Let's not go to Austria!

When adjudication was introduced, there were concerns that the right to use it could be defeated or rendered useless. One possibility was that an arbitration clause in the underlying construction contract might prevent a party from using the courts to enforce an adjudicator's decision – an argument dispensed with some time ago. Another possibility was the use of a foreign law clause. The Technology and Construction Court has only now been called on to consider this point, in the recent case of Comsite vs Andritz (30 April 2003).

Andritz, an Austrian company, had a contract to install plant, and fit-out a building to house that plant, at a sewage sludge recycling centre on the Isle of Wight. The process bakes sludge into fertiliser pellets. Andritz sublet two lots of work to Comsite. The first was for electrical power and control wiring for the plant itself. The second was for building services, including heating, ventilating, lighting, small power and fire and gas alarm systems to the dryer hall and ancillary areas. Disputes arose between Comsite and Andritz under the building services subcontract, and Comsite advised Andritz that it intended to adjudicate.

Andritz said that Comsite was not entitled to to this, arguing that the works were not construction operations under the Construction Act, and referring to a term of the contract requiring that "all disputes arising in interpretation or execution of the present contract … will be settled amicably. If no agreement can be reached the jurisdiction in the event of a dispute will be in Graz. Austrian law will be applied."

Perhaps to emphasise which law was applicable, Andritz commenced proceedings in Austria seeking to prevent Comsite from pursuing claims under the subcontract, except in the Austrian court. Comsite responded with "part 8" proceedings in the TCC in Birmingham seeking a declaration that its works were covered by the act and that it had the right to adjudicate. The court is willing to hear such applications to save the parties from wasting their time and energy going through an invalid adjudication.

Andritz relied on two key issues: the clause that said a foreign court had exclusive jurisdiction, and the fact that the primary activity on the site was effluent treatment – thus, they said, excluding the works from the scope of the Construction Act. Andritz said that the presence of an adjudication clause in its own main contract indicated that the works generally were not covered by the Construction Act unless express provision was made for adjudication, and therefore that adjudication was not available to Comsite under the subcontract.

Perhaps to emphasise which law was applicable, Andritz commenced proceedings in Austria seeking to prevent Comsite from pursuing claims under the subcontract except in the Austrian court

Judge Kirkham had to consider the jurisdiction clause and the relevant European regulations on choice of jurisdiction. She concluded that the Austrian jurisdiction clause did not prevent her dealing with the proceedings. The issue in Comsite's proceedings was whether the Construction Act applied and this was not caught by the jurisdiction clause. This left open the question of what the decision would have been had the clause been more widely drafted – for example if it tried to give the Austrian court the right to decide matters relating to the Construction Act.

In dealing with the competing Austrian proceedings issued by Andritz, Judge Kirkham noted that article 23 of European regulation 44/2001 gives parties the freedom to agree a jurisdiction to "settle any disputes". The court decided that the word "settle" must relate to the final resolution of a dispute. The decision of an adjudicator is not a final resolution, and neither is the enforcement of an adjudication's decision by the English court.

Having rejected Andritz's arguments on jurisdiction, Judge Kirkham had to decide whether or not Comsite's works were "construction operations" under the 1996 act. Andritz argued that all of Comsite's works were really part of plant and machinery of the sewage operation, and that threrefore the act did not apply to them. Without lighting, ventilation and the fire and gas alarm systems, the facility would be prohibited from running by statute. In other words, Andritz said, the building services were really part of a machine for processing sewage. Such an argument, if accepted, would have considerable ramifications for the application of the act.

This argument was rejected by the judge. The dryer plant could work physically without the building services, and a requirement that the services be installed to lawfully operate the plant was not enough to bring the building services within the scope of the exclusion from the Construction Act. The court concluded there must be some physical connection between the works in issue and the plant. Here the services were not physically connected to the plant but were ancillary to its operation.