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Successful use of Part 8 leads to adjudicator’s decision being severed

We don’t often see adjudicators’ decisions severed. Therefore, it came as a bit of a surprise to get to the end of Carr J’s judgment in Stellite v Vascroft and find that not only did she sever those parts of the adjudicator’s decision she held to be made in excess of jurisdiction, the parties had agreed to this somewhat pragmatic course or, in judicial parlance, it was “common ground” that the decision could be severed. (In case you missed it, it is tucked away in paragraph 89.)

Aside from the severance point, I also thought the arguments on jurisdiction were interesting, especially as the approach adopted allowed the “good” parts of the adjudicator’s decision to survive a natural justice challenge.

Stellite v Vascroft

This case was all about Stellite’s claim for £1.064 million in liquidated damages due to delays to the works Vascroft was undertaking at Heath Park, a “substantial house” in Hampstead, London.

The parties’ contract for the shell and core works (the phase 1 works) was priced at £5.070 million and it incorporated the terms of the JCT Standard Building Contract Without Quantities, 2011 Edition (SBC/XQ 2011). The works were due to start in early 2014 and complete on 20 October 2014. Liquidated damages were stated to be £23,000 per week.

The judgment doesn’t explain why the:

  • Phase 1 works didn’t complete as planned, only that the contract administrator served a non-completion certificate on 20 October 2014.
  • Fit out works (the phase 2 works) were instructed under a letter of intent dated 3 August 2015, which Vascroft signed. (The parties did not enter into a further contract for the phase 2 works, and the letter of intent expired in November 2015.)

Presumably Vascroft carried out some part of the phase 2 works (although it is unclear when), since it valued them at over £500,000 and argued that the instruction to carry them out prevented the contract administrator from operating the extension of time provisions in the parties’ contract for the phase 1 works. Instead, that breakdown of the contractual mechanism had put time  “at large”.

When Stellite referred its liquidated damages claim to adjudication, the adjudicator agreed with Vascroft. In a decision dated 17 January 2016, he decided that, because time was at large, no liquidated damages were payable. In addition, he went on to decide that a reasonable completion date was no later than 5 March 2016.

At this point, Stellite applied for declaratory relief from the TCC, arguing that the adjudicator had:

Time “at large” and prevention principle

We all know that building contracts generally contain provisions for completion of the works by a certain date, and provisions allowing that date to be extended. Similarly, delays are common in construction projects. More often than not, the debate is around who’s fault the delay is. If the employer is at fault and the contract does not make provision for that delay, the original completion date falls away and time is put “at large” (as Vascroft argued here). Time at large results from the application of the “prevention principle”, which provides that no party may require the other to comply with a contractual obligation in circumstances where that party has itself prevented such compliance (Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd).

Did the adjudicator breach rules of natural justice?

It seems that the parties’ focus in the adjudication was on the contract’s extension of time provisions and arguments about time being “at large”. In the declaratory relief proceedings, it was on whether the adjudicator had “fairly canvassed” with the parties his proposed findings about time being at large. (The adjudicator decided that the certificate of non-completion was valid, but that clause 2.29 of the contract did not permit the employer to grant an extension of time for the issue of the letter of intent and carrying out the phase 2 works.)

Carr J noted that the issue of whether time was at large was:

“…obviously in play between the parties and canvassed fully by them.”

The adjudicator seemed to have grasped the parties’ arguments and had understood Jackson J’s judgment in Multiplex v Honeywell, which he placed reliance on. The judge said this was:

“…not a case where the Adjudicator was relying on a new authority or line of authorities, let alone some external information, fact or expertise, or some expertise peculiar to himself, which he did not share with the parties. Rather he was applying ventilated law to the material before him in circumstances where, as he put it, the parties had, to their common knowledge and understanding, approached the issues on the facts from ‘slightly different angles’.”

She went on:

“…the Adjudicator clearly understood the materials before him in a way which allowed him, in his view proceeding fairly and properly, to each the conclusions that he did.”

So, one nil to Vascroft at this point.

Did the adjudicator exceed his jurisdiction?

However, the adjudicator did not fare so well when it came to what he thought was a reasonable completion date. As the judge put it:

“The Adjudicator’s reasoning may have been the logical next step, given his finding that time was at large. But it is clear in my judgment that in proceeding to consider the issue, he exceeded his jurisdiction.”

Put simply, the parties had not asked him to decide this point and he shouldn’t have done so.

I thought the judge’s next comment was very interesting, and one to take away from this case when you are considering whether jurisdiction has been exceeded:

“It is important not to confuse the fact that the Adjudicator may have had material with which to decide an issue with having the jurisdiction to resolve it. The two are not the same.”

As I said at the beginning, this was an interesting case, especially as the approach adopted allowed the “good” parts of the adjudicator’s decision to survive a natural justice challenge. I think that if a party is looking at what the adjudicator did, and wondering how much of the decision may survive a challenge on enforcement, it will always be easier for a court to sever those parts of the decision that were made in excess of jurisdiction, rather than those parts that resulted from a breach of the rules of natural justice. After all, going on to do something you didn’t have jurisdiction to do may not taint the remainder of a decision in the same way as reaching a decision in breach of natural justice might. Using a Part 8 application to achieve this also seems a sensible course to adopt, as the end result is a court’s declaration and a binding adjudicator’s decision, all rolled in to one.

 

MCMS Ltd Matt Molloy

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