Declaratory Relief in Relation to Adjudication Proceedings

Tue, 09 Mar 2010

When a responding party is faced with an adjudication in the building / construction context which it disputes, it, in essence, has four options. It can (1) take part in the adjudication without reserving its position on the adjudicator’s jurisdiction, (2) take part in the adjudication while reserving its position on any issue as to the adjudicator’s jurisdiction1, (3) simply not take part in the adjudication or (4) do (1), (2) or (3) and during the course of the adjudication issue a Part 8 claim for declaratory relief in respect of the ongoing adjudication. It would seek the declaratory relief to establish, for example, that there was no contract between the parties to the adjudication and so, the argument follows, the adjudicator would have no jurisdiction – thus making any adjudicator’s award a nullity.
 
A recent case dealt with by Her Honour Judge Kirkham in the Technology and Construction Court in Birmingham gives further clarification of the TCC’s jurisdiction when dealing with option (4) above i.e. when a party to an adjudication makes a Part 8 claim during the course of the adjudication for declaratory relief. The case is called Aceramais Holding Limited v Hadleigh Partnerships Limited [2009] EWHC 1664 (TCC)2. The facts of that case are given further below. However, the background to the TCC’s jurisdiction in respect of declaratory relief is addressed first.
 
Paragraph 9.4 of the TCC Guide makes plain that the TCC will consider claims for declaratory relief in respect of a disputed adjudication. The Guide also makes plain that such an application will need to be dealt with and resolved swiftly. This is for obvious reasons. Adjudication is a quick process. Accordingly, if the court is being asked to make a declaration in respect of an adjudication – it needs to be dealt with swiftly and during the course of the adjudication.
 
The case of Dorchester Hotel Ltd v Vivid Interiors Ltd [2009] BLR 135, gives further clarification in respect of the TCC’s jurisdiction on the matter. Coulson J stated this in the judgment:
 
“…the TCC does have the jurisdiction to consider the application for a declaration in this case. But I make it clear, as I hope I made clear in argument, that such a jurisdiction will be exercised very sparingly. It will only be appropriate in rare cases for the TCC to intervene in an ongoing adjudication. It is important that, wherever possible, the adjudication process is allowed to operate free from the intervention of the Court. Applications of this sort will be very much the exception rather than the rule. They will only be granted in clear-cut cases…”
 
Returning to the Aceramais case, the facts were these: Aceramais was a BVI company. It was the owner of, and employer on, a “prestige” residential development on a square in Cheltenham. Hadleighs was the contractor on the project. The relationship between the parties broke down and Hadleighs was (on its case) forced off site. 
 
Accordingly, Hadleighs commenced an adjudication seeking an award of £800 000 odd. Aceramais decided to take no part in the adjudication and made this clear to Hadleighs and the adjudicator. Instead, Aceramais issued a Part 8 claim seeking a declaration that there was not a contract in writing between the parties – which meant (as far as they were concerned) that the adjudicator did not have jurisdiction. There were two sub-arguments within this assertion by Aceramais; firstly, that there was no contract at all between the parties to the adjudication and secondly, that even if there was, it did not satisfy the statutory requirements of a written contract under section 107 of the Housing Grants, Construction and Regeneration Act 1996.
 
Having issued its Part 8 Claim for declaratory relief, Aceramais then sought to obtain an injunction to stop the adjudication. This injunction was refused by HHJ Kirkham. However, the court did set down directions for a speedy trial of the Part 8 Claim (as per the guidance in the TCC Guide). The issues to be determined at trial were (1) were the adjudicating parties the parties to the contract and (2) was there a contract in writing. If either of those questions was answered in the negative, then plainly the adjudicator did not have jurisdiction. As far as the adjudication was concerned (remember the Part 8 claim was issued while the adjudication was ongoing), this was to continue, but it was ordered that no enforcement proceedings in respect of any adjudication award could be commenced until the outcome of the Part 8 proceedings.
 
Now naturally, because of the directions (notwithstanding they were made for the purposes of a speedy trial), the net effect of them was that (a) if the adjudicator made an award in favour of Hadleighs, then (b) Hadleighs would not be able to enforce that award until (c) the outcome of the Part 8 Claim which would mean (d) that Hadleighs (even though it would have an adjudication award in its favour) would not be able to enforce it as quickly as it would otherwise have been able to do so had the Part 8 claim not been issued.
 
At trial HHJ Kirkham rejected Aceramais’ arguments on jurisdiction. There was a contract between the adjudicating parties and it was in writing. However, the writer also ran a secondary argument. That secondary argument was that in any event the court should not exercise its discretionary jurisdiction to make the declaration sought.
 
HHJ Kirkham accepted this argument. And it is this part of the judgment (at paragraphs 40 to 52 of the judgment) where further clarification is provided in respect of the TCC’s jurisdiction to grant declaratory relief. In summary HHJ Kirkham makes plain that the TCC’s jurisdiction would only be exercised:
 
• Where the case is clear cut so that the court can act quickly, so as to, in effect, stop the adjudication. If it is not clear cut (for instance it will necessitate disclosure and a trial) then the court cannot act quickly and so the jurisdiction will not be exercised. 
• In rare cases. Arguments as to whether there is a contract in writing (i.e the argument relied upon by Aceramais) are common at the enforcement stage and not rare. 
• Where it was proportionate to do so. Aceramais’ approach was disproportionate. A great deal of expense was spent on the trial, when the arguments could have been taken up at the enforcement stage3. 
 
Accordingly, HHJ Kirkham dismissed Aceramais’ claim with costs. At the enforcement of the adjudicator’s award in Hadleigh’s favour there was no opposition from Aceramais; and consequently, Hadleigh ended up with a judgment in its favour in excess of £800 0004.
 
The key point to note from the above is this. It is only in very rare circumstances should a party consider issuing a claim for declaratory relief in respect of a live adjudication. If the issue in dispute (e.g. as to jurisdiction) could only be determined by way of a trial within the declaratory relief proceedings, then it seems unlikely that the court would consider, let alone grant, the sought declaratory relief. A trial would (by definition because of the delay it causes) undermine the adjudication process, which is intended to be a speedy procedure free from interference by the courts.
 
1 So that it will not be estopped from relying on such arguments at any enforcement hearing at the TCC should the adjudicator’s award be against it.
2 The writer was counsel for the successful defendant in the Part 8 proceedings which was the referring party in the adjudication.
3 Of course one of the ironies of the whole case is that had Aceramais simply waited for enforcement of the award, then it may well have been successful at such a hearing. This is because all it would have had to have shown (so as to resist summary judgment of the award) was a real prospect of succeeding in saying there was no contract in writing. However, by going down the declaratory relief route and issuing the Part 8 claim, the burden they imposed upon themselves was far higher i.e. proving on a balance of probabilities that there was no contract in writing. A tactical error of significant degree.
4 In fact, Aceramais is now also subject to a freezing injunction until “settlement of the judgment sum”.

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