Adjudication enforcement and exclusive jurisdiction clauses post-Brexit

The recent decision in Motacus Constructions Limited v Paolo Castelli SPA [2021] EWHC 356 (TCC) considered the question of whether an exclusive jurisdiction clause in favour of a foreign court precludes an English court from enforcing an adjudicator’s decision. The answer in this case was no, as a result of Article 7 of the Hague Convention.

The court described this as a ‘novel’ question as it is not one which comes up very often under English construction contracts. However, it may be more likely to arise where there are tiers of sub-contractors further down the supply chain who are not UK based.

The Hague Convention

Since the UK’s departure from the European Union, questions of jurisdiction are determined by the Convention on Choice of Court Agreements concluded in 2005 at the Hague (Hague Convention).

The two key articles in this case were:

• Article 6(c) which provides that a court of the contracting state (in this case, the UK) need not suspend or dismiss proceedings to which an exclusive choice of court agreement applies if:

“…giving effect to the agreement would lead to a manifest injustice or would be manifestly contrary to the public policy of [the contracting state]”; and

• Article 7 which provides that:

“Interim measures of protection are not governed by [the Hague] Convention.”

Background

Following an adjudicator’s decision in its favour, Motacus Constructions, the sub-contractor applied to the English court for summary judgement to enforce the adjudicator’s decision. The sub-contractor had been awarded £454,678.65 plus VAT and interest.

The sub-contract between the sub-contractor and the contractor, Paolo Castelli (an Italian company), was for works in London, but it included a governing law and exclusive jurisdiction clause which provided that:

“This Agreement shall be governed by and construed in accordance with the laws of Italy.

All disputes between the parties as to the validity, execution, performance, interpretation or termination of this Agreement will be submitted to the exclusive jurisdiction of the Courts of Paris, France, in accordance with the aforementioned laws.”

Part II of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act) applies to all construction contracts for works in England regardless of whether the law of England and Wales is the applicable law. The sub-contract did not contain an adjudication provision, so the Scheme for Construction Contracts 1998 was implied into the terms of the sub-contract. The parties had the right to adjudicate and an adjudicator’s decision would bind the parties until final determination of the dispute.

The issue in this case was whether the exclusive jurisdiction clause meant the adjudicator’s decision could only be enforced in Paris.

The sub-contractor’s position

The sub-contractor argued that the English court should accept jurisdiction and enforce the adjudicator’s decision in light of the provisions in either Article 6(c) or Article 7 of the Hague Convention.

Article 6(c) – Manifest injustice or manifestly contrary to public policy

The sub-contractor argued that Parliament enacted the Construction Act to remedy problems with cash flow and address the shortcomings of the traditional litigation process by providing a quick, enforceable, interim decision. In light of this parliamentary intention, it would be manifestly contrary to public policy and unjust for the court not to enforce the adjudicator’s decision.

This approach would be consistent with s104(7) of the Construction Act which applies compulsory adjudication provisions to foreign law contracts. The sub-contractor argued that Parliament would not have intended parties to be able to avoid enforcement simply by electing the exclusive jurisdiction of a foreign court.

Article 7 – Interim measure of protection

The sub-contractor also argued that it is well established that an adjudication decision is only temporarily binding on the parties.

A parallel was drawn with the position under construction contracts containing arbitration clauses. Where a contract contains an arbitration clause, the Construction Act requires the courts to enforce any adjudication award before final determination by an arbitrator. This was cited as evidence that an adjudicator’s decision should be binding until it is successfully challenged either by arbitration or in court.

Therefore, adjudication and its enforcement should be treated as an interim measure of protection within the meaning of Article 7 and the court should enforce the adjudicator’s decision, leaving the parties to litigate the underlying dispute in Paris.

The contractor’s position

The contractor argued that the court did not have jurisdiction as the sub-contractor’s application was brought in breach of the exclusive jurisdiction clause in the contract. Accordingly, all disputes arising out of the contract must be settled by the courts of Paris, France.

It argued that:

• The clause was drafted in wide terms;
• It was the practice of the English courts to give such clauses “a generous interpretation”; and
• Where there is a single jurisdiction agreement such as this, the presumption is in favour of a “one-stop shop”.

The contractor submitted that the court must apply the Hague Convention and dismiss these proceedings unless giving effect to the exclusive jurisdiction clause would be “manifestly contrary” to UK public policy. It argued there was nothing in the Construction Act which dilutes the articles of the Hague Convention and if Parliament intended adjudication enforcement proceedings to be exempt it could have carved them out as an exception. Further, “manifestly contrary to public policy” and “manifestly unjust” are high thresholds to meet, and facilitating cash flow in the construction industry does not meet this threshold.

According to the contractor, an application for summary judgment to enforce an adjudicator’s decision is not an interim measure of protection (to which Article 7 of the Convention referred), because it was not intended to preserve the status quo or the position of parties to litigation pending the substantive resolution of the dispute in the same way as freezing injunctions or search and seize orders. The contractor argued that as there was no question of property being damaged or destroyed, enforcement proceedings could just as effectively have been brought in the courts of Paris. 

The Court’s decision

Summary judgement was granted in favour of the sub-contractor.

With regard to Article 6(c), the judge agreed with the contractor, concluding that the sub-contractor had not exceeded the high threshold required to show that giving effect to the exclusive jurisdiction clause would lead to any ‘”manifest injustice” or would be ”manifestly contrary to public policy”.

However, the judge agreed with the sub-contractor with regard to Article 7. The judge accepted that the concept of an interim measure of protection is not restricted to measures merely intended to preserve the position of the parties pending final judgment and that it extends to any decision that is not a final and conclusive decision on the substantive merits of the case. This extends to an adjudicator’s decision as the function of such a decision is to protect the position of the successful party on an interim basis pending the final resolution of the parties’ dispute.

Going forward

The speedy and relatively cost effective resolution of disputes by way of adjudication is important for maintaining cashflow in the industry. It would be unhelpful if the choice of jurisdiction clause created an obstacle to the right to adjudicate.

This article was written by Isabella Eacott and Eveline Strecker. For more information, please contact Isabella or your usual Charles Russell Speechlys contact.