| Date | 1 August 2007 |
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| Judgment | DGT Steel and Cladding Ltd v Cubitt Building and Interiors Ltd, TCC 4 July 2007 |
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| The Issue | Whether the courts will grant a temporary stay of court proceedings pending adjudication. |
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| Implication |
Where there is a binding adjudication agreement, whether or not it provides for mandatory adjudication, the court will normally grant a temporary stay of any court proceedings on the application of a party seeking to refer the dispute to adjudication in the first instance. |
printIn what circumstances, if any, should a temporary stay (halt) be granted to restrain court proceedings until an adjudication of the underlying dispute has taken place? Surprisingly, it appears that the courts had not been asked this question until it came up in the recent case of DGT Steel and Cladding v Cubitt Building and Interiors. DGT were engaged as sub-contractors to Cubitt to carry out the external cladding works at a project in Paul Street in east London. Disputes arose and in March of this year DGT referred a claim for £190,000 to adjudication. Cubitt defended the claim and the adjudicator found in Cubitt’s favour, rejecting the entirety of DGT’s claim. That however, is to over simplify the nature of the underlying dispute between the parties. The claim put before the adjudicator was based upon the alleged failure by Cubitt to operate the contractual mechanism for payment. DGT had argued that in respect of interim payment application numbers 3 to 9, Cubitt had failed to issue valid payment certificates or withholding notices. The adjudicator saw the matter in a different light. He decided that by payment application number 10, Cubitt had corrected that situation and had issued the certificates and notices required by the subcontract. In consequence, having regard solely to the technical point raised in the adjudication, DGT’s claim had failed. The adjudicator was however at pains to point out that he had made no consideration of the underlying merits of DGT’s claim or Cubitt’s deductions. Following this knock back in adjudication, DGT commenced proceedings in the Technology and Construction Court, seeking £250,000. Cubitt immediately applied to the court for a halt to this litigation, arguing that the underlying dispute should first be the subject of adjudication before the right to bring these matters before the court would arise. His Honour Judge Peter Coulson commented that it was established law that if parties to a construction contract have agreed on a particular method by which their disputes are to be resolved, then the court has an inherent jurisdiction to bring a temporary halt to court proceedings brought in breach of that agreement. In the 1993 case of Channel Tunnel Group v Balfour Beatty Construction, court proceedings had been commenced despite a term of the contract which provided for the initial reference of disputes to a panel of experts and thereafter for the disputes to be the subject of arbitration in Brussels. The House of Lords held that the court had a discretionary power to stay proceedings brought before it in breach of an agreement to decide disputes by an alternative method. In Cable & Wireless plc v IBM United Kingdom in 2002, that principle was extended to a contract provision by which the parties had agreed to attempt in good faith to resolve the disputes through alternative dispute resolution methods, including mediation. The court held that that agreement was of sufficient certainty to be enforceable. Judge Coulson concluded that if there was a binding adjudication agreement in the subcontract then a party seeking to resist a stay of court proceedings would be required to justify that stance. The central question in the present case was therefore; was there a binding adjudication agreement? Clause 19.1 of Cubitt’s standard conditions of subcontract was in the following form “any dispute, question or difference arising under or in connection with the subcontract shall in the first instance be submitted to adjudication in accordance with the Association of Independent Construction Adjudicators (AICA) rules and thereafter to the exclusive jurisdiction of the English Courts”. Judge Coulson was immediately clear that by the use of the word “shall”, this clause made the submission of any dispute to adjudication mandatory. Adjudication was therefore not discretionary but both a right and an obligation of the parties. It is noticeable that this wording is contrary to both the ACIA Adjudication Rules, which use the word “may”, and with section 108 of the Construction Act which merely provides the parties with a right, not an obligation, to go to adjudication; “a party to a construction contract has the right to refer a dispute ….” Clause 19.1 of the subcontract in question therefore created a mandatory step of adjudication in the event of a dispute, with the result that DGT were not entitled to commence court proceedings in breach of that provision. Judge Coulson pointed out however that even if the provision was not mandatory, his view would still be the same. A binding adjudication provision gives both parties the right to adjudicate and therefore Cubitt would still be entitled to assert its right to have any dispute referred to adjudication. Accordingly they would be entitled to seek a stay of court proceedings commenced before an adjudication had been concluded. The dispute in the court proceedings between DGT and Cubitt principally concerned the validity of DGT’svaluation of the entirety of their subcontract works. That was an entirely different dispute from the dispute which had been the subject of the earlier adjudication. It was therefore perfectly capable of being the subject of a fresh adjudication and Cubitt was entitled to secure an order staying the litigation until that adjudication had been concluded.
CJ-0730
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