He goes on to say
that in the ordinary case, a search for points not addressed will be unsuccessful because, as
where the decision shows clear mistakes, the court will not usually allow “any inference [to
be] properly drawn that [the adjudicator] consciously or unconsciously disregarded” one
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party’s submissions or a document which they put before him. The author then goes on (at
para 13.55, under reference to Dawnus Construction Holdings Ltd v Marsh Life Ltd
[2017] EWHC 1066 (TCC)) to state:
“Dawnus Construction is a clear example of the court’s approach: the judge will not
put a fine tooth comb through the adjudicator’s decision, seeking to ensure that
every single point has somehow been addressed. The court’s approach is broad-
based, looking first at the dispute referred, and then second as to what the result
was. It is not a breach of the rule of natural justice if one particular sub-issue is not
specifically referred to in the adjudicator’s decision.”
[33] There has been some development in the discussion in England of when an
inadvertent failure, even though “ordinarily” not causing the decision to be unenforceable,
will indeed suffice for that purpose. In RGB P&C Limited v Victory House General Partner
“53. Where the adjudicator has deliberately but wrongly declined to address an
issue, particularly a crucial defence, it may well be that he has not decided the
dispute referred to him. Where he has not expressly taken such a deliberate decision
but may appear not to have addressed every issue, the more likely conclusion is that
the issue is subsumed within his consideration of the dispute as a whole…
The analysis in Pilon v Breyer left open the possibility that an inadvertent failure to
consider one of a number of issues might render a decision in breach of natural
justice, but it would not ordinarily do so and it is difficult to identify any case in
which a decision has not been enforced for such a reason. The only example
identified in Construction Adjudication is the decision of the Outer House in Whyte and
cases seems to me to be for two reasons. Firstly, an inadvertent failure to address a
particular issue is in the nature of an error within the adjudicator’s jurisdiction rather
than a breach of the rules of natural justice. Secondly, and if that is wrong, it would
be an unusual case where the court would both draw the inference that an issue had
not been addressed and conclude that the failure to address the issue was so
significant that it meant that the adjudicator had not decided the dispute referred to
him and/or that the conduct of the adjudication was so unfair that the decision
should not [be] enforced. The more significant the issue, the less likely it is to be
inadvertently overlooked; the less significant it is, the more likely it is that it has been
taken account of in the round.”
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[34] There is some articulation of the test for unenforceability based on an inadvertent
said:
“49. It will be noted that an inadvertent failure to consider one of a number of
issues will “ordinarily” not render the decision unenforceable. This qualification
admits the possibility that an inadvertent failure may in an extraordinary case bring
the principle into play. No clear guidance is available about when an inadvertent
failure will render the decision unenforceable. Since the essence of the adjudication
process is that the real dispute between the parties should be resolved, it seems to me
that the touchstone should be whether the inadvertent failure means that the
adjudicator has not effectively addressed the major issues raised on either side.
Clearly, as [22.4] of Pilon makes clear, the failure must be material in the sense of
having had a potentially significant effect on the overall result of the adjudication.
The burden of showing materiality must rest on [the defendant], which asserts it.”
I note that Stuart-Smith J makes these observations under a sub-heading of whether the
adjudicator “did not consider a material line of defence”. This is the language used by
Lord Doherty in DC Community Partnerships Ltd v Renfrewshire Council at [24], under
reference inter alia to NKT Cables A/S v SP Power Systems Ltd per Lady Wolffe at [113]-[114].
It seems to me that these cases apply the same test as that adopted by Stuart-Smith J to
inadvertent failures. Nonetheless, it is of interest to note that, at least on the authorities to
which I was referred, there appears to be no example from the very large number of cases in
England of a challenge (whether based on a failure to exhaust jurisdiction or a breach of
natural justice) succeeding on the ground of an inadvertent, rather than deliberate, failure.
