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Cut! A guide to severing adjudicators’ decisions

Dickie v McLeish has come before the Scottish courts again on the issue of severing an adjudicator’s decision. The Inner House’s judgment is a helpful one stop shop for those considering the question of severance in respect of enforcing an adjudicator’s decision in both Scotland and England and Wales. 

Background and earlier decisions

This issue of severance first arose because the adjudicator was found to have exceeded his jurisdiction by deciding issues where the dispute had not yet crystallised. The adjudicator made a number of findings on the final account dispute referred to him, on matters such as:

  • The contractor’s entitlement to payment of monies and interest.
  • An extension of time and associated loss and expense claim, as well as the amount of liquidated damages payable.
  • Whether the employer had made wrongful or excessive deductions.

Those elements of the dispute relating to the contractor’s extension of time and loss and expense claims were found to be of a “different nature and order of magnitude to the previous disagreements”, which had previously been raised in respect of these issues. Therefore, Lord Doherty in the Outer House found that this part of the dispute had not crystallised, and those parts of the adjudicator’s decision were unenforceable.

When the question of enforceability of the adjudicator’s decision came before the court, the Outer House (Lord Doherty again) found that the “core nucleus” of the decision could safely be enforced, with those non-enforceable elements of the adjudicator’s decision being “severed”.

The appeal and decision

The employer challenged this decision on a number of grounds, including that the Outer House had wrongfully adopted a policy driven approach in its findings on severance, and that severance should be rejected in a “single dispute” adjudication.

On appeal, Lord Drummond Young in the Inner House wholly endorsed the Outer House’s decision and provided full reasons for doing so.

Policy and intent of the Act and the Scheme

The first point the court considered was the employer’s claim that the Outer House had erroneously adopted a policy driven approach, rather than following established authorities.

The court rejected this ground of appeal, finding that while the wording of the Scheme for Construction Contracts 1998 and the Construction Act 1996 must be applied, policy considerations – the context in which they operate and the purposes they seek to achieve – are important when determining how they apply.

Among other things, the Act and the Scheme were aimed at addressing cash flow issues that contractors and sub-contractors were experiencing in the supply chain prior to 1996 (and before the Latham Report). Due to the prevalence of elaborate sub-contracting structures in the construction industry, late payment is a particularly serious concern. These issues are still relevant today. On that basis, if any sums are found to be due to contractors or sub-contractors, payment of these sums should be enforceable without lengthy delay. The parties’ protection against adjudicators’ erroneous findings (in respect of payment or otherwise) is that their decisions can always be finally determined by legal proceedings or arbitration.

The court considered that the key point is that the procedures provided by the Scheme should be “straightforward and immediately effective”. Where an adjudicator’s decision is partially valid and partially invalid, the valid part should be enforced if realistically practicable and not “tainted” by the adjudicator’s reasoning in relation to the invalid parts.

The court also noted that the “established” authorities on the question of severance were inconsistent in their approach, with such inconsistency being best resolved by having regard to the underlying purpose and policy of the Scheme.

Single dispute

The next point the court turned to is to what extent an adjudicator’s decision may be enforced when the adjudicator has acted outside his jurisdiction in respect of part of the total claim. The employer claimed that the dispute referred by the contractor in this case was a single dispute and parts of the adjudicator’s decision in respect of the dispute could not be severed. The employer argued that the whole of the adjudication process was a nullity on the basis that “the adjudicator lacked jurisdiction to determine the single dispute referred to him”.

In considering this point, the court highlighted that there has been a trend in the courts to adopt a flexible, practical approach to severance. The court considered an impressive breadth and depth of case law in relation to the developing position on severance, ending with the recent decision in Willow Corp SARL v MTD Constructors Ltd. While accepting that significant breaches of natural justice by an adjudicator put any decision at greater risk of “infection”, the court said that it was not a question of whether it was a “single dispute” adjudication or not. Rather, as Lord Doherty had said in the Outer House, it was a question of whether there was a “core nucleus of the decision that can safely be enforced”.

Guidance going forward

The Inner House’s decision is a ringing endorsement for the potential severance of parts of an adjudicator’s decision where a core nucleus can still be enforced. While the preference, of course, remains to have an entire enforceable decision, Lord Drummond Young’s findings will provide some comfort that the courts are continuing to take a flexible, practical approach to ensure the enforcement of adjudicators’ decisions wherever possible.

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