Adjudication in Construction Law

Darryl Royce

Document

Page 433

CHAPTER 9 Contractual adjudication

9.1 Introduction

9.1 As has been observed above,1 the origin of adjudication in relation to construction contracts lies in the inclusion in standard forms of construction sub-contracts during the 1970s of 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. Part II of the Housing Grants, Construction and Regeneration Act 1996 confers on a party to a construction contract the right to refer a dispute arising under the contract for adjudication under a procedure complying with section 108.2 It is only if the contract does not contain in writing the provisions required by section 108 that the adjudication provisions of the Scheme for Construction Contracts apply.3 It therefore remains open to parties to construction contracts covered by Part II to include their own adjudication provisions provided that they are compliant with the statutory requirements.

Page 434

9.2 Not all contracts for the carrying out of construction works are covered by Part II of the Act and such contracts frequently include provisions for some form of interim resolution of disputes similar to those included in the Act.

9.2 JCT adjudication provisions

9.3 With three exceptions, the widely used Joint Contracts Tribunal (JCT) standard forms of building contract now simply provide that the Scheme for Construction Contracts is to apply.4 The exceptions are the JCT Building contract for a home owner/occupier who has appointed a consultant to oversee the work (HO/C), the JCT Consultancy agreement for a home owner/occupier appointing a consultant in relation to building work (HO/CA) and the Building contract for a home owner/occupier who has not appointed a consultant to oversee the work (HO/B) 2005 (revised July 2009; revised March 2015), construction contracts with a residential occupier not being subject to Part II.5 The Royal Institution of Chartered Surveyors (RICS) and the Joint Contracts Tribunal Ltd publish rules for use with these forms.6 An adjudicator under them can be appointed by the Royal Institution of Chartered Surveyors, the Royal Institute of British Architects (RIBA) or the National Specialist Contractors Council (NSCC).7 If the dispute is about payment, the adjudicator can order the customer to pay the contractor, with interest, any amount which he or she decides is appropriate. The adjudicator can also order the contractor to repay the customer, with interest, any money which he or she decides is appropriate. The rate of interest will be no more than 5% per annum above the official dealing rate of the Bank of England current at the date when the adjudicator considers that interest should apply and will run for such period as the adjudicator thinks fit.8 The adjudicator is not required to give reasons for his or her decision.9 The customer and the contractor must follow the adjudicator's decision as part of their obligations under the building contract, unless and until either party obtains a court judgment about the dispute which is different from the decision of the adjudicator.10

9.3 NEC4 contracts

9.4 The NEC4 standard forms of construction contract contain two options relating to adjudication. Where the Housing Grants, Construction and Regeneration Act 1996 (as amended) regulates the contract in question, Option W2 applies. A dispute arising

Page 435

under or in connection with the contract may be referred to adjudication.11 Clause W2.2 expressly states that ‘A Party may refer a dispute to the Adjudicator at any time'. It has been held that, like section 108(1) of the Act, on proper interpretation an earlier version of the clause12 contemplated a single dispute being referred to the adjudicator at any time and not multiple disputes on the following grounds:13

• The natural and ordinary meaning of the words ‘a dispute’ is a single dispute. Similarly, other sub-clauses of W2 referred to ‘a’ or ‘the’ dispute in the singular.
• The purpose of Option W2 was clearly to give effect to the provisions of section 108 of the 1996 Act.
• It was well understood that in the context of the Statutory Scheme only one dispute could be referred to adjudication at a time. If the authors of Option 2 had wished to take a different approach and to have multiple disputes referred at the same time, one might expect them to have made that clear in their drafting of Option 2. They did not.
• If, in turn, the parties wished to allow the referral of multiple disputes, it was open to them to amend the standard terms. Again, they did not.
• All that is reinforced by the fact that it made sense for the parties to have agreed that only one dispute should be referred to the adjudicator at any one time for the same reasons as under the Scheme, namely that adjudication is a fast and summary procedure that risks becoming difficult to operate if an adjudicator has to deal with multiple disputes at the same time. In turn, that falls to be weighed against the fact that the courts take a wide and commercial view of what constitutes a single dispute.
• Whilst there is no express preclusion of the referral of multiple disputes in the contractual provisions nor is there any express inclusion of such a referral. The fact that paragraph 8(1) of the Scheme contemplates a single dispute being referred unless the parties agree otherwise is a neutral point.
• The fact that clause W2.2(3) allows successive disputes to be referred to the same adjudicator once appointed, does not mean that multiple disputes should be referred to him or her all at the same time. On the contrary, it contemplates a series of separate adjudications.

