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Adjudication stays on track after contract repudiation

legal matters

Adjudication was back in the spotlight in June, when Connex South Eastern ('Connex SE') tried to use grounds not previously canvassed in front of the courts to kick into touch an adjudication brought by MJ Building Services Group.

Connex SE argued (among other things) that the adjudication provision did not survive the termination of a contract, and also that it was an abuse of process to start an adjudication more than a year after the contract had come to an end. Before the adjudication got under way, the parties agreed to ask the court whether Connex SE was right.

The facts concerned MJ's installation of CCTV systems at stations in Kent and Sussex.

Two subsidiaries of Connex operated the railways in those counties - one was Connex SE.

Despite uncertainty as to whom MJ's contract for the works was with, the installation seems to have got under way in a rather stop-start fashion.

Then Connex SE decided it did not want to complete the CCTV works in its area. In November 2002 MJ wrote to Connex SE stating that it had repudiated its contract, and MJ accepted that repudiation.

A brief outline of how a contract can be brought to an end by repudiation may be helpful here. Repudiation happens when one party clearly says that it is not going to perform its part of a bargain. The other party can elect to accept that pre-emptive breach. If it does, it has to communicate that acceptance clearly, in a similar way to clearly accepting contractual terms at the outset. Alternatively, the wronged party can opt to let matters continue, and wait and see if the other side's breach materialises.

MJ accepted the repudiation, so if there had been a contract with Connex SE, and if Connex SE's decision not to carry on the works was repudiatory, the contract was thereby brought to an end. In February 2004 MJ served a notice of adjudication on both subsidiaries for damages.

The court spent some time unravelling the contractual muddle. The judge, HHJ Havery QC, decided there had been a single contract between MJ and both subsidiaries.

He went on to reject Connex SE's argument that repudiation defeated the adjudication provisions. Connex SE said the purpose of adjudication was to relieve cash flow during the course of a contract, and that this problem simply did not arise when a contract had been repudiated. The judge observed that adjudications have been held to be valid when started after works have finished, drawing the inference that there is likewise no bar to starting an adjudication after repudiation. He also referred to the established principle in arbitration that an arbitration clause in a contract survives that contract being repudiated, and decided that this is equally applicable to adjudication.

But, said Connex SE, under Section 108 of the Housing Grants Act a party is able to give notice of an intention to refer a dispute to adjudication 'at any time'. That could not mean, Connex SE argued, that notice could be given 100 years after a dispute arose.

There must be some time limit on the right to refer a dispute. The right to refer should be construed, Connex SE said, as meaning during the currency of the contract. In other words, not a year or so after repudiation.

The way limitation works in practice is that a party considering launching a late claim will consider carefully whether it has any chance of getting round the limitation defences that the prospective defendant will put in its path. While it is for the defendant to say how and why the statutory limitation periods defeat the claim, no claimant will start a claim if they cannot see a way round the limitation problems.

In light of this, the judge rejected this argument of Connex SE too. He said that even though there is no time limit for starting an adjudication, an adjudicator would have to take into account any valid limitation defence. It follows that a referral 100 years after a dispute arose would most likely meet a cast-iron limitation defence, and so would not happen in the first place.

So yet another inventive attempt to derail an adjudication failed, and MJ was able to take its dispute back to the adjudicator.

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