When adjudication and arbitration collide

When adjudication and arbitration collide

Aidan Steensma is of counsel and Adrian Bell is a partner in the Infrastructure, Construction and Energy Disputes team at CMS London

Both the Arbitration Act and the Housing Grants, Construction and Regeneration Act (the ‘Construction Act’) were passed in 1996. Section 9 of the Arbitration Act requires a court to stay proceedings brought over any matter that an arbitration agreement requires to be referred to arbitration. The Construction Act introduced a mandatory right for any dispute arising under a construction contract to be resolved quickly by adjudication and to be binding on the parties pending final determination by legal proceedings, arbitration or agreement.

A tension between these two acts quickly became apparent.

In Macob Civil Engineering Ltd v Morrison Construction Ltd (decided in 1999), a subcontractor brought Technology and Construction Court (TCC) proceedings to enforce an adjudicator’s decision. The contractor disputed the validity of the decision, citing an arbitration clause in the subcontract to contend that the TCC proceedings should be stayed to arbitration.

“The recent decisions make it clear that a generally worded arbitration clause alone is not enough to have adjudication enforcement proceedings in the TCC stayed to arbitration”

A stay was refused primarily because the contractor had already started arbitration proceedings over the decision and so had waived its right to challenge validity. Nonetheless, the court noted that there could be no objection in principle to giving an arbitrator the power to decide the validity of an adjudicator’s decision.

MBE v Honeywell

Roughly a decade later, in 2010 MBE Electrical Contractors Ltd v Honeywell Control Systems Ltd revisited the point. The subcontract in that case contained a generally worded arbitration clause applying to any dispute “arising out of or relating to” the subcontract. MBE obtained an adjudication decision in its favour against Honeywell and brought enforcement proceedings in the TCC. The scheme rules applied to the adjudication and the court ordered a stay on the basis that the scheme should be read together with the arbitration clause and the scheme envisaged immediate enforcement of adjudication decisions. It was therefore deemed that the arbitration clause did not apply to disputes over the validity of an adjudication decision.

The court placed particular emphasis on paragraph 23(2) of the scheme, which says that an adjudication decision is binding and must be complied with “until the dispute is finally determined by legal proceedings, by arbitration… or by agreement”. Section 108(3) of the Construction Act requires a clause to this effect to be included in every construction contract.

The MBE decision was criticised by some commentators, but supported by Lord Justice Coulson writing extra-judicially in Coulson on Construction Adjudication. The essential difference between them appears to be whether a procedure akin to TCC enforcement is available in arbitration proceedings. Lord Justice Coulson notes: “It can hardly be ‘pay now, argue later’ if the winner has to argue both in front of the adjudicator, and all over again in front of an arbitrator, before he gets his money.”

Two new NEC cases

Another decade on, two more TCC cases on this issue have recently been decided under the NEC form. Where arbitration is specified, the NEC form allows a dispute that has already been referred to adjudication to be referred to arbitration, provided a notice of dissatisfaction has been given within four weeks of the adjudication decision. In both of the cases, the employer obtained an adjudication decision in its favour and brought enforcement proceedings before the TCC, which was met with an application for a stay under section 9 of the Arbitration Act.

Although the scheme did not apply in these cases, the equivalent to paragraph 23(2) was again relied on to find that the arbitration clause did not extend to adjudication enforcement. In the second of the two cases (Northumbrian Water Ltd v Doosan Enpure Ltd)this was clause W2.3(11) of the NEC3 form.

The court in Northumbrian Water appeared to accept the availability of interim procedures for the enforcement of an adjudicator’s decision via arbitration (i.e. without a re-hearing), but considered these to be inadequate. Although the availability of these procedures was not discussed in any detail, the court believed they would deprive an adjudication decision “of any efficacy in the meantime”.

Where are we now?

The recent decisions make it clear that a generally worded arbitration clause alone is not enough to have adjudication enforcement proceedings in the TCC stayed to arbitration under section 9 of the Arbitration Act.

However, a number of points remain open for debate:

  • The decisions discussed above are all first-instance decisions of the TCC and it we do not know whether the Court of Appeal would follow the same approach.
  • The assumption underlying the TCC’s approach is that the parties can’t have intended to suffer the delay of enforcement by arbitration. This assumption is understandable if a rehearing is thought to be required, but less so where swift interim procedures are available in arbitration. The availability of such procedures depend on the applicable arbitration rules and may allow a party to claim that an adjudication decision would not be deprived of “any efficacy in the meantime” – at least to no greater extent than the need to prosecute enforcement proceedings in the TCC.
  • The benefits of arbitral enforcement have not seriously been considered in the cases. These include confidentiality and international enforceability under the New York Convention.
  • It remains unclear whether the approach taken by the TCC could be overcome by an arbitration clause that stipulates that adjudication enforcement proceedings are dealt with by arbitration, or whether such a clause would be struck down as contrary to section 108(3) of the Construction Act.

Let’s hope that another decade does not pass before these questions are resolved.

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