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Adjudication: the legal framework
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IntroductionThe Housing Grants Construction and Regeneration Act 1996 (“the Act”) has been with us now for over 4 years. At least 150 cases have been reported, although many of them unofficially, in respect of predominantly adjudication but also the payment mechanisms. The focus of this paper therefore has two main aspects to it, after canvassing some general issues. First, a review of some general developments in the area. Second, a review of some important decisions in respect of the payment mechanisms in the Act; in particular withholding notices. Finally, a review of some discrete areas in which the courts have adopted a more cautious approach to the enforcement of adjudicator’s decisions. Part II of the Act came into force on 1 May 1998. Many of the standard forms were amended so that they were “Act” compliant in respect of entitlement to stage payments, identification of an amount due, the serving of withholding notices, the introduction of a right to suspend performance for non-payment, the prohibition of pay when paid clause (save in respect of insolvency) and finally the incorporation of adjudication provisions. At the time that the Act was brought into force, it was adjudication that created the vast majority of interest. Initial questions about the enforceability of an adjudicator’s decision were swept away in the first case of Macob Civil Engineering Limited v Morrison Construction Limited (12 February 1999), but few of the early decisions dealt with payment mechanisms or the payment notices in the Act. DTI Consultees on “Improving Adjudication in the Construction Industry”On 14 August 2001 the DTI issued a proposed amendment to the Scheme for Construction Contract, and also draft guidance to adjudicators. The draft guidance had been prepared by the Construction Umbrellas Bodies Adjudication Task Group. The consultation draft guidance to adjudicators was to be “treated as suggestions to adjudicators rather than rules.” It was primarily drafted for adjudications conducted pursuant to the Scheme, but the guidance is generally applicable. The guidance note covers 7 main areas:
The guidance reminds adjudicators that natural justice is not a defined term, but requires that any tribunal (including an adjudication tribunal) that is acting in a judicial manner must be fair in all of the circumstances. There are two main limbs to this requirement. First, bias in that the decision maker should not have, nor appear to have, any direct interest in the dispute. Second, there must be a fair hearing. Basically, this means that where one party makes an allegation against the other, that other party should have a reasonable opportunity of answering the allegations made. The guidance then goes on to suggest how, in practical terms, an adjudicator might comply with the requirements of natural justice. These include, for example, using telephone conferencing to involve all of the parties should the use of the telephone be necessary, holding meetings with all of the parties present (unless an absent party has consented to a meeting between just one party and the adjudicator) and obtaining the views of the parties before issuing directions. Jurisdictional challenges cannot be avoided, but adjudicators are reminded that they should investigate and reach their conclusion on the merits of any jurisdictional challenge. If the adjudicator believes that he or she does not have jurisdiction he or she should tell the parties and resign. If the adjudicator believes that he or she does have jurisdiction, then he or she should tell the parties and continue with the adjudication. Of more interest is the guidance in respect of intimidatory tactics. Adjudicators are reminded to recognise “bullying” tactics early on in the procedure, and deal with them “firmly but fairly”. They are reminded not to loose their temper with any of the parties. The draft statutory instrument, the Scheme for Construction Contracts (Amendments) (England) Regulations 2001 makes three amendments to the Scheme. First, regulation 20 is to be amended. Regulation 20 is set out below, with the new wording set out in italics:
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The purpose of this amendment is to remove from the adjudicator’s jurisdiction the ability for the adjudicator to deal with the parties’ costs associated with bringing or defending an adjudication. The case law in the area is conflicting, and so clarification is welcome, however, the preferred view is that adjudicators do not have the jurisdiction to deal with costs.