Contract – Dispute resolution – Arbitration – Claimant seeking declaration that adjudicator having no jurisdiction to entertain dispute arising out of the alleged settlement agreement – Whether dispute concerning full and final settlement agreement between contractual parties of final account arising “under” sub-contract or alleged settlement – Claim dismissed
The claimant was engaged as a subcontractor to carry out shaft and tunnel work on a project at Trafford Park, Manchester. By a sub-subcontract, the claimant engaged the defendant to provide all labour plant, material and supervision to carry out spoil removal in relation to the project and in particular to piling, shaft and tunnel excavations. The sub-subcontract incorporated much of the NEC 3 Engineering and Construction Subcontract form (as amended). A payment schedule identified nine payments and corresponding due dates. Option W2 of the NEC3 Conditions provided: “Any dispute arising under or in connection with this subcontract is referred to and decided by the Adjudicator”. Part 1 of the Subcontract Data section identified the Technology and Construction Court (TCC) as the “Adjudicator nominating body”.
The defendant started work and made payment applications. The claimant paid £466,832, which was less than applied for. Although the defendant carried out further work pursuant to the subcontract its later payment applications were neither acknowledged nor paid. The defendant submitted its final payment application for a gross sum of £763,980.24 with a net sum of £297,149 said to be due. That application was neither acknowledged nor paid.
The defendant issued a first notice of adjudication pursuant to Option W2 noting that, as reference to the adjudicator nominating body was the TCC, an application would be made to RICS. An arbitrator was appointed and the referral document served. The claimant asked the arbitrator to resign firstly, because there was no contractual basis for the defendant to apply to RICS; and secondly because the arbitrator had no jurisdiction as the dispute was in relation to an alleged settlement agreement and had to be pursued through the courts. Further, there had been no settlement agreement as the dispute concerned payment under the existing subcontract.
The defendant applied to the RCIS for a new appointment, serving a second notice of adjudication stating that the dispute was referred pursuant to the Scheme for Construction Contracts. The claimant sought a declaration that the adjudicator has no jurisdiction under the Scheme to entertain a dispute arising out of the alleged final settlement.
Held: The claim was dismissed.
(1) The sub-subcontract arrangements as to adjudication were those adumbrated by the NEC standard form and were basically compliant with section 108(1) to (4) of the Housing Grants, Construction and Regeneration Act 1996. They permitted disputes arising under or in connection with the sub-subcontract to be referred to adjudication. Although that went wider than the 1996 Act, it covered what the Act called for. The only reason why the sub-subcontract might be said not to comply was that the sub-subcontract order (forming the basis of the contract between the parties) contained an accidental error, that the adjudicator nominating body was to be the TTC which had no statutory function or power to appoint.
The claimant’s position was unmeritorious. Having made the error of identifying an ineffective adjudicator nominating body in its order to the defendant (albeit not picked up by the defendant at the time), it then raised the error on the first attempt at adjudication suggesting that the Scheme should apply. The defendant then went down the Scheme route through its second notice of adjudication. The claimant was able to argue that a dispute relating to the alleged settlement agreement did not arise “under” the original sub-sub-contract, albeit a claim based on the alleged settlement would be covered by the original wording relating to what could be referred to adjudication because it would “arising under or in connection with” the sub-subcontract: Shepherd Construction Ltd v Mecright Ltd [2000] BLR 489, Quarmby Construction Co Ltd v Larraby Land Ltd (TCC Leeds 14 April 2003), Westminster Building Company Ltd v Beckingham [2004] EWHC 138 (TCC), [2004] BLR 163, Premium Nafta Products Ltd v Fili Shipping Co. Ltd “The Fiona Trust” [2007] UKHL 40 and McConnell Dowell Constructors (Aust) Pty Ltd v National Grid Gas PLC [2006] EWHC 2551 (TCC), [2007] BLR 92 and L Brown & Sons Ltd v Crosby Homes (North West) Ltd [2008] EWHC 817 (TCC); [2008] PLSCS 121 considered.
(2) Section 108(5) of the 1996 Act did not have the effect of avoiding the adjudication provisions in the sub-subcontract since they did not, as such, offend against section 108(1) to (4). Those sub-sections did not require there to be a named adjudicator appointing entity. They were concerned with a right to refer a dispute arising under the contract for adjudication under a procedure complying with section 108, and requirements for an adjudication notice to be given at any time, a timetable to secure appointment and referral within seven days of the adjudication notice, for decisions within 28 days (usually), for impartiality and for initiatives by the adjudicator for ascertaining facts and law. Additionally, the contract had to require decisions to be temporarily binding and for the adjudicator not to be liable save in very limited circumstances. As a matter of construction, the sub-subcontract clearly showed that the parties agreed unequivocally to adjudication and that, at least in the absence of an ad hoc agreement on a particular individual, it should be by way of a responsible institution which offered that service. It followed that the adjudication clauses in the sub-subcontract survived and were broad enough to cover a dispute arising under the alleged settlement agreement because that later agreement undoubtedly arose in connection with the original sub-subcontract: Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC); [2010] PLSCS 152 considered.
(3) In adjudication cases under the 1996 Act, the court had to start from the assumption that Parliament and the parties, as rational businessmen, were likely to have intended any dispute arising out of the relationship into which they had entered or purported to enter to be decided by the same tribunal. There was no logical reason for any difference in meaning or application between dispute resolution clauses, whether in arbitration or adjudication, which called for disputes arising “under” the contractual or statutorily imposed dispute resolution regime to be treated jurisdictionally differently from those “arising “out of” or “in connection with” the underlying regime. It followed that a dispute whether all or some of the alleged entitlements which one contractual party had against the other had been settled in a binding way arose “under” the original contract.
Accordingly, the claim failed and there would be judgment for the defendant and a declaration that the dispute set out in the second notice of adjudication could be referred to adjudication by the adjudicator under the sub-subcontract between the claimant and the defendant, evidenced by the order of the claimant to the defendant or under the Scheme for Construction Contracts.
Simon Hughes QC (instructed by Hawkswell Kilvington LLP, of Wakefield) appeared for the claimant; Edmund Neuberger (instructed by Pinsent Masons LLP) appeared for the defendant
Eileen O’Grady, barrister
Click here to read transcript: J Murphy & Sons Ltd v W Maher and Sons Ltd
