REUTERS | Alexander Demianchuk

Adjudication: a bag of tricks, or treats?

In Glendalough Associated SA v Harris Calnan Construction Co Ltd, Edwards-Stuart J considered three issues:

  • The meaning and effect of “an exchange of written submissions” for the purposes of section 107(5) of the Construction Act 1996.
  • The ingredients of construction contracts under section 107(2)(c) of the Construction Act 1996.
  • When a court will “interfere” with the adjudication process.

The circumstances surrounding this adjudication were, to adopt the court’s description, “unusual”. The outcome underlines that jurisdictional challenges need to be made at the outset and that the court will only interfere with the adjudication process in the most clear-cut of cases. 

Glendalough Associated SA v Harris Calnan Construction Co Ltd

On 1 July 2013, Glendalough’s solicitors issued a withholding notice asserting HCL was 64 weeks in delay and applying liquidated damages of £250,000. HCL disagreed and, in August 2013, referred the dispute to adjudication seeking a declaration that there was no entitlement to deduct liquidated damages and that the sum deducted should be repaid.

So far, not so unusual. The curiosity arises out of the way in which the adjudication evolved.

HCL’s notice of adjudication made no mention of any contract and the referral itself stated, badly, that:

“By an agreement [Glendalough] employed [HCL] to carry out the construction of a Residential Block and B1 Studios at 121-127 Church Walk, London.”

In its response, Glendalough admitted this paragraph of the referral, although it asserted the contract was on the JCT 2009 Standard Building Contract Terms with Quantities.

There then followed much “to-ing and fro-ing”, with a reply, rejoinder and surrejoinder being served:

  • In its rejoinder, Glendalough maintained the contract was in the JCT 2009 form but, as far as HCL contended the parties were bound by a letter of intent, argued that was not and could not be a construction contract in writing. As such, the adjudicator had no jurisdiction.
  • In the surrejoinder, HCL maintained that the parties were bound by a letter of intent and that the adjudicator had jurisdiction.

Glendalough focused on certain statements HCL made in its surrejoinder, arguing that HCL had admitted that the letter of intent was not a construction contract. However, the adjudicator disagreed and stated he would determine which contract terms applied. Faced with the adjudicator’s decision to proceed, Glendalough sought declarations that the adjudicator lacked jurisdiction, alternatively that the adjudicator’s decision would be a nullity and that the court should injunct HCL preventing it taking any further steps in the adjudication.

Section 107(5): put up, or shut up

The first point Edwards-Stuart J considered was the meaning and effect of section 107(5), which provides:

“An exchange of written submissions in adjudication proceedings… in which the existence of an agreement otherwise than in writing is alleged by one party… and not denied by the other party in his response… constitutes as between those parties an agreement in writing… “

The issue was whether a party could raise a section 107(5) jurisdiction point after pleadings had closed.

The oddity here was that HCL did not refer to a contract at all. It referred to an agreement but it gave no clue as to whether that agreement was in writing or made orally. It followed that the agreement may have been made “otherwise than in writing”.

Critically, Glendalough admitted in its response that there was an agreement, but asserted it was in the terms of the JCT 2009 form. It did not assert that the contract was not in writing for the purposes of section 107(5). Glendalough argued that it could not take the point earlier because HCL’s case on contract formation only became clear in its surrejoinder.

Principles applicable to section 107(5)

Having considered a raft of cases, the court concluded that the correct approach to section 107(5) was as follows:

  • If there was no suggestion that the relevant agreement was made otherwise than in writing, section 107(5) was not engaged.
  • Where a referral did not refer to an agreement being clearly in writing and the pleaded description of the agreement was consistent with the assertion of an agreement being “made otherwise than in writing”, then section 107(5) was engaged.
  • If the responding party wished to contend that there was no agreement in writing, that point must be taken in its response.
  • A general reservation of rights was not sufficient to keep this point alive. A party must reserve its position expressly as to the absence of an agreement in writing. After all, if a responding party contends there was no agreement in writing, it would be able to assert that, regardless of the terms of the referral.
  • In the absence of any denial or effective reservation of rights, the effect of section 107(5) was that the parties were taken to have agreed that there was a contract in writing between them.
  • If a party accepted in its response that there was a contract in writing, it was no longer open to either party or the adjudicator to assert or decide that the adjudicator has no jurisdiction because there was no agreement in writing.

Applying those principles, the court held that the terms of the referral were sufficiently broad to engage section 107(5). As Glendalough did not deny the existence of an agreement in writing, it was no longer open to it to contend otherwise. Coulson J’s judgment in SG South Ltd v Swan Yard (Cirencester) Ltd provided support for this:

“… [section 107(5)] appeared designed to prevent the responding party, who has accepted the adjudicator’s jurisdiction notwithstanding the absence of a clear contract in writing, from going back on his concession.”

Thus, the court’s interpretation of section 107(5) underlines that jurisdictional challenges need to be made at the outset.

Interestingly, the court expressed limited disagreement with HHJ Bowsher QC’s judgment in Grovedeck Ltd v Capital Demolition Ltd [2000] BLR 181, where it had been held that for the purposes of s.107(5), the exchange of written submissions in arbitral proceedings referred to earlier proceedings. The court concluded that on a purposive reading of section 107(5), it must apply equally to exchanges within the proceedings under consideration.

This decision offers clarity on what has been described as an opaque provision. It underlines that if jurisdictional challenges are not taken accurately and early, a responding party will lose the opportunity to pursue those challenges at any later stage, whether by way of an injunction in the course of proceedings or at enforcement.

Section 107(2)(c): are construction contracts different to a common law contract?

While expressly stating the point was not being decided, the court noted that the Court of Appeal’s judgment in RJT Consulting Engineers v DM Engineering Ltd suggested that the ingredients of a construction contract (within the meaning of the Construction Act 1996) may be more stringent than the common law requirements. (RJT established that in order to engage 107(2)(c), all the relevant terms agreed must be recorded in the relevant document or documents.)

Glendalough had asserted that the letter of intent was not a construction contract and had relied on the judgment in Hart Investments Ltd v Fidler and another [2006] EWHC 2857 (TCC). However, the court referred to paragraph 2.76 of Coulson on Construction Adjudication, where doubt is cast on that earlier decision and it is said that a letter of intent can amount to a construction contract. It held that while each case will turn on its particular facts, for there to be a construction contract within the meaning of section 107(2)(c), there must be agreement on at least four essential items: the parties, the scope of work, the price and time.

To injunct, or not to injunct, that is the question…

Having considered the terms of the letter of intent, the court:

  • Observed that while it appeared the requirements of section 107(2)(c) were satisfied, it declined to decide the point as that was an issue before the adjudicator.
  • Made it clear that if it had been satisfied that the letter of intent was not a construction contract, it would have considered whether it was just and appropriate to make a declaration to that effect and thereby pre-empt the adjudicator’s decision. However, as no clear conclusion had been reached, there was no question of making such a declaration.

In the course of argument the court noted that if the adjudicator concluded that the letter of intent was a construction contract, Glendalough would be stuck with the decision. It would be an answer to the correct question (as opposed to an answer to the wrong question). The ability to issue an application to injunct proceedings should not be used to stop an adjudication because a party fears it will not like the adjudicator’s ultimate decision.

The court’s decision to leave the adjudicator to reach his decision unfettered (save in relation to the section 107(5) point) underlines, once more, that the court will only interfere with the adjudication process in the most clear cut of cases. Where there is any doubt as to whether the issue is clear cut, the adjudication should be allowed to proceed, the parties being at liberty to reserve their positions appropriately and take such points upon enforcement.

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