Adjudication enforcement arguments “change with the seasons”

Coulson J’s opening remarks in Penten Group Ltd v Spartafield Ltd set the scene for what followed, and for what I am going to discuss this week – serial adjudication:

“And now the wheel has turned again and the courts are grappling with the consequences of what might be termed serial adjudication.

…this is a case bedevilled by the almost maniacal desire of the parties to issue notices of adjudication against each other. This impulse seems to have overwhelmed every other consideration. I note too that this has not always been successfully translated into action. I have seen at least five notices of adjudication, and I am told that there might be as many as nine in total.”

Penten Group Ltd v Spartafield Ltd

Penten Group Ltd was engaged by Spartafield Ltd to carry out building works at Plumbers Row, London. The work started under a letter of intent dated 19 July 2013. In April 2015, Penten’s employment was terminated.

The adjudications

In October 2015, Spartafield started the first adjudication. Among the redress sought was a declaration that the parties’ construction contract was based on the JCT Intermediate Building Contract with contractor’s design, 2011 Edition (ICD 2011). The first adjudicator, Mr Gupta, decided that the parties had a valid construction contract based on the letter of intent, not the ICD 2011. Both parties complied with his decision.

In December 2015, Penten served a notice of adjudication claiming money. This adjudication didn’t go anywhere, as the adjudicator resigned due to a lack of jurisdiction.

On 12 and 20 January 2016, Spartafield served two notices in identical terms. Neither adjudication progressed as no adjudicator was appointed. (The judgment refers to the notice of 20 January 2016 as “adjudication 3”.) Among the redress sought were declarations that:

“…the first Adjudicator was neither required nor had the necessary jurisdiction to decide on the terms of the contract between the Parties if he did not accept that it was ICD 2011.

…a contract between the Parties is in existence based on the simple requirements for a valid contract to be formed and an agreed contract sum and contract sum analysis, an agreed completion date, and agreed unamended contract conditions.”

On 20 January 2016, Penten served a notice of adjudication claiming money under the letter of intent. Mr Matt Molloy was appointed as the adjudicator and, at the time of the court hearing (18 February), “adjudication 4” was progressing, with the adjudicator’s decision due shortly afterwards.

Penten’s Part 8 application

During “adjudication 4”, Penten applied to the court under CPR 8 for a number of declarations, including that the:

Adjudicator can address contract formation questions as well as underlying claims

Coulson J agreed with Penten that the first adjudicator was entitled to reach the conclusion that he did, and that he had the necessary jurisdiction to decide that the parties’ contract incorporated the letter of intent. In reaching this conclusion, Coulson J noted that the first adjudicator was asked to consider the existence of a valid construction contract and that:

“…it was impossible for the adjudicator to answer that question without deciding what the terms of any such contract might be. Since a valid contract can only come into existence if there is agreement between the parties on certain basic matters…, it would not have been possible for the adjudicator to decide whether or not there was a valid contract without deciding whether basic terms had been agreed and, if so, what precisely those terms were.”

To my mind, this means that Coulson J has made it clear beyond any doubt that an adjudicator has jurisdiction to decide:

“…complex questions as to contract formation, appropriate terms and the like, as well as addressing underlying claims.”

This may not come as a surprise to many readers, but for others it will. I have seen it argued that an adjudicator does not have jurisdiction to decide the terms of the contract, that he can only reach a non-binding conclusion on it when deciding whether he has jurisdiction. Obviously, this is one of those areas that is relevant to both an adjudicator’s jurisdiction and the substantive dispute, and where and when an adjudicator deals with it is likely to be fact dependent. As long ago as 2008, Akenhead J termed it “where substance and jurisdiction overlap“.

Only one dispute

I think that Coulson J has also helpfully closed a potential jurisdictional challenge before it has even got out of the starting blocks, namely that deciding on the “existence of the contract or its precise terms”, as well as the underlying financial claims does not constitute deciding more than one dispute. Instead:

“…a dispute about terms and a dispute about the claims under those terms are all part of a single dispute. Otherwise the whole basis of adjudication becomes unworkable.”

I’m guessing that the rationale for this must be that, in order to decide the financial claims, it is first necessary to decide the contract terms.

And finally

Interestingly, Coulson J noted that the first adjudicator could not have decided the nature of the contract under the original wording of the Construction Act 1996 because, before the repeal of section 107, adjudicators could only deal with contracts that were in writing.

I was slightly surprised about this statement because it’s not clear from the judgment that either party alleged that the contract was partly oral and, if that was the case, then why couldn’t the adjudicator have decided the contract terms under the old Construction Act 1996? However, that is really an aside.

This is another case where the TCC has provided useful remarks that, while they may be obiter, are nevertheless helpful for parties, representatives and adjudicators. I will leave you with one final quote:

“…the courts are going to have to give adjudicators some latitude as they grapple with these difficulties. In an ordinary case, and depending on the words of the notice, it may be unduly restrictive to conclude that an adjudicator could decide what the contract was not, but not what the contract was. Similarly, it may be unduly restrictive to say that any notice of adjudication which raised the existence of the contract and/or its precise terms (on the one hand), and the financial claims thereunder (on the other), somehow involved more than one dispute.”

MCMS Ltd Jonathan Cope

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