Adjudication Matters – May 2019

1st May 2019

Blanket reservations just won’t cut it anymore: Jurisdictional challenges in adjudication

In the case of Ove Arup and Partners International Ltd v Coleman Bennett International Consultancy plc [2019] EWHC 413 (TCC), the Technology & Construction Court (TCC) has provided important guidance as to the effect of a general reservation of rights upon an adjudicator’s jurisdiction.

Background

In April 2016, Coleman Bennett International Consultancy (CBI) approached Ove Arup and Partners (Arup) to provide services for a feasibility study on a hyperloop transport link between Leeds and Manchester as part of the Northern Powerhouse initiative which was being promoted by Direct Cities Network.

Arup provided CBI with its quotation for carrying out the works. The quotation was for

• £350,000 plus VAT or, alternatively,
• £150,000 plus VAT conditional upon Arup obtaining a 20% stake in the joint venture.

Following commencement, an initial payment was made of £75,000 in May 2016, but by October 2016, it soon became apparent that Arup would not take a 20% stake, and would be due to be paid £350,000 plus VAT (which CBI acknowledged would be payable as a debt).

Arup received no further payment and commenced an adjudication seeking a balance of the sum due which Arup won: requiring payment of the outstanding balance (plus interest and adjudicator’s fees) CBI failed to pay and Arup commenced proceedings to enforce the adjudicator’s decision.

CBI resisted the enforcement proceedings on the grounds that the adjudicator did not have jurisdiction because (CBI argued):

• the contract wasn’t a “construction contract” for the purposes of Section 105 of the Housing Grants, Construction and Regeneration Act 1996 (as amended);
• the Referral Notice concerned more than one dispute (arguing the discussions in April 2016 and October 2016 constituted separate contracts);
• the adjudicator’s jurisdiction turned on questions of fact which couldn’t be properly determined in an adjudication or in court on a summary basis

Although CBI had made a general reservation of its rights regarding jurisdiction during the adjudication, CBI had not specifically raised any of the above challenges to jurisdiction prior to the adjudicator issuing his Decision. The question to be decided by the TCC was whether CBI could raise and rely upon these jurisdictional points for the first time in the enforcement proceedings.

Decision

In reaching her decision Mrs Justice O’Farrell in the TCC relied upon the recent ruling in Bresco Electrical Services Limited [2019] EWCA Civ 27, where Coulson LJ concluded:

“the purpose of the 1996 Act would be substantially defeated if a responding party could, as a matter of course, reserve its position on jurisdiction in general terms at the start of an adjudication, thereby avoiding any ruling by the adjudicator or the taking of any remedial steps by the referring party; participate fully in the nuts and bolts of the adjudication, either without raising any detailed jurisdiction points, or raising only specific points which were subsequently rejected by the adjudicator (and the court); and then, having lost the adjudication, was allowed to comb through the documents in the hope that a new jurisdiction point might turn up at the summary judgment stage, in order to defeat the enforcement of the adjudicator’s decision at the eleventh hour…” [Emphasis added]

The TCC concluded that CBI was prevented from raising any jurisdictional points. In application of the Bresco principles, Mrs Justice O’Farrell considered that:

• CBI had failed to “clearly and appropriately” identify what the detail of their jurisdictional challenge was during the adjudication (over and above its general reservation). This meant the adjudicator had had no opportunity to understand and deal with CBI’s objections.
• the general jurisdictional objection raised during the adjudication had been dealt with by the adjudicator and CBI were now precluded from raising any further jurisdictional challenge after the issue of the adjudicator’s decision to resist enforcement;
• the general reservation made by CBI was ineffective as:
  • at the time it was provided, CBI knew or should have known the specific grounds of that challenge; and
  • it was worded in a way to seek to ensure all options remained available
• in its Response to the Referral, CBI had denied jurisdiction but admitted that Arup’s appointment was a construction contract. As such, CBI had positively admitted that this particular challenge to jurisdiction was not valid.

The TCC also commented that even if CBI was entitled to raise specific challenges to jurisdiction during the adjudication itself, the specific challenges that CBI sought to rely upon did not in fact have merit.

Summary

The case reaffirms the principles now laid out in Bresco that a party cannot rely upon a vaguely worded general reservation at adjudication in order to leave open an opportunity to raise specific jurisdictional points later on to resist enforcement.

Jurisdictional challenges should be set out with clarity and precision as soon as possible during the adjudication itself so as to (1) enable adjudicators to identify clearly what challenges have arisen and deal with them quickly and (2) protect the party’s position in any subsequent enforcement proceedings.