(1) While this amendment deals with adjudications under the Scheme, other standard form adjudication procedures and perhaps more importantly bespoke adjudication procedures will not be caught by this amendment. To be truly effective, clarification in respect of legal costs would need to be included in the Act. The second amendment in the draft SI is an amendment to regulation 22. If one of the parties requests reasons, then the adjudicator shall provide them. Alternatively, the adjudicator may set a deadline for the parties to request reasons, and any requests outside of that deadline shall be invalid. Finally, new draft regulation 22A deals with clerical mistakes or errors. This draft regulation gives the adjudicator on his own initiative or an application of any of the parties the ability to correct his or her decision in order to remove clerical mistakes or errors “arising from an accidental slip or omission”. A party must make an application within 5 days of the date of the decision, or a shorter period specified by the adjudicator in the decision. The adjudicator is then to correct the decision “as soon as possible” after the date upon which the application for the correction was received by the adjudicator. If the correction is to be made by the adjudicator on his or her own initiative, then it is to be made as soon as possible after he or she becomes aware of the need to make such a correction. New TeCSA RulesA new version of the Technology and Construction Solicitors Association TeCSA Adjudication Rules (2002 version 2.0) was published in October 2002. The new TeCSA Rules are very similar to the 1999 (version 1.3) Rules, although there are of course some slight amendments. In the definition section, a definition of “days” has been inserted, stating that the meaning should be the same as that contained in the Housing Grants, Construction and Regeneration Act 1996. The commencement and appointment procedure has been amalgamated, and some amendments have been made. The application for appointment in Rule 5(i) has been simplified, merely requiring a copy of the Contract as defined, together with the Notice of Adjudication and the fee to be attached to the request for an appointment. Rule 7 now requires the adjudicator to confirm to the parties the date of receipt of the Referral Notice. Similarly, Rule 8 now requires any replacement adjudicator to give written notice of acceptance of his appointment. In respect of the scope of the adjudication, Rule 14 now requires an adjudicator to “decide” upon his substantive jurisdiction rather than “rule” upon jurisdiction. In respect of the adjudicator’s fees the cap of £1,000 per day has been increased to £1,250 per day. The law relating to the costs of parties in respect of adjudication has developed, and this has been reflected in a new section dealing with costs. Rule 28 states that the adjudicator can have the jurisdiction to award costs to the successful party, but only if the parties agree. This appears to reflect the general position. However, the adjudicator has no jurisdiction to require the referring party to pay the costs of the other party merely by referring the dispute to adjudication. This is notwithstanding anything to the contrary in the contract. Finally, in respect of decisions rule 31 has been amended to require the adjudicator to provide reasons should either party so request. Old rule 27 stated that decisions were to be in writing, but did not include reasons. However, request for reasons under the new rules must be made within 7 days of the date of the referral of the dispute. A request at this early stage allows the adjudicator to prepare his reasons and provide them at the same time as the decision. New rule 32 provides the adjudicator with power to correct a clerical mistake or error arising from an accidental slip or omission. The adjudicator may correct the mistake or error on his own initiative, or as a result of an application by either of the parties. The party must make its application within 5 days of the decision or the shorter period directed by the adjudicator. The correction is to be made as soon possible after the application being received or as soon as the adjudicator notices mistake or error. The New Zealand Construction Contracts BillFollowing the repeal in 1987 of the Contractors Liens Act 1939 and
the liquidation several large development companies (which left contractors
and subcontractors unable to recover substantial sums of money), the
New Zealand Parliament decided it was time to overhaul the way payments
operate within the construction industry. There is apparently a strong
political force behind this legislation, predominantly led by the labour
party who are pushing the bill through the legislative process with
some speed following the introduction of the CCB prior to the 2002 election.
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1. Northern Developments (Cumbria) Limited v J & J Nichol (24 January 2001) |
The New Zealand Construction Contracts Bill (CCB)(2) is based on the United Kingdom Housing Grants, Construction and Regeneration Act 1996 and the New South Wales Building and Construction Industry Security of Payment Act 1999. At this stage, the CCB is likely to be law in New Zealand by mid 2004. Unlike the HGCRA which had a two-year lead-in time, the CCB will become law three months after it receives Royal Assent. This does not leave the industry with much time to revise their standard form contracts to ensure compliance with the CCB. The philosophy behind the CCB is similar to that of the HCGRA, namely to improve cash flow within the construction industry. There are some important differences in the New Zealand bill including:
