The Housing Grants, Construction and Regeneration Act 1996 (as amended) (the “HGCRA”) permits a party to “refer a dispute arising under the contract” - that is, a single contract – to adjudication. It is now well established that should a party refer a dispute spanning two contracts to adjudication, the adjudicator will lack jurisdiction and therefore any subsequent decision made will be unenforceable.
In Delta Fabrication and Glazing Ltd v Watkin Jones & Son Ltd [2021] EWHC 1034 (TCC), the court considered whether the adjudicator had jurisdiction where the dispute referred to adjudication spanned two sub-contract orders on the same project.
Facts
In August 2019, Watkin Jones & Son Ltd (“Watkin”) engaged Delta Fabrications Ltd (“Delta”) to carry out cladding works at a project in Walthamstow, London by way of a sub-contract order. The following month, Watkin sent Delta a further sub-contract order for roofing works on the same project. Both sub-contracts contained what the court described as “substantial documents” setting out “detailed terms” between the parties.
From February 2020, Delta had combined its payment applications for the project to show a total figure applied for under both sub-contracts.
In November 2020 Delta submitted its final account with a combined application figure for both sub-contracts. A dispute regarding the application ensued, which Delta referred to adjudication.
At the outset of the adjudication, Watkin raised a jurisdictional objection, that the dispute concerned two separate contracts. The adjudicator reached a non-binding decision that they did have jurisdiction and proceeded to make a decision regarding the dispute in Delta’s favour. Delta then sought to enforce the decision in the Technology and Construction Court. Watkin resisted enforcement, again citing a lack of jurisdiction owing to the dispute spanning two contracts.
Decision
The central question for the court to answer was: did the adjudicator have jurisdiction to decide the dispute? This question could be answered by determining whether there were one or two contracts between the parties.
In seeking to demonstrate that there was only a single contract, Delta put forward the following arguments:
- That the parties agreed, by their conduct, to vary the two sub-contracts so that they were amalgamated. (Delta said that this amalgamation occurred in February 2020 when it began combining its payment applications.) (“Argument 1”); or
- That even if the parties’ conduct did not amount to a variation that there was one contract for all purposes, it did have the effect of amalgamating the contracts into one for the purpose of the HGCRA (“Argument 2”); or
- That Watkin should be estopped from denying that there is a single contract within the meaning of the HGCRA (“Argument 3”).
As to Argument 1, HHJ Sarah Watson noted that there were no documents that indicated an express agreement to amalgamate the two sub-contracts. Therefore, any conduct to vary the sub-contracts must be “unequivocal and consistent”. Having reviewed the papers and witness evidence, HHJ Watson held that “the documents relied on by the Claimant as constituting the agreement to vary are not unequivocal.” Argument 1 therefore failed.
The judge also dealt with Argument 2 shortly. She noted that for this argument to succeed, it “would mean it would be possible for the contracts to remain separate contracts at common law, but to be "a construction contract" under the [HGRCA].” The judge Argument 2, saying that the word “contract” in the HGCRA should be given its ordinary and natural meaning.
With regard to Argument 3, HHJ Sarah Watson found that two key elements of an estoppel claim – 1) Delta’s reliance on Watkin’s representation to amalgamate the sub-contracts and 2) Delta suffering any detriment – were not present. Accordingly, Argument 3 also failed.
To conclude, the judge found that the adjudicator lacked jurisdiction as Delta had in fact referred a dispute spanning two contracts to adjudication. Delta’s application for summary judgment therefore failed.
Commentary
The fact pattern in Delta v Watkin Jones is not an uncommon one within the construction industry. Frequently, there may be more than one contract between the parties on the same project, or conversely, a single contract across multiple projects. (See RCS Contractors Ltd v Conway [2017] EWHC 715, where the court found that despite there being three separate projects and three sets of documents, there was in fact only one contract between the parties. The decision in RCS was distinguished in Delta v Watkin Jones.)
It is preferable that parties to construction contracts ensure that any additional work is added as a variation to the original contract rather than a new contract. This will obviate the issues arising in Delta v Watkin Jones and allow for any disputes to be dealt with in a single adjudication.
Potential referring parties should analyse the contract and contemporaneous documents before referring a dispute to adjudication. A conclusion that there is two separate contracts will affect the strategy and scope of any adjudication. If there are in fact two contracts and the Scheme for Construction Contracts (England and Wales) Regulations 1998 (as amended) applies, the referring party could seek an agreement under paragraph 8(2) to combine the disputes into a single adjudication. Sensible parties may see this as the quickest and most cost efficient way to resolve the issues between them. Indeed, Sir Peter Coulson notes the “common sense and practicality” of paragraph 8(2) in his leading textbook on adjudication.
Similarly, if a party in receipt of a Notice of Adjudication considers there to be two contracts, it should make an early and specific jurisdictional challenge. Such challenge should be repeated with every submission to preserve the right to raise it at enforcement if necessary.
