Hurley Palmer Flatt Ltd v Barclays Bank Plc

A third party entitled to enforce contractual terms under the Contracts (Rights of Third Parties) Act 1999 is not thereby entitled to invoke a contractual adjudication clause. Adjudication is a voluntary and temporary dispute-resolution process, unlike arbitration, which may operate as a mandatory procedural condition on enforcement. Section 1(4) of the 1999 Act does not itself make an adjudication clause applicable between the third party and the promisor. The Act contains specific machinery in section 8 to make arbitration provisions binding on a third party; it contains no equivalent machinery for adjudication. A contractual adjudication provision incorporated from the Scheme for Construction Contracts therefore does not apply to a third party unless the contract clearly makes it applicable.

Barclays PLC appointed Hurley Palmer Flatt Limited to provide engineering design services. The appointment gave an Affiliate, including Barclays Bank PLC, rights to enforce the agreement under clause 14.3, while clauses 2.3 and 14.2 generally excluded third-party rights. Clause 27 incorporated the adjudication provisions in Part 1 of the Scheme for Construction Contracts.

Barclays Bank commenced adjudication proceedings concerning alleged defects in a chilled-water system. HPF sought declarations that Barclays had no right to commence the adjudication, that the notices were ineffective, and that the adjudicator lacked jurisdiction. The central issue was whether the third-party enforcement rights included a right to have liability determined by adjudication.

1. Construction of the Appointment. Clause 14.3, read with clauses 2.3 and 14.2, contained the full scope of Barclays’ third-party enforcement rights. The reference to the Consulting Engineer’s equivalent defences in respect of “such liability” indicated that the clause concerned substantive liabilities owed to the Client, rather than procedural rights such as adjudication. Barclays therefore had no freestanding right to invoke clause 27.
2. Section 1(4) of the 1999 Act. Section 1(4) makes a third-party enforcement right subject to relevant contractual terms and conditions. It can make a substantive benefit conditional upon arbitration, but adjudication is materially different. Adjudication is voluntary and produces a temporary determination pending final resolution by the courts or arbitration. It is not a mandatory method by which contractual rights must be enforced.
3. Arbitration distinguished. Section 8 of the 1999 Act was necessary to treat a third party as a party to an arbitration agreement and thereby make the conditional benefit effective. Section 1(4) alone could not confer a right on a third party to refer disputes to adjudication. The Act contained no equivalent provision extending contractual adjudication machinery to third parties.
4. Statutory Scheme. The Scheme referred to a party to a construction contract giving notice of adjudication and to notice being given to the other parties. Barclays was not a party to the construction contract. Section 7(4) would prevent the statutory adjudication provisions from treating Barclays as such a party, although that section was not the decisive issue because clause 27 incorporated the Scheme as contractual terms.
5. HPF was entitled to declarations that Barclays was not entitled to commence adjudication, that the notices dated 11 and 18 August 2014 were ineffective, and that the adjudicator had no jurisdiction.