In these Part 8 proceedings, J. Murphy & Sons Ltd (“Murphy”) challenged the jurisdiction of an adjudicator on the basis that the dispute referred to him had arisen under the terms of a settlement agreement that was distinct from the sub-sub-contract and therefore did not fall under that sub-sub-contract’s adjudication clause.
Murphy engaged W. Maher and Sons Ltd (“Maher”) pursuant to a sub-sub-contract which incorporated much of the NEC 3 Engineering and Construction Subcontract form (June 2005 with June 2006 and September 2011 amendments) to carry out spoil removal in relation to piling, shafting and tunnel excavations. The sub-sub-contract provided for 9 dates for interim payments with the final interim payment becoming due in June 2014, but did not provide any dates thereafter. Option W2 for the NEC3 Conditions provided that: “Any dispute arising under or in connection with this subcontract is referred to and decided by the Adjudicator”. Part 1 of the completed Subcontract Data section identified that the TCC was to be the “Adjudicator nominating body”.
Although Maher carried out works well past the final interim date for payment up until September 2015, Murphy neither acknowledged nor paid any of Maher’s interim payment applications submitted after the 9th date identified under the contract. Maher submitted to Murphy its final payment application (No.21) on 28 September 2015 for a gross sum of £763,980.24 with a net sum of £297,149 said to be due. There followed a large amount of correspondence in which it was alleged by Maher that a “final account sum” was agreed at £720,000. Murphy again failed to pay the remaining net payment, and Maher referred the dispute to adjudication.
Maher’s first referral had been made pursuant to the sub-sub-contract, and Murphy responded by challenging the adjudicator’s jurisdiction on the basis that the sub-sub-contract had included the TCC as the nominating body and so the adjudication provisions were deficient and the Scheme would apply. Taking a pragmatic approach, Maher made a second referral pursuant to the Scheme which differed from the sub-sub-contract in the important respect that it permitted referrals of “any dispute arising under the contract” to adjudication rather than the wider wording of allowing any dispute arising “under or in connection with” the contract to be referred. Murphy made a jurisdictional challenge to the second notice of adjudication on the basis that the adjudicator had no jurisdiction under the Scheme to entertain a dispute arising out of the alleged final settlement, and then launched Part 8 proceedings for a declaration to that effect.
There were two issues for Sir Robert Akenhead (Sitting as a Judge of the Technology and Construction Court) to decide:
- Whether the adjudication provisions within the sub-sub-contract were deficient and the Scheme would apply; and
- Whether a dispute regarding the alleged settlement agreement was a dispute “under” the sub-sub-contract.
Issue 1: Did the adjudication provisions of the Scheme apply?
The challenge to the adjudication provisions within the sub-sub-contract was predicated solely on the basis that the TCC had been identified as the adjudicator nominating body when it had neither the power nor the statutory authority to appoint an adjudicator. Whilst Section 108 of the HGCRA 96 required there to be a timetable to secure appointment and referral within 7 days of the adjudication notice, there was no explicit requirement that an adjudicator nominating body be identified within the contract. Accordingly, Sir Robert Akenhead determined that the adjudication clauses within the sub-sub-contract would survive as the parties had, in any case, agreed that there should be adjudication and there should be an adjudicator nominating body to appoint the adjudicator:
“As a matter of construction of the sub-sub-contract, it is clear that the parties agreed unequivocally that there could and should be adjudication and that, at least in the absence of an ad hoc agreement on a particular individual, it should be way of a responsible institution which offered that service; the obvious such body is the RICS but the ICE, the RIBA, TECBAR and TeCSA are equally responsible.”
Issue 2: Was a dispute regarding the alleged settlement agreement a dispute “under” the sub-sub-contract?
It was conceded by counsel for Murphy that if the provisions of the sub-sub-contract survived, then the alleged settlement agreement clearly arose “in connection with” the sub-sub-contract and so would fall under the adjudication clause therein. However, if the Scheme applied and the parties could only adjudicate disputes “under” the sub-sub-contract, Murphy contended that the alleged settlement agreement would not fall under the adjudication provisions.
Sir Robert Akenhead started by reviewing the authorities on the matter and concluded that the question came down to whether the proper construction of the alleged settlement agreement was a variation of the original sub-sub-contract or instead a stand alone agreement that compromised matters under the original sub-sub-contract and therefore had the effect that those disputes ceased to exist under the sub-sub-contract. He conceived of four possibile permutations for the alleged settlement agreement:
- A final and binding agreement in relation to the value of work carried out by Maher to date or to the date of Application No 21, with the net balance payable.
- A temporarily binding agreement to similar effect, whereby there could be a final reckoning at a later stage.
- A non-binding but mutual recognition that £720,000 represented an agreeable final account sum.
- There was no discussion let alone agreement about £720,000 being an acceptable amount.
If possibilities (c) or (d) had transpired, then there could be no separate contractual agreement to the sub-sub-contract and Murphy’s challenge would invariably fail. If possibility (b) had transpired, then there was equally no basis for challenging the adjudicator’s jurisdiction as monthly payments were agreed between employers and contractors all the time in construction projects and it was quite clear that disputes concerning interim payments could be referred to adjudication. If possibility (a) had transpired, it was uncertain whether this settlement agreement would fall “under” the original sub-sub-contract.
Sir Robert Akenhead ultimately decided that the settlement agreement would fall under the original sub-sub-contract, placing heavy reliance on the House of Lords decision in the Fiona Trust case which related to arbitration agreements rather than adjudication. It was exceedingly unlikely that either business people or the legislature would have intended the adjudication clause to bite only on some disputes arising in connection with the sub-sub-contract and not on others, as such a result flouted common sense:
“It is 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. If there “is no rational basis upon which [Parliament and] businessmen would be likely to wish to have questions” about entitlement under the original contract to be “decided by one tribunal and questions about” whether some or more of claims arising under that contract had been “decided by another, one would need to find very clear language before deciding that they must have had such an intention.”
As there was no clear wording under the Scheme to suggest the opposite, Sir Robert Akenhead considered that all disputes arising in relation to the original sub-sub-contract would be construed as disputes “under” the sub-sub-contract. This position was bolstered by his contemplation that “the Courts at the highest level have strongly signposted a departure from such previous distinctions and that the Courts on adjudication cases should follow this direction.” Accordingly, Murphy’s jurisdictional challenge on this ground would fail.
Sir Robert Akenhead therefore granted the declaration that “the dispute set out in the notice of adjudication dated 19 April 2016 can be referred to adjudication by the adjudicator, Mr Paul Jensen, under the sub-sub-contract between the Claimant and the Defendant, evidenced by the Order dated 25 February 2014 of the Claimant to the Defendant or under the Scheme for Construction Contracts.”
By way of final remark, he also noted that he would be “sympathetic” to an application for permission to appeal on the basis that it would be helpful for there to be an appellate decision on the issues raised, particularly because the previous case law may have left some residual uncertainty in this area of the law.