Application to the present case
[35] I deal with matters in the following order: whether the adjudicator failed to consider
the Subcontract/JV point; whether he gave any reasons, or adequate reasons, on that matter;
and whether, in any event, the point was a material line of defence. The burden of
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establishing a failure to address the Subcontract/JV issue, and in showing that it was a
material line of defence, lies with the defender.
[36] It is correct that in the adjudicator’s decision there is no clear or discrete reference to
the Subcontract/JV point, but on the question of whether it was implicitly taken into account
it is fair to say that there are certain pointers in both directions. On the one hand (pointing
to it having not been considered), when dealing with the issues the adjudicator sets out the
submissions of the parties in summary form, identifying the source document, but he only
goes as far as the points made up to and including the Surrejoinder and makes no reference
to the further submissions on the Subcontract/JV point. Also, there is nothing in the detailed
reasoning on the specific issues which supports the view that he considered the matter. The
points in the adjudicator’s decision identified by the pursuer (in paras 357-360 and 454) do
not, when read and understood in context, show that he did so (although this is less clear in
respect of para 109, for the reasons given below). Further, when he comes to discuss Issues 6
and 7 he identifies the difference in valuation and appears to deal only with the respective
submissions as to the validity of the deductions based on the arguments and the material
presented prior to the Subcontract/JV issue being raised. On the other hand (in support of
the view that he did consider the point), there is at least some force in the pursuer’s position
that the adjudicator did in fact answer the overarching question put to him, by deciding the
valuations on the basis of Table 19.2 (and, it could be said, implicitly refusing to do so based
on Table 19.3). He lists the documents presented to him (including making express mention
of the defender’s submissions on 18 September 2019, which concerned the Subcontract/JV
point) and states that he has given careful consideration to all of them. He also makes
reference to the contract terms, which set out how the valuation process is to be carried out.
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These include clause 41.4 of the parties’ contract, which provides, in relation to the
defender’s certification of sums due, that:
“… The certificate shall show the sum which the Contract Manager considers to be
due at the payment due date determined in accordance with Sub-clause 41.5, and the
basis on which it has been calculated.”
The adjudicator also referred to clause 19.4 of the Supplementary Agreement:
“… All Third-Party Supplies and Services provided for the completion of the Works
shall be on based on actual costs substantiated by invoices. The applicable
percentage profit and overhead rates as stated in Table 19.3 below shall be applied to
the cost. The Subcontract Price shall be amended accordingly.
The total of all sums previously certified by the Contract Manager for payment. The
Subcontractor’s requests for payment shall be supported by all relevant documentary
evidence appropriately itemised”.
Further, the adjudicator explained that under the Supplementary Agreement, the initial
contract was revised to include a new clause 3a which allowed the defender to exercise its
“Audit Privileges”. The clause provides:
“For the purposes of validating costs to be reimbursed to the Subcontractor from the
period commencing 4 December 2017 are [sic] properly due in accordance with
Schedule 19, the Subcontractor shall grant the Contractor supervised access to its
accounting systems, timesheet records, payroll and purchase ledger in order that the
Contractor can satisfy himself that the costs are being correctly claimed and that any
“Disallowed Costs” are being correctly identified. Access will be provided at the
request of the Contractor and will be no more frequent than once a month following
the Subcontractors submissions of a request for payment.”
The adjudicator further stated that:
“[The pursuer] alleges to have maintained open access for [the defender] to inspect
its accounts and records; and further alleged that [the defender] has availed of this
opportunity only once, on 15 August 2018. At that audit [the defender] did not,
according to [the pursuer], dispute or raise any query on the records being
maintained [the pursuer].”
