Adjudication is an expedited dispute resolution procedure which applies to construction contracts in the UK. It is often described as a "pay first, argue later" mechanism for resolving disputes in the construction industry and is designed to protect cash-flow during the construction process with decisions being temporarily binding unless or until they are overturned by a court or arbitrator.
An adjudicator may either be named in the contract or appointed through an Adjudicator Nominating Body ("ANB"). When deciding whether to accept an appointment, an adjudicator must give thought to a number of issues that determine whether he has jurisdiction. These include:
- Is the contract a 'Construction Contract' within the definition of sections 104(1) and 105 of the Housing Grants, Construction and Regeneration Act 1996 (the "Act")?
- If the contract is not a Construction Contract under the Act, does the contract expressly provide a right of adjudication in any event?
- Has the adjudicator’s appointment been made in accordance with the contract? Has the referral been validly made?
- Has the dispute arisen 'under' the contract?
With regard to the final point, if the dispute is 'under' a document, such as a main building contract or an architect's appointment, the position is usually relatively straightforward; but what if the dispute relates to a collateral document that is not, in fact, a 'Construction Contract' in its own right?
In the recent case of J Murphy & Sons Ltd v W Maher and Sons Ltd  EWHC 1148 (TCC) the claimant challenged the jurisdiction of an adjudicator on the basis that the dispute referred to him had arisen ‘under’ the terms of a settlement agreement which was distinct from the contract. In this case the Court provided additional guidance on the scope of an adjudicator's jurisdiction.
The Claimant had engaged the Defendant under a contract which incorporated the NEC 3 Engineering and Construction Subcontract. The contract provided for "any dispute arising under or in connection with this subcontract" to be referred to adjudication.
During a telephone conversation on 13 November 2015, the parties agreed the Defendant's final account in the sum of £720,000. This figure was later confirmed by email. When the Claimant neglected to pay the Defendant, the Defendant started adjudication proceedings.
The Claimant objected to this on the following grounds:
- Firstly, the Claimant argued that the adjudication clause in the contract was invalid as the ANB specified in the contract (the Technology and Construction Court), did not in fact offer adjudication services and there was therefore no contractual right to apply for an adjudicator.
- Secondly, the Claimant submitted that the dispute arose from the allegedly binding final settlement agreement and that, as such, it did not arise "under" the contract and adjudication was not therefore applicable.
In response, the Defendant argued that the claim arose under the contract and that the settlement agreement merely amounted to a variation of the contract.
The Claimant commenced Part 8 proceedings seeking a declaration that there was no jurisdiction to adjudicate a dispute arising out of the alleged settlement agreement.
The Court had to deal with the following questions:
- Given that the ANB specified in the contract was invalid, was there any contractual basis to apply to the RICS for an adjudicator under the contract or did The Scheme for Construction Contracts (England and Wales) Regulations 1998 (the "Scheme") apply.
- Was the settlement agreement a stand-alone agreement or did it represent a variation of the original contract.
The first question was potentially relevant because the adjudication clause in the contract permitted disputes 'arising under or in connection with this contract' to be referred to adjudication whilst the Scheme only allowed for disputes arising 'under' the contract to be referred to an adjudicator. It had been considered that the latter was wider than the former.
The Court held that despite the reference to an invalid ANB, the adjudication clause in the contract survived. The parties had clearly agreed to refer disputes to an adjudicating body and there was therefore a clear jurisdiction for the adjudicator to deal with the dispute concerning the alleged settlement.
Presiding Judge, Sir Robert Akenhead, stated that even if the provisions of the Scheme had applied, adjudication over the settlement agreement would have been permitted as: “There is no logical reason for thinking that there should be any difference in meaning or application between dispute resolution clauses…..whether in arbitration or adjudication which call for disputes arising “under” the contractual or statutorily imposed dispute resolution regime to be treated jurisdictionally differently from those “arising “out of” or “in connection with” the underlying regime”.
What is apparent from the judgment is that there is no distinction between disputes arising 'under' a contract and those arising 'under or in connection with a contract' for the purposes of adjudication. This means that an adjudicator potentially has the power to deal with any dispute arising out of the contractual relationship between the parties where the 'core agreement' is a 'Construction Contract' and/or it contains an adjudication provision.
This in turn widens the scope of adjudication generally. Certain documents which have previously been outside the scope of adjudication due to the narrow wording of adjudication clauses (and are not themselves 'Construction Contracts’) may now be within the jurisdiction of adjudicators. The court must give effect to the commercial purpose of the adjudication clause and consider the likelihood that the parties will have intended for all disputes arising out of the contract to be decided by the same tribunal.
Practically it seems to widen the ambit of adjudication from 'traditional' construction agreements such as building contracts and professional team appointments to connected documents such as performance bonds settlement agreements and retrospective collateral warranties. It could even capture other associated ‘non-contract’ disputes such as misrepresentation.
If you would like any assistance or have any queries arising out of this article, please contact Paul Barge, Partner, in DWF's Construction & Infrastructure team on 0161 603 4984.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.