Adjudication in Construction Law

Darryl Royce

Document

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CHAPTER 2 Beginning adjudication

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2.1 Introduction

2.1 There are certain conditions precedent to be satisfied before a referral to adjudication can take place in accordance with Part II of the Housing Grants, Construction and Regeneration Act 1996. In the absence of one or more of those circumstances, no jurisdiction can arise and any decision by an adjudicator purportedly appointed will be a nullity and unenforceable.

2.2 Existence of a construction contract

2.2.1 Necessity for a contract

2.2 The first condition precedent to commencement of an adjudication arises from the right to refer a dispute for adjudication under the provisions of Part II of the Housing Grants, Construction and Regeneration Act 1996 only being conferred on a party to a construction contract.1 Accordingly, there must be a contract. It follows that where construction operations within the meaning of the Act are carried out without a contract having been made, there can be no right to adjudication under the Act. Thus a restitutionary claim by a contractor for a reasonable price for work and materials carried out at the request of an employer, on what used to be called a quantum meruit, cannot be the subject of an adjudication as of right. Given the lack of formality with which even quite major projects are sometimes initiated, it seems likely that there will still be many disputes which cannot be adjudicated without the agreement of both parties involved. Thus, in the case of a letter of intent, where there is no agreement as to time, so that the best that can be said is that there will be an implied term to the effect that the work will be concluded within a reasonable time, the agreement as to price is limited to the costs reasonably incurred, there is uncertainty over the identity of the parties and the work scope is based on subsequent orders, instructions and the like which might, or might not, have been reduced to writing, no construction contract will have been entered into for the purposes of Part II of the Act.2

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2.3 Where a contract has come into existence, it needs to be a ‘construction contract’ to which the provisions of the Act apply.3 Thus the contract must be for the carrying out, arranging for or providing labour for the carrying out of ‘construction operations', or to do architectural, design or surveying work or provide advice on building, engineering, interior or exterior decoration or on the laying-out of landscape in relation to ‘construction operations'.4 It must not fall within any of the exemptions provided for in sections 104, 106 and 107 of the Act, which have already been dealt with above.5 Where the Local Democracy, Economic Development and Construction Act 2009 applies, it must not be a construction contract of a description in respect of which an order has been made providing that Part II of the 1996 Act shall not apply.6

2.2.2 Effect of repudiation

2.4 Acceptance of repudiation of an agreement does not bring to an end a provision as to adjudication. It is well established that an arbitration clause survives the discharge of a contract by acceptance of a repudiation: Heyman v Darwins.7 The reasoning in that case is equally applicable to an adjudication provision. It has been suggested that there is an important difference between arbitration and adjudication, in that adjudication was intended to provide a quick enforceable interim decision under the rubric of ‘pay now, argue later': see the remarks of Ward, Robert Walker and Auld LJJ to that effect in RJT Consulting Engineers v DM Engineering.8 It was said that adjudication was intended to relieve cash flow problems arising during the course of a contract and that that situation did not apply in the case of contracts where a repudiation had been accepted. This argument did not succeed. It is well established that adjudication can take place after the works under a contract have been completed.9 Where there has never been a contract because it has been avoided on the ground of duress, it logically follows that any adjudication provision also becomes void.10

2.2.3 Third party rights

2.5 Section 108 of the Housing Grants, Construction and Regeneration Act 1996 provides that a party has a right but not an obligation to refer a dispute to adjudication. Where there

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is not the type of conditional benefit envisaged by section 1(4) of the Contracts (Rights of Third Parties) 1999 Act, which links the enforcement by a party of its rights under a construction contract with the adjudication provisions of the Statutory Scheme, the right of a third party to enforce a term of a contract is not required to be subject to or in accordance with adjudication.11 Adjudication, unlike arbitration, is not a mandatory alternative way in which a party to a contract has to enforce its rights. Adjudication is a voluntary method of dispute resolution in the sense that one party to a contract may, but is not obliged to, have a dispute temporarily resolved, pending a final determination by the courts or, if applicable, arbitration. It therefore differs in nature from the terms of an arbitration clause under which a party's rights can only be determined by arbitration.12 The inclusion of section 1(4) of the 1999 Act in itself is not sufficient to achieve the conditional benefit in relation to arbitration. As stated in the Explanatory Note to section 8 of the 1999 Act, without the provisions of that section, an arbitration agreement made between the parties to the contract would not apply as between the third party and one party to the contract.13 The wording of the arbitration clause would simply not otherwise be applicable. It is therefore necessary, in order to ensure that the provisions of the Arbitration Act 1996 apply in relation to third party rights under the 1999 Act, to have an additional provision to section 1(4) of the 1999 Act to make the provisions of the Arbitration Act applicable. It would not apply because a third party is not a party to the arbitration agreement between the contracting parties. It was therefore necessary to incorporate sections 8(1) and 8(2) in the 1999 Act so as to allow the third party to be able to enforce its rights under the contract by way of arbitration. Without an equivalent of section 8 of the 1999 Act so as to make the provision as to adjudication applicable to the relationship between a third party and a party to a construction contract, the terms of an adjudication provision would not be applicable.14

