The effect of foreign jurisdiction clauses on the summary enforcement of UK adjudication awards in construction contracts

In the very interesting case of Motacus Constructions Ltd v Paolo Castelli SPA [2021] EWHC 356 (TCC), handed down on 22 February 2021 (see here) Judge Hodge QC determined:

"the apparently novel question whether the inclusion within a construction contracts for works in England of an exclusive jurisdiction clause in favour of a foreign court precludes the English court from entertaining proceedings for breach of the term implied by paragraph 23 of the Scheme [i.e. the Scheme for Construction Contracts] that the decision of an adjudicator binds the parties until the final determination of the dispute".

Adjudication Payment Provisions, Foreign Law Contracts,  and Construction Operations in the UK

The underlying dispute concerned a supply and installation agreement dated 23 May 2019 relating to an Italian defendant's fitting out works to a hotel in London. The claimant sub-contractor was retained by the Italian defendant to supply and install plasterboards, internal walls and partitions, false ceilings, conduit backboxes, raised flooring and related painting. Perhaps unusually for a contract for construction works in England, the parties expressly agreed their contract should be governed by Italian law and all disputes were subject to an exclusive jurisdiction agreement in favour of the "Courts of Paris".

As Judge Hodge QC noted, Part II of the Housing Grants, Construction and Regeneration Act 1996 ("the 1996 Act") applies to construction contracts, regardless of whether or not the law of England and Wales (or Scotland) is otherwise the applicable law in relation to the contract: see s. 104 (7) of the 1996 Act. Thus, in His Honour's view, Parliament has decided that the UK adjudication and payment provisions apply to foreign law contracts governing construction operations in England and Wales.

Under s.108 of the 1996 Act, a party to a construction contract has the right to refer a dispute arising under the contract to adjudication. Where, as in that case, the contract did not comply with the specific requirements of s.108(3) Act (i.e. there was no provision by which the adjudicators decision was to bind the parties until the dispute was finally determined), s.108 (5) of the 1996 Act applies. This declares that if a contract does not comply with the requirements of subsections (1) to (4), "the adjudication provisions of the Scheme for Construction Contracts apply". The provisions of the Scheme take effect as implied terms of the contract between the parties: s.114(4) of the 1986 Act.

Paragraph 23 of the Scheme provides:

"The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement between the parties."

Thus, Judge Hodge QC held that pursuant to ss. 108 (3), 108 (5) and 114 (4) of the 1996 Act, and para. 23 of the Scheme for Construction Contracts, it was an implied term of the contract between the parties that the decision of the adjudicator binds the parties until the final determination of the dispute.

The action

A dispute between the parties arose and the claimant issued a notice of adjudication on 27 October 2020. Both parties participated in the adjudication. The adjudicator noted that before him no matters had been raised in the submissions relating to questions of  "threshold jurisdiction". The adjudicator issued his award on 15 December 2020, and ordered that payment of £454,678.65 plus VAT and interest should be made by 22 December 2020.

No payment was made, and on 12 January 2021 an adjudication enforcement claim was issued. On the same day, the court issued standard form directions in such proceedings giving the claimant permission to issue an application for summary judgment prior to service by the defendant or either an acknowledgment of service or a defence and giving directions to lead to the hearing of such an application remotely by Teams on 15 February 2021.

Both sides served witness statement evidence. The defence's evidence in response simply challenged the jurisdiction of the English court in the proceedings on the basis of the exclusive jurisdiction clause in favour of the courts of Paris, France. The defendant is said to have raised this point at the earliest opportunity in its Response to the Notice of Adjudication, submitting that, if the adjudicator were to make an award in the claimant's favour, then because of the exclusive French jurisdiction clause, any such award should only be enforced in the courts of Paris.

Exclusive Jurisdiction Clauses and the Hague Convention (2005)

The hearing took place of 15 February and both parties were represented. Interestingly, as these proceedings had been commenced after the end of the UK-EU transition period, this case was perhaps the first to consider the question of exclusive jurisdiction clauses free of the provisions of the Brussels I (Recast) Regulation (1215/2012). Instead, the question was determined by reference to the provisions of the Convention on Choice of Court Agreements concluded on 30 June 2005 at the Hague ("the 2005 Hague Convention"). For background see some of my earlier articles about the Hague Convention:

In particular, the case turned on the application of the following provisions of the Hague Convention:

(a)       Article 6(c): which provides that a court of a contracting state (in that case the UK) other than that of the chosen court (in that case, France), "shall suspend or dismiss proceedings to which an exclusive choice of court agreement applies unless- (c) giving effect to the agreement would lead to a manifest injustice or would be manifestly contrary to the public policy of the State of the court seised"; and

(b)       Article 7: which provides that: "Interim measures of protection are not governed by [the Hague] Convention. [That] Convention neither requires nor  precludes the grant, refusal or termination of interim measures of protection by a court of a Contracting State and does not affect whether or not a party may request or a court should grant, refuse or terminate such measures".

The Court's Conclusions

As regards the operation of Article 6(c) the court found in the defendant's favour. Judge Hodge QC concluded that, as regards Article 6(c), the burden rested on the claimant to persuade the court that one or other (or both) of the two limbs to the exception was engaged. In His Honour's judgment, for an English court to give effect to the exclusive jurisdiction clause in that construction contract would not lead to any "manifest injustice" nor would it be "manifestly contrary to the public policy of the United Kingdom". His Honour concluded (at para. 55) that:

"In the present case, there is a total absence of any evidence as to why enforcement cannot proceed effectively in the courts of Paris, France. In a future case, an issue may arise where, on undisputed evidence, there is a tension between the statutory policy of affording the parties a speedy mechanism for settling disputes in construction contracts on a provisional, and interim, basis, and the contractual right, enforceable by statute, afforded to contracting parties, to confer exclusive jurisdiction on a foreign court. However, that issue does not arise in the present case, where there is no evidence that the adjudicator's decision cannot be enforced in a timely and effective manner in the courts of Paris".

However, in relation to the operation of Article 7 of the Hague Convention 2005, the court found in favour of the Claimant. Adopting the language of Dyson J (as he then was) in Macob Civil Engineering v Morrison Construction Ltd (1999) 64 Con LR 1, the court noted that Parliament's intention in enacting the 1996 Act was plainly "… to introduce a speedy mechanism for settling disputes in construction contracts on a provisional interim basis and requiring the decisions of adjudicators to be enforced pending the final determination of disputes by arbitration, litigation or agreement". The Court therefore concluded that adjudication constitutes an interim measure of protection within the meaning of Article 7, and that the reality of the granting of summary judgment in the context of an adjudication is "to grant an interim, rather than a final and conclusive, remedy". As such, the court was not required to suspend or dismiss the proceedings.

The court therefore held that the exception contained in Article 7 of the Hague Convention applied and entered summary judgment in the Claimant's favour with the sums to be paid by the 8 March 2021. The defendant was also required to pay the claimant's costs which were summarily assessed by the same date.