Adjudication in Construction Law
Page 491
CHAPTER 11
Rules and fallacies
Rules and fallacies
Page 492
11.1 Introduction
11.1.1 About this chapter
11.1 This chapter is a departure from the general approach of this work, in that it presents some reflections on the development of the law relating to adjudication, rather than setting out that law as decided in the cases. In particular, it considers the introduction of what might be considered as somewhat arbitrary rules to support the adjudication process, namely those relating to the phrases ‘right question', ‘only one dispute’ and ‘under the contract'. The question arises as to whether these ‘rules’ can be justified as well-founded or are fallacies.11.1.2 The origins of adjudication
11.2 As we have seen, from 1976, standard forms of construction sub-contracts began to contain provisions for an ‘adjudicator’ to decide disputes between the sub-contractor and the main contractor as to the entitlement to payment pending a final resolution by arbitration.1 The use of such provisions was adopted in other forms during the 1980s, and by 1992, ‘adjudication’ could be defined as a procedure where, by contract, a summary interim decision-making power in respect of disputes was vested in a third party individual (the adjudicator) who was usually not involved in the day-to-day performance or administration of the contract, and was neither an arbitrator nor connected with the state.2 That wide definition could, of course, cover the system provided for by the 1996 Act, but it also hides a number of features of the contractual procedures that were adopted before that legislation came into force. 11.3 The first is that adjudication was provided for in standard forms that were exclusively sub-contracts, not main contracts, as a solution to the problem of main contractors not passing on payments made by employers in respect of sub-contracted work. It was, therefore, a solution addressed to a particular contractual relationship within the construction industry, not a universal panacea spontaneously adopted by employers and main contractors, although there were examples of adjudication provisions in a limited number of bespoke contracts. The second aspect is that the jurisdiction of the adjudicators under the standard forms tended to be very limited indeed. For example, the ‘green form’ published by the National Federation of Building Trade Employers (which later became the DOM/1 form issued by the Joint Contracts Tribunal) provided for the use of an adjudicator to deal with disputed set-offs by the main contractor. Thirdly, such adjudication provisions were invariably accompanied by a highly restricted right of set-off ‘designed to neutralise the decision of the House of Lords in the well known case of Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, which had held that rights of set-off were available in a wider number of cases than must have been considered appropriate in the construction industry'.3 11.4 The subsequent legislation ignored all but the last of these features of contractual adjudication. Adjudication is available to main contractors and construction professionals,Page 493
11.2 The right question
11.2.1 The expert determination analogy
11.2.1.1 Bouygues at first instance
11.5 Lawyers are conservative by nature, unsurprisingly, given that the major part of a lawyer's work is to apply recognized law to a set of circumstances in order to arrive at a legal solution. In doing so, the lawyer is understandably and justifiably being cautious. When confronted with an apparently new development in the law, particularly changes in legislation or procedure, the innate instinct of the lawyer is to seek to categorize the development by reference to existing concepts. This, however, when combined with the effect of the adversarial system, under which the courts are not inclined to examine closely points that have been agreed between the parties, can lead to surprising, and perhaps undesirable, results. 11.6 Nowhere has this been more clearly demonstrated than in relation to adjudication following the passing of the Housing Grants, Construction and Regeneration Act 1996. In the seminal case of Bouygues UK Ltd v Dahl-Jensen UK Ltd at first instance,5 the adjudicator had made a net award in favour of Dahl-Jensen, the sub-contractor, of £207,741.46, having regard to the sums that he found to be due in respect of the parties’ individual claims, and after taking account of the sums previously paid. He had done so by taking a gross sum that included the 5% retention, and deducted from it the sums that had been paid during the sub-contract which excluded the retention. The effect of this was to release the retention to Dahl-Jensen at a time when there was not yet an entitlement to it under the sub-contract. If the 5% retention had been deducted from the gross sum to which Dahl-Jensen was found to be entitled, that sum would have been reduced by £348,885.63 from £6,979,912 to £6,630,916. The overall effect would have been that there would have been a net award of £141,254 in favour of Bouygues, instead of a netPage 494
Paragraph 20 of the CIC Model Adjudication Procedure defines the matters to be decided as ‘the matters set out in the Notice, together with any other matters which the Parties and the Adjudicator agree shall be within the scope of the adjudication'. It is the Adjudicator's decision on these matters (and no other) which is binding on the parties (see paragraphs 4 and 5 of the Procedure). The Adjudicator's jurisdiction to decide disputes derives from the Model Procedure. To the extent that he purports to decide matters which do not fall within the scope of paragraph 20 and which therefore have not been referred to him, his decision does not come within paragraphs 4 and 5 and is void.