Disputes under more than one contract: Jurisdictional issues to remember if considering adjudication

It is a well-established legal principle that without jurisdiction an adjudicator’s decision will not be enforceable. Under section 108(2)(a) of the Housing Grants Construction and Regeneration Act 1996 (as amended) (Construction Act) a party can refer ‘a dispute’ under a construction contract at any time. If a party refers more than one dispute under a single contract or commences an adjudication where the dispute concerns more than one contract, the adjudicator will not have jurisdiction to decide that “dispute”.  These issues were recently considered in Delta Fabrication & Glazing Ltd v Watkin, Jones & Son Ltd [2021] EWHC 1034 (TCC).

Background

The claimant (Delta) and defendant (Watkin) entered into two distinct sub-contracts, both of which were for different works at the same development in Walthamstow. However, the parties agreed that the payment process under both contracts would be carried out simultaneously and through a single application process. At the end of the project a single final overall sum for all the works was agreed. A dispute over payment of this final sum arose which Delta referred to adjudication.

Watkin challenged the adjudicator’s jurisdiction from the outset on the basis that Delta had referred disputes under the two separate contracts to the adjudicator in the same adjudication. The adjudicator issued a non-binding decision that he had jurisdiction and continued with the adjudication, eventually deciding the sum of £2,244,210.28 was due to Delta.

Delta sought to enforce the adjudicator’s decision raising three arguments in favour of enforcement:

• The parties had agreed, by their conduct and the way in which the contracts were administered, to vary the two contracts so that they amalgamated to form one singular contract. On this basis, Delta argued that it did not refer disputes arising under more than one contract to the adjudicator, thereby ensuring that he had jurisdiction and his award was valid. Delta relied on a payment notice dated February 2020, which referenced a single sum for payment. Delta argued that this constituted the offer to amalgamate the contracts.
• For the purposes of the Construction Act (both in terms of the payment process and adjudication), it was possible to treat two separate contracts as a single contract where the parties had elected to merge or consolidate the payment process of the two contracts, even though in all other respects they were to be treated as two separate contracts under law.
• Watkin was estopped from denying that the separate contracts should be treated as one for the purposes of the Construction Act. It argued that a payment notice dated February 2020 where Watkin referenced a single sum for payment under both contracts was a representation that the contracts were to be treated as one. Delta argued that it had then relied on that representation and suffered detriment as a result.

The Court’s decision

With regard to the first argument, the court held that the documents put forward by Delta did not unequivocally demonstrate that the parties had mutually intended for the contracts to be amalgamated. The court held that although the February 2020 payment notice was for one figure for both contracts, it did not have the effect of amalgamating the contracts as the supporting documentation dealt with the calculations for each contract separately.

When considering the parties’ conduct, Judge Watson highlighted examples of Delta referring to both contracts after the alleged amalgamation and emphasised the fact that subsequent correspondence did not make reference to an amalgamation of the contracts.

The primary evidence Delta relied on was the final account documentation, included in which was a letter from Watkin to Delta. Delta argued that Watkin’s reference to a “statement of Final Account for the above contract” was indicative of the agreement to amalgamate the contracts, an argument which the adjudicator had agreed. The court departed from the adjudicator’s decision and held that the wording “the above contract” should not be read as a reference to the two contracts being amalgamated into one, but rather as a reference to the main contract, under which Delta and Watkin had entered into the two sub-contracts.

As to Delta’s second argument, Judge Watson was not persuaded that the parties’ conduct gave rise to a single contract for the purposes of the Construction Act, but not for any other purposes. Judge Watson held that the Act does not suggest that the words “contract” or “agreement” should be read as or given anything other than their natural meaning. Delta failed to persuade the court that it was possible for the sub-contracts to have been amalgamated to form one contract within the definition of the Act, but not at common law.

The court dismissed Delta’s final argument on the basis that it had failed to produce any evidence in support of its argument and therefore did not prove the essential elements of estoppel were satisfied. The February 2020 payment notice had already been considered and did not amount to a representation that Watkin was treating the sub-contracts as one, it merely evidenced Watkin’s wish to administer the payment provisions of both contracts together. No evidence of Delta’s reliance on Watkin’s alleged representation was presented, and Delta’s conduct by referring to more than one contract following the alleged amalgamation was inconsistent with Delta’s argument of reliance. Finally the court was not persuaded that Delta had suffered a detriment by incurring additional costs in dealing with the payment applications as though they were one contract.

Concluding thoughts

In dismissing Delta’s application for summary judgment, the court concluded that the adjudicator had lacked jurisdiction because Delta had referred disputes under two separate contracts to the adjudicator in one referral. This case demonstrates that unless there is clear evidence to the contrary, entering into and executing two sub-contracts, or purchase orders, will be treated as two distinct contracts for the purposes of the Construction Act regardless of how they are administered.

For more information, please contact Georgina Bernard or Michael O'Connor or your usual Charles Russell Speechlys contact.