Foreign legislation may cost UK firms

Exclusive by Tim Wood

Subcontractors may be unwittingly forfeiting their right to refer a dispute to adjudication under the Construction Act when they accept the terms and conditions presented by an overseas contractor, a leading law firm has warned.

According to Edge Ellison, overseas contractors' terms and conditions may contain what is known as a jurisdiction clause, which may say that a certain applicable law of another country is to apply to the contract, or that disputes should be dealt with by the courts of a foreign country. This type of clause may frustrate the right to adjudicate even when the works are carried out in the UK.

Neil Price, one of the firm's construction lawyers, advises subcontractors that the Construction Act will not assist them in recovering money in such circumstances. He sees this part of the Act as a growing problem with increasing European Union trade and globalisation.

"The Construction Act is a paper tiger in certain cases," he said. "Although the Act seeks to give a right to adjudicate whether or not the law of the UK applies to the contract, the problem comes when trying to enforce an adjudicators' decision.

"The courts of other countries will not necessarily recognise an adjudicator's decision and the decision cannot therefore be enforced in those courts. Another effect of these clauses may be to exclude the right of the courts of England and Wales to award summary judgment of an adjudicator's decision.

"Many contracts between British companies and those from some of our closest European Union partners will be affected. The commercial value of an unenforceable decision is nil. The Act gives the false impression that adjudication is a remedy in situations where it is not. This can quite literally be catastrophic for the subcontractor who has failed to take into account the jurisdiction clause in the contract."

Edge Ellison advise that, if unsure, subcontractors should apply to the Technology and Construction Court for a declaration as to whether the English court would give effect to a jurisdiction clause.

Price continued: "It is better to find out whether or not the English court would enforce an adjudicator's decision before time and money is spent in adjudicating. The English courts will grant summary judgment in relation to a decision only if it has jurisdiction to do so. That judgment will be enforceable overseas in accordance with the Brussels Convention (which provides for the recognition of judgments of the courts of England and Wales by EU States)."

The implications of a jurisdiction clause came as a shock recently to one English subcontractor, which was owed a large sum of money on a project carried out in the UK. The German contractor successfully avoided adjudication and argued that it was entitled to rely on a pay-when-paid clause, rendered ineffective by the Construction Act, because the contract said disputes were to be resolved in the German courts.