9.5 The contractor may, with the consent of the sub-contractor, refer a sub-contract dispute as to a matter under or in connection with the sub-contract, which is also a matter disputed under or in connection with the main contract, to the adjudicator at the same time as a main contract referral.14 An adjudicator can instruct a party to provide further information or take any other action which the adjudicator considers necessary to reach a

Page 436

decision and to do so within a stated time, failing which the adjudicator may continue and make a decision based upon the information and evidence he or she has received.15 9.6 If a dissatisfied party fails to notify the other party of the matters which it disputes and that it intends to refer it to either litigation or arbitration within four weeks of the notification of the adjudicator's decision, the dispute may not be referred to litigation or arbitration.16 Although it is provided by section 108(2) of the Housing Grants, Construction and Regeneration Act 1996 that a construction contract must enable a party to give notice at any time of its intention to refer a dispute to adjudication, the Act is silent on the question of whether a referral to adjudication should be a precondition of starting proceedings in the courts or by way of arbitration, as appropriate. A contract that obliges a party to refer a dispute to adjudication before it can pursue it by either litigation or arbitration does not impose any fetter on the right to refer a dispute to adjudication at any time. However, it does prevent a party from starting proceedings in the courts or by way of arbitration at any time, because it cannot do so without having first referred the dispute to adjudication.17 9.7 It is clear from the language used, as well as its interrelationship with other parts of the relevant clause, that these provisions were intended to be definitive as to the means for determining any disputes between the parties and the sequence in which they were to be taken. On the contrary approach, these provisions could simply be ignored in favour of an unqualified right of direct recourse to the courts without any stipulated time frame. This would, in effect, permit a parallel regime of dispute resolution which is wholly at odds with the clear words and detailed specification of the means for dispute resolution provided for in the contract. Such a reading would render nugatory the expressly stipulated terms of the clause. It is also dissonant with section 108 of the 1996 Act, as that approach makes no allowance for the exercise of the right to refer a dispute to adjudication. Section 108 created a right to refer a dispute to adjudication, which determination is binding until that dispute is finally determined by legal proceedings or arbitration (if the contract so provided) or by agreement. The need for a quick and inexpensive means of interim dispute resolution underpinned this part of the 1996 Act. Indeed, so important is the right to refer a dispute to adjudication, that any provision of a contract which frustrates this right is displaced in favour of the adjudication provisions of the Scheme for Construction Contracts (per section 108(5)). The contrary approach cuts across that right. Nor would it be a sufficient answer that on that construction direct resort to court is an alternative to, but preserves, the exercise of the right to adjudicate. All parties to a dispute have an interest in having their dispute resolved (even if only provisionally) by adjudication. A party would be denied the advantages and speed of that contractually agreed first mode of

