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Parties beware: ensure your jurisdictional challenge is clear and appropriate to avoid waiver

Earlier this month, Scotland beat England in the Six Nations at Twickenham for the first time in 38 years. When it last happened (in 1983), Michael Jackson’s Billie Jean was number one and Octopussy was the latest James Bond movie (which we all know is not in my top five movies of the 1980’s).

I mention this only because Scotland’s courts are also currently ahead of the English courts in terms of published adjudication enforcement judgments in 2021. For that reason, this week I’m looking at two of them: Hochtief Solutions AG and others v Maspero Elevatori S.p.A and Barhale Ltd v SP Transmission plc (I realise Hochtief is from late December, but we shouldn’t let that fact get in the way of an amusing intro!).

Both cases concerned jurisdictional issues but with very different outcomes.

Hochtief Solutions AG and others v Maspero Elevatori S.p.A

For those that don’t know, the Queensferry Crossing is an impressive structure spanning the Firth of Forth to the west of Edinburgh (and to the west of the Forth road and rail bridges). According to its website, it opened in August 2017 and, at 2.7 kilometres long, is the world’s longest three-tower, cable-stayed bridge and is the largest to feature cables that cross mid-span.

This was a dispute about the lifts in the three bridge towers on the Queensferry Crossing, which (in 2012) the defender (Maspero) had sub-contracted to design, manufacture, install and commission. By November 2018, the parties were in dispute and the pursuers (Hochtief and others) had terminated the sub-contract, seeking payment (under clause 12.3.1(c) of the sub-contract) of their termination costs (a replacement contractor’s costs of re-doing the works).

Maspero did not accept the termination was valid and refused to pay. The dispute over those costs was referred to adjudication, with the adjudicator deciding the sub-contract was validly terminated and that Maspero should pay £1.25 million. It refused and, in the enforcement proceedings that followed, argued that the adjudicator had:

  • Acted in excess of his jurisdiction on one point – it said the dispute did not fall under the terms of the sub-contract but under a separate and distinct “new agreement” reached in July 2018.
  • Failed to exhaust his jurisdiction by failing to address substantive lines of defence.

It said the action should be dismissed and the adjudicator’s decision should be reduced ope exceptionis.

However, Lord Clark disagreed with Maspero. He held that the adjudicator had jurisdiction to decide whether the “new agreement” varied the sub-contract or was a new agreement and he had taken into account Maspero’s submissions when deciding whether its design costs were covered by clause 12.3.1(c). There was no failure to exhaust his jurisdiction by overlooking a material issue, as alleged.

Excess of jurisdiction

I’m going to focus on the judge’s decision on the alleged excess of jurisdiction, which I think is the more interesting and relevant one.

In Bresco Electrical Services Ltd v Michael J Lonsdale (Electrical) Ltd, Coulson LJ said a jurisdictional challenge had to be made “appropriately and clearly” and amount to an effective reservation. (I looked at this decision in January 2019  and confusingly, it was in the Cannon v Primus part of the appeal.)

Here, Lord Clark held that Maspero had failed to reserve its jurisdictional position as it did not give the appropriate and clear reservation that was required. Therefore, Maspero had waived its right to challenge the point in later court proceedings.

Before arriving at this conclusion, Lord Clark set out the relevant legal principles from a number of TCC decisions (GPS Marine Contractors Ltd v Ringway Infrastructure Services Ltd, Allied P&L Ltd v Paradigm Housing Group Ltd, The Project Consultancy Group (which refers back to a 1950’s Lord Devlin judgment in Westminster Chemicals & Produce Ltd v Eichholz & Loeser, Aedifice Partnership Ltd v Shah and finally Bresco). He then noted that if Maspero had made an appropriate and clear objection – if it had reserved its position properly – that would be an extremely important matter as the:

“… potentially critical consequences of such a challenge to jurisdiction reinforce the need for it to be appropriate and clear.”

It is clear from the judgment what the parties’ submissions said. For example:

  • In its response, Maspero explained how the separate agreement came about at the meeting in July 2018 and emphasised it was outside the scope of the adjudication:

“This is a separate agreement, and is therefore not subject to this adjudication…..The 24 July 2018 agreement is therefore outwith the scope of this adjudication.”

