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Severance of Adjudicator’s Decisions – Beyond Jurisdiction and Natural Justice? Willow Corps S.A.R.L. v MTD Contractors Ltd. [2019] EWHC 1591 (TCC)

Severance of adjudicator’s awards has, at least up until now, been a judicial tool used only sparingly in relation to TCC enforcement proceedings...

…and then only where the court can find that discrete issues within the adjudicator’s decision that can be severed from the body of that decision because those issues are properly challenged on the basis of either a breach of natural justice or were outside of the jurisdiction conferred on the adjudicator.

In the view of Akenhead J. in Cantillon Ltd. V Urvasco Ltd [2008] EWHC 282 (TCC) – albeit obiter – was that the following principles could be applied to the severance of adjudicator’s decisions [63]:

“(a) The first step must be to ascertain what dispute or disputes has or have been referred to adjudication. Once needs to see whether in fact or in effect there is in substance only one dispute or two and what any such dispute comprises.

(b) ….

(c) If the decision properly addresses more than one dispute or difference, a successful jurisdictional challenge on that part of the decision which deals with one such dispute or difference will not undermine the validity and enforceability of that part of the decision which deals with the other(s).

(d) The same logic must apply to the case where there is a non-compliance with the rules of natural justice which only affects the disposal of one dispute or difference.

(e) There is a proviso to (c) and (d) above which is that, if the decision as drafted is simply not severable practice, for instance on the wording, or if the breach of the riles of natural justice is so severe or all-pervading that the remainder of the decision is tainted, the decision will not be enforce.

(f) In all cases where the is a decision on one dispute or difference, and the adjudicator acts, materially, in excess of jurisdiction or in breach of the rules of natural justice, the decision will not be enforced by the Court.”

It is clear that Akenhead J. considered that severance of discrete parts of an adjudicator’s decision was possible where that part could be clearly separated from the rest of the decision and the impugned part was either arrived at in breach of the rules of natural justice or was made outside of the jurisdiction of the adjudicator. The learned judge makes no mention of severing parts of the decision because they were thought to be wrong as a matter of law or fact, when that decision comes before the court for enforcement. To do so would seem to run entirely contrary to paragraph 23 of the Scheme for Construction Contracts and the TCC’s totemic judgment in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd [2000] BLR 522.

The ability to severe adjudicator’s decision based upon either natural justice and jurisdictional grounds has been applied by the TCC in cases such as Lidl UK GmbH v R G Carter Colchester Limited [20120 EWHC 3138 (TCC) and Working environments Ltd. v Greencoat Construction Ltd. [2012] EWHC 1039 (TCC). However, in neither case was it suggested that parts of the disputed decision could be severed because they were wrong either as matter of law of fact.

Turning then to the recent judgment of Pepperall J. in Willow Corps S.A.R.L. v MTD Contractors Ltd. [2019] EWHC 1591 (TCC) the judge posited that [74]:

“….It would….further the statutory aim of supporting the enforcement of adjudication decisions pending final resolution by litigation or arbitration if the TCC were rather more willing to order severance where one can clearly identify a core nucleus of the decision that can be safely enforced.”

Under cover of that statement the judge was seeking to justify a striking extension of the general principles to be applied to severance of adjudicator’s decision, which as noted above, have previously only been available in cases of breaches of natural justice or on jurisdictional grounds. What Pepperall J. had in mind was the use of severance where a discrete part of the adjudicator’s decision could be identified as wrong as a matter of law.

The issue in Willow Corps was whether the adjudicator had misconstrued the terms of the agreement when awarding MTD the sum of £1,174,854.92 (plus VAT and interest) but refusing to allow Willow Corps claim for liquidated damages in the sum for £715,000 [32] to [51], and further whether the conduct of the adjudication had been tainted by breaches of natural justice [52] to [66], so as to render it unenforceable.

The judge concluded that the adjudicator had erred as a matter of law in his construction of the agreement – and therefore had been wrong not to allow Willow Corp’s liquidated damages claim (which would have acted as a set-off against the sum awarded to MTD). The challenge to enforcement on the grounds of breach of natural justice was comprehensively dismissed.

Having come to those conclusions [67] the judge proceeded to consider whether the adjudicator’s decision could be saved in part by being severed – and if so how? His decision was as follows:

“In this case I am satisfied that the effect of the error of law on the issue of contractual construction was limited to Mr Molloy’s dismissal of the claim for liquidated damages and that such error did not infect the balance of the decision. I therefore consider that the good can and should be severed from the bad. The value of the claim for liquidated damages was £715,000. Accordingly, I can enforce the balance of the decision.”

Whilst this approach to severance might appear fair in the circumstances of the case, it does appear to have significantly widened the previous scope of its application (which was limited to jurisdiction and natural justice) and, of course, ‘fairness’ has never really been the guiding principle in UK adjudications. The correctness of decisions being sacrificed on the altar of speedy attainment of both decision and enforcement, Macob Civil Engineering ltd. v Morrison Construction Ltd. [1999] BLR 93. The aggrieved party having to fall back on its right to challenge the decision enshrined by s.108(3) of the HGCRA 1996.

The difficulty with adopting the learned judge’s suggestion of the court taking a more liberal approach to severance is that it will invite the parsing of decisions to see if there are grounds to challenge discretely identifiable elements, that a party considers it to be wrong either on the law or the facts and then argue that element should be severed on enforcement: potentially allowing decisions to be pulled apart bit-by-bit. Whilst Coulson J. (as he then was) in Pilon Ltd. v Breyer Group plc [2010] EWHC 837 (TCC) cautioned against combing through decisions to find natural justice and jurisdictional attacks (describing such an approach as “wholly illegitimate” [20]), those issues genuinely arise only infrequently on enforcement. However, almost every adjudication leaves one party believing that the adjudicator has made errors of law or fact that might (at least in part) be ameliorated by severance of the offending elements. The temptation to run such arguments in enforcement proceedings may well prove irresistible.

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