Hurley Palmer Flatt Ltd v Barclays Bank Plc
| Jurisdiction | England & Wales |
| Judge | Mr Justice Ramsey |
| Judgment Date | 23 September 2014 |
| Neutral Citation | [2014] EWHC 3042 (TCC) |
| Date | 23 September 2014 |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case No: HT-14-289 |
[2014] EWHC 3042 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Ramsey
Case No: HT-14-289
Justin Mort QC (instructed by Kennedys LLP) for the Claimant
Andrew Fenn (instructed by Hogan Lovells International LLP) for the Defendant
Hearing date: 9 September 2014
Introduction
This Part 8 claim raises an issue of the extent to which the rights of a third party enforceable under the Contracts (Rights of Third Parties) Act 1999 ("the 1999 Act") can be determined by adjudication under an express term contained within the agreement between the original contracting parties. The issue requires consideration of the relevant agreement, the 1999 Act and the nature of adjudication proceedings.
Background
By a deed of appointment dated 28 January 2008 ("the Appointment") between Barclays PLC and the Claimant, Hurley Palmer Flatt Limited ("HPF"), HPF agreed to provide mechanical and electrical engineering design services in relation to the design and construction of a new data hall at a data centre for Barclays PLC.
Disputes have arisen concerning the chilled water system and it is said that the system was and remains unstable, being subject to fluctuations in the rate and direction of the flow of chilled water. This has led to a claim against HPF valued at over £4 million.
Clause 14 of the Appointment provides for assignment by Barclays PLC ("the Client") and third party rights. HPF is described as "the Consulting Engineer" in the Appointment. Clause 14.3 contains the following provision:
" Any Affiliate with a direct interest in the Project shall be entitled to enforce the terms of this Agreement as "Client" always provided that the Consulting Engineer shall be entitled [to] rely on the equivalent defences in respect of such liability which it has against the Client."
The Defendant, Barclays Bank PLC ("Barclays") is accepted to come within the definition of "Affiliate".
Third party rights are also dealt with in the Appointment as follows:
(1) Clauses 2.3: " Unless expressly stated otherwise in this Agreement, nothing in this Agreement confers or is intended to confer any rights on any third party pursuant to the Contracts (Rights of Third Parties) Act 1999."
(2) Clause 14.2: " Save as expressly provided in Clause 14.3 and Clause 10 (Collateral Warranties) nothing in this Agreement shall confer or purport to confer on any third party any benefit or right to enforce any terms of this Agreement."
The Appointment includes a provision for adjudication which includes the following clauses:
(1) Clause 27.1: " The adjudication provisions contained in Part 1 of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (S.I. 1998/649) (the Scheme) shall apply to this Agreement."
(2) Clause 27.3: " The decision of the adjudicator shall be binding on the parties unless and until the dispute is determined by legal proceedings or by agreement."
On 11 August 2014 Hogan Lovells International LLP gave a notice of adjudication on behalf of Barclays, seeking damages against HPF in relation to the claim of defects in the chilled water system based on rights as an Affiliate under the Appointment. Miss Finola O'Farrell QC was appointed as adjudicator. By a referral dated 18 August 2014 the dispute was referred to the adjudicator.
By these Part 8 proceedings commenced on 26 August 2014 HPF has sought a declaration that Barclays is not entitled to commence adjudication proceedings against HPF and that consequently the notice of adjudication and referral notice were ineffective and the adjudicator does not have jurisdiction to determine the claims.
The issue in these proceedings is whether or not the rights given to Barclays as a third party Affiliate include the right to have liability under the Appointment determined by adjudication under the provisions of clause 27.
Submissions on behalf of HPF
Mr Justin Mort QC, who appears on behalf of HPF, refers to the background to the 1999 Act in the Law Commission Report No 242 (1996), Privity of Contracts: Contracts for the Benefit of Third Parties. He also referred to the policy considerations which led to the provisions as finally included in the 1999 Act, as explained in the full Explanatory Notes to that Act.
He submits that under the 1999 Act the enforcement of Barclays' rights under clause 14.3 of the Appointment has to be by court proceedings. Whilst the 1999 Act made express provision in relation to arbitration clauses so that a third party would be treated for the purpose of the Arbitration Act 1996 as being a party to the arbitration agreement, there is no equivalent provision relating to adjudication. Rather adjudication remains a contractual dispute resolution method between the original contracting parties. He says that, as is common ground, Barclays cannot bring itself within section 108 of the Housing Grants, Construction and Regeneration Act 1996, as amended, as being a party to a construction contract with implied rights of adjudication.
