Monday, January 19, 2009

Resisting an adjudicator's decision: Air Design -v- Deerglen

Resisting enforcement of an adjudicator's decision on the basis of an alleged lack of jurisdiction. By Allan Warrender.

Summing upThe case: Air Design (Kent) Limited -v- Deerglen (Jersey) Limited [2008] EWHC 3047 (TCC).The issue: Whether an adjudicator's decision can be resisted at enforcement stage if it concerns disputes arising from more than one contract.The implication: Whether or not disputes arise from more than one contract will depend on the facts established by the court. Notwithstanding, an adjudicator may have jurisdiction to decide this question if it relates also to the substantive matters referred to him for a decision.

Although it is a brand new year, old familiar matters continue to feature in the courts. Resisting enforcement of an adjudicator's decision on the basis of an alleged lack of jurisdiction is fairly well-trodden ground. Nevertheless, parties continue to develop novel arguments regarding an adjudicator's lack of jurisdiction as this offers one of the few opportunities of resisting enforcement.


Resisting an adjudicators decision: Air Design -v- Deerglen


This case relates to a dispute on an office development in Jersey between a main contractor, Deerglen, and its mechanical services subcontractor, Air Design. Not untypically, the contractual matrix between the parties was far from straightforward. Both accepted that Air Design had been contracted by Deerglen in April 2007 to provide mechanical services under what was termed "the basebuild contract".

In May 2007, the parties reached agreement on the value of mechanical fit-out works in order to accommodate a tenant known as CPA. Although Deerglen intimated a desire to enter into a formal contract for these works, no such contract was entered into and the fit-out works were the subject of instructions issued under what was termed "a letter of intent".

In September 2007, the parties reached agreement on the value of a Building Management System (BMS) that Deerglen had instructed Air Design to provide.

Finally, the parties entered into a supplementary agreement in November 2007 which aggregated the values of the various works undertaken by Air Design and set out a mechanism and timetable for all future payments. Crucially, this agreement referred to the total value of the various works as forming "the contract sum". This supplementary agreement, which was in the form of a letter issued by Deerglen, contained Deerglen's valuation of all the variations executed to that date.

Differences arose between the parties as to the value of these variations, the unpaid balance of sums referred to in the November 2007 supplementary agreement and the validity of contra charges. These differences were referred to adjudication.

Separate contracts

In the adjudication, Deerglen argued that there were up to four separate contracts between the parties. As only the basebuild contract contained a reference to adjudication, Deerglen contended that the adjudicator had no jurisdiction over disputes that arose on the other contracts.

Air Design's position in the adjudication was that the works carried out in respect of the CPA fit-out and the BMS were variations to the basebuild contract and that the supplementary agreement was simply varying the terms and timings of payments.

As a preliminary matter, the adjudicator reached the view that the dispute referred to him arose from a single contract and that the supplementary agreement was nothing more than an agreement to vary the payment terms under the single contract.

The issue of enforcement of the adjudicator's substantive decision came before Justice Akenhead in the TCC. He found, as a matter of fact, that the basebuild contract contained a provision for the ordering of variations. He noted that, in regard to instructed works in connection with the BMS, there was a clear reference to the "existing contract". There was no indication that the BMS works were to form a separate contract.

In regard to the CPA fit-out works, Justice Akenhead observed that the parties' agreement stated that Air Design would be entitled to "net costs reasonably and necessarily incurred" should a formal contract not be implemented. In the absence of a formal contract, he concluded that the only basis on which these works could be instructed was as a variation under the basebuild contract. In support of that conclusion, he noted that Air Design's quotation for the fit-out works had contained a statement that the "contract conditions are based upon the original basebuild contract".

Justice Akenhead also identified two other factors that effectively overrode any consideration of whether or not there was more than one contract in determining if the adjudicator had jurisdiction to act.

First, he said that it was necessary, in this instance, for the adjudicator to consider whether there was more than one contract in order to embark on the substantive decision making process. As such it was part of the adjudicator's jurisdiction to decide whether or not, and if so to what extent, the basebuild contract had been varied.

Second, Justice Akenhead found that in reviewing the wording of the supplementary agreement, the parties clearly intended to treat their contractual relationship as stemming from one contract, irrespective of what contractual arrangements were in place beforehand.

Accordingly, the court enforced the adjudicator's decision.

Vought may yank contract if striking workers don’t return
Deal would keep instruments in Hall of Fame