Clark Electrical Ltd v JMD Developments (UK) Ltd

This decision concerned an ad hoc agreement to adjudicate and an adjudication challenge based on lack of jurisdiction. If an adjudicator acts without, or in excess of, his jurisdiction, any decision he reaches will be invalid. There are various reasons why an adjudicator may not have jurisdiction, for example, the contract was not a construction contract (as defined by the Construction Act), or because the adjudicator was not properly appointed.

The parties can agree that any adjudication will be conducted under the Construction Act (statutory adjudication), or by agreement as set out in the contract with an agreed nominating body and procedure (contractual adjudication). A third alternative is that the parties agree to adjudicate pursuant to a binding ad hoc adjudication agreement.

Clark sought to enforce an adjudication award made pursuant to an ad hoc adjudication agreement. JMD argued that there was no contractual right to adjudication and only an arguable right to a statutory adjudication and that the adjudicator was wrong to find that the parties had formed an ad hoc adjudication. Accordingly, JMD argued that there was no jurisdiction and that it was not bound by the award. Clark argued that JMD agreed to be bound by the adjudicator's decision by virtue of an email sent by JMD, together with payment of £6,000 by JMD for the adjudicator's appointment fee.

JMD argued that payment of the fee did not assist in determining whether there was an ad hoc agreement to abide by the adjudicator's decision in the full sense. As regards JMD's email, JMD was unfamiliar with the process, unrepresented and had not seen the documentation which should have been served on it. JMD subsequently instructed a consultant to act for it who immediately took the point that the subject matter of the works was excluded under section 105(2) of the Construction Act and the adjudicator consequently lacked jurisdiction. He also submitted that payment of the £6,000 by JMD was not to be treated as its acceptance of the adjudicator's jurisdiction.

Clark argued that JMD's protests were of no effect as they were made too late. JMD's email to the adjudicator requested an extension of time, guidance on responsibilities and procedures and proposals for moving forward. Consequently, JMD was participating in the adjudication process and submitting to the adjudicator's jurisdiction in the full sense.

The adjudicator made a non-binding decision on jurisdiction, holding that the works were excluded under the Construction Act and that there was an ad hoc agreement arising out of the payment of £6,000. JMD then challenged the adjudicator's non-binding conclusion and purported to terminate the contract with the adjudicator, denying any liability for his fees. The adjudicator proceeded to make an award in favour of Clark.

The judge reviewed a handful of relevant decisions and concluded that it is a question of fact whether a party submits to the jurisdiction of a third party. He also stated that where parties agree to be bound by the adjudicator's decision "in the full sense" they are agreeing to be bound by his decision on jurisdiction (subject to a later challenge).

Where the agreement is said to derive from correspondence, the court must construe the correspondence in accordance with the ordinary canons of construction. The courts must be vigilant to examine the arguments carefully. It is only if the defendant has advanced a properly arguable jurisdictional objection with a realistic prospect of success that he could hope to resist the summary enforcement of an adjudicator's award against him.

The judge was required to determine the meaning which would be conveyed to a reasonable adjudicator receiving JMD's email. The judge agreed with JMD that neither the email nor the payment of the fee by JMD constituted a submission to the jurisdiction of the adjudicator in the full sense. The adjudicator's decision on jurisdiction being based on an ad hoc agreement was wrong and the adjudication decision was not enforced.

Commentary

Although each case will be fact-specific, it is essential to seek legal advice as soon as possible so that jurisdictional challenges can be put forward in good time, failing which the challenge may be ineffective. In this decision, the judge appears to have attached considerable weight to the fact that JMD was unrepresented and unfamiliar with the process, but these arguments might not always work.