Case Summary: Penten Group LTD v Spartagroup LTD (2016)

The court declared that the parties were bound by an arbitrator’s decision that the contract between them was governed by the letter of intent and not by JCD terms unless and until that decision was challenged. Since the introduction of the Arbitration Act 1996, the courts had to grant arbitrators latitude in order for them to deal with potentially complex questions concerning the formation of contracts within the 28-day limit; that marked a shift from the period prior to the Act, when adjudication could only take place where there was a written contract.

The claimant contractor (P) applied for declarations in relation to the enforceability an adjudication decision under the Housing Grants, Construction and Regeneration Act 1996 in proceedings it had brought against the defendant employer (S).

In 2013, S had engaged P to carry out building works in East London. In relation to that work, it was common ground that a letter of intent had been agreed, and that although the parties had intended to sign a JCT ICD contract, no contract was completed. In 2015, S terminated P’s employment. S commenced arbitration having issued a notice of arbitration in October 2015. An arbitrator concluded, given that there had been no concluded JCT contract, that the parties’ contractual relationship was governed by the letter of intent. P paid the sum determined under the decision. P also served another notice of arbitration claiming money due under the letter of intent; those proceedings were pending. The principal issue was whether the arbitrator had been right to conclude that there had been a valid construction contract not incorporating the terms of the JCT ICD contract, but rather those of the letter of intent.

S denied the enforceability of the adjudication decision, arguing that the arbitrator had not been entitled to conclude that the parties’ rights and obligation were governed by the letter of intent. It submitted that the part of the claim that dealt with the letter of intent ought to have been severed, and that there was a strong argument that the letter of intent did not provide a valid basis for payment.

HELD: (1) Where years ago the topics raised in adjudication proceedings largely involved allegations of breaches of natural justice, nowadays the courts were grappling with the consequences of serial adjudication, in particular in the context of an adjudicator deciding contractual terms and underlying financial claims. On any view, the instant proceedings concerned serial arbitration: at least five notices of arbitration had been issued and there could have been as many as nine, with only one completed arbitration. That was some way from arbitration being a simple resolution system. (2) There was a wealth of authority to support the proposition that an arbitrator’s jurisdiction was derived from a notice of arbitration, Wales and West Utilities Ltd v PPS Pipeline Systems GmbH [2014] EWHC 54 (TCC), [2014] B.L.R. 163 and Brighton University v Dovehouse Interiors Ltd [2014] EWHC 940 (TCC), [2014] B.L.R. 432 applied. Arbitration was a rough and ready process that would have casualties along the way: the arbitrator had been entitled to reach the conclusion that he had had jurisdiction to decide that there was a valid contract which incorporated the terms of the letter of intent. The notice of arbitration had requested the arbitrator to decide the dispute as to whether there had been a construction contract; in practical terms, that question could not be answered without determining whether terms had been agreed and what those terms were. The arbitrator’s decision demonstrated that P’s case that the contract terms were not those of the JCD contract but those set out in the letter of intent: the arbitrator had dealt with that question in detail. Without the JCD terms, the arbitrator had had no sensible option but to decide that the terms had been those of the letter of intent. (3) There was also a wider point in play in the instant proceedings which, although it had been the subject of commentary, had not yet been the subject of judicial observations. Before the Arbitration Act 1996, adjudication could only take place where there was a written contract: that was to ensure that an arbitrator did not have to deal with, inter alia, complex questions of the formation of contracts. That certainty had now gone and an arbitrator was expected to deal with those matters within 28 days. The instant claim, for example, which had been perfectly validly referred to arbitration, would not have been referable under the old law. Accordingly, the courts were going to have grant arbitrators latitude to deal with those issues; it was unduly restrictive to conclude that an arbitrator could decide what a contract was not, but not what it was. (4) The court declared that the parties were bound by the arbitrator’s decision that the contract between them was governed by the letter of intent and not by JCD terms unless and until that decision was challenged.

 

Courtesy of Lawtel.

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