Page 437

dispute resolution. While these observations relate to a statutory right to adjudicate, they may inform construction of a contractual provision defining the circumstances in which a party may have recourse to the courts where a right to adjudicate subsists. In light of the features of the 1996 Act just noted, the existence of the right to go to adjudication is part of the given background of the contract. It is not surprising, therefore, that the exercise of that right might be accommodated or required as an antecedent step (as it was in Anglian v Laing)18 in any separate provision governing recourse to the courts contained in a contract derived from the New Engineering Contract (NEC). On a natural reading of the relevant clause, it prescribes a sequence for the 21 different modes of dispute resolution, a ‘cascade of dispute resolution', of which adjudication is the first step and which is, by virtue of the clause, a condition precedent to resort to the ‘tribunal’ (however defined). By contrast, the contrary approach (that there is an unstipulated but implied right to litigate the merits of any dispute by a court action without any anterior adjudication) is inconsistent with the clear words of the contract and it is inimical with the purpose of the 1996 Act. That argument is premised on an assumed dichotomy between the courts having full jurisdiction and no jurisdiction, where there exists a contractually agreed alternative mode of dispute resolution. Such a dichotomy does not withstand scrutiny. Even in respect of a statutory right to adjudicate provided for by section 108 of the 1996 Act, that provision does not wholly oust the courts’ jurisdiction. Rather, as made clear in the leading case of Carillion v Devonport,19 the courts proceed with a high degree of circumspection in reviewing adjudications (e.g. in any challenge to an adjudicator's decision: ‘[it] should be only in rare circumstances that the courts will interfere with the decision of an adjudicator'). Dicta to the effect that clear words were required to oust the courts’ jurisdiction have no application either to an adjudication clause because the courts’ jurisdiction is not wholly ousted, or to the relevant clause because properly construed, it mandates that the merits of any dispute be resolved by the contractually agreed alternative means.20 9.8 The parties can also agree that a dispute arising under or in connection with the contract may be referred to the senior representatives for each party and if the dispute is not resolved by those representatives over a period of three weeks it will be referred to and decided by adjudication.21 A party may refer a dispute to adjudication at any time whether or not it has been referred to the senior representatives.22 9.9 Where the 1996 Act does not regulate the contract, Option W1 applies. Under this procedure, disputes arising under or in connection with the contract are to be referred to the senior representatives in accordance with a Dispute Reference Table, which identifies which party may refer one of several types of dispute and when.23 If the dispute is

Page 438

not resolved by those representatives over a period of three weeks, it can be referred to and decided by adjudication.24 The time for notification and referral of a dispute can be extended by the project manager by agreement between the contractor and the project manager, but if a disputed matter is not notified and referred within the times set out in the contract, neither party can refer it to adjudication, litigation or arbitration.25 The contractor may, if the relevant sub-contract allows, refer a sub-contract dispute as to a matter under or in connection with the sub-contract, which is also a matter disputed under or in connection with the main contract, to the adjudicator at the same time as a main contract referral.26 An adjudicator can instruct a party to provide further information or take any other action which the adjudicator considers necessary to reach a decision and to do so within a stated time.27 A dispute may not be referred to litigation or arbitration unless it has first been referred to adjudication.28 If a dissatisfied party fails to notify the other party of the matters which it disputes and that it intends to refer it to either litigation or arbitration within four weeks of the notification of the adjudicator's decision, the dispute may not be referred to litigation or arbitration.29

9.4 ICC (ICE) adjudication provisions

9.10 The standard forms of ICE civil engineering contracts previously published by the Institution of Civil Engineers have now been succeeded by the Infrastructure Conditions of Contract (ICC) standard forms published by the Association for Consultancy and Engineering (ACE) and the Civil Engineering Contractors Association (CECA). Under the ICC forms, the employer or the contractor may at any time by notice in writing require any dispute between them to be referred to adjudication whether or not the dispute has been referred to the engineer. The adjudicator is to be appointed as provided in the appendix to the contract and the adjudication shall be carried out in accordance with the adjudication procedure stated in the appendix.30 The adjudicator's decision is to be binding on both parties and may be enforced as provided by sub-clause 2.4.31 If either party gives written notice within 28 days of the date of the adjudicator's decision requiring the dispute

