Field Systems Designs Limited v MW High Tech Projects UK Limited [2020] CSOH 17: Further endorsement of the ‘core nucleus’ principle as the Outer House upholds entirety of an adjudicator’s decision against a barrage of arguments against enforcement
This month, Lord Clark in the Outer House of the Court of Session handed down the latest judgment in a string of Scottish cases maintaining a high bar for defenders in adjudication enforcement challenges. In this case, the court rejected claims that the adjudicator failed to exhaust his jurisdiction and that his lack of reasons was a material breach of natural justice. In doing so, the Scottish courts maintained their position that very strong reasons are required to successfully challenge enforcement, and provided a resounding endorsement of Lord Doherty’s “flexible and pragmatic” approach to severability.
Background
This case involved a payment dispute for a shortfall of £1.075 million for works carried out at a waste plant. The parties highlighted 25 issues for referral to adjudication, including two issues relating to work undertaken by ‘Cepha’ and ‘Anord’ to the value of £25,498.35 and £972, respectively.
At the adjudication hearing, following extensive submissions by both parties, MW (the defender) raised a new point; that Cepha and Anord were sub-contractors of Field Systems and accordingly their works should be valued differently. This was disputed by Field Systems who maintained they were in a joint venture with Cepha and Anord. Parties debated this before the adjudicator and made further submissions before the adjudicator reached his decision.
The adjudicator was not convinced by MW’s overall case and held that the various sums should not be deducted. The adjudicator did not expressly address “the Subcontract/JV” point in his decision but he did state that he had considered all of the documents and submissions presented by both parties, and agreed with Field System’s approach to valuation of Cepha and Anord’s works.
The Grounds
MW challenged the decision and held that the adjudicator had not considered a material line of defence (the Subcontract/JV point) and therefore, the decision should be set aside in its entirety. Failing that, as he had not given adequate reasons for his decision, this resulted in a material breach of natural justice.
Field Systems (the pursuer) maintained that this was not the case. They held that the adjudicator did consider the defence put forward by MW, and even if he hadn’t, that the defence was not material and the adjudicator’s reasons were adequate.
Field Systems further maintained that if the adjudicator had failed to exhaust his jurisdiction or give adequate reasons, only certain parts of the adjudicator’s decision were affected, citing Lord Doherty’s ‘core nucleus’ principle from Dickie & Moore Ltd v McLeish [2019] CSOH 87. As such, the affected parts of the decision (hypothetically, £26,470.35 in the context of a £1.075 million claim) could be severed and the remainder of the decision could stand. MW argued that should their submissions be upheld, the decision should be set aside in its entirety.
The Decision
It was noted by Lord Clark that there were “pointers in both directions” as regards whether the adjudicator had considered MW’s defence regarding the subcontract/JV issue. Whilst there was no explicit reference made to the submissions on this point, the Court held that he had in fact answered the overarching question put to him. The adjudicator stated that he gave careful consideration to all submissions (with the Subcontract/JV documentation listed in the documents presented to him) and it could be inferred from his reasoning that he implicitly gave consideration to the Subcontract/JV point.
Lord Clark did, however, agree that the adjudicator had not given adequate (or any) reasons as to why this defence was disregarded. However, he concluded that as the subcontract/JV defence amounted to such a small part of the claim, the fact the adjudicator failed to give reasons for disregarding it was inadvertent and not material.
Although moot given his conclusions on materiality, Lord Clark indicated that the adjudicator’s decisions on these two issues were “plainly severable” and he would have held the balance of the adjudicator’s decision to be enforceable had materiality been an issue. In reaching this decision, he endorsed Lord Doherty’s flexible and pragmatic approach to severability and was confident that the core nucleus of the decision could have been enforced.
Comment
The Court of Session in Scotland is maintaining a consistent position when it comes to the enforceability of adjudicator’s decisions; it will take very good reasons for the Court to accept a challenge to enforcement. Not only must parties show that material evidence or submissions weren’t considered but, they also must show that the lack of consideration was material to the decision reached.
As an endorsement of the flexible and pragmatic approach coined by Lord Doherty, this case also shows that the Courts will be less inclined to set aside entire decisions, so long as parties can prove the ‘core nucleus’ has been properly considered: a backing for adjudicators and high bar for defenders.
With additional reporting by Dan Traynor.