12/16-01/17 Adjudication 33 Adjudication: Dispute means dispute I\[^OH[KVLZKPZW\[LTLHU& Kate Corby, Partner, and Judith Mulholland, Senior Associate, Baker & McKenzie A look at the welcome JSHYPÄJH[PVUVUZVTL adjudication issues THE Technology and Construction Court has provided helpful guidance in two recent judgements about what matters can properly be referred to adjudication, which will be of interest to all users of adjudication, as well as practitioners and adjudicators. While the debate about jurisdiction will doubtless continue, the clarifications provided by the court in relation to (i) the approach to be taken when referring multiple disputes to the same adjudicator; and (ii) the ability to adjudicate disputes arising under settlement agreements are to be welcomed. In summary: • Care should be taken when referring more than one dispute to the same adjudicator; without the consent of all parties, an adjudicator may not have jurisdiction to preside at the same time over more than one dispute arising under the same contract and thus there is a risk that one or more of the decisions he or she renders will be unenforceable. • Adequate consideration should be given to what dispute resolution procedures govern settlement agreements, particularly those involving an agreement as to interim or final account payments, which may be construed as a variation to the underlying contract rather than formal settlement of a dispute. If the parties’ agreement in this regard is not made expressly clear, the default position may be that the contractual or statutory adjudication provisions will apply to the settlement agreement. The statutory adjudication regime By way of a reminder, section 108(1) of the Housing Grants, Construction and Regeneration Act 1996 provides as follows: “A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section.” Section 108(2)(a) goes on to provide that a party can: “...give notice at any time of his intention to refer a dispute to adjudication.” In order to comply with section 108 of the act, a construction contract must include a compliant adjudication procedure. If it does not, the default position is that all of the adjudication provisions of part I of the Scheme for Construction Contracts 1998 (England and Wales) Regulations 1998 apply. Paragraph 8(1) of part 1 of the scheme provides as follows: “The adjudicator may, with the consent of all the parties to those disputes, adjudicate at the same time on more than one dispute under the same contract.” The act does not define ‘dispute’ but previous case law has established that the reference to adjudication must relate to a single dispute only (albeit that the single dispute may involve a number of separate issues). This is the issue which was recently revisited in the Deluxe Art case1 discussed below. In the Murphy case2 , also discussed below, the court considered the meaning and effect of the section 108 requirement for any dispute referred to adjudication to arise “under the [construction] contract.” Deluxe Art v Beck Interiors Beck Interiors Limited was engaged as the main contractor on the refurbishment of the Lanesborough Hotel in London. In March 2014, it engaged Deluxe Art & Theme Limited (DATL) as a subcontractor to supply and install various joinery items in the hotel. 1 Deluxe Art & Theme Limited v Beck Interiors Limited (2016) EWHC 238 (TCC) 2 J Murphy & Sons v W Maher and Sons Limited (2016) EWHC 1148 (TCC) 34 Adjudication Civil Engineering Surveyor A number of disputes arose between the parties, which DATL referred to adjudication to be conducted under the scheme. In accordance with the Royal Institution of Chartered Surveyors’ policy of appointing the same adjudicator to deal with all the disputes under the same contract, Matthew Bastone was appointed in respect of the three adjudications and proceeded to give three separate decisions, all of which resulted in sums being awarded to DATL. Of particular relevance to the matters before the court was the fact that adjudication 3 had been commenced during the course of adjudication 2 (i.e. before the decision in adjudication 2 had been delivered). Beck had given notice shortly after the commencement of adjudication number 3 that it objected to the adjudicator dealing with two disputes at the same time. Subsequently, it failed to comply with the adjudicator’s second and third decisions and DATL commenced enforcement proceedings before the court. Beck resisted enforcement on the basis that, pursuant to paragraph 8(1) of the scheme and absent the parties’ consent, the adjudicator did not have jurisdiction to adjudicate on more than one dispute at the same time. Judgement Mr Justice Coulson first considered whether adjudications 2 and 3 constituted a single dispute between the parties (as submitted by DATL), or in fact encompassed two separate disputes (as submitted by Beck). To the extent that they were found to be a single dispute, Beck’s jurisdictional argument would fail. The court found that there were two separate disputes on the bases that (i) it was evident that DATL itself thought that there were two separate disputes (and had submitted two separate adjudication notices)3 ; (ii) the adjudicator had ruled that they were two different disputes and DATL could not, while seeking to enforce the terms of decision 2, ignore that part of it which concluded that the disputes were separate; and (iii) the claims in dispute 2 could easily be decided without reference to the claim in dispute 3. Acknowledging the conventional view that an adjudicator only has jurisdiction to deal with a single dispute at any one time, Mr Justice Coulson went on to consider whether the adjudicator in this case had jurisdiction to deal with disputes 2 and 3 simultaneously. He found, citing paragraph 8 of part 1 of the scheme, that the adjudicator did not have such jurisdiction absent the consent of all parties; Beck’s consent had not been given and therefore the adjudicator did not have jurisdiction over dispute 3. On the basis of lack of jurisdiction, the court found that the third adjudication decision was unenforceable. This did not, however, affect the enforceability of decision 2, where jurisdiction was established (and was not affected by the erroneous acceptance of jurisdiction over dispute 3). Mr Justice Coulson also rejected an argument made by DATL that there was an inherent conflict between section 108(2)(a) of the act and paragraph 8 of the scheme; he noted that the parties are still free to refer a dispute at any time, it is simply the case that if one of them wants to refer more than one dispute at the same time to the same adjudicator, the other party’s consent is required. Take-away The Deluxe judgement makes clear that if parties wish to refer more than one dispute to the same adjudicator to be dealt with separately but simultaneously under the scheme, this requires their mutual consent. Without such consent, the adjudicator will not have jurisdiction and any decision made will thus be unenforceable. In practical terms, if it is not possible for the parties to agree the position, but the referring party nonetheless wants the same adjudicator to be appointed over a subsequent dispute, that party will have to hold off on issuing a new adjudication notice until any previous decision has been received and the pre-existing adjudication consequently concluded. Adjudicators would also be well-advised to confirm that the parties have agreed to any concurrent appointment being made before accepting multiple references to adjudication under the scheme. Murphy v Maher J Murphy & Sons was engaged by Balfour Beatty as a subcontractor to carry out shaft and tunnel work at Trafford Park in Manchester. Murphy subsequently appointed W Maher & Sons as a sub-subcontractor to remove spoil from the site. The sub-subcontract incorporated much of the New Engineering Contract third edition Engineering and Construction Subcontract form, including the standard form adjudication provisions contained in option W2: “Any dispute arising under or in connection with this subcontract is referred to and decided by the adjudicator.” A dispute arose between the parties in relation to outstanding payment instalments allegedly due under the subcontract, which Maher threatened to refer to adjudication. The parties subsequently agreed the final account and the balance due to be paid to Maher, 3 The judgement notes that there is no authority to support the proposition that two different disputes, submitted in two separate adjudication notices, could still be part of the same dispute. 12/16-01/17 Adjudication 35 did have jurisdiction over the dispute. In reaching this decision, the judge relied on the principles approved by the House of Lords in the Fiona Trust4 case. In that case, it was held that it would be contrary to commercial common sense to interpret arbitration provisions narrowly so as to draw a distinction between the meaning of the phrases ‘arising under’ and ‘arising out of’. Rather, the court found that the starting point when construing an arbitration clause should be an assumption that the parties (as rational businesspeople) intended any dispute arising out of the relationship into which they entered to be decided by the same arbitral tribunal. The court in Murphy confirmed that the same approach should apply to adjudication decisions, noting that there was no logical reason for disputes arising ‘under’ the contractual or statutory dispute resolution regime to be treated differently to disputes arising ‘out of or in