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Off with his head: Recent developments in severability

Adjudicators are increasingly called upon to adjudicate upon complex, multi-faceted disputes. It is now well established that “a dispute” can encompass several discrete issues and the TCC has striven to avoid an overly legalistic approach and to apply common sense when deciding whether a claim encompasses "a dispute" or not.

The danger, of course, is that an adjudicator may exceed his jurisdiction or breach the rules of natural justice in relation to one or more issues within "the dispute" referred to him but not in relation to the others.

The question as to whether, in those circumstances, the TCC can sever the bad and enforce the good has vexed the courts for many years. Whilst many cases had considered the issue, until this year the Court had never chosen to do so; however, three recent decisions show that some disputes can be severed and provide useful guidance as to when severance will be permitted.

The Starting Point

Whilst several earlier decisions had considered the concept of severability, the general starting point is the decision of Akenhead J in Cantillon v Urvasco (2008) 117 Con LR 1. In that case, the court reviewed the previous authorities, together with excerpts from leading texts and a paper by Peter Sheridan and Dominic Helps in the Construction Law Journal and concluded, at [65]:

(a) The first step must be to ascertain what dispute or disputes has or have been referred to adjudication. One needs to see whether in fact or in effect there is in substance only one dispute or two and what any such dispute comprises.

(b) It is open to a party to an adjudication agreement as here to seek to refer more than one dispute or difference to an adjudicator. If there is no objection to that by the other party or if the contract permits it, the adjudicator will have to resolve all referred disputes and differences. If there is objection, the adjudicator can only proceed with resolving more than one dispute or difference if the contract permits him to do so.

(c) If the decision properly addresses more than one dispute or difference, a successful jurisdictional challenge on that part of the decision which deals with one such dispute or difference will not undermine the validity and enforceability of that part of the decision which deals with the other(s).

(d) The same logic must apply where there is a non-compliance with the rules of natural justice which affects only the disposal of one dispute or difference.

(e) There is a proviso in (c) and (d) above, which is that, if the decision as drafted is simply not severable in practice, for instance on the wording, or if the breach of the rules of natural justice is so severe or all-pervading that the remainder of the decision is tainted, the decision will not be enforced.

(f) In all cases where there is a decision on one dispute or difference, and the adjudicator acts, materially, in excess of jurisdiction or in breach of the rules of natural justice, the decision will not be enforced by the Court.

One difficulty with Akenhead J’s formulation is his use of the words “dispute” and “difference”, particularly in relation to sub-paragraphs (b) and (f). It is uncontroversial that, unless their contract permits the same or unless they agree later, only a single “dispute” can be referred to adjudication; however, a “dispute”  may comprise a whole package of “differences”; as pointed out by HHJ Thornton QC in Fastrack Contractors Ltd v Morrison Construction Ltd [2000] BLR 168:

“many claims, heads of claim, issues, contentions and causes of action will arise. Many of these will be collectively or individually disputed. When a dispute arises one, several or many of one, some or all of these matters”

Accordingly a decision on one “dispute” may in fact be a decision on several “differences”.

Since Cantillon: The early years

A number of cases have considered the question of severability since Cantillon and have refused to sever the decisions considered. The principal reason relied upon by the Courts has been that there is a single “dispute” and that it is not permissible to separate out and sever discrete issues within that dispute (see for example Pilon Ltd v Breyer Group Plc [2010] BLR 452; Quartzelec Ltd v Honeywell Control Systems Ltd [2009] BLR 328; and Cleveland Bridge Ltd v Whessoe-Volker Stevin Joint Venture (2010) 130 ConLR 159).

Ramsey J delivered, perhaps, the most robust of those judgments in Whessoe-Volker. In that case the adjudication concerned elements that were construction operations and elements that plainly were not. The Court rightly concluded that the elements of the dispute relating to non-construction operations were outwith the adjudicator’s jurisdiction. Ramesy J cited with approval the comments of HHJ Lloyd QC in KNS Industrial Services (Birmingham) Ltd v Sindall Ltd (2001) 75 Con LR 71 that parties must accept the totality of a decision “warts and all”. He concluded that if part of a decision on a single dispute is outwith the adjudicator’s jurisdiction, the whole decision would fall.

Many would, however, argue that the mischief to which the concept of severability was aimed was not limited to adjudications where there was a multiplicity of “disputes” in the Fastrack sense but was intended to address the case where an adjudicator had made a clear error of natural justice or jurisdiction that was relevant only to specific differences within that package, leaving the remainder untainted.

The decisions in Pilon, Quartzelec and Whessoe-Volker could never have been severed, not because they all concerned a single dispute but instead for the reasons set out in Akenhead J’s paragraph 65(e) in Cantillon. Pilon and Quartzelec both concerned an adjudicator’s failure to consider a defence of set-off which would apply to any of the sums claimed and could not be limited to one or more individual differences; to that extent, the adjudicators’ failure to consider the defence was “all-pervading”.

In Whessoe-Volker, the adjudicator’s decision was not expressed in terms that would have allowed the Court to determine which parts of the decision were within jurisdiction and which were outwith jurisdiction. In that case, the decision was “simply not severable in practice, for instance on the wording”. Indeed in Whessoe-Volker, Ramsey J said:

[110] If the Adjudicator had made a decision on the whole dispute but had also made a decision which dealt only with the part of the dispute which was within her jurisdiction then, in my judgment, the decision on the whole dispute would not be enforceable or valid but there would be a valid decision on the part of the dispute which was within her jurisdiction.

That paragraph suggests that where an adjudicator’s decision is expressly made in relation to divisible, individual issues, it may be possible for the Court to find that the decision “on the whole dispute”  would not be enforceable but the decision “on the part of the dispute which was within … jurisdiction”  would have been.

