Adjudicating Fire Safety Disputes

The recent judgment of the Technology and Construction Court in BDW Trading Limited v Ardmore Construction Limited [2024] EWHC 3235 (TCC) provides important guidance on the suitability of adjudication for the resolution of fire safety claims under the Defective Premises Act 1972 (“the DPA 1972”).

The decision answers a longstanding question as to whether claims in tort, with a connection to a construction contract, can be referred to adjudication under section 108 of the Housing Grants Construction and Regeneration Act 1996 (as amended) (“the Construction Act”). Specifically, BDW confirms that “a dispute arising under the contract” as defined in section 108(1) of the Construction Act includes tortious claims, such as for breaches of the DPA 1972.

Background

In October 2002, Basingstoke Property Company (“BPC”) and Ardmore entered into a building contract (“the Building Contract”) for the construction of a new apartment block in Basingstoke (“the Development”). The Contract Sum was £22,593,000.

The Building Contract is a construction contract as defined in section 104 of the Construction Act and includes provisions for referring disputes that arise “under the contract” to adjudication, thereby adopting the wording of section 108(1) of the Construction Act.

Practical completion occurred between December 2003 and June 2004. 

By a Deed of Assignment dated 3 November 2004, the full benefit of BPC’s interests and rights under the Building Contract were assigned to BDW.

Due to the work that was completed 20 years ago, Ardmore had, for some time, a complete defence under the Limitation Act 1980 (“the LA 1980”) to any claims that might be brought by BDW under section 1(1) of the DPA 1972, which imposes a duty on “[a] person taking on work for or in connection with the provision of a dwelling” to carry out the work in a “workmanlike” or “professional manner” with “proper materials so that as regards that work the dwelling will be fit for habitation when completed.”

However, section 135 of the Building Safety Act 2022 (“the BSA 2022”) had the effect, amongst other things, of increasing retrospectively the limitation period for a claim under section 1(1) of the DPA 1972, from 6 years to 30 years.

This legislative change prompted BDW to write a letter of claim to Ardmore on 14 July 2022, identifying “fire safety defects at the Development.” That correspondence culminated in BDW issuing a Notice of Adjudication on 21 March 2024. 

In the Notice of Adjudication, BDW claimed that a dispute had arisen regarding Ardmore’s liability to BDW concerning fire safety defects in the Development, due to Ardmore’s breaches of the Building Contract and/or its duties pursuant to section 1(1) DPA 1972. BDW sought damages exceeding £15 million.

In awarding BDW damages of £14.5 million, the Adjudicator declared that Ardmore had breached its duties under the Building Contract regarding fire safety aspects in the Development (for which limitation did not apply due to deliberate concealment) and that it was also liable under the DPA 1972 in respect of the same fire safety defects.

Ardmore subsequently informed BDW that it intended to resist enforcement of the Adjudicator’s Decision, prompting BDW to commence enforcement proceedings.

Ardmore resisted enforcement on four grounds:

1. The purported dispute referred to in the Adjudicator’s Decision had not crystallised (“Ground 1”).
   
2. The Adjudicator had no jurisdiction to determine a tortious claim for breach of the DPA 1972 (“Ground 2”).
   
3. The Adjudication was inherently unfair owing to the ‘inequality of arms’ in terms of documentation (“Ground 3”).
   
4. The Adjudicator intentionally failed to consider a material defence relevant to the allegation of deliberate concealment against Ardmore (“Ground 4”).

The judgment

In handing down judgment on 16 December 2024, Smith J dismissed Ardmore’s grounds for resisting enforcement and granted judgment in favour of BDW.

This article is concerned only with the court’s rejection of Ground 2.  Ground 2 turned on whether disputes arising “under the contract” should be construed narrowly, such that claims in tort are excluded.

