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High Court ruling highlights limits on third party rights to adjudicate

In the recent case of Hurley Palmer Flatt Ltd v Barclays Bank plc [2014] EWHC 3042 (TCC), the Technology and Construction Court held that a third party was not entitled to adjudicate a dispute which had arisen under a professional appointment. On the facts, there was no right under the contract itself, nor a right under the Contracts (Rights of Third Parties) Act 1999 (the "Third Party Rights Act"), for the third party to commence adjudication proceedings.

The facts

Barclays plc ("Barclays") appointed Hurley Palmer Flatt Ltd ("HPF") to provide M&E design services for the construction of a new data hall at a data centre. Clause 14.3 of the contract stated that "any Affiliate with a direct interest in the project" was entitled to enforce the terms of the agreement. Barclays Bank plc (the "Third Party") came within the definition of "Affiliate".

Disputes arose concerning the data centre's chilled water system, which led to a claim against HPF valued at over £4 million. The Third Party commenced adjudication proceedings seeking damages from HPF, based on its rights as an Affiliate under the contract. HPF sought a declaration from the court that the Third Party was not entitled to commence adjudication proceedings against HPF and that consequently the adjudicator lacked jurisdiction to determine the claim.

The decision

The court firstly considered the Third Party's rights under clause 14.3 of the contract. It was held that only the terms relating to HPF's liability to Barclays were intended to be enforceable by the Third Party under clause 14.3. Procedural rights, such as the right to adjudicate, were not granted to the Third Party by the clause. Clause 14.3 provided that the Third Party was entitled to enforce the terms of the Appointment "always provided that [HPF] shall be entitled to rely on the equivalent defences in respect of such liability". The court considered that the reference to "such liability" strongly indicated that only rights giving rise to liability could be enforced by the Third Party under clause 14.3.

It was also held that the Third Party Rights Act did not automatically confer any rights on third parties entitling them to adjudicate. Ramsey J drew a comparison between adjudication and arbitration, pointing to section 8 of the Third Party Rights Act, which gives third parties the status of a party to an arbitration agreement to enforce rights under the contract by arbitration. He concluded that, without an equivalent provision in the Third Party Rights Act, the Third Party had no right to adjudicate unless this right had been granted to it in the contract.

The court also considered the Scheme for Construction Contracts (England and Wales) Regulations 1998 referred to in the adjudication clause, which provides that any party to a construction contract may refer a dispute to adjudication. Ramsey J considered that the Third Party did not derive a right to adjudicate as a result of this, as it was not a party to the construction contract.

The full judgment can be accessed here.