Never too late?

As previously published in Constrution News, Summer 2005

Connex South Eastern Limited v MJB Building Services Group Plc

Connex South Eastern Limited ("Connex SE") was a train operator in the South East of England and a subsidiary of Connex Transport UK Limited ("Connex"). 

In 2000 Connex SE entered into a contract with M J Building Services Group Plc (“MJB”) for the installation of a number of CCTV cameras at railway stations across its network.  In a meeting of September 2000 Connex’s project manager told MJB to start the contract works. 

Within two weeks of this meeting, Connex instructed MJB to suspend all contract works until further notice.  At a meeting in November 2000, the programme of the contract works was reduced and MJB was instructed to recommence works.

In December 2001 Connex instructed that all works relating to the Connex SE's network should once again be suspended until further notice. 

Following this suspension, MJB wrote to Connex SE seeking to recover the cost of materials that it had purchased in pursuance of the contract and that it could not now use.  Connex SE refused to pay MJB for the materials and claimed that there was no contract between the parties and that Connex's project manager did not have its authority to instruct MJB to purchase the materials. 

In November 2002 MJB terminated the contract stating that Connex SE’s denial of the existence of the contract was a breach that amounted to a repudiation of that contract. 

It was not until February 2004 that MJB’s solicitors gave Connex SE notice of MJB’s intention to refer the dispute to adjudication claiming damages of over £362,000.  Connex SE applied to the Court for declaratory relief and the adjudication was stayed pending the outcome of these Court proceedings.  The decision of this Court was subsequently referred to the Court of Appeal.

The Court of Appeal upheld the Judgment of the High Court and ruled that the Connex project manager's instructions bound Connex SE and Connex SE were liable to MJB. 

One of the questions referred to the Court of Appeal by Connex SE was whether MJB’s Notice of Adjudication was an abuse of process?  The abuse of process rules developed in the Civil Courts so as to prevent parties manipulating the Court system so as to avoid or delay effecting their legal obligations.  The Court of Appeal ruled that neither the Construction Act nor the Scheme for Construction Contracts ( and ) Regulations 1998 contained any reference to, “abuse of process”.  Therefore an adjudicator has no power to strike out or stay an adjudication for “abuse of process”.

At Any Time

Connex SE argued that the aim of adjudication was to provide a quick and cheap process that would provide an interim decision, and that therefore the phrase “at any time” contained in the provisions of the Construction Act was not to be interpreted literally.  In his speech that forms part of the Judgment of the Court of Appeal Lord Justice Dyson referred to Hansard’s Reports of Parliamentary Debates.  The reports showed that the meaning of the words “at any time” were debated in the House of Lords at the time that the Construction Act was drafted.  Lord Lucas had stated that the words “at any time” were necessary. 

"I am of course aware that some have doubted the wisdom of allowing parties to refer a dispute to adjudication…long after work under the contract has ceased.  However, as long as there is any possibility of disputes arising under a contract parties will have to live with the fact that an adjudicator’s decision may be sought”. 

Lord Justice Dyson stated that “the phrase 'at any time' means exactly what it says”.  Lord Justice Dyson continues, “there is therefore no time limit…there is nothing to prevent a party from referring a dispute to adjudication at any time even after the expiry of the relevant limitation period.”  Lord Justice Dyson explains that the only circumstances where a party cannot refer a dispute to adjudication is where it has waived its right to adjudicate or is estopped from doing so.  i.e. where a party has done (or has failed to do) something which means that it is unjust for it to refer a dispute to adjudication.

Comment

Lord Justice Dyson’s comments are unequivocal in that, “there is nothing…which indicates that the words 'at any time' should be construed as bearing other than their literal and ordinary meaning”.  A party has a right to refer to adjudication, “even after the expiry of the relevant limitation period”.  What is not clear from the Judgment are the merits of referring a dispute to adjudication after the expiration of the limitation period.  Lord Justice Dyson explained that just as a party has a right to bring a claim after the expiration of a limitation period in Court proceedings; when doing so a party knows that there is a risk that if the Defendant can show that the relevant limitation period has expired it will successfully defend the claim.  One interpretation of this Judgment is that a responding party that successfully demonstrates that a contractual limitation date has expired is likely to win an adjudication.  But what is the position if the losing party has failed to respond to a Notice of Adjudication or has failed to plead a limitation defence in circumstances where the limitation period has expired?  How can an adjudicator's decision reached in these circumstances be enforced?  The usual procedure in circumstances where a losing party defaults on the terms of an adjudicator’s award is that the successful party would seek to enforce the adjudicator's decision through the Courts as a breach of contract.  Would the unsuccessful responding party that should have raised a limitation defence at adjudication but failed to do so now be able to raise such a defence at this subsequent court hearing and have the adjudicator’s decision overturned?  Or, as is the case with Court Judgments do new rights arise from the adjudicator's decision so that the successful party has a new cause of action and can therefore enforce the adjudicator's award regardless of the expiration of the limitation period?  What can be concluded with certainty is that it is less problematic to refer a dispute to adjudication within the limitation period.