30 Jul 2019

It is well-established practice that a court will ordinarily enforce an adjudicator's decision even if the decision is wrong, provided that an adjudicator has acted in accordance with the rules of natural justice and within the adjudicator's jurisdiction. There are a couple of exceptions to this position, such as a stay for enforcement where there are 'special circumstances' (such as insolvency) and where there is a short and self-contained point which is the subject of a Part 8 claim for declaratory relief.

In the recent TCC case of Willow Corp S.À.R.L. v MTD Contractors Limited, the court allowed severance of part of an adjudicator's decision even though the challenge to the decision on the grounds of natural justice was unsuccessful. This was done on the basis that the part containing the flaw could be safely severed without affecting the other parts of the adjudicator's decision.

We discuss the background to the case and the reasoning behind the court's decision below.

The facts

  1. Willow Corp S.À.R.L. (Employer) engaged MTD Contractors Limited (Contractor) to design and build the Nobu Hotel in Shoreditch. The Nobu Hotel group is a luxury hotel portfolio founded by the actor Robert De Niro, celebrity chef Nobu Matsuhia and film producer Meri Teper. The Employer and Contractor entered into a design and build contract on 25 September 2015 for a contract price of £33.5m (Contract). The project was delayed and, on 16 February 2017, the parties agreed a phased handover. The Contractor claimed loss and expense.
  1. Following discussions between the parties as to the loss and expense claim, on 21 June 2017, the parties entered into a supplementary agreement (Supplementary Contract). The Supplementary Contract stated:

"PC to be achieved by the 28.07.17 with an agreed lest (sic) of outstanding work…".

  1. There were two adjudications:
  • In the first adjudication, the first adjudicator decided that the Supplementary Contract imposed an amended obligation on the Contractor to achieve practical completion by the revised date. The second adjudicator indicated that he agreed with the first adjudicator (the court noted that the second adjudicator was bound by the decision of the first adjudicator in any event)
  • The second adjudicator went on to decide, however, that (so long as there was an agreed list of outstanding work), the Supplementary Contract required the Employer's Agent to certify practical completion on 28 July 2017. As the list was referred to, the second adjudicator decided that the Employer was not entitled to liquidated damages of £715,000 in respect of the delay between 28 July and 13 October 2017 and ordered that the Employer should pay £1,174,854.92 plus VAT to the Contractor.
  1. Two claims were made to the court:
  • The Employer first brought a Part 8 claim seeking the following declarations:
    • as to the true construction of the Supplementary Contract
    • that practical completion had not been achieved by 28 July 2017
    • that the second adjudicator's decision rejecting the Employer's claim for liquidated damages was legally unenforceable and
    • that the second adjudication was, in any case, unenforceable due to certain alleged breaches of natural justice.
  • The Contractor brought a Part 7 claim to enforce the second adjudicator's decision.

Decision

Enforcing / challenging an adjudicator's decision

The usual means of enforcing an adjudicator's decision is by way of summary judgment. As above, an adjudicator's decision will ordinarily be enforced provided that the adjudicator has acted within the rules of natural justice and within the adjudicator's jurisdiction. An exception to this rule includes where there is a short and self-contained issue that requires no oral evidence (other than what can be provided in the enforcement hearing), and the issue is one which would be unconscionable for the court to ignore. In such circumstances, the dissatisfied party should issue a Part 8 claim.

In terms of the declarations sought by the Employer (listed above), the court said that only the first declaratory relief sought (the true construction of the Supplementary Contract) was appropriate for a Part 8 claim. The final declaratory relief sought was relevant in so far as natural justice needed to be considered for the Part 7 enforcement proceedings by the Contractor.

Construction of the Supplementary Contract

The court decided that the second adjudicator had erred in his construction of the Supplementary Contract.

The court ran through the principles of contract interpretation, in short being:

  • The natural and ordinary meaning of the clause
  • Any other relevant provisions
  • The overall purpose of the clause
  • The factual matrix and
  • Commercial common sense.

The question (when interpreting a written contract) was:

"what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean".