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Under the heading “Common Ground” the adjudicator notes that “£1,075,328.34 is in
dispute” and that “Pursuant to Cl. 3a … the [defender] had the opportunity to audit and
validate costs incurred by [the pursuer]”. Thereafter, when he comes to deal with the
individual issues, it is reasonable to conclude that he took into account that (i) both parties
were aware of the difference between Tables 19.2 and 19.3 and that each of them had
calculated the sums relied upon in Issues 6 and 7 on the basis of Table 19.2; (ii) the pursuer’s
request for payment had to be supported by all relevant documentary evidence
appropriately itemised, and by implication the defender had accepted that to be so in
reaching its valuation based on Table 19.2; and (iii) the defender had the audit privilege of
access to relevant information about the basis of the pursuer’s claim and had availed itself of
that opportunity but had not queried the pursuer’s position. There is also the intriguing
submission in the defender’s Response that “the actual costings incurred by CEPHA [sic]
were not issued, rather they appear to be [the pursuer’s] inflated rates”, which the
adjudicator narrates (at para 109) but appears to reject. As Lord Doherty observed in DC
Community Partnership Ltd v Renfrewshire Council a court should hold that there has been a
failure to exhaust jurisdiction in only the plainest of cases. The point is very finely balanced
here, but overall I conclude that consideration of the Subcontract/JV argument was at least to
some extent implicit in the findings that the adjudicator made and that the defender has not
established that the adjudicator failed to address the point. However, that leaves the issue
of whether the adjudicator gave reasons, or adequate reasons, for any view he reached on
the Subcontract/JV point. It is clear that he did not do so.
[37] Turning, then, to the issue of the materiality of this line of defence, I reject the
defender’s contention that any failure by the adjudicator had a potentially significant effect
on the overall result of the adjudication. I do so for two reasons: firstly, on an objective and
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reasonable understanding of the Subcontract/JVpoint, it could only affect the agreed
difference between the parties on their valuations on Issues 6 and 7; secondly, it was a point
that was so lacking in substance or evidence that it could have had no material impact.
[38] Dealing with the first point, the battle lines between the parties were very clearly
drawn, primarily in the Notice of Adjudication and in the Referral and the Response, as
being the validity or otherwise of the deductions and valuation decisions made by the
defender in respect of each one of the twenty-five issues. On Issues 6 and 7, the amount
deducted was £26,470.35. As noted earlier, the pursuer accepted that £14,476.29 should be
deducted, leaving a difference of £11,994.06. Otherwise, on those issues the sums claimed
had been certified by the defender and were due for payment. This was against the
background of the parties having in previous valuations, after the Supplementary
Agreement, proceeded on the basis that Table 19.2 applied for valuation purposes on these
matters. Moreover, as the adjudicator noted, the parties agreed that the sum of £1,075,328.34
was what was in dispute. Importantly, the defender did not suggest that to be incorrect. In
arriving at its valuation, the defender had the opportunity to audit and validate costs
incurred by the pursuer. That disputed sum, and the grounds upon which the elements of it
were disputed, were the matters identified in the Notice of Adjudication, the Referral and
the Response and the further submissions. Those were the matters referred to the
adjudicator, comprising the twenty five issues addressed by the parties.
[39] It is of course correct that in its final submission the defender requested that rather
than simply adhere to the deductions applied to reach the value certified in the payment
notice, a value of nil should be reached on the relevant aspects of Cepha and Anord support,
resulting in a deduction of over £890,000. The defender’s position on materiality founds
upon the Subcontract/JV point having that potential financial outcome. However, when
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properly viewed in the context of the nature and terms of the dispute remitted to the
adjudicator, that was not a potential result of the submission. At best for the defender, it
could have resulted in a finding that only the sum certified by the defender remained due.
To result in a valuation of nil, the final submission made by the defender would require to
be viewed as a radical alteration to the whole nature and previously agreed terms of the
dispute referred to the adjudicator. In order for the submission to have the potential to
eliminate significant sums accepted and certified by the defender as due and payable, the
adjudicator would have required to override the agreed boundaries of the dispute and
disregard the already certified valuation by the defender. That is neither a just nor an
appropriate way to view the matters which the adjudicator was engaged to decide upon: in
Issues 6 and 7 he was dealing with the validity of the defender’s actual deductions. No basis
was suggested as to how the adjudicator could set aside that certified valuation.
