This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
Around this time last year the Technology and Construction Court (TCC) ruled in Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltdcould be a ‘construction contract’Housing Grants, Construction and Regeneration Act 1996 that a collateral warranty for the purposes of the (the “Act”) and subsequently subject to the mandatory requirements of the Act including the right for a party to a construction contract to refer any dispute to adjudication.
Aside from creating a certain amount of polemic, the decision also prompted many to consider whether beneficiaries of third party rights could also rely on this statutory right as a means of dispute resolution. This discussion had, until recently, very little in the way of judgments to augment it, however, the recent ruling in Hurley Palmer Flatt Ltd v Barclays Bank Plc seems to have provided a definitive answer: a beneficiary of a third party right does not have the right to refer their dispute to adjudication unless expressly provided for in the underlying contract.
In his judgment, Ramsey J focussed both on the specific wording of the contract and on the underlying legislation. The contract excluded any rights arising under the Contracts (Rights of Third Parties) Act 1999 save for those expressly reserved by the contract. The question was, therefore, whether the right to refer was expressly reserved.
The contract allowed for the beneficiary to “enforce the terms of the contract […] always providing that the Consulting Engineer shall be entitled to rely on the equivalent defences in respect of such liability”. Ramsey J ruled that such wording reserved a right for third parties to enforce terms regarding the engineer’s liability, but not any right in respect of procedure.
He then considered whether the adjudication clause conferred any rights upon third parties, but concluded that the clause which stated that “the adjudication provisions contained in Part 1 of the Scheme for Construction Contracts (England and Wales) Regulations 1998 shall apply” could not be said to reserve adjudication rights for third parties as they were not a party to a construction contract.
Finally, he took a broader view on the matter, by drawing an analogy with arbitration-related legislation, that if it were the intention for a third party to benefit from the right to adjudication, the adjudication clause ought expressly to refer to third parties.
In practice, this ruling was unsurprising; however, it does provide another compelling reason for the use of third party rights in place of collateral warranties for those wishing to side-step the threat of adjudication for third party rights claims. It also sends a clear message to be attentive to the wording of any contract you are negotiating going forward and be mindful of rights that may be acquired by third parties in the process.
