Scottish Appeal Court upholds landmark decision on severance in Scottish adjudications

In an earlier insight in November 2019, I highlighted what I described then as ‘a landmark decision on severance in Scottish adjudications’.

The decision was one at first instance by Lord Doherty in the Commercial Court of the Court of Session. In that case, while the judge found that an adjudicator had purported to decide certain matters which were outwith his jurisdiction (because a dispute in respect of them had not crystallised at the time of the Notice of Adjudication), the adjudicator had decided certain other matters in dispute which did fall within his jurisdiction and his decision on those other matters was enforced by the Court despite opposition and arguments from the losing party in the adjudication. After a detailed analysis in that case, the judge decided that the adjudicator’s reasoning on those other matters was not tainted by his reasoning on the matters which fell outside his jurisdiction.

In essence, the judge took the view that the ‘good’ parts of the adjudicator’s award (those within his jurisdiction) could be safely severed from the ‘bad’ parts (those outwith his jurisdiction). The judge’s approach resulted in a significant payment being due to the contractor by the employer.

At the end of the previous insight, I commented that the approach of the learned judge ‘had 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… Watch this space.’

Well, the employer did appeal. The employer maintained the arguments set out in my previous insight and the decision of the Scottish Appeal Court was issued this week (30 June 2020). The Appeal Court held that the Commercial Court judge was correct ‘both in his conclusions and his reasoning’.

The Appeal Court rejected a submission for the employer that the Commercial Court judge had given too much weight to policy-related considerations behind the 1996 Act and the Scheme. Those considerations are very important. The Appeal Court said:

‘… The fundamental point is that the procedures used are intended to be simple, straightforward and immediately effective. Those considerations should in our view guide the approach to the interpretation of the Scheme’.

The Appeal Court, in essence, rejected the ‘one dispute/one award’ argument for the employer as overly simplistic and went on to say:

‘In relation to an adjudicator’s award that is partially valid and partially invalid, the valid part should in our opinion be enforced if it 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 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 part’.

The Appeal Court then sets out detailed guidance on how that matter should be approached in Scotland.

The Appeal Court indicated that the approach and the reasoning could be supported going all the way back to a decision of the late Lord Macfadyen in one of the earliest Scottish cases on adjudication, Homer Burgess. While that approach had not been followed, expressly, in certain early English cases dealing with severance where the concept was rejected e.g. Ramsey J in Cleveland Bridge, more recent authority in England seems to support severance being available in certain circumstances.

What, then, should be taken from this decision of the Scottish Appeal Court?

Stated briefly, severance of part(s) of an adjudicator’s award will be possible in Scotland and the courts will enforce the valid parts of an adjudicator’s award unless those parts are significantly tainted by the adjudicator’s reasoning in relation to the invalid parts of the award.

The Appeal Court’s decision clarifies the law in Scotland. Given that the 1996 Act applies UK-wide and the separate statutory Schemes for Scotland/England and Wales are very similar, this Scottish Appeal Court decision is also likely to be referred to in enforcement proceedings south of the border in relation to English and Welsh adjudications.

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