connection with’ the underlying regime. The judge considered that the parties and Parliament would not have intended for a dispute relating to settlement of a final account to be subject to a separate adjudication procedure. To draw this distinction would be “commercial and policy nonsense” as it would prevent parties from being able to adjudicate over interim or final account payments initially agreed in a binding way, but later challenged on some basis and thus remaining unresolved. Take-away The Murphy case is a good example of the potentially broad scope of the types of dispute that may be referred to adjudication on the basis that they arise ‘under or in connection with’ a construction contract. This should be borne in mind in particular when using the option 2 wording in NEC3. It also illustrates, yet again, that the court’s favourable view of alternative dispute resolution procedures will influence the way in which it interprets those provisions. To the extent that parties want a different dispute resolution provision to apply in respect of any settlement agreement entered into, they should take care to make this expressly clear and should also document whether the agreement reached is intended as a variation to their original agreement or in full and final settlement of any disputes that have arisen between them. Lastly, the case serves as an always helpful reminder for those responsible for contractual drafting to take care when drafting seemingly standard dispute resolution provisions. Much of the debate in the Murphy case (and thus the associated time and cost of the proceedings) could have been avoided had the ANB been correctly stated from the outset. Kate Corby, Partner, and Judith Mulholland, Senior Associate, Baker & McKenzie Kate.Corby@bakermckenzie.com www.bakermckenzie.com @bakermckenzie Kate Corby is the ICES honorary solicitor. 4 Premium Nafta Products Ltd & Ors v Fili Shipping Company Ltd 7 Ors (2007) UKHL40 and recorded their agreement by email. Murphy did not, however, follow through on its assurance that it would proceed to close the account and failed to pay Maher the final sum as agreed. Maher therefore wrote again to Murphy to provide its gross valuation of the final account (not referring to the amount previously agreed) and then proceeded to refer the payment dispute to adjudication under the contractual adjudication provisions. On the basis that these provisions had erroneously appointed the TCC as the adjudicator nominating body (ANB), Maher applied to RICS for an adjudicator to be appointed, and Mr Paul Jensen was subsequently appointed. Murphy wrote to the adjudicator raising two jurisdictional issues and requesting his resignation. They noted that (i) there was no contractual basis to apply to RICS for the appointment of the adjudicator and, as a result of the deficiencies in the adjudication clause, the provisions of the scheme applied in their entirety; and (ii) the dispute arose in relation to the parties’ alleged settlement agreement, not the sub-subcontract, and since that was not a construction contract, the claim should be pursued through the courts. Maher’s pragmatic response was to start the adjudication again by issuing a second adjudication notice, this time pursuant to the scheme (which, as noted above, permits reference to adjudication of any dispute arising ‘under’ the contract). After resigning from his original appointment, Mr Jensen was once again appointed as adjudicator. Murphy maintained its challenge to Mr Jensen’s jurisdiction and applied to the TCC for a declaration to the effect that he had no jurisdiction under the scheme to entertain a dispute arising out of the alleged settlement agreement. The court therefore had to determine whether the contractual adjudication provisions were deficient (meaning the scheme applied) and whether the dispute between the parties was one ‘under’ the sub-subcontract which could properly be referred to adjudication. Judgement Sir Robert Akenhead found that the error in the contractual reference to the TCC as the ANB was not fatal to the adjudication provisions contained in the subsubcontract, as the statutory regime does not require the parties to name an ANB and it was open to the parties to apply to a ‘responsible institution’ (including RICS) to make the appointment. On this basis, he held that the adjudication provisions of the sub-subcontract survived. The judge also decided that the settlement agreement fell under the original sub-subcontract (rather than being a standalone agreement) and therefore declared that the adjudicator It would be contrary to commercial common sense to interpret arbitration provisions narrowly so as to draw a distinction between the meaning of the phrases ‘arising under’ and ‘arising out of’.