Page 439

to be referred to arbitration under sub-clause 19.6. The decision is to cease to be binding if and when revised by the award of an arbitral tribunal or by agreement.32 9.11 The ICE Adjudication Procedure offers a ‘Simple Issue Procedure’ as well as the main procedure. A particular feature of the Simple Issue Procedure is that the referring party undertakes that the reference is in respect of a single issue, does not concern the valuation or re-valuation of an interim or final account, should be capable of resolution by papers only, is restricted to the two parties set out in the contract only, that any disputed amount does not exceed £50,000 and that the referral documents (referral notice) are available immediately on appointment of the adjudicator and contain all documents relied on.33 The adjudicator agrees that his or her fee shall not exceed £3,000 (plus VAT) plus out-of-pocket expenses, he or she will issue the decision within 28 days provided the parties comply with the above and comply promptly with any further directions given, and will not call for outside legal or technical expert advice unless both parties agree.34 9.12 Under the main procedure, the parties and the adjudicator agree that any question regarding the jurisdiction of the adjudicator shall be determined by the adjudicator.35 Any party may at any time ask that additional parties shall be joined in the adjudication, but joinder is subject to the agreement of the adjudicator and the existing and additional parties.36 The adjudicator shall not be required to give reasons for his or her decision.37 The parties bear their own costs and expenses incurred in the adjudication.38 The parties are entitled to seek summary judgment of the relief and remedies set out in the decision regardless of whether the dispute is to be referred to legal proceedings or arbitration.39 The adjudicator and any employee or agent of his or her are to be indemnified by the parties against all claims by third parties and shall be jointly and severally liable in respect of this.40

9.5 GC Works contracts

9.13 Express provision is made for adjudication in the Government Standard GC Works forms of contract prepared by the Property Advisers to the Civil Estate (PACE) for major UK building and civil engineering works. They envisage that a person has been named as adjudicator in the abstract of contract particulars.41 It is a condition precedent to the appointment of an adjudicator that he or she shall notify both parties that he or she will comply with the relevant clause and its time limits.42 A copy of the notice of referral and

Page 440

enclosures shall at the same time be sent by the party giving the notice to the project manager and the quantity surveyor as well as the other party.43 The project manager, the quantity surveyor and the other party may submit representations to the adjudicator not later than seven days from the receipt of the notice of referral.44 The adjudicator shall notify his or her decision to the project manager, the quantity surveyor, the employer and the contractor not earlier than 10 days and not later than 28 days from receipt of the notice of referral, or such longer period as is agreed.45 The adjudicator's decision shall state how the cost of the adjudicator's fee or salary (including overheads) shall be apportioned between the parties, and whether one party is to bear the whole or part of the reasonable legal and other costs and expenses of the other, relating to the adjudication.46 The adjudicator may award simple or compound interest from such dates, at such rates and with such rests as he or she considers meet the justice of the case:

• on the whole or part of any amount awarded, in respect of any period up to the date of the award;
• on the whole or part of any amount claimed in the adjudication proceedings and outstanding at the commencement of the adjudication proceedings but paid before the award was made, in respect of any period up to the date of payment; and may award such interest from the date of the award (or any later date) until payment, on the outstanding amount of any award (including any award of interest and any award of damages and legal and other costs and expenses).47

9.14 In addition to his or her other powers, the adjudicator has power to vary or overrule any decision previously made under the contract by the employer, the project manager or the quantity surveyor, other than decisions in respect of the following matters:

• decisions by or on behalf of the employer on site admittance;
• decisions by or on behalf of the employer on passes;
• provided that certain circumstances have arisen, and have not been waived by the employer, decisions of the employer to give notice of determination;
• decisions or deemed decisions of the employer to determine the contract;
• provided that certain circumstances following suspension of works have arisen, and have not been waived by the employer, decisions of the employer to give notice of determination; and
• decisions of the employer on assignment.

9.15 In relation to decisions in respect of those matters, the contractor's only remedy against the employer is to be financial compensation.48 This provision expressly preserves the contractor's right to argue, in an adjudication, that the particular decision in question was wrong, and that financial compensation should be made to it as a result of that wrongful decision. The adjudicator can consider whether or not one of the listed decisions was

