Adjudication was originally conceived as a quick and convenient means of resolving disputes during the life of a project. Increasingly, adjudication has become popular as a means of resolving disputes after practical completion.
But what about disputes concerning the termination of the contract itself?
In Ericsson AB v EADS Defence and Security Systems Ltd, Akenhead J considered contractual dispute resolution provisions in his determination of various applications for interim relief arising out of a threat to terminate a contract for the supply of computer software.
The facts were as follows:
- EADS was appointed to provide an emergency communications system to the Fire and Rescue Service in England.
- EADS employed Ericsson under a sub-contract to develop and supply software.
- A dispute arose between the parties over whether Ericsson was contractually obliged to deliver the Initial Supplied Software (ISS) by 30 September 2009.
- On 29 September 2009, Ericsson served notices pursuant to the dispute resolution provisions of the sub-contract of its intention to refer this dispute to mediation.
- On 1 October 2009, EADS wrote to Ericsson purporting to give notice of material default under the contract in respect of delay in supplying the ISS.
- On the same day, Ericsson gave notice of its intention to refer the dispute to adjudication.
There were two applications for injunctions before Akenhead J:
- Ericsson sought to prevent EADS from terminating the sub-contract until the adjudication had run its course.
- EADS sought to prevent Ericsson from taking any further steps in the adjudication, and sought a declaration that any adjudication decision would be invalid.
As to the first application, Akenhead J refused Ericsson’s application for an injunction to prevent termination on grounds that there were serious arguable issues. This aspect of the decision was discussed in a previous PLC Construction blog post.
In particular, Akenhead J held that the sub-contract’s dispute resolution provisions did not suspend a party’s rights to take whatever steps under the sub-contract it was entitled to take. Hence it was not a breach of contract for the contract to be terminated while a dispute as to whether termination was valid was being referred to adjudication. The Judge noted that:
“The effect of an injunction to restrain termination would be in effect to require two parties who have fallen out with each other…to continue to work together in circumstances where they have a sophisticated contract which purports to provide commercial solutions and remedies when a lawful or unlawful termination occurs.”
As to EAD’s application, Akenhead J refused to restrain Ericsson from pursuing remedies in adjudication notwithstanding they had separately instituted mediation. Distinguishing the sub-contract from some international engineering contracts, the judge noted that the dispute resolution provisions stated that disputes “may” (not shall) be referred to mediation or adjudication; this meant it was open to either party on a given dispute to mediate or adjudicate, or to do both. He observed that the parties had chosen this means of dispute resolution “doubtless for reasons of commercial flexibility”.
This was a case decided largely on its facts. However, it provides helpful authority for a party seeking to terminate an agreement when there are ongoing adjudication proceedings to determine the dispute over whether termination would be valid. There is nothing to stop the parties from then proceeding with the adjudication after termination. However, once the contract has been terminated and the pressures of time are lifted, it may be that arbitration/litigation would provide a more satisfactory outcome to the dispute because the decision of the arbitrator/judge would be final and conclusive.
