Practical Law

When I was a kid, Top Trumps were all the rage. I know from my own boys that they still are. Back then, it was all about whether you had the fastest car or the most popular footballer (even Star Wars characters featured, but how did you decide if Hans Solo was better than Princess Leia?). Now, just about every topic is covered by a set of cards.

I mention this because a recent TCC judgment demonstrates that the arbitration clause in the JCT standard building contract can “trump” a Part 8 application for declaratory relief, with the court granting a stay of those Part 8 proceedings.

Maelor Foods Ltd v Rawlings Consulting (UK) Ltd

I should mention at the outset that Maelor Foods Ltd v Rawlings Consulting (UK) Ltd is a case that involved Jonathan as the adjudicator. Although he was primarily asked to determine a dispute arising out of works carried out at the employer’s (Maelor) meat processing plant in Wrexham, he also had to consider whether:

• He had jurisdiction to deal with the dispute because it was alleged that the sum the contractor (Rawlings) claimed arose under a number of different contracts, rather than just one (a JCT Standard Form Contract with approximate quantities, 2011 Edition, entered into in August 2016).
• Rawlings’ interim payment application number 6 (IA 6) was invalid because it related to amounts arising under different contracts, and the payment notice was invalid because it was served after an invalid application for payment.

In Jonathan’s decision dated 21 June 2018, he accepted that if more than one dispute had been referred to him, or if disputes under different contracts had been referred to him, then he would not have jurisdiction to determine the dispute(s). However, he felt he did have jurisdiction to determine the question of whether the matters referred to him had arisen under separate contracts or just one.

Ultimately, he decided that the various items in dispute arose under variations to the August 2016 contract, rather than under separate contracts. Thus he had jurisdiction and it followed that he could deal with the payment dispute, concluding that the contractor’s payment notice was valid. As the employer had failed to serve a pay less notice, the contractor was entitled to the £720,300 it claimed.

Part 8 declaratory relief application

As the judge (HHJ Eyre QC) noted, the employer’s Part 8 application “followed hard on the heels of that award”.

The Part 8 application is interesting because of its terms (which are crucial to the court’s finding, as we shall see later), including that:

“The employer’s objections to the adjudicator’s decision will be relied upon in defence of any enforcement proceedings. (Paragraph 2.)

… the employer seeks the court’s determination of issues of law which arose in the adjudication. (Paragraph 3.)

The adjudicator rightly accepted that in order to succeed in a reference the IPN had to be contractually valid, but wrongly decided that the IPN was valid and purported to award the sum sought to the contractor. (Paragraph 14.)

The employer contends that the IPN was contractually invalid and, in respect of the jurisdiction issue, the sum sought, or any sum, should not have been awarded. (Paragraph 15.)”

The employer sought three declarations: that the IPN was invalid, that the adjudicator’s decision on that point (that it was valid) was wrong in law and that no sums were due to the contractor.

Application for a stay

In response, the contractor applied for a stay of the Part 8 proceedings. It relied on Articles 7 and 8 of the parties’ contract (which define adjudication and arbitration and set out how disputes should be dealt with) and section 9 of the Arbitration Act 1996:

• According to Article 7, a party may refer a dispute that “arises under this contract” to adjudication (“at any time“, pursuant to section 108 of the Construction Act 1996).
• Under Article 8, any dispute “arising out of or in connection with this contract” should be referred to arbitration (using CIMAR), except if the dispute or difference is:
  

  “… in connection with the enforcement of any decision of an adjudicator.”

• Section 9 of the Arbitration Act provides that a party can apply to the court to stay proceedings that have been brought “in respect of a matter which… is to be referred to arbitration”. The court will grant a stay unless the arbitration agreement is “null and void, inoperative, or incapable of being performed”.

So you can see where this line of argument was going. Should the parties’ dispute be stayed to arbitration, or was the claim really about the enforcement of an adjudicator’s decision? If so, then there could be no section 9 stay because the claim would not be covered by the parties’ arbitration agreement (it would fall within the Article 8 exception I’ve mentioned).

Does the dispute fall within Article 8’s adjudication exception?

On the question of whether the Part 8 dispute was within the arbitration clause’s adjudication exception, it was interesting to note that both parties agreed that there was no authority dealing directly with the point and that the court’s decision:

“… as to construction and the application of that wording is to be reached as a matter of applying basic contractual principles: considering the context in which adjudications are enforced and challenged; and addressing the construction of the language on general principles.”

In reaching the conclusion that the dispute was not within the exception, the judge gave a number of reasons:

• The clause used the phrase “the enforcement of”. That choice of language effectively limited the exception’s scope and was consistent with the “pay now, argue later” ethos of the Construction Act 1996, as referred to by Chadwick LJ in Carillion Construction v Devonport Royal Dockyard. It meant that the parties had excluded from arbitration an application to enforce an adjudicator’s decision and “a line of defence which relates closely and directly to enforceability of such an award”.
• The wording of the Part 8 claim and the distinction drawn between defending the enforcement proceedings (paragraph 2) and seeking the court’s “determination of issues of law which arose in the adjudication” (paragraph 3). (These were set out in paragraph 17 and related to the validity of the payment notice and the correctness of the adjudicator’s decision.)

The judge also rejected the argument that using Part 8 in a pre-emptive way to defeat enforcement of the adjudicator’s decision (as was the case in Geoffrey Osborne v Atkins Rail) was a matter relating to “enforcement as such”, and suggested that it could not “prevail against the wording of the arbitration clause”. Rather, if Part 8 was used in that way, it might “render nugatory the relief awarded by way of enforcement”, but it did not mean that it was a dispute or difference in connection with enforcement. The judge noted that the real issue is:

“… whether the Part 8 claim is the subject of a matter that is caught by the arbitration clause.”

One or multiple contracts?

The judge dealt with the “how many contracts” point in just three short paragraphs. He agreed with Jonathan (and the contractor) that the dispute was about one contract (the August 2016 contract) and it was a dispute about a contract where there was an arbitration clause.

(This issue was addressed in more detail in HHJ Stephen Davies’ subsequent judgment, which I’ll be looking at another time.)

Take-aways from the judgment

Although the case may turn on the language used in the parties’ contract, given it was standard JCT wording, its implications could be far reaching.

As I see it, this is likely to depend on how a party defines its Part 8 claim. Arguably, the employer here could have phrased its Part 8 declaratory application differently, and then the court may have found that dispute was:

“… in connection with the enforcement of any decision of an adjudicator.”

I also wonder whether the outcome ties in with the recent trend of the TCC judges making clear that the use of Part 8 is restricted to certain situations and isn’t perhaps the get out of jail card some people think. (I also recall before Dyson J decided Macob v Morrison, there was some discussion about whether enforcement of an adjudicator’s decision where there was an arbitration clause would have to be done via an arbitrator…)