DGT Steel and Cladding Ltd v Cubitt Building and Interiors Ltd

United Kingdom

The court has decided that it has an inherent jurisdiction to stay proceedings issued in breach of a binding agreement to refer disputes to adjudication, so that a defending party could insist on its right to have the dispute referred to adjudication.   The persuasive burden was on the party seeking to resist the stay to show good reason why the agreement to adjudicate should not be enforced.

His Honour Judge Coulson QC – Queen’s Bench Division, Technology and Construction Court

Background


Cubitt, the contractor, engaged DGT, the sub-contractor, to carry out external cladding works.  The sub-contract contained an adjudication clause that provided that “Any dispute, question or difference arising under or in connection with the subcontract shall, in the first instance, be submitted to adjudication…”.

DGT referred to adjudication a claim in respect of sums allegedly owed by Cubitt.  The adjudicator found in Cubitt’s favour.  Subsequently, DGT commenced a second claim for outstanding sums, this time in the TCC.  Cubitt argued that the second claim was very different to the first claim and that the court should stay proceedings pending a referral of the dispute to adjudication.  DGT argued that the agreement to adjudicate was not mandatory and that, in any event, there had been no breach, so there should be no stay.

Issues

There were three issues before HHJ Coulson QC:

1)  Was there a binding agreement to adjudicate? 

The judge found that the use of the word “shall” in the adjudication clause meant that there was a binding agreement to adjudicate.  The court also held that it had an inherent jurisdiction to stay any proceeding brought in breach of the agreement to adjudicate any disputes. 

HHJ Coulson QC dismissed the argument that because s.108 of the HGCRA 1996 merely provided a party to a construction contract with a right, not an obligation to refer a dispute to adjudication, the adjudication clause should be construed in the same way.  Further, he noted that s.108 conferred the right to adjudicate a dispute, not a claim, on any party to a construction contract, not just the claiming party.  Even if the claiming party had started court proceedings, the defending party might be entitled to a stay of the court proceedings on the ground that its right to have the dispute adjudicated had been denied.

2)  Were these proceedings brought in breach of the binding agreement to adjudicate? 

On the facts, the court found that the dispute was substantially different to the dispute previously referred to adjudication and therefore, by commencing proceedings without first referring the new dispute to adjudication, DGT had breached the agreement to adjudicate.

3)  Was there a good reason why the stay should not be granted?

The court noted that the persuasive burden was on the party seeking to resist the stay to show good reason why the agreement to adjudicate should not be enforced.  The judge was not persuaded by any of the reasons put forward by DGT as to why a stay should not be granted.  On the other hand, there were two compelling reasons in favour of ordering a stay, namely that DGT had not complied with the Pre-action Protocol for Construction and Engineering Disputes and that the dispute related principally to matters of valuation (it was a £242k final account claim).  As such, it was a dispute that would best be resolved through adjudication by a construction professional, such as an experienced quantity surveyor. 

In conclusion, the HHJ Coulson QC found that there was no good reason why the court should not exercise its inherent jurisdiction to stay these proceedings for adjudication.

See another article on this case: Adjudication: the compulsory first port of call?

For full judgment, please click here

Interested in Adjudication issues?  If so, click here to go to our online search facility dedicated to Adjudication cases.