In the second part of this mini-series on parties to adjudication (read the first part here), we take a look at the recent Technology and Construction Court decision in Darchem v Bouygues & Laing O’Rourke which concerned joint venture parties, and consider the reasons for this decision below as well as some practical implications.
Over the last decade or so, joint ventures have become a more common way of delivering projects, particularly more complex, demanding, or specialised builds. A joint venture allows contractors to share risk, resources and skills. In an increasingly international construction market, and one where margins are increasingly tight, joint ventures often assist both contractors and subcontractors take on projects which would otherwise have been commercially or operationally impossible.
Alongside the increase use of joint ventures has come the rise in popularity of adjudication in the resolution of construction disputes. However, the Darchem v Bouygues & Laing O’Rourke case shows the risks for parties to joint ventures using adjudication to resolve their disputes.
The key point from this case is that Darchem was successful in obtaining an adjudication decision worth £24m, but were then unable to enforce the decision. This is because it adjudicated in its own right, where the party to the subcontract with Bouygues and Laing O’Rourke, who were themselves acting as a joint venture, was said to be the Darchem joint venture, not Darchem individually.
The contract in this matter was stated to be between the following parties:
"(1) Bouygues Travaux Publics and Laing O'Rourke Construction Limited
(The Contractor)
and
(2) Darchem Engineering Limited and Efinor Limited
(The Subcontractor)"
The sub contract data likewise defined the contractor as being the Bouygues joint venture, and the subcontractor as being the Darchem joint venture, and clause 11.2 of the subcontract defined Parties as being the contractor and the subcontractor. The second page of the contract however referred to the agreement being between the four parties that made up the two joint ventures with reference to Darchem and Efinor acting jointly and severally as the subcontractor.
Darchem’s right to adjudicate arose under the standard adjudication provisions of an amended NEC form, which provided that “any Party may at any time … seek adjudication of any Dispute”. Much therefore turned on whether Darchem was a ‘party’ in its own right or whether the only Parties to the subcontract were the two joint ventures.
Darchem argued that it was identified in the subcontract separately in the list of parties, that the parties to the Darchem joint venture were said to be acting jointly and severally, that Darchem signed the subcontract in its own right, and for those reasons should be deemed to be a party, with the right to adjudicate of its own gift.
The Bouygues joint venture’s argument was relatively simple in that it said that there was simply no way of reading the definitions clauses that defined the subcontractor as being the Darchem joint venture rather than Darchem itself, other than as meaning that only the Darchem joint venture had a right to adjudicate.
The court considered the practical difficulty of having the individual parties to the joint ventures having the right to adjudicate. It would give rise to the potential for Darchem to obtain one adjudicator’s decision against Bouygues, and have Darchem’s joint venture partner obtain an adjudicator’s decision against Bouygues’ joint venture partner, in respect of exactly the same subject material, but for those decisions to differ and conflict.
Whilst in the case of Paragon and FK covered in part 1 of this mini-series, a different judge was not so concerned about conflicting decisions. The court’s conclusion ultimately focused crucially on not what rights have been assigned/transferred to a new party, as was the case in Paragon, but who is the original party? Who had the right to adjudicate all along?
The court’s approach in resolving the argument is instructive: it considered the subcontract as a whole and determined that the intention of the parties was to have a bilateral (two party) subcontract, rather than a quadri-lateral subcontract, i.e. the two individual parties to each joint venture each separately being a party to the subcontract.
The court was particularly persuaded by the specific occasions where the terms dealt with the situation where a party is made up of a joint venture and provided express positions for those specific clauses only, suggesting the remainder of the contract was not intended to separately apply to each joint venture member. The court’s conclusion was therefore that the reference to party in the adjudication clause can only be taken to be a reference to the Darchem joint venture, and that Darchem had no right of its own to adjudicate. Darchem’s £24m adjudication award was not enforced as a result of this.
On the one hand, this decision appears to set a significant precedent about joint ventures and adjudication, but the reality is that the court’s decision could have been entirely different, had the subcontract been drafted differently. This decision does not create a new principle that joint venture parties cannot adjudicate but that where the contractual is bilateral and not multi-lateral, only the specific two parties to the bilateral agreement can adjudicate and not some part of them.
However, the reality is that the majority of construction contracts where one or both of the parties are joint ventures are two party agreements, and that joint ventures are likely therefore to suffer similar issues to Darchem in future, even if the exact contract terms are slightly different.
Joint ventures wishing to avoid wasted legal expense in pressing ahead with adjudication claims would be wise to take detailed and careful advice at an early stage around exactly how each aspect of the contract is drafted and how that interacts with the joint venture, so that there is no ambiguity that could undermine any successful adjudication that might later come to be enforced.
The implication for joint ventures already in contract is not dissimilar: before wasting time and money on adjudications, detailed advice should be sought on the dispute resolution procedures under the contract, and whether there are likely to be any issues on enforcement.
If defending an adjudication from one party to a joint venture you should be careful to consider specifically reserving the right to resist enforcement on the basis that the party is a not a party to the contract, and does not therefore have the right to adjudicate.
So to conclude, when is a party not a party? When it’s a joint venture party to a bilateral contract.
For further information, please contact our construction team.
