When can an adjudication decision be severed if an Adjudicator has made a mistake?

The Technology and Construction Court (TCC) declared how the requirements for practical completion can be effected by a supplemental agreement and when an Adjudicator’s decision can be severed; dismissing allegations of breaches to natural justice, including the question of whether tight timescales during the adjudication process were unacceptable.

Background

MTD is a building contractor who engaged with Willow, a limited company incorporated in Luxembourg, entering into a contract in September 2015 at a price of £33,500,000 to design and build a new hotel in Shoreditch.

MTD asserted claims for loss as well as unexcepted costs due to delays to the project and the parties came to an agreement on 21 June 2017 in respect of these claims, implementing a revised Practical Completion date of 28 July 2017 (the “June Agreement”).

Practical Completion did not occur on the revised date agreed; instead completion was 31 October 2017, resulting in the parties disputing the payment due.

The matter went to adjudication and it was concluded that despite delays in completion, Willow were not entitled to £715,000 liquidated damages, which they attempted to claim for the further delays between the July deadline and completion in October. The adjudicator’s interpretation was that, in the June Agreement, liquidated damages were precluded if practical completion was achieved. The June Agreement deemed that practical completion had occurred, even if there were still works to be completed, as long as there was a list detailing the works to be finalised and that this list was provided in writing. A list was provided and therefore liquidated damages based on the adjudicator’s interpretation of the June Agreement were said to be excluded.  The adjudicator subsequently awarded MTD £1,174,854.92.

Willow refused to pay the amount awarded to MTD and instead issued a Part 8 Court Claim for declaratory relief to make the adjudication decision unenforceable for the following reasons:-

1. the construction of the June Agreement;
2. practical completion had not been achieved by 28 July 2017;
3. the adjudicator’s rejection of damages was ‘legally unenforceable’; and
4. the adjudication decision was unenforceable in any event due to a breach of natural justice.

Willow argued that the adjudicator’s interpretation gave MTD the opportunity to take the contract sum, as long as they provided a list of the works outstanding.

It was also considered whether the time pressures had prevented the adjudicator from conducting a fair review of the case and addressing a number of issues and evidence.

MTD resisted the claim for declaratory relief and applied for summary judgment shortly after to enforce the adjudication award.

Decision

Practical completion : The judge agreed with Willow that there had been an error in law. The June Agreement did preclude liquidated damages if the outstanding works detailed in the list were completed in line with the schedule and in the event that practical completion had been achieved by 28 July 2017. Accordingly, Willow would still be entitled to liquidated damages if those obligations in the June Agreement were not completed – this would have amounted to damages due in default of completion.

It should be remembered that the overall purpose of the June Agreement was to extend the date for practical completion, allowing a further time period to complete the works and settle the parties’ financial liabilities; therefore if MTD could simply create a list and it had been deemed that practical completion had occurred, this would defeat the object as to why the June Agreement was revised.  The revisions were not to allow MTD to simply walk away in July, potentially leaving some of the works incomplete.

Natural Justice : HHJ Pepperall disagreed that the adjudication was unenforceable; it is in the general nature of adjudication that there will be time pressures and the court was not satisfied that Willow or the adjudicator did not have sufficient time to review the details of the case.

Severance: Previous case law states that “where, in a case of the referral of a single dispute 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. However, failing this the entire decision will be unenforceable”

Willow failed on their natural justice challenge, but due to the adjudicator’s interpretation of the practical completion clause which was later considered to have been in error, HHJ Pepperall had to determine whether it was possible to sever the adjudicator’s decision.

Applying the reasoning from previous case law, it was held that an adjudicator’s error in law in this scenario did provide a distinct separation, which did not undermine the rest of the adjudicator’s decision. On review, it was decided that the claim for liquidated damages could be enforced, as the point was confined due its ability to be severed from the rest of the adjudication decision.

Conclusion

This case brings out some interesting points. However, perhaps the most important point to take from this is that an adjudicator’s decision can be severed provided the mistake is a self-contained part of the outcome and does not have an effect on the remainder of the decision if removed. The court in Willow v MTD were satisfied the adjudicator’s error was limited to his dismissal of the claim for liquidated damages; this part was severed and the remainder of the decision enforced.

Article submitted by Mark James, partner in the Real Estate group at law firm Coffin Mew

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