2.3 Existence of a dispute: Background

2.6 In broad terms, to enable a dispute or difference to arise, there must be a claim, an assertion or adoption of a position by one party which is expressly or by implication rejected or at least not accepted by the other.15 The claim, assertion, rejection or non-acceptance does not need to be in writing or to be in any form or necessarily be detailed. The claim, assertion or adoption of the position must be communicated to the other party. It cannot be enough to create a dispute that one party simply believes in its own mind (without any communication to the other) that if it were to make a claim it would in all probability be rejected by the other party.16

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2.7 The right to refer conferred by section 108(1) of the Housing Grant, Construction and Regeneration Act 1996 presupposes the existence of a dispute, which is deemed to include any difference. The word ‘difference’ is particularly apt to describe a case where the parties have not agreed.17 There are a considerable number of decisions on the existence or otherwise of a dispute and a number of different, and not entirely consistent, strands of thought can be discerned in them as set out below.18 2.8 First, a dispute requires both a claim and a rejection.19 Second, such rejection is not necessary. As it was put in Ellerine Brothers (Pty) Ltd v Klinger,20 if letters are written by the plaintiff making some request or some demand and the defendant does not reply, then there is a dispute. It is not necessary, for a dispute to arise, that the defendant should write back and say, ‘I don't agree'. If, on analysis, what the plaintiff is asking or demanding involves a matter on which agreement has not been reached and which falls fairly and squarely within the terms of the arbitration agreement, then the applicant is entitled to insist on arbitration instead of litigation. That approach received support from the reasoning of the majority in The Halki.21 2.9 Third, in Fastrack Contractors Ltd v Morrison Construction Ltd,22 it was sought to reconcile the above cases by deriving the principle that a ‘dispute’ can only arise once the subject matter of the claim, issue or other matter has been brought to the attention of the opposing party and that party has had an opportunity of considering and admitting, modifying or rejecting the claim or assertion. Fourth, in two cases, namely Griffin & Anor t/a K & D Contractors v Midas Homes Ltd 23 and Sindall Ltd v Solland & Ors,24 the notion that adjudication was intended to resolve what has not been settled by the normal process of discussion and agreement was introduced. In that regard, it was said in the Ken Griffin case that a dispute was not likely to be inferred. That approach was, at least to some extent, reflected in the decision in Edmund Nuttall Ltd v R G Carter Ltd 25 and in Beck Peppiatt v Norwest Holst.26 2.10 Fifth, there are cases in which a dispute has been held not to exist where one party has simply sought further information and not made a claim, or where the party has not given enough information to enable the other party to decide whether or not to admit the claim. Examples are Cruden Construction Ltd v Commission for the New Towns 27 and Carillion Construction Ltd v Devonport Royal Dockyard.28 Finally, in two cases, namely

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Cowlin Construction Ltd v CFW Architects (a firm) 29 and Orange EBS Ltd v ABB Ltd,30 in careful judgments which referred to many if not at all the cases, it was recognized that they are not all entirely consistent and the test in The Halki 31 was preferred, following the approach in Ellerine v Klinger,32 as did Lovell Projects Ltd v Legg.33

