Adjudication, Convenience and the word "May" - refusing injunctions

To many the idea of stopping adjudication or rather seeking to prevent it is irrational. Why would Parties not want to use what is usually a cheaper option than say Arbitration or Litigation?

Well in the case of Ericsson AB v EADS Defence and Security Systems Ltd 22 October 2009 [2009] EWHC 2598 (TCC) this is what EADS sought to do.

Ericsson was the Sub-contractor to EADS for the supply of software and support services for its emergency communications systems known as FiReControl. Ericsson sought an injunction to prevent EADS terminating the agreement until, at least, adjudication had concluded.

The dispute was in respect of 25 Liquidated Damages, i.e. were they an exhaustive remedy? The Contract also provided at clause 31 for consultation, mediation and adjudication and it was clear that the Adjudicator was to act as an expert and not as an arbitrator.

Clause 31.1 stated:

“31.3; If Ericsson and EADS fail to resolve the dispute through such consultation within … 10 Business Days, either Party may give notice of its intention to proceed to mediation in accordance with the … CEDR Model Mediation Procedure for long-term contracts, or refer the matter to adjudication.”

In September 2009 Ericsson gave notice of intention to mediate and separately but on the same day to adjudicate. EADS argued that clause 31.1 was an either or clause i.e. either mediate or adjudicate, but not both simultaneously and that in any event the liquidated damages were an exhaustive remedy. Both Parties sought injunctions.

Taking these in turn Ericsson was denied their injunction stopping EADS terminating. The reason being that, on the “balance of convenience” justice did not require the Court to prevent EADS from utilising the contractual entitlement to terminate. Rather the contract they had entered into should be left for them to operate. This is important since the Court here appears to not want to step in and interfere with the terms that when entering into contract both Parties were happy with.

In terms of preventing adjudication from proceeding, the Courts looked again at the wording of the clause 31.3 and the use of the word “may”. The Court noted that the clause used was “may” rather than “shall” and as such either mediation or adjudication were optional for the Parties to use. Moreover looking at clause 31.6 the Parties had agreed words that meant the Adjudicator’s Decision would be binding “save for manifest error”.

This sat well with the Courts common approach not to interfere with adjudicator’s decisions. Consequently it appears that the Court considered that if the adjudication was allowed to continue, save manifest error, the decision would be enforceable and as such the adjudication was not stopped.

What is notable from this case is that the Courts will not readily or certainly without just cause interfere with the contractual arrangements of Parties. What should be noted when drafting agreements particularly dispute resolution and termination clauses is that what may be convenient for your client may not be relevant if not convenient for both parties. Moreover the use or rather difference that can flow from the words “may” and “shall”.

Author: Robert Shawyer

Date: March 2010

For more information please contact Robert Shawyer by telephone 02920 464 612 or by email on Robert.shawyer@alway-associates.co.uk

Robert Shawyer

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