Can an assignee under a construction contract refer disputes to adjudication?

Parties involved in construction and engineering projects often want to assign the benefit of a contract to another party. Assignment or assigning in this context means transferring the benefit of the contract. A simple example is debt factoring, where an invoice is assigned to a factoring company so it can recover the debt.

More typically in a construction context, the benefit of a contract is usually assigned to a party taking over an interest in a project from the original contracting party. The assignee doesn’t become a party to the contract, but simply takes the benefit of it. To bring a new party into a contract with both the burden – i.e. obligations – and the benefit, the contract must be novated.

Until the recent case of Paragon Group Limited v FK Facades, there was no direct case confirming whether an assignee could bring an adjudication against a contracting party. This is somewhat surprising given that the Housing Grants, Construction and Regeneration Act 1996 has been in force since 1 May 1998. We now, however, have some authority on the point.

The decision in Paragon Group Limited v FK Facades

In short, the Technology and Construction Court (TCC) decided that an assignee can bring an adjudication, but this depends upon the terms of the contract. There must also be a valid assignment.

In the Paragon case, an amended JCT Minor Works contract originally entered into by another party and FK was assigned so that the benefit ultimately passed to Paragon. Following delays to a roofing project in Manchester, Paragon wanted to claim liquidated damages of just over £80,000 from FK and brought adjudication proceedings.

Paragon succeeded but when it sought to enforce the adjudicator’s decision in the TCC, FK challenged the adjudicator’s jurisdiction. Its argument was that Paragon was not a party to the contract, and generally only contracting parties can bring adjudication proceedings.

The TCC judge held that Paragon was entitled to bring an adjudication because:

• The JCT contract had been amended to permit the employer to assign the benefit of the contract
• The assignment itself was valid
• Established legal principles meant the assigned benefit ought to include the right to bring legal proceedings to enforce it.

It’s important to note that unamended JCT contracts don’t generally permit assignment. Therefore, Paragon wouldn’t have succeeded without the amendment. Such amendments are quite common but must be checked in every case.

How does this compare with third-party rights?

The position should also be contrasted with a situation where a party has been given benefits under a contract through a third-party rights clause. In a 2014 case called Hurley Palmer Flatt v Barclays Bank, it was held that a third party was not a party to the contract and therefore could not bring an adjudication.

In the Paragon case, although Paragon was also not a contracting party, the contractual wording and the general law on an assignee’s ability to bring claims were sufficient to allow an assignee to adjudicate.

As adjudication is quicker and cheaper than court proceedings, this is a valuable remedy, making this a significant decision.

We understand that permission to appeal to the Court of Appeal has been granted due to the novelty of the point raised, and the judge did comment that the arguments were finely balanced. Therefore, the issue may not be finally settled.

The case illustrates the need to take legal advice before embarking upon adjudication or other formal dispute resolution proceedings.