RICS Guidance NoteThe RICS Guidance Note, Surveyors Acting as Adjudicators in the Construction Industry, was prepared after the issue of the DETR consultation paper, Improving Adjudication in the Construction Industry, in April 2001. The Guidance Note is intended to set out best practice for RICS members when acting as adjudicators. The members are not required to adhere to the Guidance Note, but should an allegation of professional negligence be made against an RICS member then the court might well take into account the content of the Guidance Note when deciding whether the surveyor acted with reasonable competence. The Guidance Note provides an overview of the role of an adjudicator and the principles of adjudication, and so does not provide a detailed consideration of all of those matter that an adjudicator will need to understand in order to practise. Part 2 of the Guidance Note deals with appointment and acceptance. The RICS nomination procedure is set out, but also the adjudicator is reminded of his responsibilities, such as the need for a decision within a limited timescale and the requirement to carry out a conflict check. In respect of the conditions of engagement, the RICS Guidance Note states that the imposition of a lien in respect of the adjudicator’s fees is not an acceptable practice. Part 3 deals with procedures and other matters. The powers available to an adjudicator are briefly set out, and the adjudicator is reminded that he or she may take legal or technical advice if necessary. While the guidance recognises that it may be appropriate to discuss substantive matters in dispute with one party alone, it reminds the adjudicator that such a course of action is “fraught with possible difficulties and one which is probably best” avoided. Practical tips in respect of establishing the procedure and establishing the facts and the law are set out. As indeed is the debate in respect of natural justice. Some of the practical tips given in the DTI draft guidance are also considered, such as dealing with excessive documentation and intimidatory tactics. In respect of the adjudicator’s decision, the adjudicator is reminded of the short timescale, but also given practical guidance as to the suggested contents, awarding of interest and the giving of reasons. Payment and NoticesSection 110 is set out as follows:
The first sub-section of section 110 merely required the parties to a construction contract to set out a mechanism for determining what payments become “due under the contract” and the mechanism for identifying when those payments become due and identify a final date for payment of that sum. The parties can agree on the detail of the mechanism, and those standard forms that are commonly encountered within the industry appear to comply with the requirements of this section. Sub-section 1 merely sets out the framework within which the parties to a construction contract must operate. If parties do not include a payment mechanism within their construction contract, then the relevant provisions of the Scheme will apply by virtue of sub-section 3. Quite what constitutes an “adequate mechanism” under section 110(1)(a) is unclear. Lord MacFadyen in Maxi Construction Management Limited v Mortons Rolls Limited (7 August 2001) gave some consideration to this issue. The contractor, Maxi Construction, contended that they were entitled to an interim payment in respect of application no. 10. There was some debate about which terms had been incorporated into the contract, and ultimately the decision turned upon the nature of the contractor’s submission for payment. The contract in question required the employer’s agent to agree the valuation with the contractor before making a claim for payment. There was no obligation on the employer’s agent to agree a valuation within a clear timescale. As this effectively meant that claim for payment could be delayed indefinitely, Lord MacFadyen held that it was an inadequate mechanism. A payment provision that does not provide a clear timescale for dealing with and resolving payment issues is therefore inadequate, but Lord MacFadyen does not offer any guidance as to a test which could be applied in order to determine whether a payment mechanism is adequate or inadequate. The more interesting aspect of section 110 is the payment notice contained in sub-section 2. The paying party is supposed to serve a notice on the other party specifying the amount of the payment or the amount to be paid, and the basis of that payment. The notice should identify the amount due under the contract, assuming that the other party had carried out its obligation under that contract, and ignoring set-off or abatement in respect of other contracts. Before the Act came into force, it was not entirely easy to reconcile the somewhat rigidity of the requirement of that notice against the mechanisms and practices in respect of periodic monthly payments most frequently encountered in the construction industry. The JCT family of contracts have adopted the wording of the Act within the payment provisions, while the New Engineering and Construction Contract has adopted a slightly different approach. Under that form of contract the project manager’s certificate is taken to be the payment notice, provided by the project manager on behalf of the employer, to the contractor. The approach of the traditional JCT forms was that the architect or
contract administrator was responsible for certifying an amount due,
based upon a gross valuation of the work which was then subject to deduction
for retention and sums already paid. The architect would most commonly
ask the quantity surveyor to prepare the valuation, and quite often
this was preceded by an application for payment from the contractor.
