Whether third party rights could be enforced through adjudication


Section 1(4) of the Contracts (Rights of Third Parties) Act 1999 provides that a third party can only enforce a term of a contract in accordance with the other terms of that contract. Thus, a third party could only enforce a term of the contract in accordance with any arbitration clause in the contract. However, the difficulty is that the third party will not have been a party to any such arbitration clause and section 8 of the 1999 Act therefore specifically provides that a third party shall, for the purposes of the Act, be treated as if it is a party to the arbitration clause.

The issue in this case was whether the same principle applies to an adjudication clause in the contract. Ramsey J concluded that it does not. He drew a distinction between arbitration  and adjudication on the basis that arbitration is mandatory if chosen by the parties, whereas adjudication is voluntary,  “in the sense that one party to a contract may, but is not obliged to, have a dispute temporarily resolved, pending a final determination by the courts or, if applicable, arbitration”. Furthermore, there is no provision in the 1999 Act similar to section 8 for adjudication. Accordingly, the third party was  not obliged to have its dispute in relation to the contract determined by adjudication rather than litigation.

COMMENT: Although this decision is concerned with adjudication, the same principle would arguably apply  to other forms of ADR, including mediation (for which no special provision is made in the 1999 Act).