The judgment in Penten Group Ltd v Spartafield Ltd, is therefore one you might have missed (but wouldn’t want to).
What was the contract?
The parties’ dispute arose out of a failure to execute a written contract for a project at Plumbers Row in London. Both parties accepted that a letter of intent had been drawn up and that (at one point) they intended to execute a JCT ICD 2011. Although work started, they subsequently failed to execute the ICD. Spartafield then terminated Penten’s employment and commenced an adjudication seeking a series of declarations, including that:
“…a valid Construction Contract exists between the parties, and the terms of that Contract include the provisions of ICD2011.”
The adjudicator found the parties had a binding contract but that it was governed by the letter of intent and not the ICD.
Rather than challenge the decision by litigation, Spartafield opted to adjudicate. In what proved to be the third notice of adjudication, Spartafield sought, among other declarations, a declaration that:
“…the first Adjudicator was neither required nor had the necessary jurisdiction to decide on the terms of the contract between the Parties if he did not accept that it was ICD 2011.”
Although no adjudicator was appointed following this notice, Penten brought Part 8 proceedings to object. Penten also served a further notice of adjudication on Spartafield, claiming monies due under the letter of intent.
This inevitably amounted to the curious situation whereby the responding party in the first adjudication (Penten) sought to confirm that the adjudicator’s decision as to the parties’ contract was enforceable, whereas the referring party (Spartafield) argued that the adjudicator’s decision regarding the letter of intent was unenforceable. This was because the adjudicator had exceeded the jurisdiction afforded to him by the notice of adjudication.
Are you still with me?
The unhappy consequences of serial adjudication
The parties’ history of adjudication can be summarised as follows:
- 13 October 2015: first notice was served by Spartafield against Penten.
- 26 November 2015: adjudicator’s decision.
- 10 December 2015: second notice was served by Penten against Spartafield, including claims premised on the adjudicator’s decision.
- 12 January 2016: third notice was served by Spartafield against Penten seeking a declaration that the adjudicator did not have jurisdiction to decide that the letter of intent comprised the terms of the contract.
- 20 January 2016: a notice, identical to the third notice, was served by
Spartafield against Penten. - 20 January 2016: fourth notice was served by Penten against Spartafield, including claims premised on the adjudicator’s decision.
Alive to that history, Coulson J considered the case illustrative of what might be termed the current trend for serial adjudication, stating:
“…this is a case bedevilled by the almost maniacal desire of the parties to issue notices of adjudication against each other. This impulse seems to have overwhelmed every other consideration. I note too that this has not always been successfully translated into action. I have seen at least five notices of adjudication, and I am told that there might be as many as nine in total, but so far there has been only one completed adjudication.”
It was clear the parties’ approach had overridden and frustrated the intended purpose of adjudication as a simple and clear dispute resolution process. On any view, the principle issue between the parties was simply the proper construction of the notice of adjudication in the parties’ first (and only) concluded adjudication. The question being, “was the adjudicator entitled to decide what the terms of the contract were, even if they did not ‘include’ ICD?”
Submissions on the jurisdictional issue
Penten construed Spartafield’s (first) notice of adjudication as asking the adjudicator to decide what contract might be in force if it was not the ICD. Effectively this was a two-part question:
- Was there a valid construction contract?
- If there was a valid construction contract, did the terms of that contract include the provisions of ICD?
Penten also made the point that Spartafield’s separate money claims engaged the broader issue of what constituted the contract, given those claims could not be determined absent a decision about the contract’s terms.
In response, Spartafield:
- Construed its notice narrowly, contending that the relief it sought did not invite any determination of what the contract terms were, if they did not include the ICD. After all, Spartafield’s case was based entirely on the incorporation of the ICD terms.
- Argued that use of the word “include” referred to only some of the contract terms, and precluded a broader answer.
- Contended it was unfair of the adjudicator to reach a conclusion that the letter of intent was the contract, as that was never fully addressed by it as a possible alternative, and it had formed the view that the alternatives to ICD were “a dispute for another day”.
In the circumstances, the court had to consider whether Spartafield had, by its notice of adjudication, effectively separated the contractual issues so as to invite a decision on whether ICD was included, while still reserving the broader question as to the likely terms of the contract (if not ICD) for another day.
It was impossible to answer without deciding the contract
Coulson J described Spartafield’s submissions as powerful but, ultimately, found in Penten’s favour (and upheld the adjudicator’s decision in its entirety). Four matters were determinative:
- The issue of whether there was a binding contract could not be answered without deciding what the contract’s terms might be.
- The contractual status of the letter of intent had been raised in Penten’s defence.
- The referring party was not entitled to artificially restrict a defence by the wording of the notice of adjudication, so the notice of adjudication will ordinarily encompass any defence open to the responding party (Pilon Ltd v Breyer Group plc).
- The reality of the adjudication, as presented by the parties, was a binary choice between ICD and the letter of intent as governing the relationship.
Therefore, elimination of ICD inevitably left the letter of intent as the only sensible alternative. Coulson J said:
“…the notice of adjudication in Adjudication 1 sought a declaration that there was a binding contract between the parties… It seems to me that it was impossible for the adjudicator to answer that question without deciding what the terms of any such contract might be… Penten’s defence to the claim in Adjudication 1 was that the terms of the contract were not the ICD form, but were those set out in the letter of intent… in other words, the letter of intent was ‘in play’ from the start… a claiming party cannot artificially restrict the responding party’s defence to its claim by saying that, because they made no reference to a particular point in the notice of adjudication, it therefore cannot arise for decision.”
Where does this leave us (and why should we care)?
In an ordinary case, a dispute about contractual terms and about money claims under those terms will constitute a single dispute and the adjudicator will have jurisdiction to determine the contract. Hence, the referring party that adjudicates such a dispute is well advised to set out its case as to the contract terms in full.
However, as Coulson J did not accept Penten’s argument that a money claim necessitated a determination of the broader contractual terms in their entirety, it also seems likely that parties seeking sums under specific parts of a contract are not (without more) extending the adjudicator’s jurisdiction to the broader question of what other terms make up that contract.
This was a judgment with something for everyone. It manages to offer sufficient latitude to make adjudication as to contractual terms effective, but also retains the option for a party to bring narrow disputes about payment, without inadvertently opening Pandora’s Box.
The BIGGER picture
This was the first time the TCC has had to grapple with an adjudicator’s jurisdiction to decide upon issues that would not (according to Coulson J) have been amenable to adjudication before the amendments to the Construction Act 1996. Since these often complex questions are to be determined within the original 28-day period, it was inevitably going to require the courts’ consideration.
As the present cost and complexity of civil litigation appears to be encouraging a shift towards more economical processes such as adjudication, and the MoJ is now trialing a voluntary adjudication scheme for professional negligence claims, many practitioners are likely to be comforted by Penten Group Ltd v Spartafield Ltd, and will no doubt consider it a step in the right direction.
This article was published by Ebony Alleyne of Hardwicke on 04/04/16.
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