Partner London
"Readers will be aware of parties’ statutory right to adjudicate under construction contracts. In a recent decision, the High Court has found that an assignee of that contract may adjudicate also."
In this article, we consider the recent judgment in Paragon Group Limited v FK Facades Limited, which addresses for the first time the question of whether an assignee of rights under a construction contract is entitled to adjudicate in respect of those rights.
Readers will be aware of parties’ statutory right to adjudicate under construction contracts. In a recent decision, the High Court has found that an assignee of that contract may adjudicate also. The judge noted that there appeared to be no direct authority on the point. Accordingly, the decision provides novel insight into whether and how an assignee may invoke adjudication under an original construction contract.
Factual Background
The contract, originally between Office Depot International (UK) Limited (“ODI”) and FK Facades Limited (“FK”), related to remedial works for a roof installation at a commercial property in Greater Manchester. ODI subsequently assigned its rights under that contract to OT Group Ltd in 2021, which further assigned them to Paragon Group Limited (“Paragon”) in 2024.
Paragon, as assignee, claimed that FK was in culpable delay under the contract, terminated the contract and sought liquidated damages from FK. FK refused to pay and Paragon commenced an adjudication in which the adjudicator decided the dispute in Paragon’s favour. However, FK maintained a jurisdictional objection and refused to comply with that decision. Paragon therefore sought to enforce the decision in the High Court.
Contractual Issues
The contract was on the JCT Minor Works Building Contract (2016 edition) form, and defined the Employer as ODI, the Contractor as FK. The term ‘Party’ was defined, in turn, as either the Employer or the Contractor.
Clause 7.2 of the Contract provided: “If a dispute or difference arises under this Contract which either Party wishes to refer to adjudication the Scheme shall apply” (emphasis added).
Paragon, as assignee, asserted the right to “all of [the employer’s] rights, title, interest and benefit in and to” the contract, including (according to Paragon) the right to adjudicate. It fell to the Court to consider whether the definitions of “either Party” within Clause 7.2 extended to Paragon as assignee.
The High Court’s Consideration
Paragon pointed to s136 of the Law of Property Act 1925, which provides that “[a]ny absolute assignment by writing under the hand of the assignor … of any debt or other legal thing in action, of which express notice in writing has been given to the debtor … is effectual in law (subject to equities having priority over the right of the assignee) to pass and transfer from the date of such notice — (a) the legal right to such debt or thing in action; (b) all legal and other remedies for the same …”. A “thing in action”, being a right that is enforceable only by legal proceedings, included a right to adjudicate. This, Paragon argued, meant that the right to adjudicate would have been subject to the assignment.
FK observed that, in Bexhill UK Ltd v Razzaq [2012] EWCA Civ 1376, the Court of Appeal found that although the assignee becomes either the legal or beneficial owner of the contract, the assignee “does not become a party to any contract or deed which contains or gives rise to the right. The assignee will only become a party to the contract (or deed) if there is a novation”.
The judge in Paragon noted that, in both the HGCRA and the scheme, the statutory right to adjudicate is consistently expressed as belonging to a “party” to the construction contract. The legislation and scheme repeatedly use “party” and “parties” when describing who may refer a dispute, who must be notified, and who participates in the adjudication process.
The judge concluded that none of the cases on which the parties had relied provided a determinative answer to the question of whether the right to adjudicate under the Contract was capable of assignment. Prior decisions (Parkwood v Laing O’Rourke, Mailbox v Galliford Try, and Grove Construction) all turned on very different factual or contractual contexts and failed to squarely address the question of assignability of adjudication rights.
"Although the contract conferred the right to adjudicate on “the Employer or Contractor”, such drafting fell to be construed in its contractual context, including clause 3.1 which expressly permitted assignment."
High Court Decision – can a party include an assignee from an original party?
The judge decided that Paragon, as assignee, was entitled to adjudicate. His decision turned on the following observations:
- the drafting of the scheme does not demonstrate a “conscious intention to differentiate between the position of an original contracting party and that of an assignee when referring to a “party to a construction contract””, moving freely between “parties”, “parties to a contract” and “parties to the dispute”. As such, it was not obvious that references to a “party” should refer to only original parties to the contract. The judge therefore rejected the restrictive reading that the “party” would refer only to the original contractor, ODI, as presented by FK;
- although the contract conferred the right to adjudicate on “the Employer or Contractor”, such drafting fell to be construed in its contractual context, including clause 3.1 which expressly permitted assignment. The judge applied general principles of contract and assignment in considering whether a reference to “the Employer or Contractor” could encompass an assignee. Whilst an assignee does not become a “party” to the contract, the judge noted that a statutory assignment will transfer the legal rights and associated remedies to the assignee as if it was originally theirs. In light of this, this would include the right to adjudicate (unless excluded expressly or by necessary implication);
- the judge was unpersuaded that allowing the assignee would be unfair because the original party could not bring a counterclaim, and that it would lead to duplication and inconsistent findings. The judge considered these risks to be overstated, for a respondent could still rely on the same defences and equities it could have raised against the assignor, and counterclaims are generally prohibited in adjudication in any event. Furthermore, the risk of inconsistency was found to be more theoretical than real owing to the nature of adjudication;
- similarly, practical objections such as adjudication confidentiality, or the hassle of forcing the assignee to “lend” its name were not found to be a convincing bases for stopping an assignee from adjudicating. Ultimately, there was no obvious commercial sense in allowing assignment yet preventing the assignee from adjudicating disputes under the assigned contract; and
- the parties failed to include a “no adjudication by assignee clause” within the contract. This rendered FK’s objection to the transferral of the right to adjudication to an assignee as more apparent than real.
The judge held that the scheme and contractual language did not clearly confine adjudication to the original employer and contractor and could sensibly be read as extending to assignees. Reading the adjudication clause in the context of the assignment provision and general principles of assignment, the judge found that the benefit of the contract and its remedies ordinarily pass to an assignee unless expressly excluded. The judge therefore ordered the enforcement of the adjudicator’s decision in Paragon’s favour.
Commentary
This decision is of importance to funders and others in the construction industry considering assignment as part of their contractual arrangements. The decision makes clear that where assignment is permitted, the courts may treat the assignee as taking not just the right to payment and performance, but also the enforcement machinery attached to that benefit. This will include adjudication, unless excluded expressly or by necessary implication.
"This decision is of importance to funders and others in the construction industry considering assignment as part of their contractual arrangements."
Original contracting parties should take note that allowing assignment without considering dispute resolution can expose a party to adjudication claims by assignees. Notably, a respondent to adjudication brought by an assignee still has the same defences available to it as if it had been brought by the assignor. On the contrary, assignees can be emboldened in the knowledge that, save for clear wording to the contrary, they are likely to be able to enforce assignee benefits swiftly through adjudication.
To mitigate risks, contracting parties should consider expressly providing for whether they intend for assignees to obtain the right to adjudicate. Clear drafting will continue to prove critical within future disputes between assignees and original parties regarding the transfer of benefits.
Please do not hesitate to contact us should you have any questions as to how this may impact your project.
London Trainee Katherine Pearce also contributed to this article.
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