I acknowledge that many of you will pick me up on the first part of the title of this week’s blog. As you may know, Sir Robert Akenhead is no longer a High Court judge but he has been sitting as a judge in the TCC due to the current shortage of judges in that court. In my view, his recent judgment in J Murphy & Sons v W Maher and Sons widens the scope of construction adjudication.
Murphy v Maher
Murphy employed Maher as its earth-shifting sub-contractor on a project at Trafford Park, Manchester under an amended form of NEC3 ECC sub-contract. Maher completed its works in September 2015 and, on 28 September 2015, submitted its final payment application number 21 for £763,980.
Maher said that during a telephone conversation on 12 November 2015, the parties agreed its final account in the sum of £720,000, and it later confirmed this by email. When Murphy didn’t pay Maher, Maher started an adjudication and Mr Paul Jenson was appointed by the RICS. Murphy objected to Mr Jenson’s jurisdiction on two grounds:
- Because the ANB specified in the contract (the TCC) was not an ANB, there was no contractual basis to apply to the RICS for an adjudicator and the Scheme for Construction Contracts 1998 applied.
- The dispute related to an alleged settlement agreement, which was a stand-alone agreement, and the adjudication provisions of the sub-contract (Option W2) did not apply to the alleged settlement agreement.
Maher accepted the first point and issued a second notice of adjudication under the Scheme for Construction Contracts 1998, and Mr Jenson was appointed once again. Murphy then started Part 8 proceedings seeking a declaration that Mr Jenson had no jurisdiction to adjudicate a dispute arising out of the alleged settlement agreement.
Are the adjudication clauses of the sub-contract effective?
Sir Robert had to deal with the question of whether the sub-contract’s adjudication provisions were still effective or whether they should be replaced by the provisions of the Scheme for Construction Contracts 1998 due to the reference to an ANB that had no power to appoint adjudicators, namely the TCC. You might be wondering why this question is relevant to the second adjudication. Well, the sub-contract’s adjudication clause permits disputes “arising under or in connection with this subcontract” to be referred to adjudication, which suggests a wider scope of dispute may be referred to adjudication than under the Scheme, which only refers to disputes arising “under the contract”.
Sir Robert described Murphy’s position as “very unmeritorious” because, having made the error of including an ineffective ANB in the sub-contract, it then raised the issue for the first time in the first adjudication and persuaded Maher to go down the Scheme route. That done, Murphy was then able to rely on the more restrictive wording of the Scheme concerning the scope of the disputes that can be referred to adjudication.
Sir Robert then analysed section 108 of the Construction Act 1998 and concluded that a reference to a body that could not nominate adjudicators did not offend sections 108(1) to (4) because:
“…those sub-sections do not as such require there to be a named adjudicator appointing entity.”
Sir Robert recognised that it was arguable that, in the absence of an agreed adjudicator and/or an agreed ANB, then there was no:
“…timetable with the object of securing the appointment of the adjudicator and the referral of the dispute to him within 7 days of such notice.”
However, he concluded that the parties had clearly agreed to refer disputes to adjudication and that nomination should be via a responsible body which offered that service, such as the RICS.
Therefore, despite the reference to an incorrect ANB, Sir Robert concluded that the sub-contract’s adjudication clause survived. It was common ground that the words “arising under or in connection with this subcontract” were broad enough to encompass the dispute arising under the alleged settlement agreement because that arose in connection with the sub-contract. As such, the adjudicator had jurisdiction to deal with the dispute concerning the alleged settlement agreement.
What about disputes arising “under” the sub-contract?
Sir Robert went on to address the position if the Scheme for Construction Contracts 1998 applied, where the scope of any adjudication was limited to disputes arising “under” the sub-contract. The judge analysed the Fiona Trust case, where the House of Lords considered an arbitration agreement that related to “disputes arising under this charter” and concluded that all disputes arising under or in connection with the contract in question could be referred to arbitration. Lord Hoffman said that:
“In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction.”
In Murphy, Sir Robert said that these principles should equally apply to adjudication, and set out some detailed reasoning at paragraph 31 of the judgment. He also made a valid point concerning settlement agreements:
“It would be extraordinary and illogical if the parties here or Parliament had intended that an otherwise properly appointed adjudicator would have jurisdiction if addressing what entitlement a contractor or sub-contractor might have to be paid in all circumstances save in relation to where a dispute arises as to whether that entitlement had been settled.”
What are the implications of Murphy v Maher?
It could be argued that Sir Robert’s comments on Fiona Trust are obiter because he had already decided that the original adjudication provisions survived. However, that is by no means clear and parties and their representatives are bound to heed the comments and their implications.
Up to now, it has been thought appropriate to operate a two-stage test when faced with jurisdictional challenges concerning alleged settlement agreements:
- Stage one. The first stage was to consider whether the settlement agreement was a variation to the original contract or a separate stand-alone agreement. If the settlement agreement was simply a variation to the original contract, then the dispute resolution provisions in the original contract would apply and the adjudicator could deal with the settlement agreement.
- Stage two. If the settlement agreement was a stand-alone agreement then the second stage was to consider the scope of the stand-alone agreement and its relationship to the original contract, as well as the wording of the adjudication provisions in the original contract.
The judgment in Murphy v Maher doesn’t make this two stage test irrelevant, as it may still be necessary to consider the scope of a stand-alone settlement agreement and its relationship to the original contract. However, it certainly makes it less relevant because the distinction between disputes arising under a contract and those arising under or in connection with a contract is no longer relevant.
Looking beyond settlement agreements?
However, when thinking about this judgment’s implications, we may need to look beyond the issue of settlement agreements and consider other matters that have previously been outside the scope of adjudication due to the narrow wording of adjudication clauses, for example claims for misrepresentation.
In Hillcrest Homes v Beresford and Curbishley (which I wrote about back in 2014), HHJ Raynor QC decided that a claim for negligent misstatement was outside the scope of an adjudication clause that only permitted disputes arising under the contract to be referred. It’s doubtful that would now be the case following Murphy v Maher. Interestingly, in Hillcrest, HHJ Raynor QC rejected a submission that Fiona Trust was applicable to adjudication because, unlike arbitration, statute imposes adjudication on the parties.
A possible appeal?
Given the potential implications of this judgment, the Sir Robert made it clear that he:
“…would be sympathetic to an application for permission to appeal, albeit only on the basis that it would be helpful for there to be an appellate decision on the issues raised and that it is arguable that previous decisions may leave some uncertainty in this arguably important area of construction law.”
Let’s wait and see what happens next.