The one with two buckets

Students of adjudication won’t need much help remembering the details of McConnell Dowell Constructors vs National Grid Gas (NGG). Just as John Doyle vs Laing Management (Scotland) is the one with the torpedo, so this case will live in the memory thanks to Mr Justice Jackson’s reference to two buckets.

In 2001, McConnell Dowell and NGG entered into a contract to build a gas pipeline. The contract included an adjudication clause. Part way through the works, a dispute arose as to what extra money was owed to McConnell Dowell and whether it was entitled to a time extension.

On 12 December 2002, the parties settled their dispute. This settlement was recorded in a supplemental contract that drew a line under matters at the date of the agreement, recorded the money then due McConnell Dowell for the works it had carried out and revised the date for their completion. McConnell Dowell proceeded to finish the works.

On completion, a further dispute arose as to McConnell Dowell’s entitlement to payment. The dispute involved an examination of what works had been carried out before and after the supplemental agreement and what sum was due the contractor for work done after the agreement was made on 12 December 2002. McConnell Dowell referred that dispute to adjudication.

NGG argued that the adjudicator had no jurisdiction, as the supplemental agreement was not a construction contract under section 108 of the Construction Act. NGG also submitted that the supplemental agreement did not contain an adjudication clause and that McConnell Dowell’s claim had been settled by the supplemental agreement, and so there was no adjudicate.

Although it reserved its position, NGG continued to take part in the adjudication. The adjudicator decided that he did have jurisdiction and that further sums were due to McConnell Dowell. However, NGG did not comply with the adjudicator’s decision and McConnell Dowell issued proceedings to enforce the decision and sought summary judgment.

The question as to whether a dispute arising out of a settlement agreement is capable of adjudication has come before the court on a number of occasions, with different outcomes.

“No,” said His Honour Judge Lloyd in Shepherd Construction vs Mecright. “Yes,” said His Honour Judge Grenfell in Quarmby Construction vs Larraby Land. His Honour Judge Thornton also said “yes” in Westminster Building Co vs Beckingham.

In this case, Mr Justice Jackson thought the relationship between the first and second agreement was crucial. Was the second agreement a standalone deal or did it operate as a variation of the initial contract?

Bucket one contained the claims settled by the supplemental agreement. The claims that were not settled were in bucket two

Mr Justice Jackson said the supplemental agreement operated to vary the initial contract, so was subject to the same adjudication procedure. In addition, the supplemental agreement did not, unlike the settlement agreement in the Shepherd case, resolve all disputes between the parties. There were no issues arising after the settlement agreement in Shepherd.

In McConnell Dowell, however, there were “two buckets”. Bucket one contained the claims settled by the supplemental agreement. The other claims, which were not settled, were placed in the second bucket. Accordingly, the adjudicator had jurisdiction to determine which claims had and had not been settled by the supplemental agreement.

McConnell Dowell also provides an example of a situation where execution of summary judgment, enforcing an adjudicator’s decision, will be stayed.

Although McConnell Dowell was an Australian company, when it entered into the contract with NGG, it had an office in the UK. However, by the time of the summary judgment hearing, that office had been closed.

The change is vital as the court will look to see if there has been a material difference in the nature and status of the claimant between the date of the contract and the hearing of the application for summary judgment.

There was much force in NGG’s argument that if it was successful in overturning the adjudicator’s decision at a later date, it would be much more time-consuming and expensive than being able to enforce the judgment against McConnell Dowell in England.

However, on the basis that McConnell Dowell had offered NGG security against which to enforce any subsequent judgment, NGG’s application for a stay was refused.

Mr Justice Jackson decided the adjudicator’s decision must be promptly enforced, even if NGG apparently had good prospects of recovering the money later.