2.4 Current overview of dispute authorities

2.4.1 The Amec case

2.11 A summary of the correct approach arising from the authorities in Amec Civil Engineering Ltd v Secretary of State for Transport 34 to the effect that follows has twice been approved by the Court of Appeal.35 The word ‘dispute', which occurs in many arbitration clauses as well as section 108(1) of the Housing Grant, Construction and Regeneration Act 1996, should be given its normal meaning. It does not have some special or unusual meaning conferred upon it by lawyers. Despite the simple meaning of the word ‘dispute', there has been much litigation over the years as to whether or not disputes existed in particular situations. This litigation has not generated any hard-edged legal rules as to what is or is not a dispute. However, the accumulating judicial decisions have produced helpful guidance. The mere fact that one party (‘the claimant') notifies the other party (‘the respondent') of a claim does not automatically and immediately give rise to a dispute. It is clear, both as a matter of language and from judicial decisions, that a dispute does not arise unless and until it emerges that the claim is not admitted. The circumstances from which it may emerge that a claim is not admitted are protean. For example, there may be an express rejection of the claim. There may be discussions between the parties from which objectively it is to be inferred that the claim is not admitted. The respondent may prevaricate, thus giving rise to the inference that he or she does not admit the claim. The respondent may simply remain silent for a period of time, thus giving rise to the same inference. The period of time for which a respondent may remain silent before a dispute is to be inferred and depends heavily upon the facts of the case and the contractual structure. Where the gist of the claim is well known and it is obviously controversial, a very short period of silence may suffice to give rise to this inference. Where the claim is notified to some agent of the respondent who has a legal duty to consider the claim independently and then give a considered response, a longer period of time may be required before it can be inferred that mere silence gives rise to a dispute. If the claimant imposes upon the respondent a deadline for responding to the claim, that deadline does not have the automatic effect of curtailing what would otherwise be a reasonable time for responding. On the other hand, a stated deadline and the reasons

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for its imposition may be relevant factors when the court comes to consider what is a reasonable time for responding. If the claim as presented by the claimant is so nebulous and ill-defined that the respondent cannot sensibly respond to it, neither silence by the respondent nor even an express non-admission is likely to give rise to a dispute for the purposes of arbitration or adjudication.

2.4.2 Distinction between arbitration and adjudication

2.12 In the arbitration context, however, it is possible and sensible to give to the word ‘dispute’ a broad meaning in the sense that a dispute may readily be found or inferred in the absence of an acceptance of liability, a fortiori because the arbitration process itself is the best place to determine whether or not the claim is admitted or not. In the context of adjudication for the purposes of Part II of the Act, where adjudication is an additional provisional layer of dispute resolution, pending final litigation or arbitration, there is a legitimate concern to ensure that the point at which this additional complexity has been properly reached should not be too readily anticipated. Unlike the arbitration context, adjudication is likely to occur at an early stage, when in any event there is no limitation problem, but there is the different concern that parties may be plunged into an expensive contest, the timing provisions of which are tightly drawn, before they, and particularly the respondent, are ready for it. In this context, there has been an understandable concern that the respondent should have a reasonable time in which to respond to any claim.36

2.5 Notification of a claim

2.13 A letter making some request or some demand can constitute a claim.37 On the other hand, the request or demand must be capable of being sensibly responded to.38 Thus, where both parties are aware that the contractor has a substantial claim for the indirect costs of a variation, the entitlement to any such indirect costs is a matter of controversy, and the contractor has submitted a global claim for indirect costs which does not apportion any specific sum to the variation, there exists a ‘dispute of principle’ but no quantified claim for the indirect costs of the variation which is capable of being disputed.39 This will not apply where detailed material, back and forth, makes it only too clear that, although the parties were not agreed about the claim, and they were not agreed about whether or not proper particulars had been provided, it was very far from being a situation where the claim was ‘nebulous or ill-defined'.40

