Can assignees adjudicate under a construction contract? English court confirms position

Assignments are now part of the standard choreography on many construction projects: special purpose vehicles and group companies reshuffle, funders step in and purchasers take over. Most would logically assume that whoever ends up holding the benefit of the contract also holds the right to adjudicate to enforce that benefit. In Paragon Group Ltd v FK Facades Ltd, the Technology and Construction Court (TCC) has confirmed that, subject to any contractual provisions to the contrary, this logic is correct.

Who is a 'party' to a construction contract?

The decision concerned an adjudication summary enforcement claim where the sole issue for the court to determine was whether or not the claimant (Paragon) was legally entitled to refer its claim as assignee against the defendant contractor (FK) to adjudication.

Paragon had taken an assignment of the employer’s “rights, title, interest and benefit” under an amended JCT Minor Works Building Contract 2016 and later commenced an adjudication for liquidated damages against the original contractor, FK. The adjudicator made an award in favour of Paragon which FK refused to pay on the basis that the adjudication clause in the contract entitled "either Party" to refer a dispute to adjudication. The contract defined “Party” as “either the Employer or the Contractor” and did not expressly state that an assignee should be treated as a party for this purpose. As such, FK argued that the adjudicator had no jurisdiction because only the original parties had a right to adjudicate.

The decision

The court disagreed with FK and decided in favour of Paragon. The TCC determined that while an assignee does not become a "party" to the contract (which can only be achieved via a novation), a statutory assignment transfers all legal remedies, which (absent any express contractual provision) includes the right to adjudicate.

The word "party" could comfortably be interpreted as including a permitted legal assignee in both the contract (which had been amended to permit assignment) and in the Scheme for Construction Contracts 1998 (which makes provision for adjudication where a construction contract does not adequately do so). Further, where a party agrees that its counterparty may assign the contract, it is difficult to suggest  that the assignee was intended to be stripped of an effective dispute resolution route.

Osborne Clarke comment

The decision is perhaps more reassuring rather than revolutionary, but it is still important. It is the first direct authority confirming that an assignee can commence adjudication under a construction contract when the contract is silent as to how an assignee should be categorised. This will help to prevent jurisdictional challenges based solely on the assignee not being an original contracting party. It also provides comfort to funders, purchasers and other assignees that by default they can rely on this enforcement mechanism which could help to save costs in the long term.

The court's finding that Paragon did not become a "party" to the contract is consistent with earlier case law. In the decision in Grove Construction (London) Ltd v Bagshot Manor Ltd, the court found that an adjudicator did not have jurisdiction to make an award for the payment of a retention by an assignee of a construction contract. That decision reinforced the practical consequences of the proper legal effect of an assignment – that an assignment transfers the benefit but not the burden of a contract to an assignee. The contractor could not therefore bring an adjudication against the assignee as they were not party to, and had no liabilities under, the assigned contract.

While Paragon goes some way to filling a gap in the law on assignments as it applies to construction contracts, it is also a welcome reminder that having contractual terms considered in the courts is not an effective drafting strategy and should not be treated as a silver bullet to rectify unclear terms. As the judge did not consider it an immutable conclusion that a legal assignee has a right to adjudicate a construction contract under statute, the issue will remain one of contractual interpretation. Best practice will always therefore be to ensure that assignment and related provisions are comprehensive and transparent so that, when disputes arise, the focus is on the substantive merits rather than on threshold arguments about standing and jurisdiction.

Adam Brammar, a trainee with Osborne Clarke, helped prepare the Insight.