Dickie & Moore Ltd v McLeish & Others Part 2

[2019] CSOH 87 

We first discussed this case in Issue 232. Lord Doherty found that “a very material part of the dispute described in the Notice had not crystallised before the Notice was served”. This meant that the question of severance arose. Could the time-related disputes be severed from the rest of the dispute? 

D&M submitted that while the court had found that the adjudicator did not have jurisdiction to deal with part of the dispute because it had not crystallised at the date of the notice of adjudication, the remainder of the dispute had crystallised and the adjudicator had had jurisdiction to deal with it. In principle, severance should be available provided that the court was satisfied that the parts of the decision that were enforced were not dependent upon, and had not been affected by the reasoning in, the part of the decision dealing with extension of time and related loss and expense.  Here, it was clear that the issues of extension of time and loss and expense had been dealt with separately from most of the other issues. The court could be confident that the adjudicator’s approach to the sums awarded was unaffected by the jurisdictional error. They had been dealt with separately and independently from his consideration of extension of time and loss and expense. 

McLeish submitted that a single dispute had been referred to adjudication. However, the adjudicator had not had jurisdiction to determine that single dispute because part of it had not crystallised. Second, on a proper construction of the contract the parties had contracted to be bound by “the decision” of the adjudicator (paragraph 23(2) of the Scheme). They had not agreed to be bound by part of the decision where the adjudicator had lacked jurisdiction in relation to another part. Whilst there were a number of cases where the courts had been willing to sever and enforce parts of an adjudicator’s decision which were clearly and obviously untainted by the nullity of another part of the decision, here there were no parts of the decision where it could be said that it was clear and obvious that the reasoning had been untainted by the adjudicator’s decision on extension of time and related loss and expense. For example, the finding that liquidated damages ought not to have been deducted, was a consequence of the decision to grant an extension of time. 

Lord Doherty noted that the Scheme contemplated that a “dispute” is a matter in respect of which the adjudicator has jurisdiction. Where an adjudicator’s decision is partly within and partly outwith jurisdiction only the part within jurisdiction can be binding.  He also referred to a commentary in Building Law Monthly, vol. 36, issue 7 (July 2019), which stated that: 

“This more flexible and pragmatic approach to severance is to be welcomed, although it will require the courts to make difficult assessments as to whether it is possible to identify a “core nucleus” of the decision of the adjudicator that “can be safely enforced”. While it will on occasion give rise to difficulty it is preferable to a blanket approach which simply denies the possibility of severance.”

This led the Judge to conclude that:

“In the present case, whether on a proper analysis (a) the part of the decision within jurisdiction ought to be treated as involving a separate dispute from the part of the decision which was outwith jurisdiction (and for the reasons given, I think it should), or (b) the whole decision ought to be treated as involving a single dispute, severance is competent provided that a core nucleus of the decision can be safely enforced.”

This meant that, “plainly” the extension of time award, and the associated loss and expense award could not stand. Neither could the decision that the liquidated damages be repaid as this followed inexorably from the decision that there should be an extension of time of 13 weeks. A smaller deduction of £3,741.36 for gas used during the extension of time period was also removed. 

However, Lord Doherty was of the view that it could be said “with confidence” that all other parts of the decision were untainted by adjudicator’s decision and reasoning in relation to the extension of time and loss and expense awards.  The adjudicator’s valuation of Bill of Quantity works, variations, and architect’s instructions, and the decisions whether (and if so, to what extent) deductions made could be justified, were made separately and independently from the extension of time and loss and expense decisions; and further the former decisions and calculations were not in any way dependent upon or influenced by the latter. 

Lord Doherty was satisfied that it was clear that there was a “core nucleus” of the decision which could be safely enforced. When it came to interest, as the adjudicator had awarded simple interest on the principal sum awarded at the rate of 5% over base rate, there was no reason to think that this was in any way influenced by the adjudicator’s consideration of extension of time and loss and expense, and accordingly no difficulty in applying interest on the same basis to the principal sum making up the core nucleus of the award. 

This left the adjudicator’s fees. Lord Doherty held that whilst it was “unlikely” that the adjudicator would have apportioned his fees differently if his award had been restricted to the sums which the Judge identified as making up the core nucleus of the decision which could safely be enforced, it was not “clear or obvious” that it would have been the same. It would not be right to second guess what the adjudicator would have done. Therefore, the apportionment of fees could not be safely enforced. This in turn left the question as to whether McLeish were obliged to relieve D&M of a part of those fees. It was agreed that they were.

Decision affirmed by Inner House of the Court of Session, see Issue 241.

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