Litigate, adjudicate… or both? New choice opens up

Since the start of the scheme for adjudication under the Housing Grants, Construction and Regeneration Act 1996, it has generally been understood that a party to a dispute could either refer it to adjudication or begin court proceedings. A party involved in an adjudication would only consider litigation if and when the losing party failed to abide by the adjudicator’s decision, in order to seek a court order to enforce the decision. A recent case suggests, however, that there is no reason why both processes cannot be pursued at the same time in situations where the terms of the contract are in dispute.

In the case of Dalkia Energy & Technical Services Ltd v Bell Group Ltd [2009] EWHC 73 TCC, the court was asked to decide whether Bell’s terms and conditions had been incorporated into its contract with Dalkia. Bell had commenced adjudication proceedings against Dalkia, seeking payments it said were due and owing under the contract. Dalkia issued a claim, pursuant to Part 8 of the Civil Procedure Rules, asking the court to declare that Bell’s terms and conditions did not form part of the contract. The court held that, while not every issue in an ongoing adjudication would be suitable to be resolved by issuing a claim for a declaration, in limited circumstances it could be appropriate, even when related adjudication proceedings were ongoing.

Dalkia invited Bell to tender for dilapidation works to a number of railway stations. Bell provided a quotation, to which it attached its standard terms and conditions. There followed a period of negotiation and further definition of the scope of the works, at the conclusion of which Dalkia instructed Bell to undertake works to 143 stations and 22 footbridges.

Once the works were under way, a dispute arose about the amounts due to Bell and the firm served an adjudication notice in December 2008. It then sought nomination of an adjudicator from the RICS, in accordance with the provisions in its standard terms and conditions. Dalkia argued before the adjudicator that Bell’s terms and conditions did not form part of the contract between them, so the adjudicator had no jurisdiction to decide the dispute. The adjudicator rejected that argument, and Dalkia issued Part 8 proceedings, effectively to have that decision overturned.

Judge Coulson found that the adjudicator’s decision as to whether or not Bell’s standard terms and conditions had been incorporated into the contract was part of the dispute that Bell had, quite properly, referred to the adjudicator and would not ordinarily be a matter with which a court could interfere on enforcement. In this case, however, the issue had been raised with the court in separate Part 8 proceedings, rather than at the enforcement stage, and the court had jurisdiction to deliver a final and binding judgment on the question of whether Bell’s terms had been validly incorporated into the contract.

While the judge concluded that the terms had been validly incorporated, so that Dalkia’s claim for declaratory relief failed, the case shows that the courts may be willing to allow parties to adjudication to litigate their differences concurrently with the adjudication process.

The judge made it clear that the pre-emptive use of Part 8 to seek declarations as to natural justice in an ongoing adjudication would rarely be appropriate. One situation, however, in which it might be considered appropriate is where there is an issue as to which contract conditions apply. This is significant because, once the proposed changes to the adjudication scheme come into force, so that there is no longer a requirement for contracts to be in writing, disputes over terms are likely to become more prevalent.