| Date | 12 February 2003 |
|
|
| Judgment | Levolux AT Limited v Ferson Contractors Limited, CA 22 January 2003 |
|
|
| The Issue | Enforcement of an adjudicator's decision in the face of conflicting contract terms. |
|
|
| Implication |
Where conflict arises between the obligation to pay an amount stated in an adjudicator's decision and the prevailing contract terms between the parties, the obligation to pay in accordance with the adjudicator's decision shall take precedence. |
printIn December of last year, I reported the case of Bovis Lend Lease v Triangle Developments. This was an important case, because it appeared to add to the growing list of cases which indicated a movement towards the dilution of the effectiveness of adjudication. It was held that where a contract expressly entitled a paying party to avoid or make deductions from the amount directed to be paid by an adjudicator's decision, the terms of the contract would prevail. It would be a small step from that decision to conclude that any clause could be drafted in to a construction contract which would effectively defeat the binding nature of an adjudicator's decision. In other words, parties to a construction contract may agree a clause concerning payment which may trump the contractual obligation to comply with an adjudicator's decision. The clause which was examined in the Bovis case is a clause which appears in many standard form contracts. It deals with the determination of the employment of the contractor. The clause states that following such determination, no further payment shall be made to the contractor until an account of all claims and cross claims is established. The JCT management form of contract clause 7.6.4.1 is an example. The employer, Triangle, contended that it had successfully determined Bovis' employment and that the provisions of the contract requiring further payments to be made to Bovis no longer applied. Indeed, the question of determination had been decided in Triangle's favour by an adjudicator. Despite this, a separate adjudication had been carried out, resulting in an order for payments to be made to Bovis. The question was , which took priority? The requirement to pay Bovis in accordance with the adjudicator's decision, or the contractual block on payments following determination. Judge Thornton QC concluded that appropriate terms of a contract could defeat the requirement that immediate effect should be given to an adjudicator's payment decision. Accordingly, Triangle was entitled to rely upon the determination provisions of its contract to withhold payment of the monies ordered to be paid by the adjudicator. These issues have now been examined by the Court of Appeal in the case of Levolux AT v Ferson Contractors. Adjudicators will generally be pleased with the result. Contradicting the findings in the Bovis case, the Court of Appeal has said that where a conflict arises between the obligation to pay an amount stated in an adjudicator's decision and the contractual terms between the parties, the obligation to pay in accordance with an adjudicator's decision must take precedence. Levolux were subcontractors to Ferson for the installation of curtain wall and louvre systems. The subcontract was in the form of the GC/Works subcontract, with certain amendments. A dispute arose concerning the amount due to Levolux for interim payment, and in consequence Levolux suspended its operations on site. Ferson replied by determining the employment of Levolux under the contract in accordance with clause 29. The effect of this determination, according to Ferson, was that by clause 29.8.1 "all sums of money that may be due or accruing due from the contractor to the subcontractor shall cease to be due or accrue due". Accordingly, Ferson believed that it did not have to make any further payment to Levolux until after the completion of the works and the making good of defects. Meanwhile, Levolux had commenced adjudication to recover the monies it claimed was due on interim payment, claiming that Ferson had made an invalid withholding from its account. The matter proceeded to adjudication and the adjudicator agreed with Levolux. He ordered that Levolux should be paid the entire amount of its claim, together with interest. Ferson refused to pay and the matter then moved on to enforcement proceedings. Unsurprisingly, Ferson put forward its primary case that, prior to adjudication, it had determined the sub-contract between the parties in accordance with Clause 29. This being the case, Ferson argued, it was not bound to make any further payment to Levolux until after the works had been completed. Contrary to the findings of Judge Thornton in the Bovis case, His Honour Judge David Wilcox rejected this argument. Firstly, he held that it was a necessary implication of the adjudicator's decision for the payment of money, that Levolux had been entitled to suspend the works. Thus Ferson's attempted determination of the subcontract had no contractual effect, and Ferson could not rely on clause 29 to avoid payment. More importantly, Judge Wilcox held that the contractual scheme which assumed that no monies would be paid until completion of the works did not apply to an adjudicator's award. The Court of Appeal concluded that Judge Wilcox was correct. Lord Justice Mantell said, "The contract must be construed so as to give effect to the intention of Parliament rather than to defeat it. If that cannot be achieved, then the offending clause must be stuck down." In agreeing that this was the correct course of action, the Court of Appeal has closed off an option to resist payment in respect of an adjudicator's decision, which many thought represented a significant loophole which could be widely abused. Of course, this does not mean that determination clauses such as GC/Works Clause 29 are of no effect. If an adjudicator had the jurisdiction to decide that the contractor's employment had been validly determined, he would remain bound to apply the provisions of that clause insofar as it affected payment.
CJ-0305
|
|||
|
© Brewer Consulting |
|||
 |
|||