Staying adjudication enforcement to arbitration: where are we now?

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Two recent TCC decisions have considered whether to stay court proceedings brought to enforce an adjudicator’s decision owing to an arbitration agreement in the construction contract between the parties. Stays were refused in both cases and the judgments provide some measure of clarity in what is a complex area of construction law. Certain points of uncertainty remain, however, and appellate guidance may prove necessary in the future.

When adjudication and arbitration collide

Both the Arbitration Act and the Housing Grants, Construction and Regeneration Act (the “Construction Act”) were passed in 1996. Section 9 of the Arbitration Act requires a court to stay proceedings brought in respect of any matter which is required by an arbitration agreement to be referred to arbitration. The Construction Act introduced a mandatory right for any dispute arising under a construction contract to be resolved quickly by adjudication and to be binding on the parties pending final determination by legal proceedings, arbitration or agreement.

A tension between these two legislative provisions quickly became apparent. In Macob Civil Engineering Ltd v Morrison Construction Ltd (decided in 1999) a sub-contractor brought TCC proceedings to enforce an adjudicator’s decision. The contractor disputed the validity of the decision and relied on an arbitration clause in the sub-contract to contend that the TCC proceedings should be stayed to arbitration.

The reasoning in Macob is complex and is to some degree overtaken by more recent law on enforcement challenges. In broad terms a stay was refused primary because the contractor had already commenced arbitration proceedings in relation to the decision and was therefore held to have waived its right to challenge validity. Nonetheless, the court noted that “there can be no objection in principle to the parties to a construction contract giving an arbitrator the power to decide [the lawfulness of an adjudicator’s decision i.e. its validity]”.

MBE v Honeywell

Roughly a decade later in 2010 the point was revisted in MBE Electrical Contractors Ltd v Honeywell Control Systems Ltd. The sub-contract in that case contained a generally worded arbitration clause stating that “any dispute arising out of or relating to this [contract] will be finally resolved by a panel of three arbitrators in accordance with the [LCIA Rules]”. MBE obtained an adjudication decision in its favour against Honeywell and brought enforcement proceedings in the TCC. The Scheme rules applied to the adjudication and the Court declined to order a stay on the basis that the Scheme was to be read together with the arbitration clause and the Scheme envisaged immediate enforcement of adjudication decisions. The court placed particular emphasis on paragraph 23(2) of the Scheme which provides that an adjudication decision is binding and is to be complied with “until the dispute is finally determined by legal proceedings, by arbitration … or by agreement”. The court concluded that:

“Honeywell is free to take any points which are open to it in the arbitration, but this does not entitle it to set on one side the Scheme which is part and parcel of the agreement into which it entered. Objections as to the adjudicator’s jurisdiction, if they are to bar enforcement of his award, will have to be made in the enforcement proceedings. Questions which relate to the merits of the dispute must be left to the arbitration. In that way, proper weight is given both to the arbitration clause and to the importation of the Scheme into the contract.”

This decision was criticised by the editors of the Building Law Reports, but supported by Lord Justice Coulson writing extra-judicially in Coulson on Construction Adjudication. The essential difference between them appears to be whether a procedure akin to TCC enforcement is available in arbitration proceedings. Lord Justice Coulson notes that, “It can hardly be ‘pay now, argue later’ if the winner has to argue both in front of the adjudicator, and all over again in front of an arbitrator, before he gets his money.”

Two NEC cases

Another decade on and two further TCC cases on this issue have recently been decided under the NEC form. Where arbitration is specified, the NEC form permits a dispute which has first been referred to adjudication to be referred to arbitration, provided a notice of dissatisfaction has been given within 4 weeks of the adjudication decision. In both cases, the employer obtained an adjudication decision in its favour and brought enforcement proceedings before the TCC, which was met with an application for a stay under s.9 of the Arbitration Act.

In the first of these cases (Sefton MBC v Allenbuild Ltd), the CIC adjudication procedure was held to apply alongside the NEC arbitration clause. Following MBE, the Court considered that those provisions of the CIC procedure reflecting paragraph 23(2) of the Scheme excluded enforcement proceedings from the scope of the arbitration clause:

“the relevant provisions of … the model adjudication procedure … expressly exclude from the range of matters which may be referred to arbitration any challenge to the decision of an adjudicator [and] are intended to give effect to the mandatory requirement in s. 108 (3) of the Construction Act that an adjudication decision ‘is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement’. … The court does not refuse a stay of any arbitration under s. 9 because of the 'pay now, argue later' policy of the Construction Act. Rather the court refuses a stay because the parties have agreed in their construction contract (consistently with that Act) that to give effect to that policy, the arbitration provisions of their contract do not extend to any challenge to an adjudication decision.”

