The case in question is DGT Steel and Cladding v Cubitt Building and Interiors. There, the parties had agreed an adjudication clause directing that disputes “shall, in the first instance, be submitted to adjudication”. The Court interpreted this clause as a binding agreement to adjudicate with the result that:
• The court had a discretion to stay court proceedings commenced in breach of the agreement to adjudicate.
• In applying its discretion, the Court would proceed on the basis that such agreements ought be enforced, unless the party in breach shows a good reason why a stay should not be granted.
This decision brings a great deal of clarity to the situation where parties have agreed specifically to make adjudication mandatory. However, where there is no such specific agreement or where the default provisions of the Scheme for Construction Contracts apply, it is uncertain whether or not the Court would still grant a stay of Court proceedings.
The Court in DGT did give some comment on this default scenario. In particular, it noted that the right to adjudicate is one given to both parties, and not only to the party claiming. For example, were one party to make a claim under the contract which is subsequently rejected, the rejecting party could commence an adjudication for a declaration that its rejection was valid and the claim of no merit. The right to adjudicate is therefore bilateral.
The bilateral nature of adjudication rights means (according to the Court in DGT) that a Defendant to Court proceedings commenced before adjudication could argue that its right to adjudication had been ignored. A Defendant in such circumstances might do two things:
• Commence its own adjudication and apply for a stay of Court proceedings whilst the adjudication was determined. Such an adjudication might be one for a “negative declaration” as mentioned above.
• Apply for a stay of the Court proceedings without commencing an adjudication.
The distinction between these two types of case is important. Tactically, the second scenario – if successful – would usually be of more use to a Defendant. It would allow the Defendant to trouble its Claimant with a stay application whilst remaining passive itself. The first scenario on the other hand would require the Defendant to adopt the aggressive (and often unadvisable) stance of itself launching adjudication proceedings. The second scenario – if allowed - would therefore effectively make adjudication mandatory by allowing a Defendant to apply for a stay of Court proceedings without first committing itself to adjudication. In other words, a Defendant could demand that the Claimant, “Adjudicate, or else!”.
The Court in DGT commented that a stay would be likely in respect of the first scenario where a Defendant to Court proceedings commences a competing adjudication: “as a matter of simple case management, the court would be likely temporarily to stay the court proceedings until after the adjudication had been decided”. As to the more important second scenario, the Court gave little guidance, stating only that a Defendant “may well be entitled” to a stay due to the general argument mentioned above that its bilateral right to adjudicate had been infringed.
Whether a Court would permit a stay in the second scenario would depend upon the proper exercise of the Court’s discretion and policy considerations as to appropriateness of giving mandatory force to the adjudication regime. One possible comparison to the exercise of such a discretion might be the case of an optional arbitration clause in which a party sought to stay Court proceedings without having yet exercised its option in favour of arbitration. That would produce the analogous position whereby a party sought a stay on the basis of a mere bilateral right to arbitrate but without that right having been exercised. That particular situation has not been considered by the English Courts, but has been considered in Australia in Manningham City Council v Dura (Australia) Constructions [1999] VSCA 158. The Victorian Court of Appeal in that case held that although it was open to grant a stay to protect such a right or option to arbitrate, a stay would be unlikely if no arbitration had yet been commenced in the exercise of the option. In other words, as a matter of discretion the Court is unlikely to grant a stay merely because a Defendant has a right to an alternative forum, but has not yet exercised that right. Similar arguments might be expected in an adjudication context.
The Court’s decision in DGT allows defendants to seek (and possibly obtain) a stay of court proceedings where adjudication is not expressed by the parties to be mandatory and even in cases where nothing is agreed about adjudication and the statutory scheme applies. Although the Court gave some guidance as to how it would exercise its discretion in such cases, there is still considerable uncertainty particularly in circumstances where a defendant has not yet exercised its right to refer the dispute to adjudication.
