Monday, 20 October 2014

Hurley Palmer Flatt Ltd v Barclays Bank plc

[2014] EWHC 3042 (TCC)

As Mr Justice Ramsey explained, this claim raised the issue of the extent to which the rights of a third party enforceable under the Contracts (Rights of Third Parties) Act 1999 (“the 1999 Act”) enabled that third party (Barclays Bank plc) to adjudicate a dispute arising under a professional appointment entered into between HPF and (the client) Barclays plc.

By a deed dated 28 January 2008 between the client, Barclays plc and HPF, HPF agreed to provide mechanical and electrical engineering design services in relation to the design and construction of a new data hall at a data centre. Disputes arose concerning the chilled water system. This led to a claim against HPF valued at over £4 million. Clause 14 of the appointment provided for assignment by the client and third party rights. Clause 14.3 contained the following provision:

“Any Affiliate with a direct interest in the Project shall be entitled to enforce the terms of this Agreement as “Client” always provided that the Consulting Engineer shall be entitled [to] rely on the equivalent defences in respect of such liability which it has against the Client.”

Clause 2.3 of the agreement, noted, as is not uncommon, that:

“Unless expressly stated otherwise in this Agreement, nothing in this Agreement confers or is intended to confer any rights on any third party pursuant to the Contracts (Rights of Third Parties) Act 1999.”

The appointment also provided for adjudication. The third party gave a notice of adjudication, seeking damages against HPF in relation to the claim of defects in the chilled water system based on rights as an Affiliate under the Appointment. HPF then sought declarations at the TCC that the third party was not entitled to commence adjudication proceedings which meant that the adjudicator lacked jurisdiction.

The Judge considered that clause 2.3, on its true construction, means that, with the express exception in this case of clause 14.3, no rights were conferred on a third party which are enforceable under the 1999 Act. He noted that the appointment contained some 31 clauses some of which related to substantive terms and gave rise to the potential liability of HPF to the client. Other provisions contained rights which may be characterised more as procedural rights, for example the right to suspend or terminate. The wording of clause 14.3 strongly indicated that it was the terms of the appointment that relate to HPF’s liability to the client, and not the procedural rights which are intended to be enforced under the terms of clause 14.3. There was therefore no freestanding right to enforce the adjudication provision.

Section 1(4) of the 1999 Act sets out the basis on which a third party can enforce a term of a contract such that a third party’s right of enforcement is subject to the contract terms and conditions and here the Judge gave as an example, the “classic case” where this provision would be engaged, namely, where there was an arbitration clause.

However, adjudication, unlike arbitration, is not a mandatory alternative way in which a party to a contract can enforce its rights. Adjudication is a voluntary method of dispute resolution in the sense that one party to a contract may, but is not obliged to, have a dispute temporarily resolved, pending a final determination by the courts or, if applicable, arbitration. It therefore differs in nature from the terms of an arbitration clause under which a party’s rights can only be determined by arbitration. Here, the adjudication provisions merely said that the Scheme should apply.

Without provision making adjudication applicable to the relationship between Barclays Bank plc as third party and HPF, the terms of the adjudication provision would not be applicable. The Scheme refers, in paragraph 1(1) of Part I, to a party to a construction contract being able to give written notice to refer disputes to adjudication. Barclays Bank, the third party, was not a party to a construction contract. Equally, paragraph 1(2) states that the notice of adjudication should be given to every other party to the contract. This could not apply to the third party.

This is the first time the TCC has been asked to consider whether a third party was granted a right to refer a dispute to adjudication under a contract’s adjudication clause. The clear answer to the question raised is no. Therefore if parties wish to grant a third party the right to refer a dispute to adjudication they must expressly agree to it as part of the contractual arrangements.

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