REUTERS | Michael Dalder

The perils of multiple agreements on the same project

It strikes me that there are a number of factual scenarios that commonly lead to jurisdictional challenges when disputes come to adjudication. One example is where the contract concerns a residential occupier. There will often be jurisdictional challenges even if the contract in question expressly provides for adjudication, as we can see from the mountain of case law on the topic. Another obvious example is where part or all of the contract is said to comprise excluded construction operations under section 105(2) of the Construction Act 1996. Millions of pounds in legal costs have been wasted over the years arguing about these exclusions and, as I have said on a number of occasions (most recently in March 2020), it is high time we put these exclusions into Room 101.

A less obvious example is where parties enter into multiple agreements concerning the same project. We’ve seen a number of cases over the years where the question has arisen as to whether they were variations to a single contract, or multiple contracts, the issue being that an adjudicator cannot decide disputes under different contracts in the same adjudication. Indeed, I blogged on just such a case earlier this year.

The case I want to discuss this week, Delta Fabrications & Glazing Ltd v Watkin Jones & Son Ltd, also involves multiple contracts but comes with a twist in that the parties agreed they had entered into two separate sub-contracts. So how, I hear you saying to yourselves, did the referring party consider that the adjudicator had jurisdiction to decide the dispute?

Delta Fabrication & Glazing Ltd v Watkin Jones & Son Ltd

The answer is explained in a very clear judgment by HHJ Sarah Watson sitting in the Birmingham TCC.

Delta Fabrications & Glazing Ltd (the sub-contractor) argued that the adjudicator had jurisdiction because:

  • The parties had agreed, by their conduct, to vary the contracts so that they were amalgamated and so that there was only one contract with effect from 21 February 2020.
  • Even if the parties’ conduct did not amount to a variation so that there was only one contract for all purposes, it had the effect of amalgamating the contracts into one contract for the purposes of the Construction Act 1996.
  • Alternatively, that Watkin Jones & Son Ltd (the contractor) was estopped from denying that there was a single contract within the meaning of the Construction Act 1996.

The sub-contractor’s first argument – amalgamation

The parties agreed that they did not enter into any express discussions to vary the contracts. In fact, it was never discussed or raised in correspondence at all. The sub-contractor argued that the parties reached agreement by their conduct, which arose in the way they dealt with payment applications. Specifically, that the contractor made an offer to amalgamate the contracts into one by issuing its payment notice of 12 February 2020 in relation to both contracts. The sub-contractor argued it accepted this offer to amalgamate the contracts by issuing its request for payment of 21 February 2020 as one payment application relating to both the contracts.

The judge noted that the existence of documents relating to separate works packages did not mean that the contracts must be separate. However, in a case where the contracts were originally written as separate documents, she said she would need to be satisfied that, despite the existence of the separate written contracts, the parties had agreed that the contracts should be amalgamated.

So, the question was, had the parties agreed to amalgamate the contracts?

After carrying out a detailed analysis of what happened, the judge concluded that they had not. The payment notice was not an unequivocal offer to amalgamate. It may have only contained one figure for both contracts but the supporting documentation did not “confuse or amalgamate the contracts” and the calculations were separate. Combining payment was not the same thing as combining the contracts into one.

She also pointed to other examples in the correspondence where the parties referred to more than one contract, to the fact that variations were numbered consecutively for each works package and that the evidence of the sub-contractor’s own managing director was that he understood payment was being combined, not the contracts themselves. In fact, even in the referral the sub-contractor had adopted a different position and had not mentioned that the parties had agreed by their conduct to vary the contracts.

The sub-contractor’s second argument – election

Essentially, the sub-contractor argued that even if the two contracts had not been amalgamated for all purposes, they had been amalgamated for the purposes of the Construction Act 1996. In other words, if you treated the contracts as one for the purposes of the Act’s payment mechanism, you had elected to treat them as one for the purposes of the Act’s adjudication provisions.

This sort of all for one, one for all approach was also rejected by the judge:

“I am not persuaded that it is possible for two contracts that have not been amalgamated into one at common law could nonetheless be within the definition of ‘a construction contract’ in the Act.”

The sub-contractor’s third argument – estoppel

The sub-contractor argued that the payment notice of 12 February 2020 amounted to a representation that it had relied on to its detriment. However, it put forward no evidence to support the three essential elements of an estoppel (representation, reliance and detriment) and the judge was not persuaded that the contractor had “no real prospect of defending the claim because it is estopped from denying that the contracts were to be treated as one contract”.

My thoughts

I think this judgment aptly demonstrates the problems that can arise where multiple agreements are entered into on the same project. The parties clearly felt that it was easier to deal with the two sub-contracts as one when it came to payment, which is understandable. However, as is often the case, that caused problems when trying to separate out the values for the purposes of referring disputes to adjudication. The problem is even more stark when considering what the notified sum for each separate contract might be for the purposes of a “smash and grab” adjudication.

I think that the lesson for parties is that, where separate agreements have been entered into on the same project, try and keep the valuations separate so that disputes under those agreements can be clearly defined and referred in separate adjudications.

I recognise that some may argue that this will lead to different adjudicators dealing with the disputes under the separate contracts due to paragraph 8(2) of Part I of the Scheme for Construction Contracts 1998 and the responding party not consenting to the same adjudicator dealing with all of the disputes.  As a reminder, paragraph 8(2) states:

“The adjudicator may, with the consent of all the parties to those disputes, adjudicate at the same time on related disputes under different contracts, whether or not one or more of those parties is a party to those disputes.”

However, I don’t necessarily think paragraph 8(2) will always lead to these problems for two reasons:

  • Firstly, it depends on the disputes being “related” and, simply because they concern the same project, it does not automatically follow that they are related.
  • Secondly, even if the disputes are related, is such a literal interpretation of paragraph 8(2) appropriate, or should one consider the mischief it was intended to avoid?

As to the purpose of paragraph 8(2), it is useful to refer to a TCC case which is almost 20 years old (which is ancient in adjudication case law terms!), namely Pring & St Hill v Hafner t/a Southern Erectors, where HHJ Humphrey Lloyd QC stated at paragraph 16 that:

“In my judgment paragraph 8(2) is intended to cover, and does cover, a variety of circumstances. … In other words, they are all circumstances where, as a matter of principle, a party’s right to resolution of a dispute, privately and confidentially, would or might be infringed by the introduction of a third party, either in the same proceedings or by having the dispute determined by a person who would or could acquire knowledge from other proceedings but which could not be used in the resolution of the dispute, yet might either consciously or unconsciously influence its outcome.”

Isn’t it arguable that where the different contracts are between the same parties and no third party is involved then paragraph 8(2) would not bite? After all, what disadvantage could there be to the responding party having the disputes adjudicated by the same adjudicator at the same time? In fact, as the TCC has not dealt directly with this point, I’ll add it to the TCC birthday list I discussed in my last blog.

And finally

I should also add that it is very positive to see a judgment from the TCC in Birmingham. Some of you will recall a time in the noughties when many parties choose to serve adjudication enforcement proceedings in Birmingham because HHJ Frances Kirkham CBE was held in such high regard. I suspect that once some solicitors have read the very clear judgment of HHJ Sarah Watson in Delta v Watkins Jones we might see a resurgence of this regional court for high value adjudication proceedings.

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