Sarah Dyer
Partner
Article
6
In a recent dispute arising out of a Private Finance Initiative (PFI) project under the Building Schools for the Future programme, the Technology and Construction Court (TCC) held that adjudication was a mandatory step in the dispute resolution process. Nonetheless – and even though adjudication had not yet taken place – the Court allowed the litigation to proceed.
We examine below the reasoning behind this decision, and – while noting that this is a fact-specific decision – questions it might raise for other parties involved in disputes on PFI contracts.
The statutory adjudication provisions established by the Housing Grants, Construction and Regeneration Act 1996 do not apply to the top tier contracts entered into under PFI initiatives (i.e. usually the project agreements between local authorities and a Project Co). Adjudication is therefore not mandated by statute in such contracts in the same way that it is in respect of "construction contracts" as defined in the 1996 Act.
However, most PFI agreements contain complex, multi-tiered dispute resolution mechanisms which frequently include adjudication provisions that may be similar to the statutory adjudication procedure. These will typically escalate disputes from negotiation to expert determination or adjudication, and then upwards to litigation or arbitration for final determination.
Alexander Nissen KC in the TCC held that adjudication was a mandatory step in the dispute resolution process – but nonetheless allowed the litigation to continue.
In reaching this decision, he made the following points:
It may be of surprise to some in the industry that despite confirming the mandatory nature of the adjudication clause in the Project Agreement, the TCC nonetheless struck out the Local Authority's application and allowed the court proceedings to proceed.
This leaves open a potential question mark for parties in similar PFI disputes as to whether they may proceed straight to court proceedings and circumvent other mandatory ADR clauses. On the basis of this decision it appears that the Court will take a holistic view, considering a variety of factors including the number of parties involved and the complexity of the dispute, as well as how long the litigation has been proceeding, when deciding whether a stay is appropriate. If you have any questions about this article, please get in touch with Sarah Dyer or Lindsay Hammond.
References:
Lancashire Schools SPC Phase 2 Ltd v Lendlease Construction (Europe) Ltd & Ors [2024] EWHC 37 (TCC
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