Challenging the jurisdiction of the adjudicator

Challenging the jurisdiction of the adjudicator – Glendalough Associated SA v Harris Calnan Construction Co Ltd

The construction industry is currently tangled in a web of complex construction contracts documents known as standard forms. In a perfect world, employers, contractors, subcontractors and their lawyers would tie up all aspects of their deal and record it in a written, signed contract before any work is performed or expenses incurred. However, in reality, they struggle to choose the right form as well as to completing it and ensure that it is embedded in the contract. Very often, when faced with commercial pressure to commence works as soon as possible, the parties resort to the use of ‘Letter of Intent’ while they continue to negotiate the full contract. In some cases, if the formal contract is never executed and if a dispute arises, issues of what legal obligation had been created, and what rights it gives each party, have to be determined. Such issues had to be determined by the Court in Glendalough Associated SA v Harris Calnan Construction Co Ltd.

Background

In September 2009, Glendalough Associated SA (“Glendalough”) invited Harris Calnan Construction Co Ltd (“HCCL”) to tender for the construction of a Residential Block and B1 Studios at 121-127 Church Walk, London. HCL submitted a tender, which was later revised, and by a letter of intent dated 24 February 2010 Glendalough instructed HCCL to proceed with the works pending agreement of a formal contract based the JCT 2005 Intermediate Form of Contract with Contractors Design.

The parties never got around to replacing the LOI with a formal contract, and HCCL carried out and completed the works under the terms of the letter of intent. Following HCCL’s application for interim payment, on 1 July 2013, Glendalough issued a Withholding Notice in which it was alleged that HCCL was 64 weeks in delay and therefore had a liability for liquidated damages in the sum of £250,000.

A dispute arose between the parties and HCCL referred the dispute to adjudication and the adjudicator was appointed. The adjudicator was asked to decide whether or not Glendalough had the right to withhold liquidated damages from HCCL.

Tactically, in its Referral dated 23 August 2013, HCCL did not rely on a particular terms of the contract but simply pleaded:

“2.1 By an agreement [Glendalough] employed [HCCL] to carry out the construction of a Residential Block and B1 Studios at 121-127 Church Walk, London.”

HCCL did not rely on any contractual terms and argued that there was no contract the terms of which entitled Glendalough to deduct liquidated damages and that apart from asserting that there was an agreement by which it was employed to build the development.

Thereafter, there was a series of email exchanges between the parties and the adjudicator in which Glendalough briefly debated about the timing of the adjudicator’s appointment and challenged the adjudicator’s jurisdiction on the ground that HCCL failed to comply with The Scheme for Construction Contracts 1998 (“the Scheme”).

On 25 August 2013, Glendalough’s solicitors wrote to the adjudicator to explain that it did not contest his appointment but challenged his jurisdiction on the grounds that HCCL had not complied with the Scheme. It did not, however, raise the point that HCCL was relying on an agreement that was made otherwise than in writing so that it had no right to refer the dispute to adjudication.

Of critical importance is Glendalough’s Response dated 30 August 2013 where it did not deny the existence the agreement in 2.12 by “… paragraph 2.1 is admitted” and alleged that form of Contract was the JCT Standard Form of Building Contract Revision 2 2009 with Quantities.

Part 8 Application

Glendalough sought a declaration to the effect that the adjudicator had no jurisdiction to determine the dispute and must therefore resign.

Glendalough’s submission that commands attention is the alleged admission by HCCL, in its Surrejoinder, that the agreement governing the parties’ relationship was not an agreement in writing for the purposes of S107 of the 1996 Act. S107 of the 1996 Act critically requires a construction contract to be in writing. S107(5) provides that:

“An exchange of written submissions in adjudication proceedings… in which the existence of an agreement otherwise than in writing is alleged by one party against another party and not denied by the other party in his response constitutes as between those parties an agreement in writing to the effect alleged.” 

Glendalough contended that, in principle, since HCCL conceded that the agreement was not in writing, by virtue of S107 the adjudication should fail because the adjudication does not have jurisdiction to determine the dispute.

Judgment

Mr Justice Edwards-Stuart embarked on the analysis and interpretation of the wordings in S107(5) and reviewed a number of relevant authorities from Grovedeck Ltd v Capital Demolition Ltd [2000] BLR 181, RJT Consulting Engineers v DM Engineering Ltd [2002] 1 WLR 2344 to the judgment of HHJ Anthony Thornton QC in Mott MacDonald v London and Regional Properties Ltd [2007] EWHC 1055 and endorsed Coulson J in SG South Ltd v Swan Yard (Cirencester) Ltd [2010] EWHC 376 that the language of s107(5) is “a little opaque” which:

“appeared designed to prevent the responding party, who has accepted the adjudicator’s jurisdiction notwithstanding the absence of a clear contract in writing, from going back on his concession.”

The learned judge observed that that since lawyers usually refer to “an agreement in writing” when referring to a written contract, the absence of either any date of the alleged agreement or any reference to writing suggests that what was being alleged in HCCL’s was an agreement otherwise than in writing.

In the circumstance of this case and in dismissing Glendalough’s application, the Court held that:

  •  the “agreement” could not have been described in wider terms;
  • Glendalough ought to have known whether or not HCCL was alleging that there was an oral agreement and ought to have made an appropriate denial in its Response in the adjudication;
  •  the terms of HCCL’s Referral were sufficient to bring S107(5) into play because of the absence of Glendalough’s denial of the existence of the alleged agreement and a denial at some later stage in the adjudication proceedings simply came too late;
  •  the parties were to be taken as having agreed that there was an agreement in writing;
  • since S107(5) was engaged, and irrespective of Glendalough’s claim that at all time it had reserved its rights to jurisdictional challenge, it was no longer open to either party, or the adjudicator, to assert or decide that the adjudicator has no jurisdiction because the Referral did not disclose an agreement in writing;
  •  thus, the parties are to be taken to have agreed that there was an agreement in writing between them to the “effect alleged”, namely to build a residential block and B1 Studios at the stated address;
  • since no terms of the agreement were identified in the Referral, “effect alleged” is simply that Glendalough engaged HCCL as contractor to construct the development identified in the Referral;
  • the effect of such an agreement will be that the Referral falls within the provision of the 1996 Act and that the adjudicator has jurisdiction to determine it;

Whilst it is fair to a contractor to require an employer to prove where and how its right arises in order to withhold or deduct liquidated damages, this case illustrates the dangers of relying on agreements that resulted in parties spending time and money in adjudication and court proceedings. It is also a useful reminder for both contractors and employers that relying on agreements made otherwise than in writing by reference to terms made in writing carries a high level of risk.

 

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Author / Commentator: Suryen Nullatamby, Solicitor - Date: 22/10/2013 - To contact Click Here


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