Finally, in Bovis Lend-Lease Ltd v Trustees of the London Clinic (2009) 123 Con LR 15 Akenhead J considered, obiter, whether a claim for extension of time would have been severable if a challenge based on crystallisation of that part of the dispute had succeeded; he concluded (at [69]) that in relation to that issue “The Award was one which was eminently severable”. That approach is not consistent with the “warts and all” approach adopted by Ramsey J in Whessoe-Volker.

Working Environments Ltd v Greencoat Construction Ltd [2012] B.L.R. 309

In this case WEL was engaged to carry out M&E installation works on the JCT SBCSub/A Form 2005 Edition, Revision 2. A dispute arose in relation to the valuation of WEL’s interim application No. 10 and that dispute was referred to adjudication. During the course of the adjudication, Greencoat issued a second withholding notice which included three items that had not previously been raised. The first was the quantification of LADs in circumstances where a notice of non-completion had been issued prior to the adjudication but no calculation of the sums due had been communicated. The second and third related to allegations of defective workmanship and lack of co-ordination.

Akenhead J held that a dispute had crystallised in relation to LADs and that the notice issued during the adjudication was merely quantifying what LADs were proposed to be set-off; however in respect of the second and third items, the Court held that they were not part of the dispute that had crystallised prior to the referral.

Akenhead J cited his previous dicta in Cantillon and held that in relation to the second and third items could and should be severed. He did not make clear in his reasoning which aspects of the reasoning in Cantillon had been applied.

Beck Interiors Ltd v UK Flooring Contractors Ltd [2012] BLR 417

Beck was the main contractor in relation to fit-out works at Selfridges department store; UKFC was the flooring sub-contractor. UKFC failed to complete the works in time and purported to withdraw from further performance. Beck accepted UKFC’s repudiatory breach and intimated a claim for its additional costs of completing the works. The Notice of Adjudication was sent on 10 April 2012 (the Tuesday after the Easter Weekend). After 5pm on Thursday 5 April 2012, Beck intimated a claim for LADs. UKFC argued that the dispute had not crystallized. The Adjudicator made a decision in Beck’s favour and awarded £19,763.41 in respect of the additional cost of works and £33,600 in respect of LADs.

Akenhead J held that there were in fact two disputes: the claim for the cost of completing the works and the claim for LADs. He held that the first claim had crystallised whereas the second had not. Again, the Court cited Cantillon and held that the decision could be severed. Giving some expanded guidance on sub-paragraph (e) of the test in Cantillon, the Court emphasized that:

“[32] … It is clear from the body of the Notice of Adjudication that the presented claim is made up essentially of two parts, £31,148.97 and the £36,000 for the new liquidated damages claim. They are presented in effect as two separate arguments with separable evidence supporting them, albeit that the losses flow from the failure to complete on time or indeed at all.

“[33] There is no difficulty in identifying clearly what the adjudicator decided in relation to each claim: £19,763.41 for the increased costs of completion and £33,600 for liquidated damages.”

However, in relation to the Adjudicator’s fees and expenses, Akenhead J found that:

“[33] … It is also difficult for the Court to apportion the adjudicator’s fee … because, although one could arithmetically apportion it in relation to sums recovered and others not jurisdictionally recoverable, one can not second guess what the adjudicator would have done.”

Lidl UK GmbH v R G Carter Colchester Ltd [2012] EWHC 3138 (TCC)

In Lidl, Edwards-Stuart J was, again, concerned with an adjudication relating to LADs; however, the Claimant accepted that the Adjudicator had exceeded his jurisdiction in relation to two distinct periods, whose financial impact on the decision was also agreed. Again, the Court held that the decision could be severed but Edwards-Stuart J emphasized that the severable part had not impacted on the remainder of the decision. He added, obiter:

“[61] I would add only this. At first sight it may appear that the decision in Greencoat conflicts with the general principle that a decision cannot be severed where only one dispute or difference has been referred. The rationale underlying this principle is, I think, that where a single dispute or difference has been referred it will generally be difficult to show that the reasoning in relation to the part of the decision that it is being sought to sever had no impact on the reasoning leading to the decision actually reached, or that the actual outcome would still have been the same. If this is the case, the part cannot safely be severed from the whole. However, where, in the case of the referral of a single dispute additional questions are brought in and adjudicated upon, whether by oversight or error, there should be no reason in principle why any decision on those additional questions should not be severed provided that the reasoning giving rise to it does not form an integral part of the decision as a whole. However, failing this, the entire decision will be unenforceable.”

Where to next?

The three recent authorities have shown that where “additional questions” are determined over and above the dispute referred, those issues can be severed provided that they are readily ascertainable (Beck) and provided that the reasoning is not so pervasive as to taint the decision as a whole (Cantillon 65(e); Lidl).

However, until the Court of Appeal determines the point, it appears likely that where an issue is properly included within the package of issues forming “a dispute” in the Fastrack sense, the Court may not sever the decision, even if an ascertainable and identifiable part of it was reached contrary to the rules of natural justice or in excess of jurisdiction. That is the logical conclusion of Akenhead J’s paragraph 65(f) taken together with Pilon, Quartzelec and Whessoe-Volker.

That issue is unlikely to remain dormant for long; parties will continue to seek severance of identifiable parts of decisions and it is likely that parties will push to expand the principles of severability beyond merely excess of jurisdiction.

Furthermore, it is likely that adjudicators will begin to produce more comprehensive decisions with the reasoning for each aspect of the decision treated separately. Such pressure may be particularly acute following the decision of the Court of Appeal in PC Harrington Contractors Ltd v Systech International Ltd [2012] EWCA Civ 1371; following that decision Adjudicators will be keen to ensure that, insofar as possible, their decisions are enforceable.