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2.14 A letter from solicitors for an employer under a construction contract to the contractor's solicitors asserting that the employer has alleged that there are defects in the works but giving no particulars and that does not call upon the contractor to put right any defects or assert that the contractor is in breach of its obligations under the contract, merely requesting the contractor's solicitors to confirm whether or not they are authorized to accept service of a notice of arbitration on behalf of the contractor, does not amount to an assertion that there were defects in the works.41 If a referring party first gives notice to the responding party of a claim at precisely the same time as referring that claim to adjudication, it is not possible for a dispute between the parties about that claim to have crystallized prior to the notice of adjudication. There is no interval between the two events. The responding party first becomes aware of the referring party's claim at the same time as the adjudication notice itself.42 2.15 What the Statutory Scheme does not envisage, however, is that a dispute about the adequacy of the documentation should result in there being no assessment of an application for payment or that the assessment should be unduly delayed. The assessment must be made in the circumstances presented to the assessor, difficult as those circumstances might be. The assessment of an application for payment is not the same as the settlement of the final account, even when the application for payment is part of the resolution of that final account.43 It is wrong in principle to suggest that a dispute had not arisen until every last particular of every last element of the claim has been provided. When a contractor or sub-contractor makes a claim, it is for the paying party to evaluate that claim promptly, and form a view as to its likely valuation, whatever points may arise as to particularization. Efforts to acquire further particularization should proceed in tandem with that valuation process. Disputes about an alleged lack of particularization are commonplace in building contract disputes. They are part of the overall dispute between the parties. In an ordinary case, a paying party cannot put off paying up on a claim forever by repeatedly requesting further information; a fortiori, a paying party cannot suggest that there is no dispute at all because the particularization of the claim is allegedly inadequate. Any other conclusion would allow a paying party limitless time, either to avoid an adjudication altogether or at least to avoid the enforcement of any adverse decision. It would deprive the payee of its statutory right to adjudicate.44 2.16 It seems very unlikely in the ordinary case that it will be relevant or appropriate, in seeking to demonstrate that a dispute has not crystallized, to look at the requests for information which have followed the presentation of a claim, and draw an inference about crystallization from the purported reasonableness of those requests and the absence of response.45 It is not for a court upon an application for enforcement to engage with the

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detailed merits of each sides’ stated position as to what substantiation was or was not provided or relevant. It is simply enough to conclude that there was unarguably a clear dispute between the parties, part of which centred over the need for and existence of supporting documents.46

2.6 Express rejection of a claim

2.17 Express rejection should not give rise to difficulty in practice. For example, an engineer who says in respect of a claim ‘I cannot agree with or consider this claim’ is rejecting it.47

2.7 Discussions between the parties

2.18 It is unnecessary for negotiation or discussion between the parties to have been concluded before a dispute may arise, or that a dispute should be less lightly inferred in such circumstances Negotiation and discussion are likely to be more consistent with the existence of a dispute, albeit an as yet unresolved dispute, than with the absence of a dispute. The court is likely to be willing to readily infer that a claim is not admitted and that a dispute exists so that it can be referred to adjudication.48 It would appear that suggestions to the contrary in earlier authorities49 should not be followed.50

2.8 Prevarication and procrastination

2.19 These two actions are sometimes confused. ‘To prevaricate’ means to be evasive, misleading or untruthful and is derived from the Latin word varus, meaning ‘crooked’ and implies an element of dishonesty. To procrastinate is to delay, defer or put off, being derived from cras, meaning ‘tomorrow'. It is submitted that ‘procrastination’ would more appropriately describe the tactics usually adopted by a reluctant participant in adjudication, although both processes could be indulged in. The sort of practice that can give rise to the inference that the potential responding party does not admit the claim is a failure to respond to repeated requests to perform a contractual duty, combined with an assurance in a ‘perfectly polite but useless letter’ by his or her agent that the letters will be drawn to his or her attention as soon as possible, followed by an apology in answer to a further reminder.51

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2.9 Silence

2.20 Despite previous statements of high authority52 that a claim needs to be rebutted or denied before a dispute can arise, it is now clear that silence can give rise to a dispute in the appropriate circumstances.53 As stated above, the period of time for which a respondent may remain silent before a dispute is to be inferred depends heavily upon the facts of the case and the contractual structure. Thus where major defects in very substantial works have emerged relatively shortly before the perceived end of the limitation period which require detailed investigation and the formulation of a precisely detailed claim is impossible within a short period, liability for the defects is bound to be highly contentious but the contractor is bound to be a first candidate for responsibility, and is inevitably going to resist liability well beyond the perceived end of the limitation period, it is not unreasonable to expect the contractor to respond within four days of a letter when the general positions of all parties are well defined and unsurprising.54 If that were wrong, a further 24-hour deadline would also be reasonable if it is inevitable that the contractor will resist liability and there is nothing which it can at that stage add to its previous clear indications to that effect.55 On the other hand, the period of time between a letter sent after close of business on the last working day before a four-day holiday weekend (Good Friday, Saturday, Easter Sunday and the Easter Monday bank holiday) and a notice of adjudication sent on the following Tuesday, the first working day after Easter, is not sufficient to give rise to an inference that the letter was disputed where there no real hint before that letter of any material claim in that respect.56 If Party A wishes to adjudicate a dispute with Party B, it has to give Party B at least some opportunity of responding to its claim before it can say that that claim is disputed. The fact that Party B had earlier rejected a claim made by Party C, and Party A is now proposing to pursue some or all of Party C's claim itself, may well be important in considering what a reasonable time might be to allow for the crystallization of the dispute before it can be referred to adjudication, but it cannot mean that Party B is not entitled to any time at all to consider the claim now made against it, for the first time, by Party A.57