So, despite the terms of contract, a contractor would prepare an application,
clearly because it was in the contractor’s interest to maximise
the valuation and attempt to see that it was paid. The contractor’s
application would then be “checked” by the quantity surveyor,
who would then adopt the amended application as his or her valuation
before making a recommendation, most usually in writing, to the architect
of the amount to be certified for payment to the contractor. The architect
then issued the interim certificate, which in most cases will amount
to the payment notice anticipated by section 110(2). |
2. A copy of the draft Bill can be downloaded. from the NZ parliament website. |
However, the Act does not appear to make any provision for a failure to issue this payment notice. Wallace QC considers that the absence of any sanction is a significant lacuna in the legislation, which leads him to question the legislative intention in requiring such a notice (3). The absence of any sanction has also been commented upon by Lord MacFadyen in the case of SL Timber Systems Limited v Carillion Construction Limited [2001] BLR 516: “Section 111(1), unlike section 110(2), did impose a sanction for failure to serve a notice…(4)” and then again at paragraph 19:
This is of interest as some had thought that the absence of a section 110(2) notice mean that the claimant (at least in an adjudication) was relieved of the usual burden of proving entitlement and should be awarded the sum claimed. One of the first decision which considered that nature of a section 110(2) payment notice was VHE Construction plc v RBSTB Trust (2000) BLR 187. RBSTB employed VHE Construction to carry out remediation work. The contract was a JCT Standard Form with Contractor’s Design (1981) edition. That form of contract is somewhat different to the rest of the JCT family, in that clause 30.3.5 provides:
HHJ John Hicks QC reviewed these clauses, compared them to section 110(2) and stated at paragraph 33 of the judgment:
It seems that the provisions in the JCT with Contractor’s Design go somewhat further than the requirements of the Act, in that failure of the employer to give a written notice means that the employer is then obliged to pay the contractor the amount of the contractor’s application, regardless of whether the amount of that application is a sum properly due under the contract. Section 110(1)(a) requires a mechanism that determines what payment become “due under the contract”, and arguably a contractor’s application might include items which are not properly due under the contract. The case of Northern Developments (Cumbria) v J&J Nichol [2000] BLR 158 was reported very shortly after VHE Construction. In Northern Developments HHJ Bowsher QC referred to section 110 and stated: The only direct force of Section 110 is to make the Scheme apply if the contract does not comply with the Act, and it was so effective in this case. But it also sets the context for section 111 which refers back to it (6). |
3. Wallace, I.N.D. QC (2002)
‘The HGCRA: A Critical Lacuna?’ 18 Const. L J 2, page 117 4. Para.14 5. Para. 19. |
He then goes on to state, at paragraph 29:
There is of course some slight confusion in this passage, in that it is a section 110(2) notice that is to be given 5 days after the due date for payment, but clearly HHJ Bowsher QC is referring to the operation of section 111 in respect of withholding notices. HHJ Bowsher QC does go on to cite HHJ Hicks QC in VHE Construction noting that they agreed upon the effect of a withholding notice under the Act. In any event, little can be gleaned from either of these decisions in respect of the section 110 payment notice. It is of course difficult to escape consideration of the nature of the section 110 notice, without referring to the perhaps more important section 111 withholding notice. Section 111 is set out as follows:
The distinction between a payment notice and a withholding notice was again referred to by HHJ Gilliland QC in the case of Millers Specialist Joinery Company Limited v Nobles Construction Limited [2001] CILL September 1770-1773 where he states at paragraph 15:
While then the section 110(2) payment notice is concerned with the valuation of work done, section 111 is concerned with contra-charges arising under the contract or other claims arising out of other contracts which are being claimed by way of set-off against the contract in question. Keating on Building Contracts, 7th Edition, paragraph 15-15H appears to consider that a purposive construction of the section demands that a withholding notice is required for any cross-claim whatsoever, and in the absence of a withholding notice the claimant should be paid the sum claimed:
In respect of this point His Honour Judge Bowsher QC, in Whiteways Contractors (Sussex) Limited v Impresa Castelli Construction UK Limited (9 August 2000, unreported), said at paragraph 32:
HHJ Bowshers QC considers that there is no difference between set-off and abatement for the purposes of considering the effect of the notices. However, when an adjudicator carries out his own valuation he may reduce (abate) the amount claimed in respect of items that are not properly “due under the contract” even though they are not specifically mentioned in the section 111(1) withholding notice. This is of course because both a section 110 and section 111 notice relate to “sums due under the contract” and if an item is not properly due under the contract in question then an adjudicator can still abate the sum claimed, but only in respect of elements making up the claim. So, if the claim includes 400m2 of brickwork and 50m2 is defective, then the adjudicator can base is decision on an amount in respect of 350m2 even in the absence of a section 111 notice. More recently in S L Timber, Lord MacFadyen makes the important distinction between a “sum claimed” and a “sum due under the contract”:
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6. Page 163 |
