Disputes arising “under” a construction contract: An adjudicator’s jurisdiction

Introduction

Most of the analysis of Bresco Electrical Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd [2020] UKSC 25 has deservedly been on how the UK Supreme Court reconciled the statutory regimes for construction adjudication and insolvency set-off (see Edward Shaw and Hadley Hickson’s recent article).

However, Bresco also contains useful remarks on the distinct issue of whether the liberal interpretation of provisions conferring jurisdiction on an arbitrator should inform the interpretation of provisions conferring jurisdiction on a construction adjudicator. This issue has divided judges and commentators.

The respondent in Bresco agitated for a narrow interpretation in order to bolster the argument that an adjudicator is deprived of jurisdiction upon an insolvency set-off.

Giving judgment for the Court, Lord Briggs briefly surveyed the competing views before seeming to prefer a liberal interpretation of an adjudicator’s jurisdiction, though for a novel reason.

An arbitrator’s jurisdiction

In Fiona Trust and Holding Corp v Privalov [2007] UKHL 40, the House of Lords found that an arbitrator’s jurisdiction to determine disputes under a contract extended to the question of whether the contract was invalid (in that case, for bribery). Lord Hoffman said at [13] that “the construction of an arbitration clause should start from the assumption that the parties, as rational businessman, are likely to have intended any dispute arising out of the relationship to be decided by the same tribunal”.

Previously, jurisdiction to determine a dispute “under” a contract was typically confined to disputes about rights and obligations created by the contract. Disputes about the existence of the contract fell outside this scope. So did disputes involving claims in tort or under statute.

A recent NSW Court of Appeal judgment demonstrates this narrow interpretation. In Inghams Enterprises Pty Limited v Hannigan [2020] NSWCA 82, a claim for unliquidated damages fell outside the arbitrator’s jurisdiction to determine disputes concerning amounts payable under a contract. This was because the claim for unliquidated damages arose by operation of law, not under the contract.

Under the Fiona Trust approach, an arbitrator’s jurisdiction does not – to quote Lord Briggs’ summary of the judgment at [39] in Bresco – “depend upon fine distinctions about whether the contract required that the dispute arose ‘under’ or ‘in relation to’ or ‘in connection with’ the contract”.

Similarly, in Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13, the High Court of Australia held that an arbitrator’s jurisdiction to decide disputes under a deed included disputes about its validity. Interestingly, the court purported to rely on orthodox principles of interpretation rather than Fiona Trust (which meant the court in Inghams could prefer a narrow interpretation on the facts of that case).

An adjudicator’s jurisdiction

An adjudicator may decide any dispute arising “under” a construction contract. If parties to a construction contract do not expressly confer this jurisdiction on an adjudicator, the Housing Grants, Construction and Regeneration Act 1996 implies it into the contract. Parties may agree to enlarge the jurisdiction. When determining an adjudicator’s jurisdiction, courts have tended to place traditional emphasis on the precise wording of the dispute resolution clause.

The competing views

In one corner, HHJ Raynor QC in Hillcrest Homes Ltd v Beresford and Curbishley Ltd [2014] EWHC 280 (TCC) saw “considerable force” in the submission that Fiona Trust was inapplicable to the adjudication clause because the clause was present or implied by reason of statutory intervention. In Hillcrest, the adjudicator was found to have no jurisdiction to decide a claim under the Misrepresentation Act 1967.

Hudson’s Building and Engineering Contracts (13th edition) at [11-022] endorses the reasoning in Hillcrest and contends that the purpose of the construction adjudication scheme in the HGCRA – to introduce a speedy mechanism for settling construction disputes on an interim basis – does not require all disputes between the parties to be decided by the same tribunal. Indeed, the purpose “encompasses the possibility of different disputes being decided by different tribunals: the parties are not bound to adjudicate and a dispute can be submitted to arbitration or litigation following an Adjudicator’s decision”.

In addition, according to Hudson’s, when the HGCRA was enacted in 1996, “there was a long standing and well-recognised distinction (which the legislature must be taken to have appreciated) between disputes ‘arising under’ a contract and those ‘arising in connection with’ a contract”.

