The New Year has brought with it two interesting decisions from the Technology and Construction Court (TCC) which provide useful guidance on parties’ rights to adjudicate. In Twintec Ltd v Volkerfitzpatrick Ltd [2014] EWHC 10 (TCC) the TCC held that because a letter of intent did not incorporate the terms of a particular sub-contract, the appointment of the adjudicator was not valid, thus its decision was open to challenge. Similarly, in Hillcrest Homes Ltd v Beresford and Curbishley Ltd [2014] EWHC 280 (TCC), the TCC denied a right to adjudicate on the basis that claims for negligent misstatement and misrepresentation were outside the ambit of the building contract's adjudication provisions.

An invalid appointment

Volkerfitzpatrick had instructed Twintec to construct the floor slabs for a new wine warehouse and bottling plant for Accolade Wines. Volkerfitzpatrick issued a Letter of Intent to Twintec which required that the sub-contractor carry out its works “in accordance with” a standard form sub-contract (DOM/2), with the intention that the Letter of Intent be superseded when the formal sub-contract was agreed. In the event, the parties did not enter into a formal sub-contract.

Accolade claimed that the floor was unfit for purpose and commenced proceedings for damages. Volkerfitzpatrick served notice of adjudication on Twintec for costs incurred in carrying out testing on the floor slabs to the tune of £850,000. In accordance with the adjudication clause in the DOM/2 sub-contract, Volkerfitzpatrick applied to the RICS to have an adjudicator appointed.

Twintec, however, challenged the appointment and applied for an injunction, claiming:

  1. that the adjudicator had been appointed under contractual terms which did not exist; and
  2. that the adjudication was oppressive and unreasonable.

The TCC agreed with Twintec’s primary argument and granted the injunction. It stated that if an adjudicator is appointed by a referring party by a process which is not in accordance with the construction contract, then that adjudicator cannot decide the dispute. Whilst the Letter of Intent did provide that Twintec should carry out the works in accordance with DOM/2 sub-contract, it did not give effect to the adjudication provisions.

However, the TCC rejected Twintec’s arguments that the adjudication was oppressive and unreasonable. The TCC said that if it were to find that the action of referring a dispute to adjudication was unreasonable and oppressive then the facts of the particular case would have to be exceptional. The adjudication had been brought at a time when the parties were involved in a multi-party dispute. In that litigation there was pressure to carry out tasks such as testing and disclosure, which brought with it additional, and often duplicated, costs. The TCC noted that whilst it had sympathy for Twintec, this was a burden parties to a “construction contract sometimes have to accept” and was not exceptional.

An issue that was indirectly considered was the merits of commencing adjudication proceedings at the same time as ongoing litigation. It is worth pointing out that the statutory right to adjudicate at “any time” (notwithstanding litigation proceedings) is settled law (see for instance Herschel Engineering Ltd v Breen Property Ltd [2000] BLR 2172 and Connex South Eastern v MJ Building Services Group plc[2005] EWCA Civ 193). It can indeed be a useful tactic in the right circumstances and one that is often overlooked.

Jurisdiction of an adjudicator

An interesting comparison to the Volkerfitzpatrick decision is the recent judgment in Hillcrest v Beresford and Curbishley. In that case the TCC was asked to determine whether an adjudicator’s decision was invalid and unenforceable because a claim for misrepresentation and/or negligent misstatement was not within the scope of the adjudication provisions contained in the building contract.

The parties had entered into a JCT Design & Build Contract. The employer’s requirements stated that the structural engineer’s appointment would be novated to the contractor when the building contract was executed, although the appointment did not contain a clear requirement. This did not happen immediately and when it did, practical completion had been achieved. Beresford and Curbishley, therefore, initiated adjudication proceedings claiming that the employer had made a negligent misstatement regarding the novation and that the misstatement was a misrepresentation – Beresford and Curbishley asserted that, as there was no contract between it and the structural engineer, all liability for the structural design would remain with Hillcrest as employer.

As can be seen from Volkerfitzpatrick, an adjudicator’s appointment and authority to decide on a particular issue is derived from a consideration of the Construction Act and from the express terms of the contract between the two disputing parties. The adjudicator initially granted declaratory relief, agreeing with the contractor that the employer had made a negligent misstatement, which amounted to a misrepresentation and entitled the contractor to recover damages.

Hillcrest, however, contended that the phrase “disputes arising under this contract” (which was the precise wording under the building contract) and which determined the adjudicator’s scope was not wide enough to include disputes which did not concern obligations created by or incorporated in that contract, or were otherwise “in connection with the contract”.

The TCC found force in that argument and held that the adjudicator had no jurisdiction to determine the claim for damages for misrepresentation, which did not arise under the contract – instead they arose under the common law of negligent misstatement or under the Misrepresentation Act 1967. The TCC decided therefore that it could sever the adjudicator’s decision (although it decided not to as it the adjudicator had found the novation to be void for other reasons).

Tying it all together

Both cases raise interesting points regarding a party’s right to adjudicate and the method of initiating such proceedings. 
The TCC’s decision in Volkerfitzpatrick reinforces the emphasis which is placed upon proper incorporation of construction contract terms, including a proper appointment procedure. If an adjudicator is not appointed properly, any decision it makes will later be open to challenge.

The decision in Hillcrest, on the other hand, casts some doubt on what can be referred to an adjudicator, particularly considering it appears to conflict with Akenhead J’s decision in Air Design v Deerglen [2008] EWHC 3047 (TCC) that the Fiona Trust principles (in that case the court held that there was no difference in substance between the two phrases “arising under” and “arising out of”) do apply to adjudication. Hillcrest evidently diverges from this reasoning and, as both decisions were at TCC level, there is now no clear precedent. It may be that the Hillcrest decision was simply a case on its own facts, so we would err on the side of caution when considering its applicability. It is, at the very least, a practical reminder of the need for parties to execute and complete any novation agreement at the time they originally contemplated doing so to avoid the risk of dispute.

It has long been accepted that legal costs in adjudication are not recoverable from the other party, even if your claim is successful. However, following the recent case of The Board of Trustees of National Museums and Galleries on Merseyside v AEW Architects and Designers Limited and PIHL Galliford Try JV [2013] EWHC 2403 (TCC) (see the case law round up at page 21 for further information) it seems that the costs of an adjudication can be recoverable in subsequent litigation. Parties who incur costs as a result of an adjudication may now be in a position to recover those losses as damages, providing it can be proved that adjudication:

  1. was reasonably foreseeable; and
  2. that there was a causative link between the failings of the defendant and the adjudication proceedings.

Neither of these criteria should be too difficult to establish.