In the recent case BDW Trading Limited v Ardmore Construction Limited, the Technology and Construction Court was recently asked to refuse enforcement of an adjudicator’s decision on the basis that the dispute referred did not ‘arise under the contract’.
This article considers the judgment in further detail and how parties should understand a reference to 'arising under the contract' going forward.
Ardmore was a contractor under a building contract, and BDW had the benefit of the contract on assignment from the employer. The dispute, referred by BDW to adjudication, included a claim made under the Defective Premises Act 1972 in respect of Ardmore’s installation of inappropriate cladding and defective fire barriers in dwellings. The adjudicator’s decision required Ardmore to pay BDW in excess of £14 million. Ardmore refused to pay, so BDW applied for summary judgment.
The right to refer a dispute ‘arising under the contract’ to adjudication comes from section 108(1) of the Housing Grants, Construction and Regeneration Act 1996. That wording is used, with only minor changes, in the adjudication clause 9 of the JCT standard conditions. The question in this case was whether BDW’s Defective Premises Act claim against Ardmore arose under the contract. Ardmore argued it did not. Although the claim was connected with the contract, it did not arise under the contract given it was a claim pursuant to statute. If Ardmore was correct, BDW had no right to adjudicate, and the adjudicator’s decision was unenforceable.
The meaning of ‘arising under the contract’ has been considered by the courts on many occasions. In the 2007 House of Lords case of Fiona Trust & Holding Company v Yuri Privalov, the court had to consider the meaning of a clause that allowed disputes arising under a shipping contract to be referred to arbitration.
One party argued that a claim of bribery and misrepresentation did not arise under the contract, it was only connected with the contract, so the claim could not be referred to arbitration. The House of Lords rejected that interpretation and held there was no difference between a claim that was ‘connected to’ the contract and a claim ‘arising under’ the contract.
Whilst you may think this would provide certainty going forward for the scope of adjudication as well as arbitration, this decision was not immediately applied by the Technology and Construction Court when it came to adjudication cases. Some judges expressed uncertainty and others readily applied the Fiona Trust case to adjudication cases.
The recent decision in BDW v Ardmore confirms that there is no difference between a claim that arises under a contract and a claim connected to a contract. The decision also confirms that claims made under the recently amended Defective Premises Act 1972 which are connected to the construction contract can be adjudicated. Given the extension to the limitation periods for claims under the Defective Premises Act 1972, this decision is likely to result in an increase in adjudication business.
This case is helpful as it makes clear that parties have further options to resolve their disputes concerning the Defective Premises Act 1972 or other types of claim that are connected to the construction contract. Adjudication can be a useful, quick method of resolving disputes which often finally resolves matters between parties without recourse to the courts.
For further information, please contact the construction team.
