Field Systems Designs Limited v MW High Tech Projects UK Limited  CSOH 17
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.
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 sub-contractors 'Cepha' and 'Anord' worth £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 not sub-contractors but instead that MW were in a joint venture with Cepha and Anord. The result of this was that their works should be valued differently (referred to by the adjudicator and the Court as the 'Subcontract/JV point'). Parties debated this before the adjudicator and made further submissions before the adjudicator reached his decision.
The adjudicator was not convinced by MW's case and held that the various sums should not be deducted and that MW was not in a joint venture with the sub-contractors.
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  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.
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.
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 were not considered, they must also 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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.