Fiona Trust: unsettling times ahead?

January 23, 2009

In his Building column in November 2007, Tony Bingham wrote about the House of Lords decision in the Fiona Trust case. You’ll remember it: it’s the one where the House of Lords decided that the words “disputes arising under a contract” in an arbitration agreement are wide enough to include disputes “in connection with” the contract.

This potentially means that arbitrators can decide disputes concerning rectification of contracts, misrepresentation, etc.

Tony’s view, which I shared, was that this principle could also apply to adjudication. However, not all commentators agreed. Their reasoning was that, unlike arbitration, adjudication is only intended to be temporarily binding and that, during the passage of the original Construction Bill, the words “in connection with” were proposed as an amendment but rejected by Parliament.  Arguably, this demonstrated Parliament’s intention for adjudication not to extend to disputes “in connection with” the contract. The Construction Act, the Scheme and numerous standard forms of contract refer to the adjudicator deciding disputes “arising under the contract”.

So what is the answer to this important question?

Well, Mr Justice Akenhead referred to Fiona Trust in his recent decision in Air Design (Kent) Ltd v Deerglen (Jersey) Ltd.  He stated that the adjudicator had jurisdiction to determine not only the sums due under the contract, but also any variations to the contract.

Although Air Design can only be authority for the matters dealt with by the judge, and the full scope of the matters that adjudicators can deal with is still to be determined, this is the clearest indication yet from the courts that Fiona Trust principles apply to adjudication. If this is the case, this could potentially extend the ambit of adjudication into previously uncharted territory.

So what’s next?

It remains to be seen how the courts may approach enforcement of an adjudicator’s decision where the decision concerns a matter such as misrepresentation.  However, one area I think Fiona Trust principles could be applied is in disputes over settlement agreements.

Like many people, I noticed an increase in disputes during the second half of 2008.  However, I also noticed that many of those disputes settled. Claimants were faced with cash-flow problems, which left them with little alternative other than to accept lesser sums in settlement of their dispute.

On the basis of Mr Justice Ramsey’s decision in L Brown & Sons Ltd v Crosby Homes (North West) Ltd it was generally understood that if a settlement agreement formed a separate agreement then, unless the original contract included those magic words “in connection with”, a party could not refer a dispute about the settlement agreement to adjudication. This caused problems for claimants as their only option was litigation rather than a “quick-fix” adjudication.  However, Mr Justice Akenhead’s application of Fiona Trust principles to adjudication could mean that, even if the original contract only refers to disputes “arising under the contract”, an adjudicator may still be able to decide a dispute about a settlement agreement.

Only time will tell what the full implications of Fiona Trust will be on adjudication. In the meantime, I think full marks should go to the TCC for its common sense approach and application of the case to adjudication. There will no doubt be some who frown on the scope of adjudication being extended yet further, but then again there were some who objected to the very concept of adjudication before the introduction of the Construction Act, and they’ve got used to that!