Severance and survival


Author: Ian Smith


A recent decision in the Technology and Construction Court (TCC) in the case of Stellite Construction Ltd v Vascroft Contractors Ltd emphasises the difficulties for a party in arguing that an adjudicator has materially breached the rules of natural justice. However it also reminds us that the adjudicator’s frame of reference for jurisdiction will be the dispute set out in the notice of adjudication and any defence to the claim – stepping outside that frame is likely to exceed jurisdiction to determine the dispute. The court will not enforce a decision of an adjudicator who has no jurisdiction to determine the dispute.

Stellite engaged Vascroft under a JCT Standard Building Contract Without Quantities, 2011 Edition, for shell and core works, valued at a little over £5 million, at a sizable property in Hampstead, Heath Park. The works were due to be completed on 20 October 2014: this date was missed and a certificate of non-completion was issued. The contract stated that liquidated damages for delayed completion were to be £23,000 per week and Stellite referred its approximately £1 million claim to adjudication.

Vascroft was also to conduct the second phase fit out works, which were instructed under a letter of intent: no further contract for these works was entered into by the parties. Vascroft carried out £500,000 worth of the fit out works at the property and argued that the instruction to carry out the fit out works prevented the extension of time provisions under the shell and core contract from operating. Vascroft argued that the breakdown of the contractual mechanism put time under the contract ‘at large’. Under construction contracts if the employer is at fault and the contract does not have provisions for an employer delay, the completion date under the contract falls away and time is put ‘at large’, i.e. the contractor is obliged to complete the works within a reasonable timeframe rather than by the date stated in the contract.

The adjudicator’s decision was that because no extension of time for the shell and core works could be granted due to delay caused by Vascroft carrying out the fit out works, time was at large and no liquidated damages were payable: Stellite could not claim the £1 million from Vascroft. The adjudicator also decided that a reasonable completion date for the works was no later than 5 March 2016.

Stellite applied to the TCC under Part 8 for declaratory relief on the grounds that the adjudicator had breached the rules of natural justice by reaching his conclusion on time being at large without making his thinking clear to the parties, and exceeded his jurisdiction by deciding a reasonable completion date.

In the adjudication, the parties focused on the extension of time mechanism in the contract and argued that time had been put ‘at large’. Stellite argued that the adjudicator had not ‘fairly canvassed’ the parties with his findings on time being at large. In the TCC, it was found that time being at large was ‘obviously in play between the parties and canvassed fully by them’. The adjudicator considered existing law and the contract in a scenario where both Stellite and Vascroft had approached the issues ‘from slightly different angles’. It was found that the adjudicator had not breached the rules of natural justice – he had proceeded ‘fairly and properly, to reach the conclusions that he did’.

The TCC however decided that the adjudicator had exceeded his jurisdiction in deciding on a reasonable completion date. Whilst the adjudicator’s decision ‘may have been the logical next step’, the parties had not requested the adjudicator to decide a reasonable completion date and by doing so ‘he exceeded his jurisdiction’. However, this did not impact or damage the rest of his decision and it was found that the decision on time being at large could survive, with the point on a reasonable completion date severed from the decision.

This decision is one to keep in mind if you are involved in an adjudication or have a challenge over the adjudicator’s decision: parts of a decision can survive. An adjudicator’s decision being severed is not a frequent occurrence and this case reinforces that parties have options if they believe part, but not all, of an adjudicator’s decision has breached the adjudicator’s jurisdiction and issues are easily separable. This approach could have beneficial costs implications to the parties and in this case, the parties adopted a pragmatic approach in agreeing that the decision on a reasonable completion date could be severed from the rest of the adjudicator’s decision.

If you are considering whether an adjudicator has exceeded jurisdiction, the court’s point on jurisdiction is one to keep in mind: ‘it is important not to confuse the fact that the Adjudicator may have had material with which to decide an issue with having jurisdiction to resolve it’.

Ian Smith, Associate, Fladgate LLP (ismith@fladgate.com)

 

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