The dilemma in Ferson has cropped up several times before: what is to be done when an adjudicator's decision requires X to pay Y but the contract between X and Y is in conflict with that decision? Levolux contracted to supply and fit louvre panelling to a building in Filton, Bristol, for Ferson. The subcontract incorporated the standard form GC Works subcontract with certain amendments. Trouble cropped up around the second interim payment.
That interim claim was for £56k. Ferson issued a withholding notice for all but about £5k. Levolux bravely served a notice that it was suspending work and then did suspend. Ferson countered with a threat to terminate the Levolux contract for failing to perform. Levolux stayed off-site and called for the adjudicator to referee the amount due. Solicitor John Redmond arrived in his referee shorts and vest complete with yellow and red cards. He decided that the withholding notice issued by Ferson was technically incorrect, showed the yellow card to it and decided the whole of the £56k was to be paid to Levolux. Shan't pay, said Ferson.
In the High Court, before the first instance judge, counsel for Ferson relied on two previous first instance judgments. The first, K&S Industrial Services (Birmingham) vs Sindall, decided that if the contract has been lawfully terminated by the time an adjudicator requires payment, then that payment does not have to be made.
If your project is a construction contract, you cannot include a clause that defeats the intentions of the act. Such a clause will be struck down
The second, Bovis Lend Lease vs Triangle Developments, explained that if a term existed in the contract that had the effect of superseding or avoiding or allowing deductions from the payment directed by an adjudicator's decision, then those terms prevailed over the adjudicator's decision.
Some people have assured me that the Bovis decision would persuade paying parties to write that type of deduction clause into their contracts. This is a disaster if they are right, because it torpedoes adjudication. Moreover, the judge in Bovis relied on the Court of Appeal decision about adjudication called Parsons Plastics vs Pirac in February 2002.
The decisions of these courts are not wrong but there is a huge difference between Ferson on the one hand and Parsons and Bovis on the other. Yes, they had an effective contractual adjudication clause but – and this is a big but – neither Parsons nor Bovis involved a "construction contract". Neither was subject to the Construction Act. Both had elected to use adjudication voluntarily. Adjudication and the payment provisions are only compulsory when your contract is a construction contract as defined in the Construction Act. If your project is a construction project, you cannot include in your contract a clause that defeats the intentions of the act. Such a clause will be struck down. An adjudicator can decide so; or the court can at enforcement stage. The clause that is contrary to the Construction Act will be shown the red card.
Tony Bingham is a barrister and arbitrator specialising in construction. You can write to him at 3 Paper Buildings, Temple, London EC4 7EY, or email him on firstname.lastname@example.org.