A recent TCC decision has ruled that the right of adjudication mandated by the Construction Act for disputes arising “under” a construction contact is to be interpreted broadly. The court’s decision largely adopts the approach now taken in relation to arbitration clauses after the House of Lords decision in the Fiona Trust case. The decision differs in this respect from a previous TCC decision and the law in this area remains in a state of uncertainty.

Fiona Trust and the Construction Act

Prior to the House of Lords decision in the Fiona Trust case (decided in 2007), the scope of an arbitration clause depended upon a careful interpretation of the words used in the clause. A clause referring to disputes arising “under” a contract had been held to be narrower than a clause referring to disputes arising “out of” or “in connection with” a contract. A dispute arising “under” a contract was not thought to include a dispute which did not concern obligations created by or incorporated in the contract in question. Such a dispute might be one going to the validity of the contract, such as whether it had been induced by misrepresentation or bribery. 

The application of such linguistic distinctions was rejected by the House of Lords. Instead:

“… the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal.”

Since the enactment of the Housing Grants Construction and Regeneration Act 1996 (the “Construction Act”) it has been unclear whether this approach would also apply to the right provided in section 108 of the Act to refer a dispute arising “under” a construction contract to adjudication at any time. In Air Design (Kent) Ltd v Deerglen (Jersey) Ltd, Mr Justice Akenhead suggested that Fiona Trust principles should apply. However, in Hillcrest Homes Ltd v Beresford and Curbishley Ltd, His Honour Judge Raynor QC considered the reasoning in Fiona Trust to be inapplicable to adjudication clauses which were present or implied by reason of statutory intervention. He found that the standard JCT adjudication clause, which mirrors the language of the Construction Act, did not permit a claim for misrepresentation to be referred to adjudication. 

In this most recent decision, Mr Justice Akenhead has provided further support for the application ofFiona Trust principles to adjudication clauses.

J Murphy & Sons Ltd v W Maher and Sons Ltd

Murphy and Maher entered into a subcontract in which Maher agreed to provide spoil removal services to Murphy. The subcontract incorporated much of the NEC 3 subcontract terms, including an adjudication clause covering disputes “under or in connection with” the subcontract. The parties fell into dispute over certain payments and Maher alleged that an agreed settlement had been reached. Murphy continued to withhold payment and Maher commenced adjudication proceedings seeking to recover payment in accordance with the alleged settlement. 

Murphy challenged the jurisdiction of the Adjudicator by reference to two arguments. Firstly, Murphy argued that the NEC based adjudication clause was invalid as the TCC had been named as the adjudicator nominating body when in fact it offers no such service. With the subcontract adjudication clause out of the way, Murphy argued secondly that the more limited right under the Construction Act to refer disputes arising “under” the subcontract did not extend to amounts agreed to be paid as part of an agreed settlement. Any such amounts, so Murphy argued, would arise under the settlement, not the subcontract.

The court rejected Murphy’s first argument in relation to the validity of the NEC based adjudication clause, but went on to consider whether the disputed settlement would have been caught in any event by the Construction Act right of adjudication for disputes arising “under” the subcontract. 

In reliance on the Fiona Trust decision, Mr Justice Akenhead concluded that the question of whether a settlement had been reached in relation to amounts due under a construction contract was a dispute arising “under” that subcontract. He noted that “the Courts at the highest level have strongly signposted a departure from [making] such … distinctions and that the Courts on adjudication cases should follow this direction.” 

Mr Justice Akenhead also provided more general guidance as to the applicability of Fiona Trust principles in other adjudication cases, stating that in all cases under the Construction Act the court should start from the same broad assumption applicable to arbitration clauses: “that [Parliament] and the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal”.

Mr Justice Akenhead considered it “most doubtful that Parliament and the parties would want as a rational legislature and business people respectively ‘only some of the questions arising out of their relationship were to be submitted to [adjudication] and others were to be decided by’ their chosen tribunal for the final dispute resolution.” 

Conclusions and implications

This decision provides the clearest indication yet that the right to adjudicate under the Construction Act and contractual adjudication clauses agreed as a result of it are to be interpreted in accordance withFiona Trust principles. The decision does not, however, make reference to the TCC’s previous decision inHillcrest Homes where a contrary conclusion was reached. For the time being, therefore, the application of Fiona Trust principles to adjudication remains an open question and may require authoritative determination from the Court of Appeal. 

A straight forward application of Fiona Trust principles to the Construction Act may also raise conceptual difficulties not addressed in the present decision. The tightly drafted exceptions to the statutory definition of “construction operations” mean that circumstances commonly arise where the Construction Act applies to only part of the work to be carried out under a given contract. In such circumstances, section 104(5) of the Construction Act provides that the Act applies to the contract“only so far as it relates to construction operations”

A direct application of Fiona Trust principles to the Construction Act is therefore complicated by the fact that for such “hybrid contracts” Parliament appears to have intended that the right to adjudicate would apply only in part. This is borne out by previous decisions of the TCC which have refused to enforce adjudication decisions given under such contracts where they have dealt with matters excluded from the definition construction operations under the Construction (a recent example from last year beingSeverfield (UK) Ltd v Duro Felguera UK Ltd).

References:

Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40 

Air Design (Kent) Ltd v Deerglen (Jersey) Ltd [2008] EWHC 3047 (TCC)

Hillcrest Homes Ltd v Beresford and Curbishley Ltd [2014] EWHC 280 (TCC) 

Severfield (UK) Ltd v Duro Felguera UK Ltd [2015] EWHC 2975 (TCC) 

J Murphy & Sons Ltd v W Maher and Sons Ltd [2016] EWHC 1148 (TCC)