Adjudication in Foreign Contracts

Phil Caton, Construction Law Partner at Aaron & Partners considers the recent case of Motacus Construction Ltd v Paolo Castelli SpA and analyses whether you can adjudicate with a foreign jurisdiction clause.

The issue of a foreign jurisdiction clause – which gives legal authority to a particular court or courts in a specified country to enable a party to sue on a contract – is a topical one that has again reared its head in England and Wales.

Motacus Construction Ltd v Paolo Castelli SpA

The case in question is a recent one involving Motacus Construction Ltd v Paolo Castelli SpA and this has given clarity over an issue that will be of interest to many within the construction industry. The issue is this – can a party adjudicate and more importantly, enforce an adjudicator’s decision in the courts of England and Wales if the contract of the underlying dispute is subject to a foreign jurisdiction clause? 

The judgment of the Technology and Construction Court as demonstrated in the recent case of Motacus is “Yes”.

The facts of the case

The case concerned the fitting out works of a hotel at One Bishopsgate Plaza, London. A dispute arose in relation to payment and the contract contained an exclusive jurisdiction clause whereby all disputes had to be submitted to the exclusive jurisdiction of the courts of Paris. To complicate matters, the choice of law in the contract was not French law, but Italian law.

The claimant (Motacus) commenced an adjudication under the statutory scheme for construction contracts in England & Wales and was successful in obtaining an adjudicator’s award for payment in the sum of £454,678.65 plus VAT and interest. 

The defendant (Paolo Castelli SpA) refused to make payment on the basis that the adjudicator had no jurisdiction to make such an award and the Claimant sought to enforce the award in the Technology & Construction Court in Manchester. The Defendant opposed the application relying upon the exclusive jurisdiction clause. 

What did the court need to consider?

The sole issue before the court was whether an exclusive jurisdiction clause in favour of another foreign court would preclude the English court from enforcing the adjudicator’s decision until the final determination of the dispute.

The impact of Brexit was relevant to the case because following the UK’s departure from the European Union, jurisdictional questions were no longer determined by the Brussels Regulation, which had established case law on this matter, but by the older 2005 Hague Convention which did not.

The Claimant sought to rely upon 2 exemptions under the Hague Convention that would allow the English Courts to grant summary judgment of the adjudicator’s decision they were:

• The “manifest injustice/ public policy” exemption under Article 6(c), and;
• The “interim measure” of protection exemption under Article 7

On the issue of “manifest injustice/ public policy” under Article 6(c), the Court was not persuaded that giving effect to the exclusive jurisdiction clause would be contrary to public policy or create manifest injustice. The court concluded that there was no good reason why the parties should not be held to the bargain that they freely made under the contract and the exemption was not engaged.

On the issue of interim measures under Article 7 however, the Court decided that a referral to adjudication was an interim measure of protection and that an application for summary judgment to enforce an adjudicator’s decision was therefore an interim measure of protection as provided for under Article 7 of the Hague Convention. On that basis, the Court was not required to suspend or dismiss the proceedings and entered summary judgment for the Claimant in accordance with the adjudicator’s decision.

What can we take away from the case of Motacus Construction Ltd v Paolo Castelli SpA?

The case of Motacus is likely to be well received by stakeholders of the UK construction industry who will no doubt welcome the Courts endorsement of adjudication as an interim measure of dispute resolution. The judgment is likely to be particularly useful to sub-contractors and smaller stakeholders in the industry who might otherwise have been cautious about commencing formal dispute resolution proceedings when dealing with a contract with an unfavourable jurisdiction clause. 

Conversely, the case serves as a cautionary tale to those based outside the UK who might be operating within the UK and are unfamiliar with the adjudication process.  Such companies may well be surprised to learn that the right to adjudicate and enforce an adjudicator’s decision in the UK is contrary to the express provisions of their contract and such companies might be well advised to have such construction contracts vetted by UK lawyers prior to commencement.

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