Legal Developments In Construction Law: March 2021

• Published date: 31 March 2021
• Subject Matter: Government, Public Sector, Real Estate and Construction, Government Contracts, Procurement & PPP, Construction & Planning
• Law Firm: Mayer Brown
• Author: Mayer Brown

1. Can a contract bar litigation or arbitration of a dispute until adjudication is over?

A party to a construction contract subject to the Housing Grants Act can go to adjudication at any time. But is a clause that says a dispute cannot be referred to court or arbitration until an adjudicator has made their decision, effective as a contractual bar? Or can it be sidestepped because the clause ousts the jurisdiction of the courts?

Clause W2.4(1) of NEC3 is such a clause and, in deciding that it is an effective contractual bar, making adjudication a mandatory step prior to referring any dispute to a tribunal (whether court or arbitration), a Scottish court said it was clear from the language of the clause, and its relationship with other clauses, that these provisions were intended to be definitive as to the means, and the sequence, for determining disputes. The claimant's approach, that these provisions could be ignored in favour of an unqualified right of direct recourse to the court without any stipulated timeframe, would effectively permit a parallel regime of dispute resolution wholly at odds with the clear words and detailed specification of the agreed means for dispute resolution and make the agreed terms of Clause W2.4 superfluous.

The claimant's approach also cut across the Housing Grants Act right to refer a dispute to adjudication, the quick and inexpensive means of interim dispute resolution introduced by the Act. It would deny the defendant the advantages and speed of that contractually-agreed first mode of dispute resolution.

The Scottish court also adopted analysis of the issue in the English case of Anglian Water Services Limited v Laing O'Rourke Utilities Limited, where the court noted that a clause similar to W2.4(1) did not fetter the right to refer a dispute to adjudication at any time. It did, however, prevent a party starting court or arbitration proceedings at any time, without having first referred the dispute to adjudication.

The Fraserburgh Harbour Commissioners v McLaughlin & Harvey Ltd at:

https://www.bailii.org/scot/cases/ ScotCS/2021/2021_CSOH_8.html

2. How to deal with a liquidated damages clause

In a dispute under an aircraft sale agreement, there was a claim for liquidated damages of US $42.95m, in respect of undelivered aircraft. The buyer claimed the liquidated damages were an unenforceable penalty and that, if they were not recoverable, the seller could not, instead, recover damages at common law.

Applying the Supreme...