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Go whistle
You may think that recent court cases mean you can
add a clever payment clause to your contract and wriggle out of
the referee's award. Think again...
"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"
I am very much obliged to solicitor Geoffrey
Hand of Davis & Partners, Gloucester, for sending me the Court of
Appeal judgment in the adjudication case Ferson Contractors
Limited vs Levolux AT Ltd. This is a three-man Court of Appeal
analysis of adjudication, and it is important because the Court of
Appeal has a binding effect on what we call "first instance"
courts. By my reckoning we have had 131 published judgments about
adjudication since it all started nearly five years and 6000
adjudications ago. Of these 131, five are from the Court of
Appeal. Every High Court and county court judge is bound to follow
what the Court of Appeal says.
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, KNS 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.
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 Purac 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.
But the reverse is the case for contracts that
are not construction contracts. A supply-only agreement, for
example, is not a construction contract yet it might easily
include an adjudication clause. If that agreement also contains
clauses contrary to the intentions of the Construction Act, those
clauses will be valid. Do you see the difference?
Parliament's intention under the Construction
Act was straightforward. It says in big red letters with a big red
finger pointing to the big red letters: "The decision of the
adjudicator is binding until the dispute is finally determined by
legal proceedings, by arbitration or by agreement." It's no good
pointing to a clause in the contract which says you can disobey.
If the referee has a right to decide and decides fairly, his
whistle goes.
Readers are invited to forward recent judgments
for reporting in this column (with full acknowledgement) to: Tony
Bingham, 3 Paper Buildings, Temple, London EC4Y 7EU. DX:007I LDE
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