UK: The High Court Considers An Adjudicator's Decision And A Failure To Correctly Interpret A Contract

Executive Summary

1. Willow Corp S.A.R.L. and MTD Contractors Limited [2019] EWHC 1591 (TCC) is one of the first reported cases regarding the severability of an adjudicator's decision.

2. In short, where an adjudicator incorrectly decides an issue which is easy to identify, important, and severable from the rest of his decision, the losing party may use a Part 8 claim for declaratory relief as a way of resisting enforcement proceedings.

Facts

3. Willow was the employer and MTD the main contractor in a project to design and construct the Nobu hotel in Shoreditch, for £33,500,000. The project ran into delays and so, on 16 February 2017, the parties entered into a supplementary agreement (the "Agreement") extending the date for Practical Completion to 28 July 2017.

4. Practical Completion was not achieved until 13 October 2017 and there were various disputes as to entitlement and, in particular, the costs of delay.

5. MTD commenced an adjudication seeking the sums in its final application for payment, Willow having served a payless notice stated that there were defects and also an entitlement to liquidated damages.

6. It fell to the adjudicator to construe the Agreement.

6.1 MTD asserted that the Agreement fixed a date for Practical Completion, with an agreed list of outstanding work to be completed at a later date after Practical Completion.

6.2 Willow asserted that the revised date for Practical Completion required all works to be completed, except for particular works specified in a schedule attached to the Agreement.

7. The adjudicator decided that, on a true construction of the Agreement, Practical Completion was required to be certified provided that there was an agreed list of outstanding work. Since there was such a list, the adjudicator concluded that Willow was not entitled to claim liquidated damages of £715,000 for the further delay in completing the hotel between 28 July and 13 October 2017.

8. Willow launched Part 8 proceedings seeking declaratory relief, including a declaration as to the true construction of the Agreement and that the adjudicator's rejection of Willow's claim for liquidated damages was "legally unenforceable".

9. MTD launched Part 7 proceedings to enforce the adjudication decision by summary judgment.

Entitlement to resist summary judgment enforcing an adjudicator's decision

10. The Court clarified the position on the court's jurisdiction in Hutton Construction Ltd v Wilson Properties (London) Ltd [2017] EWHC 517 (TCC). The Part 7 defendant must, to establish its entitlement to resist summary judgment on the basis of its Part 8 claim, be able to demonstrate that:

10.1 There is a short and self-contained issue which arose in the adjudication and which the defendant continues to contest;

10.2 That issue requires no oral evidence or any other elaboration beyond that capable of being provided during the interlocutory hearing;

10.3 The issue would be unconscionable for the court to ignore.

11. The Court found that the adjudicator had not construed the Agreement properly. The Court found that the Agreement "...did not require Willow to accept that Practical Completion had been achieved simply upon agreement of a list of outstanding works. Rather, MTD 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 Agreement.

12. That issue was "...short, self-contained and well-suited to being determined in Part 8 proceedings...", therefore it was possible for the court to "sever" it from the rest of the adjudicator's decision, i.e. to separate the "bad" from the "good". The effect of the Court's decision was that the liquidated damages were to be paid.

Lessons for the construction industry

13. In normal circumstances Courts look to uphold an adjudicator's decision, the typical exceptions being where the rules of natural justice have been breached or if the adjudicator has exceeded his jurisdiction. The Court in this case stated that the adjudicator had "erred in his construction" of the Agreement and held that this part of his decision could be overruled because it was a simple and standalone issue that could be severed from the rest of the decision.

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