The important point is that a “sum claimed” is distinct from a “sum due”, and so once a sum is due under the contract a withholding notice is required in order that the payor can reduce the amount of the payment of the sum due. He then sets out some examples of cross-claim that might not require a withholding notice as the dispute focused on whether the sum claimed was due under the contract. Lord MacFadyen considered that failure to serve a valid withholding notice did not relieve the claimant of the ordinary burden of proving that he should be awarded the sum claimed. This merely confirms the ordinary burden of proof - that he who asserts must prove on the balance of probabilities - and so one then turns to the words in the contract in order to ascertain that which is due. In respect of a failure to serve a valid section 111 withholding notice Lord MacFadyen stated:
The adjudicator was concerned that the Act would be ineffective if he were able to ignore the failure of the defendants to serve a withholding notice and take the defendants cross-claims into account. Those concerns failed to consider the distinction between abatement within the scope of the claim (which did not need a withholding notice) and other cross-claims such as an equitable set-off for liquidated damages, which would need to be referred to in a timeous withholding notice. If the claimant can show what he is due under the contract then the defendant must serve a withholding notice in respect of those matters for which he does not intend to pay. In the absence of a withholding notice (but dependent on the terms of the contract) a defendant can still argue that a sum is not due under the contract, and included within that category is abatement for defective works. In S L Timber, Lord MacFadyen came to the conclusion that the adjudicator’s view as to how section 111 operated was wrong. However, that error was in answer to the adjudicator asking himself the right question, and so the decision was enforced on the frequently cited expert determination rational:
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7. Para. 20. 8. Para. 22. |
The error was one that the adjudicator had the
power to make. The error was intra vires, rather than rendering
the decision ultra vires. Prohibition of conditional payment provisionsSection 113 of the Act makes payment provisions that are conditional on the payor receiving payment from a third person, unless that third person is insolvent, ineffective. Keating has referred to this as a partial exclusion of “pay-when-paid” clauses (10). One question that arose in respect of the operation of this provision, was whether it only applies where the relevant party is insolvent at the time that the construction contract was entered into, or whether the clause is effective if the relevant party becomes insolvent during the project. While the question may not be entirely resolved, HHJ Lloyd QC in the case of Durabella Limited v J Jarvis & Sons Limited (19 September 2001) considered the operation of this section, and stated that if a contractor was not guaranteeing the employer’s solvency, then it was right that the risk of the employer’s insolvency “may legitimately be shared”. The implication of this approach, arguably, is that the exception applies at the point in time at which the payment is to be made under the contract, and not upon entering into the contract. AdjudicationOnce the Act was brought into force on 1 May 1998, the key question was whether the courts would enforce a decision of an adjudicator. Section 108(3) of the Act states that the “contract shall provide that the decision of the adjudicator is binding …”. At the time, there was some concern about the appropriate way to enforce a decision of an adjudicator, and in particular whether summary judgment would be available or whether the court would hear the matter afresh in a full trial thus defeating the purpose of adjudication. The first case of Macob Civil Engineering Limited v Morrison Construction Limited swept away those concerns. The Hon. Mr Justice Dyson delivered his judgment on 12 February 1999 confirming that the decision of an adjudicator is enforceable summarily regardless of any procedural irregularity, error or breach of natural justice. The judge adopted a purposive approach to the construction of the word “decision”, refusing to accept that the word should be qualified. The judges in the majority of the cases following Macob adopted a similar approach, enforcing adjudicator’s decisions that had found their way to the courts. The robust and purposive approach was reinforced by the first Court of Appeal decision of Bouygues v Dahl-Jenson (UK) Limited. The Court of Appeal delivered its judgment on 31 July 2000, upholding the first instance decision of Mr Justice Dyson. They confirmed that the purpose of the adjudication procedure set out in Section 108 of the Act was to provide the parties to a construction contract with a speedy mechanism for resolving disputes, which although not finally determinative, could and should be enforced through the courts by way summary judgment. More importantly, even where an adjudicator had answered the question put to him in the wrong way, the court would not interfere with that decision but would enforce it. The decision of an adjudicator was and is being treated much like the decision of an expert resulting from an expert determination. Providing that an expert, and by analogy an adjudicator, has asked the right question then the decision will be enforced regardless of any errors made along the way. Only if the expert and therefore the adjudicator were to ask the wrong question would the decision be a nullity, because the adjudicator would not have jurisdiction to answer that “wrong” question. The robustness of the courts in dealing with a great many of the jurisdictional
challenges and the court’s willingness to enforce adjudicator’s
decisions by way of summary judgment must certainly have contributed
to the enormous growth and widespread use of adjudication. Recent research
suggests that the number of adjudications arising from nominations by
the Adjudicator Nominating Bodies (“ANBs”) amount to just
over 6,000 in the UK. This figure arises purely from ANB appointments.
