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Do Third Parties to Construction Contracts Have a Right to Adjudicate?

Tuesday, 11 November 2014

An interesting case was decided in 2014 which shed further light on whether a third party to an appointment contract for a construction project could force the contractor into adjudication proceedings.

In Hurley Palmer Flatt Limited v Barclays Bank PLC [2014] the court had to consider to what extent the rights of a third party, which are enforceable under the Contracts (Rights of Third Parties) Act 1999, could influence the decision to adjudicate.

Background to Hurley Palmer Flatt Limited v Barclays Bank PLC [2014]

Hurley Palmer Flatt (HPF) agreed to provide engineering design services to Barclays plc to help construct a new data hall. However, a dispute arose in relation to the chilled water system and HPF was said to have been negligent causing Barclays Bank plc to suffer substantial losses.

Subsequently, HPF was sued for £4 million with the claim made under the Appointment Document. However, the claim was not brought by the client Barclays plc but rather by the employer, Barclays Bank plc, who was the third party in the agreement. Barclays Bank plc believed that it had the right to do so as an ‘Affiliate’ under clause 14.3 of the Appointment. Being so, it could be seen as ‘standing in the shoes’ of the client, therefore enabling it to adjudicate because the Appointment made express provision for adjudication.

However, it was argued by HPF that the ability to adjudicate was only afforded to the original parties to an agreement and that it would only be through being party to the arbitration agreement that Barclays Bank plc would be considered a party of direct involvement. HPF wanted the court to declare that the right to enforce terms of a contract under the Contracts (Rights of Third Parties) Act 1999 did not include the right to bring adjudication.

Decision in Hurley Palmer Flatt Limited v Barclays Bank PLC [2014]

The court found in favour of HPF’s declaration, agreeing that Barclays Bank plc were not entitled to the right of adjudication. This finding was based on the fact that third parties were only allowed to rely on terms relating to the consultant’s liability to the client. As such, this did not include procedural rights such as the right to adjudicate. In consequence, the adjudicator had no jurisdiction to determine the claims.

Impact of the Decision in Hurley Palmer Flatt Limited v Barclays Bank PLC [2014]

This appears to reinforce Parkwood Leisure Ltd v Laing O’Rouke Wales and West Ltd [2013] in that, if there is an intention to give a third party the right to adjudicate, such intention needs to be expressly stated. It further follows Parkwood Leisure Ltd v Laing O’Rouke Wales and West Ltd [2013] in that a collateral warranty can constitute a construction contract entitling the beneficiary of that warranty to adjudicate against the contractor.

Therefore, it is a decision that should be welcomed by both designers and contractors, for it has helped clarify which parties are entitled to adjudication. It has also signalled to employers the benefits of choosing collateral warranties over the reliance of third party rights in situations whereby they want to make adjudication available to certain parties involved in a project.

For specialist advice regarding adjudication procedures contact Peter Gourri today by email or telephone 0207 611 4848.

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