Third Party Rights Act – Ability to adjudicate

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Hurley Palmer Flatt Ltd v Barclays Bank Plc [2014] EWHC 3042 (TCC) (23 September 2014)

Facts

Barclays Plc appointed Hurley Palmer Flatt (“HPF”), consulting engineers, to provide M&E design services for a new data centre for Barclays Bank Plc.  Subsequently problems developed and Barclays Bank Plc (which was a third party and not a signatory to the contract) gave a notice of adjudication against HPF for damages in respect of defects in the chilled water system.  Two weeks later, HPF started proceedings in the High Court for a declaration (Part 8 Application), that Barclays Bank Plc, not being a party to the contract, was not entitled to commence adjudication proceedings against HPF.

Held

  1. Although the Contracts (Rights of Third Parties) Act of 1999 allows third parties who were intended to benefit from contracts to bring claims pursuant to such a contract, the normal method of recovery would be by reference to the High Court.
  2. Arbitration (which is an alternative to going to Court) is expressly referred to and allowed for in Section 8 of the Act.  The Act does not refer, however, to adjudication and the inference to be drawn is that adjudication was deliberately omitted from Section 8 of the Act.
  3. Although Barclays Bank Plc was described in the contract as a “Affiliate” of Barclays Plc (the contracting employer), this merely confirmed in the contract the right bestowed by the Contract (Rights of Third Parties) Act to enforce the terms of the Agreement.  It did not do anything to define or change the procedural methods for enforcement.

Comment

  1. This is not an uncommon situation.  Very often one company in a group (e.g. Barclays Plc) will enter into a contract with a consultant or a contractor for building works to be done.  The beneficiary of those building works is another member of the group (here Barclays Bank Plc).
  2. Normally the Employer (Barclays Plc) will insist upon a collateral warranty agreement between the consultant performing the services and the company which actually owned the property and expected to benefit (Barclays Bank Plc).  In Parkwood v Laing, the Court ruled that in certain circumstances a collateral warranty could be regarded as a contract for construction operations and therefore subject to all the implied terms of the Housing Grants Construction and Regeneration Act.  This includes the right to adjudicate.
  3. Because Barclays Group chose not to require a warranty but instead to rely upon the Contracts (Rights of Third Parties) Act 1999, it had rights against Hurley Palmer, but it could only pursue those in the High Court and not by adjudication.

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