In the following case, the court considered the meaning of the dispute resolution clause in the CG Works/1 Form of Contract; and the use of Part 8 proceedings during an adjudication to seek a declaration that the adjudicator had no jurisdiction to hear the dispute.
Banner Holdings Ltd v Colchester Borough Council  EWHC 139 (TCC)
The employer (Colchester) engaged the contractor (Banner) to build a visual arts facility in Colchester under GC Works/1 Form of Contract.
Disputes arose between the parties. The contract provided that the employer could determine the employment of the contractor for cause or at will. The employer determined the contractor’s employment under the contract on the basis of a number of contactor failures under clause 56. The contractor challenged the determination by commencing proceedings in the TCC in the autumn of 2009. A trial date was set for November 2010.
The employer separately issued a notice of adjudication seeking a declaration from the adjudicator that the contract had been validly determined for cause.
The contractor then issued Part 8 proceedings in the TCC seeking a declaration that the adjudicator had no jurisdiction to decide the dispute that had been referred to him on the basis that condition 59(8) of the contract expressly provided that an adjudicator did not have the power to overrule a decision of the employer in respect of a determination by the employer.
There were two issues before the court:
- Issue 1: Did the adjudicator have jurisdiction or did condition 59(8) of the contract expressly provide that the adjudicator could not overrule a decision of the employer concerning the determination of the contract.
- Issue 2: Whether the terms of the contract complied with section 108 of the Construction Act and if not should it be replaced with the provisions of the Scheme for Construction Contracts 1998 (Scheme).
Issue 1: construing the relevant provisions
The contractor argued that the employer was asking the adjudicator to vary a decision made by the employer under condition 56 (to determine the employment of the contractor) and that under condition 59 (8) (c) that was not something that the adjudicator had the power or jurisdiction to do.
Condition 59 (8) provided
“… the adjudicator shall have power to vary or overrule any decision previously made under the contract by the Employer …, other than …
(c) decisions of the Employer to give … notice of determination under Condition 56 (1) [determination for cause];
(d) decisions or deemed decisions of the Employer to determine the Contract under Condition 56 (8) [determination at will];
In relation to decisions in respect of those matters, the Contractor’s only remedy against the Employer shall be financial compensation.”
The employer submitted that all they were asking the adjudicator to do was find that the determination was valid under condition 56.
The court found that there was no question of the dispute falling outside the adjudicator’s jurisdiction. The court reasoned as follows:
- Condition 59 (8) (c) did not prevent the adjudicator considering whether the employer had validly determined the contract under condition 56 (1). Even if the adjudicator concluded that there had not been a valid determination for cause this would not at law amount to the varying or overruling of the original decision to terminate the contract. All the adjudicator would be doing would be to identify the status of the determination and its financial consequences. If the adjudicator came to the view that the determination was not for cause, then the determination would automatically be a deemed determination at will but that did not amount to a variation or an overruling of the original decision to determine.
- The draftsman of condition 59(8) intended to differentiate between the decision to terminate itself (which was not something that could be varied or overruled once it had been taken) and the consequences of that decision and the financial effect of the determination, which could be referred to adjudication.
- Condition 59(8) taken as a whole expressly preserved the contractor’s right to argue in an adjudication that the particular decision to terminate was wrong and that financial compensation should be made to them as a result of that wrong decision. The final part of condition 59 (8) “In relation to decisions in respect of those matters, the Contractor’s only remedy against the Employer shall be financial compensation” made it clear that the adjudicator could consider whether or not one of the listed decisions to terminate was correct because it would only be if the adjudicator concluded that the decision was wrong that the adjudicator would then be in a position to award the contractor financial compensation.
Issue 2: Did the provision comply with the Construction Act
Did condition 59 comply with the provisions of section 108 of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act)?
The court’s (obiter) view was that if condition 59 (8) was read as preventing the contractor from referring the dispute to adjudication then, the provision failed to comply with section 108 of the Construction Act. Condition 59 (8) sought to limit the adjudicator’s power and jurisdiction whereas section 108 contained no qualification or limit on the nature, scope and extent of the disputes that could be referred to adjudication under a construction contract.
In addition, the court considered that another part of condition 59 was also non-compliant with the Construction Act. This was condition 59 (5) which provided that the adjudicator’s decision should remain valid even if it was issued outside the 28 day statutory period for reaching a decision. The judge considered this to be non-compliant following the authorities of Epping Electrical Company Limited v Briggs & Forrester Plumbing Service Limited  EWHC 4 (TCC) and Aveat Heating Limited v Jerram Falkus Construction Limited  EWHC 131 (TCC), both of which we reported on in our February 2007 Updater.
Application of the Scheme: all or part
Section 108 (5) of the Construction Act provided that if the adjudication provisions of the contract did not comply with the Construction Act “the adjudication provisions of the Scheme for Construction Contracts [would] apply”.
There is a debate in the authorities as to whether section 108 (5) means either:
- that the provisions of the Scheme as a whole should apply; or
- that application of the Scheme should be limited to incorporation of those parts of the Scheme which were necessary to replace those terms which did not comply with the Construction Act, (sometimes called a piecemeal approach)
(see John Mowlem Limited v Hydra-Tight Limited  17 Const LJ 358 and Aveat Heating).
The court considered, albeit tentatively, that all the provisions of the Scheme (at least in relation to adjudication) should replace the contract terms regardless of how many (or how few) of those terms failed to comply with the Construction Act. The judge did not consider that the court should have to piece together a compliant set of provisions from two different sources.
There have been several cases recently where parties have issued Part 8 proceedings after an adjudication but this decision confirms that Part 8 proceedings can be brought during an adjudication. However, it remains the case that Part 8 proceedings should only be brought where there is unlikely to be a substantial dispute of fact.
The case also provides (obiter) confirmation that where there are non-compliant adjudication provisions in a contract, all the adjudication provisions in the Scheme will replace the contractual adjudication provisions.
Users of the GC/Works/1 contract should be aware of the observations of the court that Condition 59 (5) is likely to be held non-compliant with the Construction Act if it deprives a contractor from its right to adjudicate certain disputes.