Accordingly, viewed in context, the challenge raised in the Subcontract/JV point could, at
best, only be an additional reason to support the actual deduction made by the defender,
rather than a ground to negate the whole of the sums certified as due in respect of Cepha
and Anord. I therefore conclude that the adjudicator was dealing with a dispute which fell
within agreed boundaries and that the late Subcontract/JV point could impact only upon the
sum of £26,470.35 initially in dispute, and latterly the sum of £14,476.29 left in dispute, on
those two issues. For that reason alone, the inadvertent failure was not material as it had no
potentially significant effect on the outcome of the adjudication.
[40] On the second matter, at the hearing before the adjudicator, it was explained on
behalf of the pursuer that Cepha and Anord were part of a joint venture called CAF, the
expression “FSD/CAF” being used in schedule 19 of the contract (FSD being the initials of
the pursuer). The defender presented no actual evidence to show that Cepha and Anord
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were not in fact part of a joint venture. The defender’s position in its final submission was
reached when the defender apparently latched on to comments made in two witness
statements lodged for the pursuer at the adjudication which used the expression
“subcontractor” to refer to Cepha and Anord. However, this occurred in the context of the
defender having itself actually used that description of Cepha in its Response and in a
witness statement it had lodged. In essence, the defender’s final submission appeared to be
somewhat opportunistic and made with no real supporting evidence. It was also made in
the contractual context noted above of the difference between Tables 19.2 and 19.3, the
calculations by each party being on the basis of Table 19.2, that the pursuer’s request for
payment had to be supported by all relevant documentary evidence, appropriately itemised,
which the defender could scrutinise, and that the defender had the audit privilege which it
had used but had not queried the pursuer’s position. In my opinion, viewed in context, the
Subcontract/JV point did not provide any proper substance or basis upon which the
adjudicator could somehow undo the defender’s own certification of value. On that ground
also, the assertion of materiality must fail.
[41] For these reasons, I am not persuaded that the defender has discharged the burden of
showing that the Subcontract/JV point was not addressed by the adjudicator, although I
accept that if he did so he did not give any (or any adequate) reasons for a decision reached
upon it; however, the Subcontract/JV point was not a material line of defence. Even if there
was an inadvertent failure by the adjudicator to consider it, and a failure to give reasons,
these do not result in his decision being unenforceable.
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Issue 2: severability
[42] As a result of my conclusions on materiality, this matter does not now arise for
determination. If, against those views, the test for materiality was somehow thought to be
met in respect of the sum of £14,476.29, I would have concluded that the part of the
adjudicator’s decision dealing with Issues 6 and 7 was plainly severable. I would have
enforced the remainder of his decision, allowing only the deductions in the payment notice
certified by the defender. If, contrary to my decision, the defender’s position that the Cepha
and Anord elements of the claim should be valued at nil is correct, then I would again have
enforced the remainder of the adjudicator’s decision, as it applies does to discrete issues. The
issue of severability is analysed in some detail by Lord Doherty in Dickie & Moore Ltd v The
Lauren McLeish Discretionary Trust, which I understand is currently the subject of a
reclaiming motion. I require to deal with the present case expeditiously and so it cannot
await the outcome of the reclaiming motion, but I would merely say that I endorse
Lord Doherty’s views and in particular the grounds for a flexible and pragmatic approach to
severability (para [46]) which in my opinion properly accords with the whole nature and
purposes of adjudication and the interests of justice. Applying that approach here, I would
have concluded that the core nucleus of the adjudicator’s decision could safely be enforced.
Issue 3: the adjudicator’s fees and expenses
[43] The defender’s contentions on this point were founded upon its position that the
adjudicator had failed to produce an enforceable decision. For the reasons I have given, I
have rejected that contention. I therefore conclude that the parties are jointly and severally
liable for the adjudicator’s fees.
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Conclusion
[44] For the reasons stated above, I conclude that the defender’s arguments that the
adjudicator’s decision is unenforceable fall to be rejected. I shall therefore sustain the
pursuer’s first, second and third pleas-in-law, repel the defender’s pleas-in-law and grant
decree in terms of the conclusions of the summons.