Landmark decision on severance in Scottish adjudications

On 8 November 2019, Lord Doherty issued a landmark adjudication decision in Dickie & Moore Limited v The Trustees of the Lauren McLeish Discretionary Trust - it is the decision we have all been waiting for. It reveals the correct approach in Scotland on whether some parts of an adjudicator’s decision will be enforced where the adjudicator had jurisdiction to decide some of the matters referred to him - but is also found not to have had jurisdiction to decide other matters he purported to decide.

Background

In an earlier decision on 12 September 2019, Lord Doherty issued a robust decision rejecting a number of grounds upon which the Respondents contended that the adjudicator’s decision against them ought not to be enforced.

While the majority of the Respondents’ arguments were rejected by the Court, they were successful in arguing that the matters of extension of time and loss and expense which the adjudicator decided had not been validly referred to adjudication because there had been no proper crystallised dispute on those matters at the time of referral of the dispute to adjudication. At the end of his first decision, however, the Judge left the door open to hear arguments on severance, the process under which the Court may, in certain circumstances, be prepared to sever and enforce some elements of an adjudicator’s decision while refusing to enforce others.

The Arguments

The Respondents argued, in essence, that a single dispute had been referred to adjudication. The adjudicator had not had jurisdiction to determine that single dispute because part of it had not crystallised. The logical consequence was that the single dispute had not crystallised and the adjudicator had not had jurisdiction to determine any of it.

Further, on a proper construction of the contract between them, the parties had contracted to be bound by “the decision” of the adjudicator. They had not agreed to be bound by part of the decision where the adjudicator had lacked jurisdiction in relation to part of it. This was an adjudication under the Scheme for Construction Contracts (Scotland) Regulations 1998. An adjudication under the Scheme anticipated only one decision. Accordingly, the adjudicator’s decision should be reduced in its entirety and no part of it enforced by the Court.

The Respondents also argued that there were no parts of the adjudicator’s decision where it could be said that it was clear and obvious that the reasoning had been untainted by the adjudicator’s decision on extension of time and related loss and expense. The Respondents argued that parts of the decision suggested that there may be some link between the sum awarded for work done and the extension of time and loss and expense the adjudicator awarded.

The Decision

After a careful consideration of all the relevant authorities, the Judge refused to follow the approach in certain early cases and agreed with the approach taken on severance in the more recent cases from England and Wales.

The Judge considered that something which may be a “dispute” in terms of the Scheme and which may be referred to an adjudicator as such, may on analysis fall to be treated as more than one dispute when it comes to determining whether severance is possible. One dispute could comprise a number of elements. In this case the claim set out in the Notice of Adjudication included a claim for extension of time and loss and expense which had not crystallised. The adjudicator was entitled to adjudicate on the parts of the dispute which had crystallised. He was not entitled to adjudicate on the parts which had not crystallised, but he had done so, mistakenly. His decision on the dispute which had crystallised should be enforced insofar as it is clear it is not tainted by his decision and reasoning concerning parts which had not crystallised as part of the dispute.

The Judge disagreed with some earlier authorities.

He considered that the preferable interpretation of the relevant paragraph of the Scheme was that the “decision” which binds parties is the decision in its entirety where all of it is a valid decision, or such part of it as was valid and severable where part of the decision is affected by invalidity. The Judge considered that interpretation is more in keeping with, and serves better to advance, the policy aims of the payment and adjudication provisions in the 1996 Act and the Scheme produced under it (as amended).

The rationale underlying the general principle that severance will not be available in a single dispute adjudication is that in such cases it may be more difficult to show that the reasoning in the invalid part of the decision had no impact on the other parts of the decision. If it is possible, however, to show that there was no such impact then the valid part may safely be severed and enforced.

The Judge was not prepared to see a situation develop where it might be more difficult to sever awards in appropriate cases in Scotland than it is in similar cases south of the border.

The practical effect of the Judge’s decision was that after deducting the monies awarded which were relevant to extension of time and loss and expense, the Court was prepared to enforce the remainder of the decision which meant a substantial payment was due to the Contractor.

What are the implications of this case?

An interesting aspect of this case was that a Final Certificate had been issued reflecting the Respondents’ view of the lesser amount they considered was due to the Claimant. As the Judge indicated, it was common ground between the parties that a further adjudication would not be possible if the award was reduced because there would not have been a valid reference to adjudication within 60 days of the Final Certificate with the result that the Certificate would have the finality provided for by the Contract Conditions. This may have been very much to the forefront of the Judge’s mind in reaching the decision that he did. That said, however, the Judge refused to follow some older authority which appeared to indicate that severance would not be permissible where one dispute had been referred to adjudication. Accordingly, his decision is reached on reasoned legal principles, not due to any sympathy for the Claimant because of the Final Certificate position.

While it may be argued by some that different considerations could come in to play in the more common cases which deal with interim payments and there is an ability to refer the dispute after all aspects of it have crystallised, it is considered that the approach of the learned Judge has much to commend it, not least because it clearly and more readily achieves the aims of the payment and adjudication provisions of the 1996 Act and the Scheme (as amended).

It remains to be seen whether the Respondents will seek to appeal this decision and the Judge’s earlier decision on the Respondents’ other arguments against enforcement. Watch this space!

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