By a deed of appointment dated 28 January 2008 ("the Appointment") between Barclays PLC and the Claimant, Hurley Palmer Flatt Limited ("HPF"), HPF agreed to provide mechanical and electrical engineering design services in relation to the design and construction of a new data hall at a data centre for Barclays PLC.

Disputes arose concerning the chilled water system. This led to a claim against HPF valued at over £4 million.

Clause 14 of the Appointment contained the following provisions concerning third party rights:

“14.2 Save as expressly provided in Clause 14.3 and Clause 10 (Collateral Warranties) nothing in this Agreement shall confer or purport to confer on any third party any benefit or right to enforce any terms of this Agreement.

14.3 Any Affiliate with a direct interest in the Project shall be entitled to enforce the terms of this Agreement as “Client” always provided that the Consulting Engineer shall be entitled [to] rely on the equivalent defences in respect of such liability which it has against the Client.”

In addition, clause 2.3 of the Appointment provided:

“Unless expressly stated otherwise in this Agreement, nothing in this Agreement confers or is intended to confer any rights on any third party pursuant to the Contracts (Rights of Third Parties) Act 1999.”

Further, Clause 27 of the Appointment stated that the adjudication provisions contained in Part 1 of the Scheme for Construction Contracts (‘the Scheme’) would apply to the Appointment.

On 11 August 2014 Barclays, through their solicitors, gave a notice of adjudication seeking damages against HPF in relation to the claim of defects in the chilled water system based on rights as an Affiliate under the Appointment. By a referral dated 18 August 2014 the dispute was referred to the adjudicator.

Part 8 proceedings commenced on 26 August 2014 and HPF has sought a declaration that Barclays is not entitled to commence adjudication proceedings against HPF and that consequently the notice of adjudication and referral notice were ineffective and the adjudicator does not have jurisdiction to determine the claims.

Therefore, the issue in these proceedings was whether or not the rights given to Barclays as a third party Affiliate include the right to have liability under the Appointment determined by adjudication under the provisions of clause 27.

Mr Justice Ramsey considered that the wording of Clause 14.3 strongly indicated that the reference to "such liability" was that the rights to be enforced under Clause 14.3 were the rights giving rise to liability by the Client against the Consulting Engineer not the procedural rights such as those in Clause 27.

On that basis Mr Justice Ramsey did not consider that Barclays was given a right to enforce the terms of the Appointment by adjudication under Clause 27 and Barclays does not have a freestanding right to enforce the adjudication provision in the contract under the terms of Clause 14.3.

Mr Justice Ramsey made reference to the 1999 Act, under which section 1(1) provides that:

"Subject to the provisions of this Act, a person who is not party to a contract (a "third party") may in his own right enforce a term of the contract if-

(a) the contract expressly provides that he may…"

Section 1(4) then sets out the basis on which a third party can enforce a term of a contract. As the Explanatory Notes to the 1999 Act state, section 1(4) clarifies section 1(1) so that a third party's right of enforcement is subject to the contract terms and conditions. The Explanatory Note also states:

"It is open to the parties to limit or place conditions on the third party's right; for example, if he wishes to enforce the right he is to do so by way of arbitration and not litigation."

Mr Justice Ramsey stated that in this case the relevant rights that Barclays seeks to enforce do not, in his judgment, engage the conditions within section 1(4) of the 1999 Act. As stated in the Explanatory Note, a classic case where this provision would be engaged would be if there were an arbitration clause.

Mr Justice Ramsey distinguished an arbitration clause from an adjudication clause as follows:

“Adjudication, unlike arbitration, is not a mandatory alternative way in which a party to a contract has to enforce its rights. Adjudication is a voluntary method of dispute resolution in the sense that one party to a contract may, but is not obliged to, have a dispute temporarily resolved, pending a final determination by the courts or, if applicable, arbitration. It therefore differs in nature from the terms of an arbitration clause under which a party's rights can only be determined by arbitration.”

In concluding, Mr Justice Ramsey made declarations that:

(1) Barclays was not entitled to commence adjudication proceedings against HPF;
(2) Barclays' notice of adjudication dated 11 August 2014 and its referral notice dated 18 August 2014 were ineffective;
(3) The adjudicator, did not have jurisdiction to determine such claims.

Commentary

This case emphasises the importance of clear drafting. If the parties to a contract wish to allow third parties the right to adjudicate, this should be expressly and clearly stated. Where adequate provision has no been made in the contract, the practicalities of commencing an adjudication could be complex. Further, if such third party were successful, without an adequate contractual mechanism, pursuing recovery of payment may result in technical difficulties.