Page 441

correct, because it would only be if he or she concluded that the decision was wrong or unjustified that the adjudicator would then be in a position to award the contractor financial compensation.49 9.16 If, however, the provision did prevent the contractor from referring a dispute about the validity of a determination to adjudication, such a provision would fall foul of the provisions in section 108 of the Housing Grants, Construction and Regeneration Act 1996. There is nothing in section 108, or any other part of the 1996 Act, that could justify such a limit on the adjudicator's power and jurisdiction. Section 108 contains no qualification, no limitation, upon the nature, scope and extent of the disputes that can be referred to adjudication under a construction contract. There is certainly no basis for reading section 108 as excluding an adjudicator's jurisdiction to decide, under this form of contract, whether the determination was justified or not.50 The adjudicator's decision is intended to be valid if issued after the time allowed, but there is authority which makes plain that this particular provision does not comply with the 1996 Act.51 In those circumstances, the wording of section 108(5) suggests that the whole Statutory Scheme replaces the express terms, regardless of how many (or how few) of those express terms fail to comply with the Act.52 9.17 The employer and the contractor must comply forthwith with any decision of the adjudicator; and submit to summary judgment and enforcement in respect of all such decisions.53 If requested by one of the parties to the dispute within 14 days of the decision being notified to that party, the adjudicator must provide reasons for his or her decision.54

9.6 IChemE contracts

9.18 The Institution of Chemical Engineers (IChemE) produces a number of standard forms of contract relating to chemical, biochemical and process engineering works, which contain provisions for adjudication. The relevant provision in each of these forms restricted the application of the adjudication provisions to construction contracts as defined in the Housing Grants, Construction and Regeneration Act 1996 or any amendment or re-enactment of that legislation. Experience had shown that this provision increasingly gave rise to considerable uncertainty and numerous challenges to the jurisdiction of adjudicators. These, in turn, cause difficulty to the parties, their representatives and adjudicators alike.55 Accordingly, clause 47 in each of these forms was with effect from 2 March 2020 to be

Page 442

amended by the deletion of sub-clause 47.1. The remaining sub-clauses of clause 47 were to be renumbered accordingly.56 9.19 Under these new provisions, either party has the right to refer any dispute or difference (including any matter not referred to the project manager) as to a matter under or in connection with the contract to adjudication and either party may, at any time, issue a notice of adjudication to the other stating its intention to do so. The ensuing adjudication must be conducted in accordance with the edition of the ‘Adjudication Rules’ published by IChemE current at the time of service of the notice.57 Unless the adjudicator has already been appointed, he or she is to be appointed to a timetable with the object of securing his or her appointment and referral of the dispute to him or her within seven days of the service of the notice of adjudication. The adjudicator must be appointed in accordance with the rules and is to reach his or her decision within 28 days of referral or such other longer period as may be agreed between the parties after the dispute has been referred.58 The balance of the provisions reflects the requirements of the Housing Grants, Construction and Regeneration Act 1996. In addition to the adjudicator not being liable for anything done or omitted in the discharge or purported discharge of his or her functions as adjudicator unless the act or omission is in bad faith, any personnel of the adjudicator acting in connection with the carrying out of the adjudication shall be similarly protected from liability.59

9.7 Institutional procedural rules

9.7.1 Technology and Construction Bar Association (TECBAR)

9.20 Several institutions publish adjudication procedural rules independently of any standard form of construction contracts. The Technology and Construction Bar Association has published the TECBAR Adjudication Rules 2012, which incorporate the adjudication rules in the Statutory Scheme for Construction Contracts (as in force in England and Wales and as amended from time to time) and give guidance on various topics. Unless otherwise agreed, the adjudicator has no power to order one party to pay the costs incurred by the other party.60

9.7.2 Technology and Construction Solicitors’ Association (TeCSA)

9.21 The Technology and Construction Solicitors’ Association has issued the TeCSA Adjudication Rules – 2018 Version 3.2.2 Procedural Rules for Adjudication. The scope of the adjudication is to be the dispute identified in a written notice of adjudication given

Page 443

by a party to any other party requesting adjudication and identifying in general terms the dispute in respect of which adjudication is required, together with:

• any further matters which all parties agree should be within the scope of the adjudication; and
• any further matters which the adjudicator determines must be included in order that the adjudication may be effective and/or meaningful.61

Thus, it is a matter entirely for the adjudicator to decide which of the matters he or she will decide in the course of the adjudication. He or she has complete discretion over the scope of the adjudication and can make a decision as to what is within the scope of the adjudication. He or she has obviously to have regard to the notice, but the decision as to what is comprised within the notice is a matter which is by contract given to the adjudicator to decide.62

The rest of this document is only available to i-law.com online subscribers.

If you are already a subscriber, click Log In button.