To sever, or not to sever, that is the question

Sarah Alexander

By Sarah Alexander, senior associate, Dentons

WE are all familiar with the court’s approach to enforcement of adjudicators’ decisions – it will only refuse to enforce in very limited circumstances.

In the case of Field Systems Designs Limited v. MW High Tech Projects UK Limited, Lord Clark recently had to consider whether possible failure by the adjudicator to consider an argument would render the decision unenforceable, or whether the affected part of the decision could be severed and the remainder enforced.

In November 2015, Field Systems entered into an agreement with MW for the design and construction of electrical, control and instrumentation works at a waste plant. A number of disputes arose between the parties, which led to the entering into of a supplemental agreement. That supplemental agreement (SA) documented the parties’ agreement on the value of the works to 3 December 2017. The SA also set out that any remaining works carried out would be valued on the basis of schedule 19 to the original agreement, as varied by the SA. That schedule set out a method for valuing works based on: (i) a schedule of rates (for all staff and direct labour); or (ii) on a cost-plus basis (applying to supplies and services from third parties).

In the summer of 2019, the parties were £1,075,328.35 apart on the value of the works. Field Systems commenced an adjudication, referring 25 issues to the adjudicator for consideration. Two of the issues related to valuation of works carried out by Cepha and Anord. At a hearing held during the adjudication (after the main written submissions had been made), MW asserted for the first time that the Cepha and Anord works should be valued on a cost-plus basis as they were sub-contractors. Up until that point, both parties had utilised the schedule of rates to value those works. The only dispute between the parties in relation to these works had been regarding £25,498.35 in deductions made by MW due to insufficient supporting material.

The adjudicator asked for submissions on this new argument, which the parties provided. MW’s position was that the Cepha and Anord works should now, in fact, be valued at nil.

In the adjudicator’s decision, he listed all of the submissions he had received during the adjudication, including those on the new argument. The adjudicator also confirmed that:

“This Decision is a summary of the Parties’ arguments and for the sake of brevity although I have been unable to refer to each and every detail thereto I have nonetheless carefully considered all documents and submissions provided to me in reaching my Decision.”

The adjudicator’s decision on the Cepha and Anord works favoured Field Systems’ valuation, rejecting MW’s position that deductions ought to be made, but made no reference to MW’s new argument. MW therefore sought to resist enforcement of the adjudicator’s decision on the basis that the adjudicator had failed to consider its new argument and/or on the basis that the adjudicator had failed to provide any/proper reasons for his decision.

Lord Clark noted that there were a number of points which supported both parties’ arguments as to whether or not the argument had been considered. Although the point was very finely balanced, Lord Clark concluded that consideration of the argument was “at least to some extent implicit in the findings that the adjudicator made”. The question was then whether or not the adjudicator had provided any/proper reasons for the finding he had made on this point.

Lord Clark found that the adjudicator had not provided proper reasons for his decision. However, the courts have been clear that any failure to give reasons would only prevent enforcement of a decision if it related to a material line of defence. MW submitted that the point was material, in that if the adjudicator sided with it, then the valuation of the works would be reduced by £890,000.

Lord Clark was not convinced that, in reality, this represented a material line of defence. He noted that MW switched its approach on valuation of the Cepha and Anord works at the last furlong in the adjudication, and the submission “was somewhat opportunistic and made with no real supporting evidence”. Lord Clark was of the view that the submission by MW did not provide any proper substance or basis upon which the adjudicator could undo MW’s own earlier certification of the value of the works.

With that in mind, even if there had been an inadvertent failure by the adjudicator to consider the submission, and a failure to give reasons, Lord Clark was not persuaded that the line of defence was material.

The decision was therefore enforceable.

As a result, Lord Clark was not required to consider the question of whether or not the decision could be severed.

However, he confirmed that if he had to answer the question, he would have concluded that the part of the adjudicator’s decision dealing with the Cepha and Anord works could be severed and the remainder enforced. On that front, Lord Clark endorsed the views of Lord Doherty in the recent case of Dickie & Moore Ltd v. The Lauren McLeish Discretionary Trust in regards to a flexible and pragmatic approach to severability.

The question of severability of adjudicators’ decisions has been the subject of a number of decisions in the Scottish courts over recent years. Although the generally accepted approach has been for an adjudicator’s whole decision to stand or fall, there seems to be a new trend arising from the courts in relation to severability.

It is acknowledged that the Dickie & Moore case is the subject of a reclaiming motion, and that the comments of Lord Clark in this case were said in obiter, but it seems that taking a practical approach to enforcement and severability aligns better with Parliament’s intention behind adjudication – to ensure cash flow and to allow for speedy determination of construction disputes.