2.10 Withdrawal of claim

2.21 What happens when a claim or assertion is made by a potential claiming party which, although disputed, is then withdrawn by the claiming party? In the ordinary course

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of events, there can be nothing wrong with the proposition that a dispute may cease to be a dispute by reason, for instance, of an agreement between the parties or an unconditional withdrawal of the claim or assertion which gave rise to the dispute. It might be possible in certain circumstances to apply the principles of estoppel or waiver to a disputed claim which the claiming party indicates clearly and unequivocally to a responding party that it is withdrawing that claim or assertion; if the responding party acts on that representation about the withdrawal to its detriment then the claiming party may find it difficult in practice to pursue the claim at all.58 However, it is necessary critically to examine whether a claiming party is in effect withdrawing or abandoning the claim which it has made which has been disputed. The court will need to consider whether the claiming party was effectively intending to abandon or merely temporarily suspend or hold back any entitlement which it may have had to pursue dispute resolution processes laid down by the contract in question. There may, in context, be a difference from a party who indicates that it will hold its claim ‘in abeyance’ because that may imply in the circumstances something less than a withdrawal. A withdrawal of a disputed claim may give rise to a substantive defence in any subsequent dispute resolution process.59

2.11 Significance of due date for payment

2.22 It is illogical to say that there cannot be a dispute about an interim valuation of work unless, until and after the valuation falls due for payment; there is a dispute about the interim valuation and that is referable to adjudication. There is some practical advantage in seeking adjudication before the due date for payment so that the dispute can be resolved in time before payment is due or shortly thereafter.60 There is nothing in the language of the Statutory Scheme which suggests that a dispute may only be referred to adjudication once an entitlement to payment has arisen, and where there is a clear dispute between the parties as to the correct value of a final account, it is entirely appropriate to refer the matter to adjudication.61

2.12 A dispute

2.12.1 Meaning of ‘a dispute'

2.23 The right conferred by section 108(1) of the Housing Grant, Construction and Regeneration Act 1996 is to refer ‘a dispute'. There is a difference of approach in the authorities as to the effect of this wording. One view is that the statutory language is clear: a ‘dispute’ and nothing but a ‘dispute’ may be referred and, if two or more disputes are to

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be referred, each must be the subject of a separate reference.62 The other is that, by virtue of sections 5 and 6 of the Interpretation Act 1978, unless the contrary intention appears, words in the singular include words in the plural, and no contrary intention appearing, there is nothing to prevent more than one dispute being included in one referral. If there is to be any restriction on the number of disputes, that will appear from the terms of the contract or the Statutory Scheme. The statute is not to be construed by reference to the statutory instrument made under it.63 This difference may be reconcilable if a broad construction is given to the word ‘dispute'. During the course of a construction contract, many claims, heads of claim, issues and contentions will arise. Many of these will be, collectively or individually, disputed. When a dispute arises, it may cover one, several or many, some or all of these matters. At any particular moment in time, it will be a question of fact what is in dispute. Thus, the ‘dispute’ which may be referred to adjudication is all or part of whatever is in dispute at the moment the referring party first intimates an adjudication reference. In other words, the ‘dispute’ is whatever claims, heads of claim, issues, contentions, or causes of action that are then in dispute which the referring party has chosen to crystallize into an adjudication reference.64

2.12.2 Effect of Statutory Scheme

2.24 Where the contract does not comply with the statutory requirements for a procedure for adjudication, the adjudication provisions of the Scheme for Construction Contracts apply.65 Under that scheme, an adjudicator may, with the consent of all the parties to those disputes, adjudicate at the same time on more than one dispute under the same contract.66 He or she may also, with the consent of all the parties to those disputes, adjudicate at the same time on related disputes under different contracts, whether or not one or more of those parties is a party to those disputes.67 These provisions indicate that, under the Statutory Scheme, it is only with the consent of the parties that an adjudicator can adjudicate at the same time on more than one dispute under the same

