Adjudication – Decision – Severability – Dispute arising between parties concerning payment for construction works – Parties referring payment dispute to adjudication – Adjudicator determining sum due to defendant contractor – Claimant employer seeking declaration that adjudicator’s decision unenforceable by reason of his failure to address cross-claim – Claimant claiming adjudicator’s computation binding in relation to gross value of sum due – Whether adjudicator’s failure to address cross-claim amounting to breach of natural justice – Whether decision severable and enforceable in part – Claim allowed
The claimant employer engaged the defendant contractor to perform construction works on the terms of the standard JCT Design and Build Contract (2011 edition) in connection with the development of land at 1A Downs Road, London E5. The works involved the demolition of existing buildings and the construction of four buildings containing a total of 79 residential units and associated works. The original contract sum was £27,390,000.
Under a periodic payments regime, the defendant issued interim applications to the claimant for payment. A dispute arose concerning the operation of the regime, which led to a reference to adjudication. The adjudicator’s decision determined the sum due in respect of interim application 34.
The claimant cross-claimed for losses allegedly suffered owing to the defendant’s breach of contract as to the positioning of the capping beam, which it said had not been designed or built in accordance with the contract. The adjudicator determined the sum due to the defendant but decided that he lacked jurisdiction to rule upon the claimant’s cross-claim. Accordingly, he took no account of it in determining the amount due.
The claimant commenced Part 8 proceedings challenging the enforceability of the decision, contending that it involved two separate issues: (i) the sum due in respect of interim application 34, which was binding; and (ii) the extent of the set-off available to the claimant against that sum which was not enforceable as there was a breach of natural justice because of the adjudicator’s failure to address the claimant’s defence.
The defendant contended that the decision was enforceable in its entirety, but that if it was not then there was a single dispute before the adjudicator so that the decision was not severable and fell in its entirety.
Held: The claim was allowed.
(1) The adjudicator had taken an unduly narrow view of his jurisdiction. The exercise in which he was engaged was to address the sum due in a particular payment cycle. He set out a conclusion as to the correct figure and stated that interest was payable on the outstanding balance. The adjudicator declined to address a defence which the claimant was entitled to advance and entitled to have considered. He thereby failed to that extent to answer the question before him.
The question then was whether the adjudicator’s decision was vitiated by a breach of the requirements of natural justice. The test to be applied was that a deliberate failure to address a material issue which was before the adjudicator, on a proper view of his jurisdiction, would be a breach of natural justice. An issue would be material for those purposes if it was shown to have had the potential to make a significant impact on the overall outcome of the adjudication: Pilon Ltd v Breyer Group Plc [2010] EWHC 837 (TCC); [2010] BLR 452 applied.
In the present case, there was a material failure. Although not the major part of the claimant’s case, the capping beam claim was far from trivial. Its materiality was demonstrated by the fact that acceptance of it would have made the difference as to whether there was a balance due to the defendant or not. It followed that there was a material breach of the requirements of natural justice because the adjudicator deliberately decided not to address a line of defence in respect of which he had jurisdiction and which could determine the state of the balance that lay between the claimant and the defendant.
(2) Severance was potentially available in cases where it would lead to enforcement of a particular part of the decision which had been a stage in the process prior to the ultimate decision. But particular care would be needed to determine whether the part in question could safely be enforced separately from the decision as a whole and whether the decision on the part had been tainted by failings affecting the overall decision. The court also had to guard against creating an artificial outcome which could not have been the result of a proper decision by the adjudicator. It would need to consider whether the adjudication was properly to be seen as containing a series of decisions independent of each other or being a single decision resulting from a connected chain of reasoning.
The test could not be solely whether the adjudicator was dealing with single or multiple disputes but, where an adjudicator was dealing with a single dispute, the latter analysis of the decision was more likely to be correct. Where there was such a single decision, severance was unlikely to be appropriate even where the stages in the chain of reasoning leading to the adjudicator’s conclusion were set out and logically distinct. Severance in those circumstances was unlikely to be appropriate because it would involve an artificial division of a continuous chain of reasoning and would create the risk of imposing on the parties an outcome which could not have resulted from the adjudication. That was particularly so where the conclusion in respect of that part of which separate enforcement was sought favoured the party who was unsuccessful on the ultimate issue: Willow Corp SARL v MTD Contractors Ltd (2019) 185 Con LR 97 applied.
(3) In this case, the adjudication concerned a single issue, namely, the amount payable to the defendant in the light of interim application 34 and the exchanges which followed. The stages in the adjudicator’s reasoning were properly to be seen as part of the process leading to a single conclusion rather than a series of separate and freestanding decisions with each being intended to be binding in its own right. It would be artificial and inappropriate for the court to stop at any particular point in the chain of reasoning and conclude that the decision was binding up to that stage but not as to the stages which followed.
The claimant had succeeded in showing that the adjudicator’s ultimate conclusion on the single dispute he was addressing was not enforceable and it could not be said that there was anything remaining which could be safely enforced. It followed that there was no part of the decision which could be severed and which was binding on the parties.
Luke Wygas (instructed by Nicholas & Co Solicitors Ltd) appeared for the claimant; Justin Mort QC (instructed by Edwin Coe LLP) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Downs Road Development LLP v Laxmanbhai Construction (UK) Ltd
