Practical Law

Akenhead J first suggested the possibility of severing an adjudicator’s decision in Cantillon v Urvasco back in 2008. However, while severance was also discussed by the TCC later that year in Quartzelec v Honeywell Control Systems, it wasn’t until earlier this year in Working Environments v Greencoat Construction that an adjudicator’s decision was actually severed. Since then, severance has rather taken off, and the latest offering is in Lidl UK GmbH v R G Carter.

Mark and Thomasina

I’m going to consider this case in the style of the late D. Mark Cato. Mark, who sadly passed away last week, will be known to many of you as an arbitrator and author of Arbitration Practice and Procedure. It is an excellent book that sets out numerous interlocutory and hearing problems, together with Mark’s suggested course of action.

Mark is assisted in the book by his imaginary pupil, Thomasina, who questions what he does and, as Mark so eloquently puts it:

“…stands in the shoes of all of us who would therefore like to ask ‘what if’, but perhaps feel that, either we should know the answer and therefore should not be asking, or we are reticent about putting that question to the person to whom we are talking”.

Lidl v Carter

Briefly, there had been two adjudications concerning practical completion of sections, liquidated damages and so on. In the second adjudication, the adjudicator awarded, among other things, liquidated damages (LDs) to Lidl.

Lidl commenced enforcement proceedings and Carter argued that the adjudicator’s decision should not be enforced for various reasons, including that he had exceeded his jurisdiction by deciding matters not referred to him, specifically the award of £125,000 of the LDs. Lidl accepted that the adjudicator had exceeded his jurisdiction by awarding LDs, but submitted that this could be severed from the remainder of the decision. Edwards-Stuart J agreed with Lidl and severed the LDs from the decision, meaning that the remaining part of the decision was enforced.

Thomasina: what do you think about the severance?

In my view, Edwards-Stuart J’s judgment has expanded this area of adjudication law.

In the previous cases where an adjudicator’s decision has been severed, the court held that the adjudicator made decisions on distinctly separate disputes that were not within his jurisdiction, and therefore the findings on the separate disputes were severed. However, in Lidl v Carter the award of LDs does not appear to have been a separate dispute, but part of the essential dispute referred.

Edwards-Stuart J recognised that there is a “general principle that a decision cannot be severed where only one dispute or difference has been referred” (paragraph 61, judgment). However, he went on to say that where:

“additional questions are brought in and adjudicated upon, whether by oversight or error, there should be no reason in principle why any decision on those additional questions should not be severed provided that the reasoning giving rise to it does not form an integral part of the decision as a whole”.

Thomasina: what happens to the adjudicator’s fees if his decision is severed? Will these be severed as well?

That is a good question. The adjudicator’s fees aren’t mentioned in the judgment, so I’m guessing one of the parties had already paid them. Consequently, the matter might be academic, but it’s certainly worth discussing.

It’s arguable that, unlike in PC Harrington v Systech International, the parties ultimately ended up with an enforceable decision. Therefore, why should the adjudicator’s fees be reduced?

However, as part of the decision was unenforceable, based on PC Harrington v Systech, it is arguable that the adjudicator should not be paid for reaching that part of his decision. How one would go about severing the adjudicator’s fees in the absence of detailed time records is another matter though.

The adjudicator’s entitlement to full payment may also turn on when the issue of excess jurisdiction arose. For example, the parties may have become aware of the jurisdictional issue during the adjudication. If one or other had reserved their positions, but they had continued to make submissions (as so often happens in adjudications), I am in no doubt that the adjudicator would be entitled to full payment of his fees regardless of the severance. Some of you might question this is light of PC Harrington v Systech, but I think this case actually supports my proposition.

In PC Harrington v Systech, the Master of the Rolls expressly stated that he agreed entirely with the reasons of Davis LJ, who said:

“As to the special situation arising in an adjudication where one of the parties raises a challenge on jurisdiction before a decision is reached and then, having received the adjudicator’s ruling on jurisdiction, elects that the adjudicator should proceed to a decision, that situation is in my view correctly addressed by Ramsey J at paragraphs 76 to 79 of his judgment in Linnett v Halliwells LLP. The adjudicator’s fees are then – subject of course to any express terms agreed – payable even if the Court subsequently were to declare the initial challenge to the jurisdiction to have been well-founded.” (Paragraph 44, judgment.)

So, I think that all the articles published recently that basically conclude that an adjudicator will not be entitled to his fees for producing an unenforceable decision have over-extended the reach of PC Harrington v Systech. The case is really only relevant where the issue of jurisdiction or natural justice:

• Arises during the adjudication and, if the adjudicator decides not to resign, the party making the challenge does not take part in the remainder of the adjudication.
• Does not become apparent until after the decision is published.

Thomasina: what will be the impact of Lidl v Carter?

I think Lidl v Carter has lowered the bar for parties attempting to sever decisions, and this is likely to lead to an increase in adjudicator’s decisions being severed by the courts. However, I don’t necessarily think this is a bad thing because it must be preferable to the parties (and the adjudicator) to a finding that the entire decision is unenforceable.