The court held that the natural and ordinary meaning of the Supplementary Contract did not follow that the Employer was to accept that practical completion had been achieved by 28 July 2017, simply upon agreement of a list of outstanding work. This made no commercial sense. Rather, the result of the Supplementary Contract was that the Contractor was:

"required in fact to achieve Practical Completion by 28 July 2017 save only in respect of the works identified in… the schedule to the [Supplementary Contract]".

Natural justice

The Employer's challenge to the second adjudicator's decision (on the basis of natural justice) failed.

The Employer listed six main alleged breaches of natural justice against the second adjudicator, which included: the timetable having been too tight, a fair review had not taken place, evidence being provided at a late stage by the Contractor, and the adjudicator having not invited a response from the Employer on certain matters raised by the Contractor in the surrejoinder.

The court emphasised that the purpose of adjudication is to require "an impartial and reasoned provisional decision within a very compressed timetable". Parties could not expect "all of the refinements of a High Court trial". In the vast majority of cases, the losing party should pay what has been ordered as a result of an adjudicator's decision and then pursue litigation or arbitral proceedings.

The court did not consider that there was any significant breach of natural justice on the part of the second adjudicator. Breaches of justice must be "the plainest of cases" and "the adjudication proceedings must have been obviously unfair".

The court had initially been concerned as to the allegation that the second adjudicator had not provided the Employer with an opportunity to respond to a certain issue in the Contractor's surrejoinder. However, on further enquiry, the court established that these were not new issues: the Employer had dealt with the issues in its Response and therefore the adjudicator had received both parties' submissions on the matters concerned.

Severance

The court held that the decision on the construction of the Supplementary Contract could be severed even though the challenge of the second adjudicator's decision on the grounds of natural justice had failed.

A previous judgment by Edwards-Stuart J had indicated that it would usually be difficult to sever a single dispute safely. This is because it would be hard to show that the reasoning on the 'bad' part of the decision has no impact on the 'good' part of the decision. However, severance might be possible if the 'bad' part of the decision concerned an additional question, provided that the reasoning as to the additional question was not an integral part of the decision as a whole.

The court agreed that it can be difficult to sever a decision. However, the court disagreed that the focus was on whether or not there was single dispute. Instead, the question is:

"whether it is clear that there is anything left that can be safely enforced once one disregards that part of the adjudicator's reasoning that has been found to be obviously flawed".

The court was satisfied that the error in the decision on the construction of the Supplementary Contract (and therefore the claim for liquidated damages in the value of £715,000) was one that did not infect the other parts of the decision, so it could be safely removed, with the remaining balance of the second adjudicator's decision being enforced.

Comment

There have been a number of recent cases, such as in Hutton v Wilson, where the TCC has warned parties not to issue challenges to the enforcement of an adjudicator's decision due to the limited resources available to the court. The court's indication that the TCC need to be more willing to order severance of an adjudicator's decision is therefore interesting. However, this was not a case where the Employer had waited for the Contractor to issue Part 7 enforcement proceedings. Instead, the Employer had rightly been pro-active in issuing a Part 8 claim for declaratory relief first. This was a request for a final declaration. The key was that the question as to the construction of the Supplementary Contract was a short and self-contained issue. As such, if a losing party to an adjudicator's decision finds themselves faced with reasoning (on a short self-contained issue) which is so obviously flawed, they might wish to consider the Part 8 route. They should do so quickly, without delay.

The above is caveated with a word of warning. A disgruntled party should not take too much encouragement from this case. The default position remains that you pay now and argue later.

Adjudicators should also note that the judge was initially concerned about the suggestion that an adjudicator had not provided a party with an opportunity to respond to an issue. This turned out to be unfounded. It does,however, serve as a reminder as to the importance of ensuring that a party has had an opportunity to provide a submission on an issue raised by the other party in an adjudication. An adjudicator will risk issuing an unenforceable decision if they do not take heed to a party's request to give a submission on an issue, in circumstances where that party has not previously been provided with an opportunity to do so.