Many ad hoc adjudications are now taking place, and the figure may well
be far in excess of 6,000(11), perhaps being as high as around
10,000 (12). The courts have now heard at least 125 cases
relating solely to adjudication. A simple comparison between the figures
suggests that adjudication is successful and effective. In other words,
arguably only 1% of the disputes referred to adjudication progress to
the courts for the purposes of enforcement. |
9. Para. 18. 10. Keating on Building Contracts, 7th edition
paragraph 15-15J |
| Most of the 125 or so cases arising from adjudication
turn upon the specific facts of the particular case. The majority of those
cases adopt the purposive and robust approach of His Hon. Mr Justice Dyson
in Macob. But has this trend continued? Some have questioned whether the
courts are now taking a more restrictive view, perhaps to “reign
in” the process of adjudication and reinforce the checks and balances
that one would normally expect to see operating within the dispute resolution
arena. There are, of course, those jurisdictional challenges that will
remove any chance of enforcing the adjudication decision. For example,
the ability to demonstrate that there was no contract, that the adjudicator
asked the wrong question, or rather that he did not answer a question
put to him.
However, the increasing caution recently shown by the courts has been demonstrated by a reconsideration of the application of the rules of natural justice, enforcement exceptions in respect of insolvency or “serious financial doubts”, whether there was in fact a “dispute”, and more recently, the restricted view taken in respect of construction contracts “in writing” by the Court of Appeal in RJT Consulting Engineers v DM Engineering (NI) Limited on 8 March 2002. To these four “cautionary” consideration two further issues should be considered, namely, the status of an adjudicator’s decision and whether the judicial review considerations of public law have any place within the current expert determination approach to enforcement adopted by the courts. In summary the six issues explored below are:
1. Natural Justice The courts have reconsidered the role of natural justice, arguably adopting a more cautious approach. In the case of Discain Project Services Limited v Opecprime Development Limited (11 April 2002), the defendant challenged the enforcement of an adjudicator’s decision on the basis that the adjudicator held “private” telephone conversations relating to the issues in dispute without adequately informing the other party about the nature of those discussions. Judge Bowsher QC declined to enforce the decision as he held that the telephone calls created the appearance of bias. It was irrelevant whether there was any actual bias, the important issue was that the calls created the appearance of bias. One might assume that telephone calls would be required given the restricted timescales in adjudication, providing that the other party is given an opportunity to consider the matters discussed and comment. However, Judge Bowsher QC took the view that telephone calls should be restricted to administrative matters, and could perhaps be made by a secretary rather than the adjudicator himself. The recent case of Balfour Beatty Construction Limited v The Mayor & Burgesses of the London Borough of Lambeth, 12 April 2002, before HHJ Humphrey Lloyd QC also deals with questions of natural justice. Balfour Beatty made an application under Part 24 (Summary Judgment) to enforce the decision of an adjudicator. The contract between Balfour Beatty and Lambeth was for the refurbishment of the Falmouth House, Penwith Manor Estate, Kennington Park Road, London. The contract was made pursuant to an order, and at the time of the adjudication the contract had, apparently, not been executed, but the order incorporated the JCT Standard Form of Building Contract 1998 Edition Local Authorities Without Quantities incorporating amendments and the Contractor’s Designed Portion Supplement 1998. During the course of the works delays occurred, and on three occasions the architect awarded Balfour Beatty an extension of time. However, the architect also issued a Certificate of Non-Completion, with the result that Lambeth deducted liquidated damages totalling £355,831.71. A dispute arose in connection with the amount of damages for delay, and 5 months after practical completion the dispute was referred to adjudication. The basis of the referral was an as-built programme and analysis, but the adjudicator did not consider that it was adequate in that it did not identify each relevant event, the date of the event, the activity directly affected by the event, and the nature of that effect on the completion date. The adjudicator attempted to obtain this information from the parties, but was only partly successful and decided to prepare his own critical path analysis. He then made his decision based upon that critical path analysis. The complaint in this case was that the adjudicator had not given the parties an opportunity to review and comment upon the critical path analysis. HHJ Lloyd QC referred to the decision of HHJ Bowsher QC in Discain Project Services Limited (No 1) which recognised that some breaches of natural justice might be allowed in order to deal with the dispute in a restricted time scale, and that each case would turn upon its facts, but that nonetheless adjudicators must comply with the rules of natural justice. HHJ Lloyd QC confirmed this approach recognising the importance of adjudication in the industry, not just in terms of settling minor disputes, but more recently in settling large disputes post-completion. He considered that in these circumstances natural justice was all the more important. As a result HHJ Lloyd QC held that the adjudicator had exceeded his jurisdiction by making good the material deficiencies in Balfour Beatty’s claim and by not giving a party a reasonable opportunity of commenting upon the critical path analysis produced by him. The application for summary judgment was therefore dismissed. 