Adjudication can be used for Defective Premises Act and tortious claims, rules High Court

Andrew Batty of Pinsent Masons was commenting after the High Court confirmed that an adjudicator was right to determine a claim for breach of the Defective Premises Act 1972 in a dispute between BDW Trading (BDW) and Ardmore Construction (Ardmore).

The ruling builds on case law where the House of Lords – then the highest court in the UK, which is now the Supreme Court – determined that it should be presumed that parties want to resolve disputes via a single forum, unless they use clear language to provide otherwise. That 2007 case, Fiona Trust & Holding Corp v Privalov, concerned the interpretation of an arbitration clause, but the High Court has now held that the same approach applies to provision made in construction contracts for dispute resolution by adjudication.

Batty said the ruling will have major implications for the drafting of dispute resolution clauses going forward and he said that parties to many existing construction contracts should now expect that tortious disputes will be brought in adjudication. That includes not just claims under the Defective Premises Act, as with this case, but also claims, for example, in misrepresentation and mistake.   

“This decision potentially has very wide ramifications,” Batty said. “Parties should review their existing contracts and existing disputes, particularly in relation to Defective Premises Act claims, to consider whether, tactically, these claims might now be run in adjudication rather than in litigation or arbitration. This is particularly so where the factual allegations are the same as those relating to claims under a contract.”

“Parties negotiating new contracts should also consider including very clear carve out wording for tortious claims if the desire is to prevent these kinds of claims being adjudicated,” he said.

Before the High Court, BDW sought to enforce an adjudication decision in which Ardmore was ordered to pay more than £14 million in damages in respect of claims of fire safety defects in works performed at a development on which BDW had engaged Ardmore as contractor in 2002. The works were completed between December 2003 and June 2004.

In March 2024, BDW commenced adjudication against Ardmore claiming that Ardmore was responsible for a breach of the construction contract and that Ardmore was also liable under the Defective Premises Act. Section 1(1) of the Act imposes a duty on "[a] person taking on work for or in connection with the provision of a dwelling" to carry out the work in a "workmanlike" or "professional manner" with "proper materials so that as regards that work the dwelling will be fit for habitation when completed".

In September 2024, an adjudicator upheld BDW’s claims. The breach of contract claim succeeded because Ardmore’s limitation defence was rejected on the basis of deliberate concealment. BDW’s Defective Premises Act claim was not time-barred by virtue of the Building Safety Act 2022 (BSA) taking effect, which retrospectively extended the limitation period for bringing Defective Premises Act claims from six years to 30 years.

Ardmore argued before the High Court that the adjudication decision should not be enforced. Among other things, it argued that the adjudicator had no jurisdiction to determine a tortious claim for breach of the Defective Premises Act. In this regard, what the parties had agreed in their building contract – and how broadly this should be interpreted – came into focus.

Under section 108(1) of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA), an adjudication is limited to disputes which are "under the contract". Article 5 of the building contract mirrored this wording, providing that any dispute or difference arising under the contract may be referred by either party to adjudication. Article 6A of the building contract also provided both parties with rights to refer disputes – including those arising under, or in connection with, the contract – to arbitration.

The judge, Mrs Justice Joanna Smith, considered that parliament, when drafting the statutory regime for adjudication, did not intend to preclude an interpretation of adjudication clauses that accords with the principle established in the Fiona Trust case. This was despite the fact another High Court judge felt there was “considerable force” to an argument that there should be a distinction between words agreed in a contract and words derived from a statute.

“The origin of the clause (whether it be by express agreement or parliamentary provision) does not affect the principles of interpretation articulated in Fiona Trust,” Mrs Justice Joanna Smith said in her ruling, with counsel for Ardmore having conceded this point. She added that she agreed that “parliament should, when legislating for the construction industry, be considered to be as concerned with business common sense as contracting parties are taken to be". She also said that, as “rational businesspeople”, both BDW and Ardmore probably intended any dispute arising out of their relationship to be decided by the same tribunal – whether that be arbitration or adjudication.

The nature of the adjudication process and the purpose of the HGCRA supported this assumption, in the judge’s view. The purpose of the Act is that disputes are to be resolved quickly and effectively without delay and then put to one side to be revived in arbitration or litigation only if the parties have been unable to accept the decision of the adjudicator or have been unable to reach a compromise.

The judge’s view was that, against that background, it is difficult to see why it would make commercial sense for the parties to want to restrict the scope of adjudication to a narrower scope of dispute or difference than could ultimately be referred to arbitration or litigation. In the absence of very clear words in the contract stating otherwise, she considered it would make little commercial sense for the parties to have intended that their contractual claims could be referred to adjudication and/or arbitration but that any tortious claims, especially tortious claims dealing with the same defects and seeking the same relief, could only be referred to arbitration.

The differences in wording between the adjudication and arbitration provisions in the contract – “arising under” versus “arising under … or in connection therewith” – were therefore held to have no material significance.

Batty said: “The courts have made clear that wording in dispute resolution provisions referring to disputes arising 'under' the contract should not be interpreted narrowly. Instead, the statutory underpinning of the contractual right to adjudicate is a factor which weighs in favour of giving a broad interpretation to the phrase ‘a dispute arising under the contract’.”

However, Batty said that there remain arguments against this interpretation which parties could raise in other cases, particularly because the judge in this case dismissed Ardmore’s arguments partly due to lack of evidence and because Ardmore made certain concessions.

“Evidence could be adduced from Hansard to show that parliament intended the HGCRA to be interpreted narrowly,” Batty said. “Other evidence might show that, when the contract was drafted many years previously and before fire safety / Defective Premises Act claims became prevalent, the parties intended there to be a distinction between disputes 'arising under' a contract and those 'arising in connection with' a contract. However, the judge in this case was sceptical that this sort of common understanding did in fact exist at the time this contract was entered into.”

Ardmore failed on its other arguments based on natural justice and therefore the adjudicator’s decision was enforced.  

Batty said: “Given the importance of these issues and given they were dealt with on an enforcement application, it is possible Ardmore may seek to appeal the decision, though this may be difficult because Ardmore conceded the point that the origin of the adjudication clause, in statute, did not affect the principles of interpretation articulated in the Fiona Trust case.”

“In the early days of the HGCRA, its legal reach was thought to be narrow and related to payment disputes. However, many people may consider the judge’s approach in this Ardmore case reflects the ‘modern’ approach to contract interpretation which prioritises ‘business common sense’ over the specific intentions of parliament when legislation was enacted,” he said.