The court also sought to explain the finding in Macob that questions as to the validity of an adjudication decision could be referred to arbitration by a suitably worded arbitration clause. In the court’s view, this would still not prevent enforcement through court proceedings pending a ruling from the arbitral tribunal as to validity.

The second case noted above, decided last month, is Northumbrian Water Ltd v Doosan Enpure Ltd. In that case clause W2 from the NEC3 form applied in full to the adjudication. Clause W2.3(11) provided, similarly to paragraph 23(2) of the Scheme, that the “Adjudicator's decision is binding on the Parties unless and until revised by the tribunal and is enforceable as a matter of contractual obligation between the Parties …”. Reading this clause together with the arbitration clause once again meant that enforcement proceedings did not fall within the arbitration clause properly construed: “No effect can be given to … clause W2.3(11) [unless it] is read as expressing the parties' agreement that the court has power to enforce the adjudication decision pending any revision in arbitration.”

In reaching this conclusion, the Court appeared to have in mind that interim enforcement of the adjudication decision could occur through arbitration proceedings (i.e. without a rehearing of the merits of the decision). Although the point was not explored in any detail, the need to pursue enforcement via arbitration in this way was still thought to be at odds with clause W2.3(11):

“If there is no challenge to the validity of the adjudication decision in arbitration, any requirement for a party to enforce it by obtaining declaratory relief through an arbitration award (before enforcing such award under section 66 of the Arbitration Act 1996) deprives it of any efficacy in the meantime. If there is a challenge to the validity of the adjudication decision, any requirement for a party to await the outcome of such challenge through the arbitral process likewise deprives it of any efficacy in the interim.”

Conclusions and implications

The recent decisions on this topic make it clear that a generally worded arbitration clause will not, without more, be sufficient to have adjudication enforcement proceedings in the TCC stayed to arbitration under s.9 of the Arbitration Act. However, a number of points remain open for debate:

  • The decisions discussed above are all first instance decisions of the TCC and it remains an open question as to whether the same approach would be followed by the Court of Appeal, particularly in light of English law’s robust approach to the enforcement of arbitration agreements.
  • The assumption underlying the TCC’s approach is that requiring adjudication decisions to be enforced through arbitration would be so significantly at odds with the parties’ agreement that adjudication decisions be temporarily binding pending final determination (through paragraph 23(2) of the Scheme or its equivalent), that the arbitration clause cannot have been intended to extend to adjudication enforcement. This assumption is readily understandable if a rehearing on the merits is thought to be required in such an arbitration, but less so where the arbitration procedure is sufficiently flexible to allow for swift enforcement along a process akin to that which exists in the TCC. The availability of such a procedure may enable a party to claim that staying adjudication enforcement proceedings to arbitration does not deprive the adjudication decision of “any efficacy in the meantime” – at least to no greater extent than does the need to prosecute enforcement proceedings in the TCC.
  • It remains unclear whether the approach taken by the TCC could be overcome by an arbitration clause which specifically stipulates that adjudication enforcement proceedings be dealt with by arbitration. On the one hand, the TCC judgments stress the fact that their conclusion is one of contractual interpretation rather than policy. On the other hand, the contractual provisions relied upon (such as paragraph 23(2) of the Scheme) are ones which are required by section 108 of the Construction Act. The Court in Allenbuild has also suggested that TCC enforcement would remain available even where an arbitration clause extended to the validity of an adjudication decision.

It is hoped that another decade need not pass before these questions are resolved.

References:

Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] 1 BLR 93

MBE Electrical Contractors v Honeywell Control Systems Ltd [2010] BLR 561

Coulson on Construction Adjudication, 4th Ed (2018)

The Metropolitan Borough Council of Sefton v Allenbuild Ltd [2022] EWHC 1443 (TCC)

Northumbrian Water Ltd v Doosan Enpure Ltd [2022] EWHC 2881 (TCC)