A case of cut and snip

Over the past 18 months, these columns have said much about adjudication enforcement. Indeed, the Court of Appeal has just handed down a unanimous judgment in Bouygues vs Dahl-Jensen, and we now know that it is OK for an adjudicator to answer the right question wrongly but not to answer the wrong question, however right the answer.

I want to deal with another enforcement twist. I have termed this the cut-and-snip, or seeking to enforce an adjudicator’s decision by picking out the good bits and snipping out the bad, or making those bad bits better. This is what KNS Industrial Services tried unsuccessfully to do to Sindall last month before Judge Humphrey Lloyd.

The facts concerned a subcontract modelled on DOM/1 to carry out M&E works on a large private house in north London. Sindall notified KNS of its intentions to withhold payment for KNS’ penultimate and final applications for payment. KNS thought that it should be paid in full and served notice of its intention to suspend. Sindall countered by warning that it intended to sack KNS.

So KNS served notice of adjudication on the basis that it wanted its applications upheld. Sindall responded by contending, among other things, that KNS had wrongfully suspended its operations, that Sindall had properly served a notice of withholding and should be compensated for the costs associated with the wrongful suspension and subsequent termination of employment. The adjudicator decided Sindall was to pay only £4884 of the £155 000 claimed. Sindall paid this sum, together with interest.

KNS was unhappy. It said the adjudicator had erred in his jurisdiction in allowing a set-off of more than £107 000 for non-compliant work.

It contended that the adjudicator should have awarded only £104 000. This KNS sought to achieve by cherry-picking figures from the adjudicator’s decision. In other words, the case presented by KNS required the decision to be dismembered and reconstructed: the cut and snip.

To obtain summary judgment, KNS had to establish that Sindall had no real prospect of success. Meanwhile, Sindall had made a cross-application maintaining that the adjudicator had kept to his jurisdiction, and that even if he had given the wrong answer to the right question, the parties were bound by it for the time being.

Judge Lloyd declared that KNS’ application was misconceived and that Sindall was entitled to summary judgment against KNS.

There were three key issues. First, the question of whether the adjudicator had jurisdiction to make a deduction for incomplete and non-compliant works. The judge held that he did. The dispute to which the notice of adjudication referred included any ground that would justify Sindall not paying KNS.

Second, was KNS’ attempt to cut-and-snip the decision allowed? Judge Lloyd held that a party could not cherry-pick the reasons for a decision so as to characterise some parts as unjustified and therefore outside the adjudicator’s jurisdiction.

Third, the judge dealt with Sindall’s defence that it was not bound to make any further payment to KNS as a result of sacking KNS. He held that, under the contract, the parties had to comply with the adjudicator’s decisions “without prejudice to any other rights under the contract”. He found that the adjudicator had allowed the deduction under the contract, and that this formed part of the dispute referred to him.

A number of important points flow from this decision. An adjudicator’s error over the validity of a withholding notice, for example, is not of itself fatal to jurisdiction – provided it falls within the scope of the dispute referred.

Importantly, the judge reasoned that the mere reference of a dispute to adjudication should not alter the parties’ other rights under the contract if they fall outside the dispute referred.

But above all else, remember: it ain’t over till the fat lady sings.