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No construction contract, no jurisdiction, no adjudication

Everyone knows that without a construction contract you can’t have a statutory adjudication. Everyone also knows that, absent a contractual adjudication agreement, if there isn’t a construction contract, the adjudicator doesn’t have jurisdiction and so, if he goes ahead and reaches a decision that one party refuses to honour, the court will not enforce it.

Parties routinely challenge the adjudicator’s jurisdiction nowadays and we have to consider whether there was a construction contract. Often we have limited time and even more limited material to go on when we are making up our minds, so it isn’t always easy to get it right. Stephen Lelliott was asked this question by the parties last autumn and, in CN Associates v Holbeton, Akenhead J has been looking at his answer.

CN Associates v Holbeton

CN Associates was the construction manager on a refurbishment project owned by Holbeton Ltd. In March 2004, it sent its draft appointment to the person it dealt with, Mr Ahmed. Mr Ahmed appears to have worn a number of hats, including that of director of Bright Services Ltd. (He had also sold the house to Holbeton, although the judgment does not mention in what capacity he did this.) Mr Ahmed accepted the construction manager’s appointment on behalf of Bright. The position was further complicated by an exchange of correspondence in June 2005, which may (or may not) have varied the terms of the construction manager’s appointment, and which Holbeton’s solicitors sent to the construction manager.

Over a three-year period, the construction manager’s invoices were sent for the attention of Mr Ahmed, but to Holbeton c/o Bright. Holbeton appears to have paid the invoices (other than those that were the subject of the disputed adjudication).

You will probably agree with me that this was not the most straightforward of contract and payment arrangements (there is even a suggestion in the judgment that this was a VAT avoidance measure).

Was there a construction contract?

When, in August 2010, the construction manager started an adjudication for the balance of fees owed, it named Holbeton as the responding party. Holbeton denied it was a party to the March 2004 contract and argued the adjudicator had no jurisdiction to determine the dispute. It denied that Mr Ahmed or Bright had acted as its agent and denied that there had been a variation in June 2005.

As is often the case, the adjudicator had to consider all of this. He initially advised the parties that he was going to continue with the adjudication and then set out the reasons why he thought he had a valid appointment in his decision. He acknowledged he couldn’t make a binding decision on his own jurisdiction (which Akenhead J noted) and then set out his view that Bright acted for Holbeton, and the contract was evidenced in writing in about June 2005. Akenhead J described this as finding enough to satisfy himself that he had jurisdiction, but not actually deciding the point. More would have been needed for this, like a declaration in the decision.

Unfortunately for the construction manager, Akenhead J felt that there was “just” enough in Holbeton’s arguments and refused its summary judgment application. The matter will now go to a full trial (unless the parties settle). However, he did say that Holbeton had only just passed the threshold to defend the summary judgment application. He also was in “little doubt” that there was a contract between the construction manager and Bright, and there was “a relatively strong case” on the agency point.

It’s a tough place to be

The agency point made this a particularly complicated set of facts. I wouldn’t like to second guess Mr Lelliott’s decision on it and, without sight of the papers, it would be wrong for me to do so. That said, it made me wonder how I would address an agency allegation such as this.

I suppose that if I was satisfied that I had jurisdiction I’d proceed with the adjudication (just like Mr Lelliott). If not, I would resign.

But what if I wasn’t certain, then what? In that case, I would consider the balance of convenience in terms of the costs of proceeding, weighed against the stage the proceedings had reached and the cost to the parties of starting again. If I thought it was appropriate to do so, I may even raise with the parties the possibility of them agreeing to stay the adjudication and apply to the court for a declaration on the contract point. It could save them both money in the long run. Here the parties are now faced with a full trial to work out who the parties to the contract were, whether there was an agency arrangement and whether one party owes the other £105,000 odd. That’s a lot more legal fees, which ever way you look at it.

As ever with adjudication, each case will turn on its facts and there is no right or wrong answer. However, I recall Coulson J said “it will only be appropriate in rare cases for the TCC to intervene in an ongoing adjudication” (Dorchester Hotel v Vivid). On the facts of this case, it certainly looks like it could have been one of the exceptions.

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