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contract or adjudicate at the same time on related disputes under different contracts.68 On the other hand, the view has been expressed that if section 108(1) limits a party to being able to refer a single dispute to adjudication by the reference to the phrase ‘a dispute’ rather than the use of the word ‘disputes', then that causes problems for parties consenting to refer multiple disputes to a single adjudication. If a party agreed to a provision for multiple disputes to be referred to adjudication, then that provision would not comply with section 108(1). The effect of a provision of the construction contract not complying with section 108(1) would be that section 108(5) would cause the adjudication provisions of the Statutory Scheme to apply. The effect would be that paragraph 8(1) of the Statutory Scheme would apply, which allows multiple disputes to be referred if the parties consent and that would be what the parties had done and were free to do under the Statutory Scheme. On that basis, the Statutory Scheme would not comply with section 108(1). This suggests that an argument based on the reference in section 108(1) to ‘a dispute’ being ‘one dispute’ may not be correct and that the reference to ‘a dispute’ is more likely to be a generic reference to ‘a dispute', without seeking to limit it to a singular dispute.69

2.12.3 More than one dispute?

2.25 Whether more than one dispute has been referred to an adjudicator is a question of fact.70 The following summary has been suggested on an analysis of the authorities71 and described as the most comprehensive judicial analysis of the ‘single dispute rule':72

1. A dispute arises generally when and in circumstances in which a claim or assertion is made by one party and expressly or implicitly challenged or not accepted.
2. A dispute in existence at one time can in time metamorphose into something different to that which it was originally.
3. A dispute can comprise a single issue or any number of issues within it. However, a dispute between parties does not necessarily comprise everything which is in issue between them at the time that one party initiates adjudication; put another way, everything in issue at that time does not necessarily comprise one dispute, although it may do so.
4. What a dispute in any given case is will be a question of fact albeit that the facts may require to be interpreted. Courts should not adopt an over legalistic analysis

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of what the dispute between the parties is, bearing in mind that almost every construction contract is a commercial transaction and parties cannot broadly have contemplated that every issue between the parties would necessarily have to attract a separate reference to adjudication.
5. The Notice of Adjudication and the Referral Notice are not necessarily determinative of what the true dispute is or as to whether there is more than one dispute. One looks at them but also at the background facts.
6. Where on a proper analysis, there are two separate and distinct disputes, only one can be referred to one adjudicator unless the parties agree otherwise. An adjudicator who has two disputes referred to him or her does not have jurisdiction to deal with the two disputes
7. Whether there are one or more disputes again involves a consideration of the facts. It may well be that, if there is a clear link between two or more arguably separate claims or assertions, that may well point to there being one dispute. A useful if not invariable rule of thumb is that if disputed claim No 1 cannot be decided without deciding all or parts of disputed claim No 2 that establishes such a clear link and points to there being only one dispute.73

2.26 In an ordinary case, and depending on the words of the notice, it may be unduly restrictive to conclude that an adjudicator could decide what the construction contract was not, but not what the contract was. It may be unduly restrictive to say that any notice of adjudication which raised the existence of the contract and/or its precise terms (on the one hand), and the financial claims thereunder (on the other), somehow involved more than one dispute.74

2.12.4 Concurrent adjudications

2.27 There is nothing in section 108 of the 1996 Act which prevents a party from giving more than one notice of adjudication, each relating to one dispute and then referring each adjudication to an adjudicator. Equally, there is nothing in those provisions to limit the time at which two or more adjudications can be commenced. They might be commenced at the same time or one before the other. The adjudication procedure might last for different periods so that the adjudications might overlap in time. There is nothing to prevent that and indeed, quite the contrary, because a party has the right to give notice of adjudication ‘at any time’ under section 108(2)(a), this makes it plain that there is no limit on the time when a party can commence one or more adjudications.75

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2.13 Arising under the contract

2.13.1 Conventional meaning of ‘arising under'

2.28 Only a dispute ‘arising under the contract’ can be referred for adjudication under Part II of the Housing Grant, Construction and Regeneration Act 1996.76 The conventional approach has been that the word ‘under’ in the Act was plainly chosen deliberately. It is not, nor is it accompanied by, words such as ‘in connection with’ or ‘arising out of', which have a well-established wider reach.77 On the ordinary and natural meaning of words, the expression ‘arising under’ is narrower than ‘connected with’ and is not wide enough to include disputes which do not concern obligations created by or incorporated into the contract.78 The preposition ‘under’ presupposes that the noun already has some existence. It operates in time as well as in space. It means ‘as a result of and with reference to'. Thus, disputes as to negligent misstatement, misrepresentation under the Misrepresentation Act 1967 and collateral warranty or contract, while they may in a loose sense be said to arise with reference to the contract, cannot be said to arise as a result of it. They all relate to matters which either preceded the contract or were at best contemporaneous with it.79 A dispute as to whether a mistake (whether mutual or unilateral) can give one party a right to rectification of the written agreement so as to accord with the pre-existing oral agreement is not a dispute arising under the contract.80