  • In the reply, Hochtief questioned whether Maspero was making a jurisdictional challenge, noting that Maspero didn’t reference the word “jurisdiction”. Hochtief also argued it was too late to make a challenge in the response.
  • In the rejoinder, Maspero confirmed that the adjudicator had jurisdiction to deal with a dispute under the sub-contract but not under the new agreement, and that dispute could not be determined in this adjudication.

Lord Clark considered that when responding to Hochtief’s submissions in the reply, Maspero “did not in my view provide sufficient clarification” and that:

“There was no clear statement that the adjudicator had no jurisdiction to decide on the point and nothing to indicate that the defender’s ongoing participation in the adjudication should be seen in that light. In the whole circumstances, in my view, there was no proper protest or objection against jurisdiction, made appropriately or clearly, and no effective reservation of the defender’s position. The question of whether it was or should have been clear to all concerned that a reservation on jurisdiction was being made falls to be answered in the negative.”

At first blush it appears that Maspero was a tad unlucky and that, while it did not expressly reference the word “jurisdiction”, there can be little doubt that in its response it was contending that the adjudicator did not have jurisdiction to deal with the dispute under the agreement. However, because it failed in the response to go on and expressly reserve its position, I think that is what probably swung it for Lord Clark.

In my view this case reinforces the importance of parties not simply spelling out their jurisdictional challenge appropriately and clearly, but also expressly reserving their position in regard to that challenge.

Barhale Ltd v SP Transmission plc

This case isn’t about a grand structure like the Queensferry Crossing but something altogether more ordinary – the excavation and foundation work necessary for an electricity sub-station at Currie in Scotland, which is also to the west of Edinburgh (but not near the Crossing).

The dispute was about the extent of excavation and filling works necessary under the parties’ contract (an NEC3 Engineering and Construction Contract (ECC), Main Option B), and how they should be valued, with the parties adopting different approaches. Ultimately the pursuer (Barhale) referred the dispute to adjudication, with the adjudicator accepting Barhale’s case and awarding it just under £200,000.

In the enforcement proceedings that followed, the defender (SP) argued that the adjudicator had failed to exhaust his jurisdiction because he failed to consider its remeasurement argument.

Lord Tyre agreed. In doing so, he noted that the distinction between deliberate and inadvertent failure is less clear in Scotland than in England, and agreed with Lord Clark’s approach in Field Systems Designs Ltd v MW High Tech Projects UK Ltd that it was whether the adjudicator had “effectively addressed the major issues on either side”. (Field Systems is another judgment that I have looked at.)

Applying that test to the facts, it was clear the adjudicator did not effectively address one of the four issues he was asked to consider, which was a critical issue for SP, and something SP had highlighted on separate occasions to the adjudicator.

Lord Tyre thought it was probably unnecessary to categorise a failure as deliberate before finding an adjudicator’s decision was unenforceable but would have categorised this failure as such:

“On two separate occasions the adjudicator put it to the parties that he considered that the decision he had to make was whether the Works Information instructed the pursuer to undertake bulk earthworks, or not. On both occasions the defender replied, insisting that the adjudicator also had to decide the issue of the applicable contractual method of measurement. On the second of those occasions, this elicited a terse response from the adjudicator that the defender had failed to understand the question that he had asked.”

I think the interesting point that arises out of the Barhale case is that the distinction between deliberate and inadvertent failure to exhaust jurisdiction is less clear in Scotland than in England and Wales. It is also yet another case demonstrating the importance of adjudicators understanding the full scope of their jurisdiction. If an adjudicator is in doubt, they should clarify the position with the parties. They should also consider how they respond to the parties and what tone they adopt. After all, you never know when a court might be reviewing something you have written!

 

One thought on “Parties beware: ensure your jurisdictional challenge is clear and appropriate to avoid waiver

  1. I’ve had some issues in the past and now I do research constantly on this. This article really made things easy and saved me some time. Thanks for sharing.

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