Two recent cases reiterate the importance of parties considering the ability to refer disputes to adjudication at the outset of a project and having properly structured construction contracts in place.
Adjudication provides the opportunity to swiftly resolve construction disputes. An adjudicator’s decision is only binding unless and until overturned by a court or arbitrator. Where possible, courts will effectively ‘rubber stamp’ the adjudicator’s decision by awarding summary judgment to a party enforcing the decision. However, there are limited grounds for an aggrieved party to resist the enforcement of an adjudicator’s decision within such proceedings.
Two recent cases demonstrate that parties to a construction contract should think carefully at pre-contract stage about their ability to refer disputes to adjudication. Doing so will increase their chances of being able to usefully refer disputes to adjudication and will reduce the risk that the decisions made by adjudicators are later found to be unenforceable. An adjudicator does not have jurisdiction (save for with the express agreement of the parties) to decide disputes which relate to multiple contracts. It is common for responding parties to challenge the adjudicator’s jurisdiction in circumstances where a dispute referred to adjudication relates to multiple contracts.
In Ex-Novo v MPS Housing [2020] EWHC 3804 (TCC), the parties had agreed rough terms under which Ex Novo would provide renovation of social houses in Wrexham. MPS then made several orders referring to these terms and Ex Novo carried out the works under the orders. Ex Novo issued an application for payment which MPS failed to pay by the final date for payment, and Ex Novo referred the dispute to adjudication, obtaining a favourable decision. MPS failed to pay the sum decided by the adjudicator and when Ex Novo attempted to enforce the decision in court, MPS argued that the work to which the application for payment (and therefore the decision) related was performed under several different contracts. It was therefore MPS’ position that the decision was unenforceable on grounds that the adjudicator lacked jurisdiction.
The adjudicator in this case had decided that he had jurisdiction. Ex Novo argued that, following the principles laid down in Air Design (Kent) Ltd v Deerglen (Jersey) Ltd [2008] EWHC 3047 (TCC), the adjudicator’s decision on his jurisdiction was binding as the adjudicator had needed to decide the jurisdiction point in order to decide the dispute referred. The court disagreed, stating that the adjudicator’s decision on jurisdiction was made only as a preliminary matter and was non-binding. The dispute referred related to MPS’ failure to pay the claimed amount, rather than to how many contracts the work was performed under. Happily for Ex Novo, the court agreed that there was one contract and that MPS did not have a real prospect of arguing otherwise. The decision was therefore enforced.
Conversely, the recent case of Delta Fabrication & Glazing Ltd v Watkin Jones & Son Ltd [2021] EWHC 1034 (TCC) demonstrates the dangers of assuming that an application for payment relating to multiple contracts can be referred to a single adjudication. In this case the parties had entered into two formal sub-contracts for distinct packages of works on the same project. At some point the parties had begun dealing with payment for both packages as one. Delta Fabrication referred a dispute over the final account (dealing with both packages) to adjudication. When Delta Fabrication tried to enforce the decision, Watkin Jones argued the dispute related to two distinct contracts. Delta Fabrication argued that the two contracts had been merged by consent or by course of dealings. The court considered that Watkin Jones had a real prospect of successfully arguing that the adjudicator lacked jurisdiction and the adjudicator’s decision was not enforced in this instance.
These two cases demonstrate the importance of properly structuring the contractual framework on any construction project pre-contract. Parties should consider what ability they will have to refer disputes to adjudication when entering into contracts, rather than simply when a dispute arises. If separate contracts are entered into, they should be administered separately. Purportedly, the parties in Delta Fabrication would have struggled to separate which payments related to which contract. The result was an adjudicator’s award which is difficult or impossible to enforce and, no doubt, a lot of wasted expense. This situation could have been avoided by ensuring that one contract was prepared dealing with both works packages.
Situations such as this are not uncommon. We were recently instructed by an engineer in respect of an outstanding debt totalling circa £300,000. No payment notices or pay less notices were issued in response to the client’s various applications for payment. The client wanted to adjudicate against the group company, however, there were multiple invoices which made up the circa £300,000 which had been issued to different subsidiary companies for different works packages. We therefore were unable to refer the whole outstanding debt to adjudication as there was a very real risk that any decision would not be enforced on the basis that the adjudicator lacked jurisdiction to decide multiple disputes arising under multiple contracts. In the circumstances, all was not lost. We referred two of the largest invoices to adjudication and won with the balance being considered for a negotiated settlement. However, had the client sought our advice early on, at pre-contract stage, we would have advised them to enter into one contract with the group company in respect of the full development project. One application for all outstanding sums due under that contract could then have been made and referred to adjudication.
Please don’t hesitate to get in touch with a member of the Construction team at Brabners to discuss how we can assist you with any of the issues covered in this article.