In the other corner, Sir Robert Akenhead in J Murphy & Sons Ltd v W Maher & Sons Ltd [2016] EWHC 1148 (TCC) considered that Fiona Trust contained useful analogies for construction adjudication. In Murphy, the adjudicator was found to have jurisdiction to determine a dispute under a settlement agreement concerning payments owed under a construction contract.

With reference to Fiona Trust, Sir Robert Akenhead remarked “adjudication is expected to be consensual, albeit underpinned by statute such that one cannot exclude it from construction contracts” (though this qualification arguably negates the proposition). And there is “no logical reason” for a distinction between adjudication clauses covering disputes arising under, out of, or in connection with a contract.

However, Murphy cannot be taken too far. Although Sir Robert Akenhead expressed support for applying Fiona Trust, it was not necessary for him to do so. The parties in Murphy had expanded the adjudicator’s jurisdiction to decide “any dispute arising under or in connection with this subcontract” (underline added). This expanded jurisdiction included disputes under the settlement agreement. If necessary, Sir Robert Akenhead would have also found that the settlement agreement simply varied the construction contract. So the adjudicator would have jurisdiction, even if interpreted narrowly.

In Bresco at [40], Lord Briggs said Keating on Construction Contracts (10th edition) “appears to veer toward recognising the force of Fiona Trust by analogy”. This is an understatement. After referring to Lord Hoffman’s assumption in Fiona Trust, Keating states at [18-077] that in adjudication “although all disputes can be finally determined in court or arbitration, the same principle applies so as to enable a wide range of disputes to be dealt with in adjudication”.

Although not mentioned by Lord Briggs, in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015] UKSC 38, Lord Mance (giving judgment for the Supreme Court) was “very content” to proceed on the basis – without needing to decide – that Fiona Trust applied to construction adjudication. This was in the context of a submission that a contract claim submitted to adjudication may be accompanied by a related tort claim.

Lord Briggs’ remarks

It was not necessary for Lord Briggs in Bresco to decide whether Fiona Trust should apply to construction adjudication. Nevertheless, his Lordship made a meaningful contribution to the debate by remarking at [41] that he was not persuaded the statutory compulsion lying behind the conferral of the contractual right to adjudicate points at all towards narrowly interpreting an adjudicator’s jurisdiction. To the contrary, the fact that “Parliament considered that construction adjudication was such a good thing that all parties to such contracts should have the right to go to adjudication points if anything in the opposite direction”. The statutory guarantee of adjudication is a “powerful consideration” favourable to its recognition as a matter for interpretation.

There is merit in the argument that Fiona Trust is inapplicable to construction adjudication. Lord Hoffman’s anti-fragmentation assumption is premised on the consensual nature of arbitration. However, the statutory compulsion lying behind the parties’ agreement to confer jurisdiction on an adjudicator seriously undermines the proposition that adjudication is consensual.

However, rather than shying away from the statutory basis of adjudication, Lord Briggs embraces it by stressing the need to give effect to Parliament’s pro-adjudication stance evinced in the HGCRA.

A legislative intention that promotes a liberal interpretation of an adjudicator’s jurisdiction is a more powerful factor than a judicial assumption that promotes the same for an arbitrator’s jurisdiction.

It may be that a liberal interpretation of an adjudicator’s jurisdiction ultimately carries the day. But does so because of the legislative intent behind the construction adjudication scheme in the HGCRA, rather than by the application by analogy of Fiona Trust.

Impact on practitioners

For practitioners drafting construction contracts, it is important to understand whether your client wants adjudication to be the first call for resolving all disputes with the counterparty. There is a real risk that an adjudicator’s default jurisdiction in the HGCRA (adopted by many standard dispute resolution clauses) will be held not to extend this far. Therefore, if your client does want an inclusive adjudication regime, the contract should enlarge the adjudicator’s jurisdiction to disputes arising under or in connection with the contract.

For practitioners contending that an adjudicator’s default jurisdiction extends to all disputes between parties to a construction contract, Lord Briggs’ remarks in Bresco (with Murphy, Aspect Contracts and Keating also in hand) will help set up a good argument in favour of this liberal interpretation.