Out-Law News 4 min. read

Business fails to enforce adjudication decisions due to nature of underlying contract

The High Court in London has rejected a contractor’s bid to enforce two earlier decisions made by an adjudicator in its favour after a judge ruled that the contractor did not have a statutory right to pursue its claims via adjudication.

Craig Morrison, an expert in construction disputes at Pinsent Masons, said the ruling serves as a reminder that adjudication under the Housing Grants, Construction and Regeneration Act 1996 (the 1996 Act) is only available, as a statutory right, to those contracts that meet the definition of ‘‘construction contract’’. He advised businesses considering starting an adjudication under the 1996 Act to give proper consideration to whether the underlying contract relevant to their claims constitutes a “construction contract” under the legislation.

“Often it will be straightforward to reach a landing on that issue, but that is not always the case,” Morrison said.

The case before the High Court concerned a dispute between Digital Media Spectrum Limited (DMSL), a joint venture of four UK mobile network operators, and Crystal Electronics Limited (Crystal). DMSL was set-up to manage any works that might be required to address the detrimental effect of 4G mobile broadband services on digital terrestrial television. DMSL engaged others to carry out the relevant works, including Crystal. Very broadly speaking, Crystal’s works involved surveying, providing advice in relation to and carrying out work to certain electronic communications apparatus at various households.

Crystal raised two separate adjudications: one in relation to an invoice for £553,336 plus VAT and one for £219,738 plus VAT. DMSL did not accept that the sums claimed were due but did not issue any payment or ‘pay less’ notices against the invoices. 

Crystal commenced its adjudications sequentially and they were heard before the same adjudicator. However, DMSL challenged the adjudicator’s jurisdiction on the grounds that the contract between the parties was not a construction contract and that therefore Crystal held no right to refer matters to adjudication. The adjudicator formed the view that he did have jurisdiction and ultimately decided that DMSL was to pay the sums claimed by Crystal, plus interest. 

When DMSL did not pay, Crystal commenced enforcement proceedings.

Section 108(1) of the 1996 Act provides that a “…party to a construction contract has the right to refer a dispute arsing under the contract for adjudication…”.  To understand whether Crystal had a statutory right to refer matters to adjudication, it was therefore necessary to analyse whether the contract between DMSL and Crystal qualified as a “construction contract”. This involved the court reviewing how the term is defined in the 1996 Act. This in turn involved consideration of whether Crystal's contract pertained to the carrying out of ‘construction operations’ and the various sub-set ways in which such operations are described in the legislation, including whether the 'surveying work' or 'advice' provided by Crystal amounted to 'construction operations'. 

Crystal’s position was that its work fell into the definition of “construction operations” or fell within the descriptions of “surveying work” and/or “engineering advice” for the purposes of the legislation.

In considering how the relevant provisions of the 1996 Act should be interpreted, Judge Keyser KC said that while works falling within the definition of ‘construction operations’ may encompass works pertaining to electronic communications apparatus, this would only be the case if the apparatus forms part of the land. The judge was clear that the aerials, television sets, recording devices and amplifiers which Crystal worked on did not form part of the land, although he noted that sockets and face plates might be viewed differently.  

Judge Keyser KC confirmed that the analysis of whether something forms or is to form part of the land is ultimately a question of fact and that involves fact and degree analysis.

The judge also rejected the suggestion that Crystal’s works might be viewed as preparatory works preceding other construction operations, with such preparatory works being considered construction operations themselves under the 1996 Act. 

Morrison said: “It was easy for Judge Keyser KC to reject that argument. After all, if Crystal’s works to the aerials, television sets, recording devices and amplifiers were not construction operations, the work carried out prior to that work would – by definition – not be work which was preparatory to construction operations.”

Judge Keyser KC also decided that the “surveying work” and/or “engineering advice” Crystal claimed to have provided was not provided “in relation to construction operations”. In respect of “surveying work”, he was clear that the relevant wording in the 1996 Act was referring to “land and building surveying, such as is done by surveyors in the construction industry”.  

In relation to “engineering advice”, Judge Keyser KC was equally clear that ‘‘providing feedback to DMSL on the signal results obtained … is nothing like providing advice on engineering in relation to construction operations…” and even if he was wrong about that, the advice was not in relation to “construction operations” in any event.

Morrison said: “Judge Keyser KC had no difficulty in concluding that the decisions in both adjudications were not enforceable.”  

“When entering into a contract, which is not obviously a construction contract, parties could discuss the possibility of introducing a contractual right to adjudication to help resolve disputes. If both parties agree that adjudication should be available – and careful consideration ought to be given before providing such agreement – a contractual right to adjudicate, perhaps borrowing from the adjudication process provided by the 1996 Act and associated Scheme for Construction Contracts, could be drafted into the contract,” he said.

“If there is no contractual right to adjudication, and if a business is relying on the statutory adjudication procedure, referring parties should take advice prior to investing in an adjudication process that might be doomed to fail. After all, in cases where there is any doubt about whether the underlying contract is a ‘construction contract’, it is almost inevitable that the ‘responding party’ will reserve their position in relation to the adjudicator’s jurisdiction and the enforceability of any decision that might be issued,” he added.

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