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Key words come under the microscope in construction court

Essential guidance is emerging on how the TCC will interpret crucial contract wording following a dispute over adjudication.

The case of J Murphy & Sons Limited v. W Maher and Sons Limited [2016] EWHC 1148 (TCC) provides a useful insight into how the Technology and Construction Court is likely to interpret the words ‘under’, ‘in connection with’ or ‘arising out of’ a construction contract.

The case highlights the willingness of the TCC to look to the intention of the parties to have the dispute decided by an adjudicator, irrespective of any technicality to the contrary.

J Murphy & Sons sub-subcontracted W Maher and Sons on terms which incorporated much of the NEC 3 Engineering and Construction subcontract. A final account dispute arose and an agreement was reached between the parties. As payment was not made, Maher referred the dispute to adjudication under the terms of the sub-subcontract.

The adjudication

Option W2 of the sub-subcontract stated: “Any dispute arising under or in connection with this subcontract is referred to and decided by the adjudicator.” Part one of the completed subcontract data stated that the TCC was the “adjudicator-nominating body”.

As the TCC is not a nominating body for adjudicators, Maher applied to the RICS.

Murphy sought to challenge the jurisdiction of the adjudicator on the grounds that:

  • The reference to “TCC” in the subcontract data meant the adjudication provisions were deficient and the Scheme for Construction Contracts applied;
  • As the Scheme only refers to disputes “under” construction contracts, this precluded a dispute under the settlement agreement being capable of referral to adjudication.

The key to Murphy’s argument is the wording of the Scheme, which refers to “any dispute arising under the contract”.

As this wording is narrower than the wording used under Option W2 which refers to disputes “under” or “in connection with” the sub-subcontract, the TCC had to consider two questions.

Question one

The first question to consider: did the adjudication provisions under the sub-subcontract or the Scheme apply?

The judgment concerning the erroneous mention of the TCC was rather straightforward. This is summarised by Sir Robert Akenhead when he states: “It is clear that the parties agreed unequivocally that there could and should be adjudication and…it should be by way of a responsible institution which offered that service.”

“As permission to appeal was left open, this legal spectrum is likely to have more twists and turns ahead”

Section 108(1) to (4) of the Housing Grants, Construction and Regeneration Act 1996 makes clear what provisions are required in a construction contract for it to be effective to avoid the Scheme from applying.

As these provisions do not expressly provide for a nominating body to be included, Sir Robert was able to conclude that the intention of the parties to refer the matter to adjudication under the terms of the sub-subcontract was sufficient to find that the provisions of the sub-subcontract prevailed, provided a reasonable nominating body was used.

Question two

The second question to consider: if the Scheme applied, did the dispute fall “under” the subcontract?

Sir Robert was of the view that the TCC should adopt a logical and commercial approach to deciding whether a dispute arises “under” a construction contract and that there should no longer remain a distinction between the words “under”, “in connection with” or “arising out of”. 

He stated: “It would be extraordinary and illogical… that an otherwise properly appointed adjudicator would have jurisdiction in addressing what entitlement a contractor… might have to be paid in all circumstances save in relation to where a dispute arises as to whether that entitlement had been settled.”

This is useful guidance and any party wishing to challenge the jurisdiction of an adjudicator on this “technicality” may wish to stop and think again.

The concept of adjudication is predicated on resolving disputes quickly, commercially and without the need to be over-legalist, and it is suggested that the approach adopted is sensible as it avoids pigeon-holing disputes into categories without good reason.

While Sir Robert’s judgment continues to pave the way to ensuring these principles are preserved, the judgment is far from trite law and he even alluded to the fact that he may be making new law.

As permission to appeal was left open, this legal spectrum is likely to have more twists and turns ahead.

James Badger is a solicitor at Irwin Mitchell

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