Ambush tactics and severability in adjudication

A recent case before the Scottish Court of Session has raised the extent to which new items of claim included within an adjudication will affect an adjudicator’s jurisdiction. The case also considers the extent to which adjudicator’s decisions can be severed in such circumstances. In upholding a jurisdictional objection in relation to these new items of claim, the case helps to identify the limits of ambush tactics, but is tempered by the court’s broad approach to severance in allowing partial enforcement of the adjudicator’s decision.

Dickie & Moore Ltd v the Trustees of The Lauren McLeish Discretionary Trust

Dickie & Moore Ltd (“D&M”) were engaged by the Trustees of The Lauren McLeish Discretionary Trust (the “Trust”) to construct a large house near Armadale in Scotland. The contract was a Standard Building Contract with Quantities for use in Scotland (2011 Edition) and contained provisions permitting either party to refer any “dispute or difference” under the contract to adjudication.

D&M constructed the house and a dispute arose as to the sums due under the contract. D&M issued an interim valuation setting out sums they believed were due. The Architect issued a Final Adjustment Statement on behalf of the Trust, differing as to the amount due. D&M subsequently challenged it and, without responding to that challenge, the Architect issued a Final Certificate reflecting the Final Adjustment Statement amount.

The contract provided that the Final Certificate would be “conclusive evidence” of the matters contained within it, unless challenged by arbitration or adjudication within 60 days. D&M therefore referred the disputed account to adjudication and was awarded £324,492.60 plus interest across several heads of loss.

Ambush thwarted

The Trust sought to resist enforcement of the award on several grounds, one of which was that certain items of claim advanced by D&M in the adjudication were either substantially different or not those at issue between the parties prior to the issue of the Notice of Adjudication. Accordingly, they argued that no “dispute or difference” had yet crystallised between the parties. As such, the referral to adjudication was premature.

The court noted that the general position is that “a robust, practical approach…. with a commercial eye” should be taken in determining whether or not a dispute had crystallised prior to the service of the Notice. An overly legalistic approach and nit picking should be avoided. However, in this instance, the court noted that:

“[e]ven looking at the matter broadly, the claims in the Notice for extensions of time and loss and expense appear to me to be of a different nature and order of magnitude to the previous disagreements about extensions of time, prolongation and loss and expense.”

As a result, it was agreed that part of the dispute had not crystallised.

The court rejected D&M’s argument that the issuance of a Final Certificate avoided the need for a dispute to crystallise. The Court also rejected the argument that the Final Certificate was akin to a “claim” being made by the Trust which would then permit D&M to defend it – including raising the new and increased items of claim advanced in its Notice.

But the decision is severed

The case was soon back before the court with D&M seeking to enforce the award insofar as it related to matters which had crystallised prior to the referral to adjudication, and accordingly over which the Adjudicator did have jurisdiction. Enforcement was resisted on the basis that the court’s earlier decision meant that the adjudicator did not have jurisdiction to hear the entire dispute referred and separately that the decision of the adjudicator was not binding given it was only partially enforceable.

After an extensive review of previous case law, the court declined to follow early authorities which had suggested that the referral of a single dispute to adjudication was determinative of whether severance was permissible. Most contracts only permit a single dispute to be referred to adjudication and these authorities would preclude severance in such cases. The court preferred to take a broader approach focusing on the extent to which any jurisdiction or natural justice issues might have affected the adjudicator’s decision. In the court’s view: “the critical question ought not to be whether there is a single dispute or difference, but whether it is clear that there is a core nucleus of the decision that can safely be enforced”.

Conclusions and implications

This decision provides a rare example of a “no dispute” or “different dispute” argument being upheld by a court. Whilst the requirements for the crystallisation of a dispute are easily met, this case will assist in marking out the limits of what is permissible. As always, parties must be careful when drafting their Notice of Adjudication that the matters to be referred have been set out in prior correspondence or contractual notifications. The magnitude of the sums claimed should be comparable to the sums notified prior to the adjudication. Should there be doubt, parties may wish to delay issuing adjudication proceedings so as to clearly communicate their claim to the other party to avoid arguments as to crystallisation.

Parties should also be mindful of the effect of final certificate deeming provisions, such as those found in the SBCC and JCT forms of contract. The need for parties to commence adjudication proceedings within the short period of time provided by these provisions may make it more difficult to establish a crystallised dispute, particularly where new claims are sought to be advanced. In such scenarios, parties may wish to consider either court or arbitral proceedings as an alternative to adjudication.

The court’s findings as to severability add to a growing weight of authority in favour of a broader approach. The court noted that the narrower approach would be likely to, “encourage unsuccessful parties in single dispute adjudications to scrabble around for grounds to resist enforcement, because success on any ground (even if it relates only to a relatively small part of the decision) will suffice to invalidate the entirety of the decision.” Whilst that may be true, parties seeking to resist enforcement already face considerable challenges. The broader approach may also encourage the use of ambush tactics, with Referring Parties comforted in the knowledge that if those tactics overstep the mark any decision may still be partially enforced.

It remains to be seen whether the broad or narrow approach to severance will be supported at appellate level (in Scotland or the rest of the UK). The limits of the broad approach are also yet to be tested, with parties needing to ensure that a decision can be separated out into distinct parts, and a “core nucleus” preserved, in order to benefit from severance.

References:

Dickie & Moore Ltd v McLeish [2019] CSOH 71.

Dickie & Moore Ltd v McLeish [2019] CSOH 87.