He submits that the policy of the 1999 Act is that it does not impose a burden on third parties. The adjudication agreement in the Appointment is, he says, a combination of obligations and rights and any agreement purporting to make a third party a party to an adjudication agreement with the necessary burdens would be ineffective. He further submits that, on its terms, Clause 27.1 of the Appointment and its reference to the Scheme for Construction Contracts ("the Scheme"), which is stated to apply to parties to a construction contract, is inapplicable to the relationship between Barclays and HPF as Barclays is not a party to the Appointment.
He also refers to section 7(4) of the 1999 Act which states that a third party shall not be treated as a party to the contract for the purpose of any other Act or any instrument made under any other Act. He submits that this means that Barclays is not to be treated as a party to a construction contract for the purpose of the Scheme as incorporated in Clause 27.1 of the Appointment. He refers to the terms of the Scheme which imposes obligations on a party. He also refers to the obligation to repay sums later found to have been overpaid as a result of an adjudication decision, as dealt with in the recent cases of Aspect Contracts (Asbestos) Limited v Higgins Construction PLC [2013] EWCA Civ 1541 and Walker Construction (UK) Limited v Quayside Homes [2014] EWCA Civ 93. He says that the burden of these obligations could not be imposed under the 1999 Act and he refers to paragraphs 14.15 to 14.19 of Law Commission Report No 242.
Submissions on behalf of Barclays
Mr Andrew Fenn, who appears on behalf of Barclays, submits that Barclays has a right to adjudicate as a freestanding procedural right as part of the benefit given to Barclays under Clause 14.3 of the Appointment. He refers to section 1(4) of the 1999 Act and submits that the position is analogous to the position on assignment and Barclays is entitled to adjudicate under the terms of Clause 27 of the Appointment. Alternatively, he submits that the right to adjudicate under Clause 27 is a procedural qualification to the right to claim damages granted under Clause 14.3 of the Appointment.
He relies on section 1(4) of the 1999 Act which provides:
" This section does not confer a right on a third party to enforce a term of a contract otherwise than subject to and in accordance with any other relevant terms of the contract."
He says that, as a result, Barclays' substantive rights to damages under Clause 14.3 are subject both to the rights of adjudication under the Appointment as well as the rights of commencing court proceedings. He submits that, if it wishes, Barclays is entitled to "stand in the shoes" of the Client under the Appointment and can therefore commence adjudication.
He refers to the decision of Colman J in Nisshin Shipping Co Limited v Cleaves and Company Limited [2003] EWHC 2602 (Comm) in which he drew attention to the "conditional benefit" principle adopted in Law Commission Report No 242 at paragraphs 10.24 to 10.32, as reflected in section 1(4) of the 1999 Act. He also referred to the Explanatory Notes to section 8, which draw upon an analogy of an assignee who may be prevented from unconscionably taking a substantive benefit free of its procedural burden, referring to the decision of the Court of Appeal in DVA v Voest Alpine, The Jay Bola [1997] 2 Lloyds Rep 279. He submitted that, applying these principles, section 1(4) of the 1999 Act carries with it the right to enforce substantive rights by adjudication.
He submitted that section 7(4) of the 1999 Act was irrelevant because Barclays was not seeking to rely on section 108 of the Housing Grants, Construction and Regeneration Act 1996 or the statutory Scheme but on a term of the Appointment. He submitted that there was no difficulty raised by the obligation imposed on a party to an adjudication because section 1(4) of the 1999 Act meant that the right to adjudication was subject to such obligations.
Decision
The starting point in considering the rights of Barclays under the Appointment is the term in Clause 14.3 of the Appointment. When read with Clauses 2.3 and 14.2 of the Appointment, it is evident that Clause 14.3, so far as material to this case, contains the full scope of Barclays' right to enforce any term of the Appointment. Clause 14.2 makes that clear and I consider that Clause 2.3, on its true construction, means that, with the express exception in this case of Clause 14.3, no rights are conferred on a third party which are enforceable under the 1999 Act.
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