Can a party judge and enforce an adjudicator’s decision in the courts of England and Wales if the contract is governed by a foreign jurisdiction clause?
Phil Caton, Senior Associate in Construction Law at Aaron and Partners, reviews the recent Motacus Construction Ltd ruling against Paolo Castelli SpA.
The question of a cross-jurisdiction clause – which gives legal powers to a particular court or courts in a particular country to allow a party to sue a contract – is a topical issue that has come up again in England and Wales.
Motacus Construction Ltd v Paolo Castelli SpA
The case in question is a new case involving Motacus Construction Ltd v Paolo Castelli SpA and this has clarified an issue that will be of interest to many in the construction industry. The problem is this – can one party try and, more importantly, enforce an adjudicator’s decision in the courts of England and Wales if the contract of the underlying dispute is covered by a foreign jurisdiction clause?
The verdict of the technology and construction court, as it was shown in the recent Motacus case, is “yes”.
The case concerned the interior work of a hotel on One Bishopsgate Plaza in London. A dispute arose over payment and the contract contained an exclusive jurisdiction clause that all disputes were to be submitted to the exclusive jurisdiction of the Courts of Paris. To make matters worse, the choice of law in the contract was not French, but Italian law.
Plaintiff (Motacus) initiated a court ruling under the legal scheme for building contracts in England and Wales and successfully won an arbitration award for a payment of £ 454,678.65 plus VAT and interest.
The defendant (Paolo Castelli SpA) refused payment on the grounds that the adjudicator was not competent to make such an award, and the plaintiff sought enforcement of the award in the Technology & Construction Court in Manchester. The defendant contradicted the application, citing the exclusive jurisdiction clause.
The only question before the court was whether an exclusive jurisdiction clause in favor of another foreign court would prevent the English court from enforcing the adjudicator’s decision pending the final resolution of the dispute.
The effects of Brexit were relevant to the case, as after the United Kingdom left the European Union, questions of jurisdiction were no longer determined by the Brussels Regulation, which had established case law on this matter, but by the earlier Hague Convention of 2005, the did not do this.
The Claimant sought to rely on two exceptions to the Hague Convention that would enable the English courts to summarize the adjudicator’s decision:
- the exception “manifest injustice / public order” under Article 6 (c) and;
- The “interim measure” of the exemption from protection under Article 7
On the issue of “manifest injustice / public order” under Article 6 (c), the Court was not convinced that the application of the exclusive jurisdiction clause would violate public policy or create an manifest injustice. The court concluded that there was no valid reason why the parties should not be adhered to the arrangement they freely agreed under the contract and that the exemption was not exercised.
However, on the question of Article 7 interim measures, the Court ruled that a referral to a court decision constitutes a temporary protection measure and a request for a temporary measure to enforce an adjudicator’s decision therefore constitutes a protection measure under Article 7 of the Hague Convention. On that basis, the court was under no obligation to stay or terminate the proceedings and, based on the adjudicator’s decision, issued a summary judgment on the Claimant.
The Motacus case is likely to be well received by UK construction industry stakeholders, who will no doubt welcome the endorsement of the court decision as an interim measure to settle the dispute. The ruling should be particularly useful to subcontractors and smaller industry stakeholders who would otherwise have been cautious about initiating formal dispute settlement proceedings on a contract with an unfavorable jurisdiction clause.
Conversely, the case serves as a warning to those based outside the UK who may be operating within the UK and are unfamiliar with the judgment process. Such companies will be surprised to learn that the right to judge and enforce a UK adjudicator’s decision is contrary to the express terms of their contract, and such companies may be well advised to review such construction contracts with UK lawyers prior to commencing with UK lawyers to let.