2.13.2 The Fiona Trust case

2.29 The above views need to be reconsidered, however, in the light of the decision of the House of Lords in Premium Nafta Products Ltd v Fili Shipping Co. Ltd (‘The Fiona Trust')81 in which it was said that these distinctions reflected no credit upon English commercial law and the approach to construction needed to be re-examined.82 Such a process would have to involve deciding whether the basis of that decision, namely the severability of arbitration clauses recognized by section 7 of the Arbitration Act 1996 and the presumed intention of the parties in agreeing to arbitration, are referable to the process of adjudication. At first sight, they are not and it has been said that there is considerable force in the submission that the reasoning in Fiona Trust is inapplicable to adjudication clauses, which are present or implied by reason of statutory intervention.83 It has also been said that the Fiona Trust case concerned the scope of arbitration clauses and a party's right to refer a dispute to adjudication is more narrowly prescribed by the contract or statute,84 and held in Western Australia that it is clear that the chosen phrase ‘under a construction

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contract’ is relatively narrow in ambit, because, for instance, the terminology of a dispute ‘in relation to', or surrounding a construction contract, is not the chosen terminology. The dispute must be ‘under’ the parties’ construction contract. So, for instance, a claim in quasi-contract, such as a quantum meruit claim seeking only a reasonable remuneration, such as where the underlying contract was uncertain, or had failed for some reason, would not present a dispute arising ‘under’ the construction contract for the purposes of the relevant Act.85 On the other hand, it has been held that a claim for restitution of sums paid under a contract is part of a dispute arising under the contract.86 2.30 In Aspect Contracts (Asbestos) Ltd v Higgins Construction Plc,87 the Supreme Court was ‘very content’ to proceed on the basis that the approach taken in The Fiona Trust could apply to statutory adjudication, although this was not critical to the decision of the appeal.88 It has been said that the courts at the highest level having strongly signposted a departure from previous distinctions in relation to arbitration, the courts on adjudication cases should follow this direction, and it follows that a dispute as to whether all or some of the alleged entitlements which one contractual party has against the other has been settled in a binding way arises ‘under’ the original contract.89 In a further Supreme Court case Bresco v Lonsdale,90 it was said that the statutory compulsion lying behind the conferral of the contractual right to adjudicate was not persuasive that it pointed at all towards giving the phrase ‘a dispute arising under the contract’ a narrow meaning, by comparison with a similar phrase in a contract freely negotiated. The fact that, after due consideration of the Latham Report, Parliament considered that construction adjudication was such a good thing that all parties to such contracts should have the right to go to adjudication points if anything in the opposite direction. Indeed, the fact that the right to adjudicate is statutorily guaranteed is a powerful consideration favourable both to its recognition as a matter of construction, and to the caution which the court ought to employ before preventing its exercise by injunction.91

2.13.3 Compromises

2.31 A dispute as to whether all or some of the alleged entitlements which one contractual party has against the other has been settled in a binding way arises ‘under’ the original contract. That is wholly logical because what is supposedly settled is the alleged

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entitlement to be paid ‘under’ the original construction contract. It would be extraordinary and illogical if the parties or Parliament had intended that an otherwise properly appointed adjudicator would have jurisdiction if addressing what entitlement a contractor or sub-contractor might have to be paid in all circumstances save in relation to where a dispute arises as to whether that entitlement had been settled. If the contrary argument were right, save by ad hoc agreement, one could never adjudicate in a construction contract on an interim or final account which had been agreed in some binding way; that makes commercial and policy nonsense in circumstances in which such agreements must occur all the time and should be encouraged and supported by retaining the right to adjudicate if one party seeks to challenge the settlement on one basis or another.92 2.32 An exchange of mutual promises is good consideration and a promise not to adjudicate is a promise of value. An adjudication would involve the expenditure of resources in terms of time, money and personnel and while the parties consider themselves as bound by the contract to compromise, one of them cannot pursue an adjudication. If, however, a party repudiates the compromise, the other is no longer bound by its promise not to adjudicate.93