In claiming that the words should be interpreted narrowly, Ardmore referred to the wider definition of ‘dispute’ in the Building Contract’s arbitration clause, namely such matters “arising under this Contract or in connection therewith”.  Ardmore submitted that this difference in wording clearly indicates that the parties intended for the adjudication clause to be more limited in scope.

Ardmore accepted that, in Fiona Trust & Holding Corp v Privalov [2007] UKHL 40, the House of Lords disapproved of such linguistic distinctions in the context of interpreting the wording of an arbitration clause.  However, Ardmore argued that the rationale in Fiona Trust did not extend to adjudication. Alternatively, Ardmore contended that there is a lack of certainty or consistency in subsequent authorities, a point that is also evident in leading textbooks.

The judge rejected Ardmore’s case that the Fiona Trust principle does not apply to adjudication provisions because:

1. Fiona Trust confirms a strongly signposted departure from previous linguistic distinctions between disputes arising on the one hand “under” and, on the other hand, “arising out of” or “in connection with” the underlying contract.
   
2. There is no valid reason why the Fiona Trust principle should not apply by analogy to adjudication clauses; on the contrary, Parliament’s intentions in giving parties to construction contracts a right to adjudicate “points if anything in the opposite direction.”

The judge also rejected Ardmore’s case regarding the different wording in the adjudication and arbitration clauses because:

1. It must be assumed that the parties to the Building Contract, as rational businesspeople, intended that any dispute arising out of their relationship would be decided by the same tribunal, whether that be arbitration or adjudication.
   
2. Against the backdrop of the overall intended purpose of the Construction Act, it difficult to see why it would make commercial sense for the parties to want to restrict the scope of adjudication to a narrower scope of dispute than could ultimately be referred to arbitration for resolution. 
   
3. The different wording used in the arbitration clause does not indicate a clear intention that the jurisdiction of an adjudicator would be narrower.

The implications

There are a significant number of fire safety claims arising out of the BSA 2022 being referred to the courts of England and Wales, with potentially many more to come. 

Although BDW is being described as a landmark case—and it seems inevitable that there will be an increase in the number of similar cases being referred to adjudication—it remains to be seen just how many. 

If at least some of those cases are referred to adjudication and the process helps the parties finally resolve their disputes, this should be welcomed.

However, there are a number of factors that may limit the uptake.  For example:

1. Adjudication is only available to the parties to a construction contract, and, over the passage of time, a building might be sold, or a contractor may cease to exist.  Furthermore, the Supreme Court has recently confirmed that adjudication generally does not apply to collateral warranties.^[1]In Abbey Healthcare (Mill Hill) Ltd v Augusta 2008 LLP (formerly Simply Construct (UK) LLP) [2024] UKSC 23, the Supreme Court held that a right to adjudication under the Construction Act only exists … Continue reading
   
2. A typical fire safety dispute is unlikely to be capable of being resolved by adjudication within the ‘standard’ 28 or 42 days.  By way of example, the adjudication proceedings in BDW lasted almost six months.  Although arbitration or litigation proceedings would inevitably take longer, the potential duration of an adjudication may be perceived as diluting, to some extent, one of the perceived advantages of adjudication.
   
3. The parties’ costs incurred in an adjudication on fire safety matters are likely to be significant and are not normally recoverable.
   
4. An Adjudicator’s Decision is only binding on a temporary basis pending final resolution by arbitration, litigation or agreement.  Due to the complexities of a typical fire safety dispute and the potential sums at stake, there will be a high risk of the losing party seeking a final resolution by arbitration or litigation in any event.

HKA’s expertise in fire safety matters

HKA’s multidisciplinary team of experienced experts, including fire engineers, architects, structural engineers, MEP engineers, quantity surveyors, and forensic accountants, can assist clients in investigating and quantifying potential fire safety claims.  We also provide independent expert witness testimony where fire safety claims are being heard in adjudication, arbitration, court, or other dispute resolution forums.

For more information, you may contact Mark Dixon at markdixon@hka.com.