2. The “serious financial doubt” exception If the receiving party is in liquidation or receivership or there is a serious doubt about its ability to repay then a stay of execution may be granted. This principle was recognised in Bouygues v Dahl-Jenson, but has more recent application in the case of Rainsford House Limited (in Administrative Receivership) v Cadogan Limited (13 February 2001). In that case, Rainsford fell into the category of “serious doubt on the ability to repay” by the very fact that they were in administrative receivership. HHJ Seymour QC stated that the question of whether to grant a stay on the basis of some serious doubt on the ability of the claimant to repay would need to be considered on the circumstances of each case. He stated that an applicant would need to put before the court “credible material which, unless contradicted, demonstrated that the claimant is insolvent” (at paragraph 11). However, he stated that the applicant merely needed to put evidence before the court as to the financial position of the claimant at the time of the application, and did not need to predict when the adjudicator’s decision might be challenged, nor attempt to predict the financial standing of the claimant at that time. Providing that the defendant is able to produce such evidence, then it is for the claimant to contradict the evidence. This principle was further developed in the case of Barr y D Trentham Limited v Lawfield Investments Limited, (3 May 2002, Outer House, Court of Session). The Pursuer, Barr y Trentham, was a building contractor, and the Defender, Lawfield Investments was a property developer. The Pursuer was claiming payment of valuation 17, which had not been paid by the developer. No valid section 111 Notice was given, and so the builder sued for the sum of £364,864.49 (valuation no. 17). The contract was the SBCC, but the payment provisions had been amended so that payment was based upon the cost of the works, plus 7½ % in respect of the subcontracted works, and 5% for the builder’s costs. Money had been lent to the developer by the Dunbar Bank, and the bank’s surveyor checked the valuation in the role of fund’s monitoring surveyor. The Pursuer alleged that there was a serious risk of the Defender’s insolvency because of the net liability in the audited accounts, and also because of the borrowing against that sole development. The Defendant challenged that claim on the basis of the Human Rights Act, stating that it had adequate funds and referring to the published accounts. Lord Drummond Young held that if a defender could put forward credible evidence that there was no risk of its insolvency, then the onus was placed back on the pursuer to justify the continuance of the injunction. The Defendant showed by virtue of its published accounts that it was solvent with assets. However, the Pursuers examined those accounts, and revealed that the published accounts were misleading. The Judge accepted those discrepancies, concluding that there was a significant risk of insolvency for 7 reasons. These included:
The Defender then argued that the valuation 17 claim was disputed, and that a withholding notice in the sum of £1 million had been served against valuation 18. The Defender argued that this cancelled the present claim. The Judge recognised that the existence of a counterclaim would amount to a defence. Nonetheless, the Judge took into account the Defendant’s offer to settle the final account, which demonstrated that regardless of valuation 17 and 18 the Defendant accepted that a “liquid” sum was accepted as owing. He therefore refused the Defendant’s motion to recall the inhibition (injunction). Finally, in Baldwins Industrial Services Plc v Barr Limited, (6 December 2002) the Claimant, Baldwins Industrial Services Plc, hired a 50 tonne crane for use on a building site by Barr Limited. Barr requested that Baldwins supply, and Baldwins did supply a crane operator. Baldwins allege that the crane had been damaged as a result of an incident on site on 19 December 2000. They claim the cost of repairs and the value of lost hire charges. By a notice dated 20 July 2002 they referred that dispute to adjudication. The Adjudicator issued a Decision dated 24 August 2002 concluding that he had jurisdiction, and awarding Baldwins the sum of £149,212.52 together with transport costs, interest and £35,702.87 in respect of lost hire charges. Joint Administrative Receivers were appointed in respect of Baldwins on 28 October 2002. Baldwins sought to enforce the Adjudicator’s Decision that Barr should pay £185,385.39 plus interest and costs. Barr defended on the grounds that the Adjudicator did not have jurisdiction because the agreement between the parties was not a construction contract within the meaning of Section 104 (i) (a) of the Act. However, as Administrative Receivers had been appointed, and the financial position of Baldwins was poor, Barr sought a stay of execution. Unlike previous cases Barr did not have a counterclaim, neither had they commenced proceedings. Barr were ordered to pay the money into Court on the basis of certain conditions, one of which was the requirement for them to commence proceedings within one month of the orders failing which the money would be paid out of Court to Baldwins. 