30/06/2016
In the case of J Murphy & Sons v W Maher and Sons [2016] EWHC 1148 (TCC), [2016] All ER (D) 176 (May), Sir Robert Akenhead in the Technology and Construction Court (TCC) considered the status of a dispute concerning a full and final settlement of a final account. J. Murphy & Sons Ltd (“Murphy”) challenged the jurisdiction of an Adjudicator on the basis that the dispute referred to him had arisen under the terms of a settlement agreement that was distinct from the sub-sub-contract and therefore did not fall under that sub-sub-contract’s adjudication clause.
The facts of the case
The claimant (Murphy) and its subcontractor (Maher) were parties to a contract which incorporated NEC 3 Engineering and Construction Subcontract form. This included option W2 which provided for adjudication for any dispute 'arising under or in connection' with the contract.
Unusually, in the Subcontract Data section, the adjudicator nominating body was identified as the Technology and Construction Court (TCC), which cannot appoint adjudicators.
After Maher issued its final account application, the parties negotiated and eventually agreed a reduced final account sum of £720,000. This was confirmed by email. Murphy never paid so Maher issued a notice of adjudication pursuant to clause W2 of the contract and stated that, as the TCC was not a nominating body, it would be applying to the Royal Institute of Chartered Surveyors (RICS) to nominate an adjudicator.
Murphy wrote to the appointed adjudicator raising two jurisdictional issues:
1. there was no contractual basis for Maher to apply to RICS
2. the adjudicator had no jurisdiction to deal with a dispute in relation to the alleged settlement agreement, which would have to be determined through the courts
Maher did not accept the second argument and, taking a pragmatic approach, served a second notice under the scheme for construction contracts (the scheme) rather than the contract. This was due to reliance on section 108 of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996) which provides that, where the contractual adjudication clauses do not comply with HGCRA 1996, s 108 (1)–(4), disputes 'arising under the contract' will be subject to the provisions of the scheme.
The issues to decide
The TCC had to decide whether:
1. the adjudication provisions within the sub-sub-contract were deficient, allowing the Scheme to apply; and
2. a dispute regarding the alleged settlement agreement was a dispute “under” the sub-sub-contract.
The decision
The court considered that, even though the TCC was wrongly given as the nominating body under the contract, the adjudication clauses were compliant with HGCRA 1996, ss 108 (1)–(4), as these did not require a named adjudicator appointing entity. The parties had agreed that adjudication would apply and, in the absence of agreement on a particular individual, an institution such as the RICS or the Institution of Civil Engineers should be nominated to make the appointment.
It was also accepted by the court that the adjudication clauses were broad enough to cover a dispute arising under the settlement agreement which 'undoubtedly arose in connection with the original [contract]'.
Sir Robert Akenhead also considered whether such a dispute could also be said to arise 'under' the contract and concluded that it did. In his view, as a matter of common sense, neither Parliament or commercial entities would desire that parts of a business relationship or dispute would be decided by one institution and others by another.
The TCC considered that this logic should be extended to adjudication cases, particularly as parties commonly agreed interim or final accounts in some binding way and it would be 'extraordinary and illogical' that an Adjudicator could have jurisdiction to determine what entitlement a contractor might have to payment in all circumstances except where a dispute arose to whether that entitlement had been settled.
In summary
This decision confirms that both contractors and sub-contractors can rely on adjudication in disputes arising from agreements as to interim or final accounts where such agreements are considered binding in some way. However, the learned judge did remark that he would be “sympathetic” to an application for an appeal, as previous case law has left some uncertainty in this area and the Court of Appeal could provide some much needed clarity.
Fisher Scoggins Waters are a London based law firm who are experts in environmental, construction, manufacturing and engineering matters. If you need legal advice regarding adjudication, please phone us on 0207 993 6960.