Parties to a construction contract have a statutory right to adjudicate disputes, a right afforded to them by the Construction Act. That is precisely how a dispute arose between the parties in Metropolitan Borough Council of Sefton v Allenbuild Ltd.
The saga starts on 23 September 2005. The parties entered a construction contract where Allenbuild agreed to construct, complete, test, commission and maintain a combined leisure centre and water-based theme park for Sefton, the Southport Aquapark. Allenbuild achieved practical completion on 22 June 2007.
Dunes Splash World, as, it is now called, was temporarily closed in December 2019 to undergo essential remedial works. On 8 November 2021, Sefton served a notice of adjudication relating to defects. This was referred to the adjudicator, who on 17 January 2022, decided in the council's favour to the tune of over £2m. When Allenbuild failed to comply with the adjudicator's award, Sefton issued court proceedings to enforce the decision.
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Two key issues came before the court when hearing the council's application for enforcement of the adjudicator's decision.
The contractor's opportunity to raise jurisdictional challenges was lost
The first issue concerned whether a jurisdictional challenge (that ought to have been known to the parties at the start of the adjudication and, in any case, before the adjudicator's decision was made), could be raised for the first time after the decision had been reached. The court decided that it could not.
In doing so, the court considered the merit of the jurisdictional challenge that Allenbuild sought to raise. It decided that, as Allenbuild had contended, the referral of the adjudication followed the wrong procedure (being the Scheme for Construction Contracts as set out in the Construction Act rather than the contractually agreed CIC model adjudication procedure).
The merit of this challenge did not, however, alter the court's decision that Allenbuild had already lost its opportunity to raise any jurisdictional challenges. It said there was "not a shred of evidence" that Allenbuild had ever reserved its right to raise any jurisdictional challenges during the adjudication. As a result, the contractor had waived any right to do so thereafter.
The validity of the adjudicator's decision was, therefore, upheld.
Arbitration agreement did not capture adjudication enforcement
The second key issue before the court concerned the parties' contractual agreement to refer any dispute to arbitration. Did this require the court to grant a stay of proceedings, pending referral of the parties' dispute to arbitration? The court decided that it did not.
The court considered two points:
- the contractual autonomy of the parties who agreed that any dispute between them should be referred to arbitration; and
- the "pay now, argue later" provisions which underlie the speedy resolution of construction disputes by adjudication in the Construction Act.
The court decided that the resolution of any conflict between those two points lies in identifying the true scope of any intended 'reference' to arbitration. The parties' arbitration agreement provided no basis for adjourning enforcement of the adjudicator's decision. The fact that an arbitration tribunal might 'finally' determine the parties' dispute differently to the adjudicator does not affect the provisionally binding adjudicator's decision.
The court confirmed that neither of the adjudication procedures set out in CIC or the Scheme for Construction Contracts altered its decision. Both procedures expressly excluded any challenge to the decision of an adjudicator. Irrespective of which adjudication procedure applied under the parties' contract, this exclusion meant the court would always have jurisdiction to enforce an adjudicator's decision. Section 9 of the Arbitration Act 1996 (which Allenbuild relied upon when seeking the stay) would never require it to grant a stay as it only applied "in respect of a matter which under the [parties'] agreement is to be referred to arbitration".
Lessons learned
The key lesson here is always to tread carefully when deciding whether to protect the reservation of a right to raise jurisdictional challenges, during and following the conclusion of an adjudication.
It may be interpreted that the court is seeking to ignore the parties' contractual arbitration agreement in favour of statutory "pay now, argue later" provisions in this judgment. But it is also giving effect to the philosophy that underlies section 9 of the Arbitration Act, which is to refer to the parties' contractual agreement. This did not grant an arbitration tribunal jurisdiction to enforce (or refuse to enforce) an adjudicator's decision.
Finally, this judgment provides further indication of the court's continued support for the use and enforcement of temporarily (or 'provisionally') binding adjudication awards. But this should not be confused with the final determination process separately afforded by the courts and arbitration tribunals.
Olivia Jenkins is an associate and Molly Whitehouse is a trainee solicitor at Trowers & Hamlins.
