Pegram Shopfitters v Tally Weijl [2003] EWCA Civ 1750

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

Where parties have agreed to enter into a construction contract, but there is disagreement as to the terms of the adjudication procedure under the construction contract, it is open to a party who reserves its position to defend enforcement proceedings of the adjudicator's decision on the basis that the adjudication proceeded under the wrong rules.

Court of Appeal.   May and Hale LJJ, Hooper J

21 November 2003

In this case the Court of Appeal reversed the decision of HHJ Thornton QC in Pegram Shopfitters Ltd v Tally Weijl (UK) Ltd [2003] BLR 296.  The first instance decision is noted elsewhere in Adjudication Watch.

To recap on the relevant facts:

  • A shop refurbishment project was commenced without a contract having been signed.
  • After the commencement of the project, the client and the shopfitting contractor entered into contractual negotiations.  In essence, the contractor was looking to enter into a contract on its standard conditions.  The client was looking to contract on the basis of the JCT Prime Cost 98 standard form.
  • The contractual negotiations did not bear fruit.  That is, the parties did not sign a contract.  Nevertheless, both parties did contend that the existence of a contract could be cobbled together out of the negotiations between the parties.  However, the parties disagreed as to what those terms were.
  • A dispute arose as to the contractor's entitlement to payment from the client.  The contractor sought to refer this dispute to adjudication, and an adjudicator was appointed.
  • There were two issues of present significance before the adjudicator:
    · Was there a contract between the parties?
    · If so, what were its terms (including its terms as to adjudication)? 

On the contractor's view of things, its standard terms of trade applied.  The contractor's standard terms did not set out a procedure for adjudication.  Therefore, the contractor contended, the Scheme under the HGCRA should apply.

The owner's contention was that if there was a contract, it was on the JCT PC 98 terms and no other.  The JCT form has its own procedure for adjudication (different to that of the Scheme).  If the owner was right, the adjudication should have been governed by the JCT procedure.  The owner's alternative argument was, in essence, that if there was no written contract, the HCGRA could not apply, in which case the adjudication would be a nullity.

Noting these conflicting arguments, the adjudicator proceeded on the basis that both parties accepted that there was a construction contract in existence, although there was no agreement as to what were its terms.  The adjudicator then reasoned that because there must be a construction contract in existence, there must be an adjudication procedure in place, because the HGCRA mandates this.  With it not being clear that the parties had agreed to the JCT adjudication procedure applying, the adjudicator applied the procedure under the Scheme – almost as a fallback.

Although the adjudication proceeded on the basis of the Scheme applying, the owner reserved its right to contend that the JCT procedure ought to apply, or alternatively that there was no valid adjudication procedure (if it were determined that there was no written contract).

The adjudicator delivered his decision, in which he awarded the contractor some £95,000.

The contractor then sought to enforce that decision summarily in the Technology and Construction Court.

At first instance HHJ Thornton QC held that the owner had not demonstrated a sufficient prospect of successfully challenging the adjudicator's decision (i.e. of showing that the adjudicator lacked jurisdiction in making his decision), and that the adjudicator's decision should therefore be enforced by way of summary judgment.

The Court of Appeal reversed this decision.  The Court did so because, it was held, the owner had a real prospect of defending the claim on the basis that (a) the JCT adjudication rules applied, in which case the adjudication had proceeded on the wrong basis and was therefore a nullity; or (b) if the JCT rules did not apply, there was no written construction contract, in which case there could not be a valid adjudication procedure.  The decisions of the adjudicator, and of HHJ Thornton QC, had proceeded on the fallacy that because the owner accepted that there was a construction contract in existence, to which a specific adjudication procedure applied (on JCT terms); the owner must be taken to have accepted that an adjudication procedure on different terms (i.e. the Scheme) would be binding as well.  As the Court of Appeal held, plainly the owner had made no such concession.

Summary:  Where parties have agreed to enter into a construction contract, but there is disagreement as to the terms of the adjudication procedure under the construction contract, it is open to a party who reserves its position to defend enforcement proceedings of the adjudicator's decision on the basis that the adjudication proceeded under the wrong rules.  The persuasiveness of that defence will depend upon the underlying facts of the contractual negotiations between the parties.

This summary was provided by CMS Cameron McKenna LLP.

For more information visit http://www.cms-cmck.com/Construction/Construction-Disputes

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