In Twintec Ltd v Volkerfitzpatrick Limited  last month, the court granted an injunction to prevent a party from pursuing an adjudication because the adjudicator was invalidly appointed.
The works were carried out pursuant to a letter of intent but the contract was never actually signed. When a dispute arose, Volkerfitzpatrick launched adjudication proceedings; Twintec applied for an injunction to stop it – and won.
The case emphasises once again the importance of making sure that a proper contract is signed. But it also makes clear that a party seeking an injunction to restrain adjudication proceedings has to jump a high hurdle.
Twintec was a subcontractor engaged by Volkerfitzpatrick to construct the floor slabs for a warehouse. The letter of intent specified that Twintec was to carry out the works “in accordance with”, amongst other documents, the DOM/2 form of sub-contract.
Accolade Wines, for whom the warehouse was built, started proceedings against Volkerfitzpatrick, claiming £170m because of alleged defects and damage to the warehouse. They are complex multi-party proceedings to which Twintec was only joined as a party in August 2013.
Volkerfitzpatrick incurred costs in testing the slabs and sought to recover these from Twintec. An adjudication was started for £850,000 and an adjudicator appointed by the president of the Royal Institution of Chartered Surveyors (RICS).
Volkerfitzpatrick argued that the letter of intent incorporated the DOM/2 terms. Twintec agreed that the letter of intent was a binding contract but argued that the Dom/2 terms were not incorporated. It followed, they said, that the appointment of an adjudicator under the Dom/2 was a nullity.
Letter of Intent:
The court held that the letter was a free-standing contract as it contained sufficient information about the time, works and remuneration. On the facts, the DOM/2 has not been incorporated as a whole into the letter.
The Technology & Construction Court (TCC) determined that it was not necessary to incorporate DOM/2 in terms of adjudication because the letter of intent was a separate contract to which the provisions of the Scheme for Construction Contracts would apply.
However, the court held that the validity of the procedure by which the adjudicator was nominated went to the heart of his jurisdiction and an adjudicator cannot be validly appointed under a contractual provision that does not exist. It is irrelevant that if the adjudicator was appointed pursuant to the Scheme the same nominating body could have been asked to make the appointment.
Injunctions will only be granted in exceptional circumstances. The fact that a referral to adjudication is brought in parallel with existing litigation is not in itself a ground for restraining the adjudication. Further, any additional pressure on legal advisers resulting from the adjudication, additional costs, duplication and use of resources are not, on their own, a sufficient basis to grant an injunction. This is “a burden that parties to a construction contract sometimes have to accept”.
The court will not allow an adjudication to continue in circumstances (such as those in this case) where the decision the adjudicator would be incapable of enforcement.
The decision delivers a pragmatic result. It serves as a reminder that letters of intent pose many risks and uncertainties. Further, a letter of intent with an obligation to perform the works “in accordance with” contractual documents may well be insufficient to incorporate the terms of the contract into the letter of intent.