2.14 Notice of intention to refer

2.14.1 The statutory requirements

2.33 The Housing Grants, Construction and Regeneration Act 1996 requires a construction contract to enable a party to give notice at any time of their intention to refer a dispute to adjudication.94 Although not expressly stated, it is clear that the giving of such notice will constitute the first step in the exercise of a party's right to refer a dispute arising under the contract for adjudication.95 There is no express requirement that such notice should be in writing,96 although this can be inferred from the use of the phrase ‘any notices or other documents’ and a notice or other document’ in section 115 and in particular from subsection 115(6), which provides that references in Part II to a notice or other document include any form of communication in writing and references to service should be construed accordingly. This is also on the assumption that the requirement to ‘give’ notice of an intention to refer under section 108(2) is a requirement to ‘serve’ a notice in pursuance of a construction contract for the purposes of the Act under section 115(1). It would thus seem that any written communication giving notice of an intention to refer a dispute would suffice. In order to comply with the express requirements of the Act, the notice should communicate the intention to refer and identify the dispute by conveying the substance of the claim.97 The purposes of such a notice are first, to inform the other party

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of what the dispute is; second, to inform those who may be responsible for making the appointment of an adjudicator so that the correct adjudicator can be selected; and finally, of course, to define the dispute of which the party is informed, to specify precisely the redress sought, and the party exercising the statutory right and the party against whom a decision may be made so that the adjudicator knows the ambit of his or her jurisdiction.98

2.14.2 Non-compliance

2.34 Where the contract does not comply with the statutory requirements for a procedure for adjudication, the adjudication provisions of the Statutory Scheme for Construction Contracts apply.99 In that case, the notice of intention to refer (called a ‘notice of adjudication') should set out briefly: the nature and a brief description of the dispute and the parties involved; details of where and when the dispute has arisen; the nature of the redress which is sought; and the names and addresses of the parties to the contract (including, where appropriate, the addresses which the parties have specified for the giving of notices).100 Whether compliance with all these requirements is mandatory is the subject of conflicting authorities. One view is that a party is only entitled to exercise its right to call for adjudication if it has first complied with the requirement to set out in the notice the matters specified by the Statutory Scheme and the courts will only enforce any subsequent adjudicator's decision to the extent of the matters mentioned in the notice.101 The other is that the Statutory Scheme is more prescriptive than the Act in relation to the requirements of a notice of adjudication and the requirements of the Statutory Scheme should be regarded as directory rather than mandatory.102 2.35 The following reasons have been relied on for concluding that the requirements for the notice of adjudication set out in Paragraph 1 of the Statutory Scheme (e.g. for a party to be named) are not mandatory in the sense that, if the prescribed information is not given in the notice, then the notice and indeed any ensuing adjudication is bad:103

• The 1996 Act itself makes no such requirement. Any requirement stems from the Scheme, which forms part of the 1998 Regulations (which are of course made under the 1996 Act). The Statutory Scheme deals with practical matters, rather than matters of principle.
• The main practical purpose of Paragraph 1(3) is to ensure that, when a reference is made to an appointing body, that body has sufficient information to be able to appoint an adjudicator. There are cases where an appointment is made by agreement between the parties.
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• It is contrary to the nature and purpose of the adjudication scheme of the 1996 Act to construe the terms of the Statutory Scheme in a legalistic manner. The purpose would be undermined if a party, who might have obtained an unfavourable adjudicator's decision, could take advantage of a failure to identify a contracting party in the notice of adjudication in circumstances in which (a) the name and address of the contracting parties was clear, and (b) no party was prejudiced by the failure. With the robust nature of the 1996 Act, adjudication is contraindicative of a construction that makes such matters as set out in the Statutory Scheme mandatory rather than merely directory.

In most cases, the referring party, in giving a brief description of the dispute, is likely to set out the contract but that is not a discrete procedural requirement. The requirement is to set out the dispute because that is what is referred to the adjudicator and what sets the parameters of the adjudicator's jurisdiction. Where the notice does set out the dispute in that it says that the responding party has not paid any sums to the referring party in relation to profit but is liable to do so and the referral notice then goes on to set out the referring party's case as to the contractual relationship, the absence of that particularity in the notice does not either render it invalid or restrict the adjudicator's jurisdiction to determine the dispute.104

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