3. The meaning of a “dispute” Some suggest that the courts have adopted an esoteric legalistic approach to the consideration of whether or not a “dispute” has arisen, such that it can be referred to adjudication. In the case of Hayter v Nelson [1990] 2 Lloyds Rep 265, Saville J refused to give summary judgment and stayed the matter because of the existence of an arbitration clause. In his judgment, he stated that the word “dispute” should be given its ordinary meaning and went on to cite the infamous “boat race” definition of a dispute. As a general principle, any form of disagreement appears to be adequate. This approach, together with the mandatory nature of a stay of legal proceedings pursuant to section 9 of the Arbitration Act 1996 means that the court will stay legal proceedings such that the parties must pursue their differences in arbitration. So, is it the case that the courts have adopted a different approach in respect of disputes that are referred to adjudication; perhaps requiring a more stringent test? One of the first adjudication specific cases to touch upon this area was Fastrack Construction Limited v Morrison Construction Limited & Anor (4 January 2000). In that case Morrison were the main contractors for the construction of a new leisure complex in Coventry. Fastrack was the brickwork subcontractor. Delays occurred to the works and a dispute developed and as a result Morrison engaged third parties to progress some of Fastrack’s work. Fastrack considered that Morrison’s employment of others was a repudiation of the subcontract, and so accepted the repudiation and left site. Notice of Determination was then served by Morrison on Fastrack. After leaving site, Fastrack submitted Application no. 13 for the gross sum of £383,873.97. Morrison then served a notice of set-off in respect of cost to complete in the sum of £226,177.00, which succeeded the net sum claimed by Fastrack in Application No.13. A reference was then made to adjudication, and the Adjudicator awarded Fastrack the sum of £85,401.98. Morrison refused to pay, and argued that, at the time the Notice of Adjudication was served, the only dispute in existence related to the matters set out in Application No. 13. However, the sums claimed in the adjudication were different to those claimed in the application for payment. For example, £232,815.00 was claimed in respect of measured works in the application, whilst £250,364.70 was claimed for measured works in the Notice to Adjudicate. Morrison therefore argued that the amounts set out in Application No. 13 had been superseded by a new claim, that was not yet in dispute as Morrison had not had the chance to consider the new claim and respond. They went on to argue that there was therefore no dispute and the adjudicator was appointed without jurisdiction. In the enforcement proceedings, HHJ Thornton QC noted that the Act
refers to a “dispute” but not to “disputes”.
He therefore considered that a referring party could only refer a single
dispute, although that dispute may have several or many matters at a
particular point in time and it will be a question of fact as to what
constitutes the dispute. He went on to state: |
11. Glasgow Caledonian University
Reports on Adjudication No. 3/4 12. Miller, J. (2002) Adjudication
Update Seminar, Savoy Hotel, 13 May. |
Fastrack argued that it was possible to refer a number of disputes, and the disputes referred did not need to be identical to the pre-existing dispute, providing that it was substantially the same as the pre-existing dispute. HHJ Thornton QC did not agree with either of these suggestions, stating:
Adopting the rationale in Halki he went on to hold that a dispute within section 108 of the Act can only arise when a claim has been notified and rejected. However, it should be noted that a rejection can occur when a party refuses to answer the client. Finally, HHJ Thornton QC stated that Fastrack would have recovered no sum at all if it had limited its Notice of Adjudication to Application 13, but as the Notice of Adjudication was expressed in extremely wide terms it covered the matters in dispute. The Notice included such matters as: disputes that have arisen, issues as to Fastrack’s right to payment, or such other sums as the adjudicator shall find payable in respect of breaches of contract, loss of profit etc. The interim payment procedure had come to an end as a result of Fastrack’s acceptance of Morrison’s repudiation, and so had been replaced by an entitlement to damages of sums due as a result of the repudiation. Therefore, there had been a notification and rejection of the claims forming the subject matter of the dispute which had been captured in the Notice of Adjudication. This year the case of Chamberlain Carpentry & Joinery Limited v Alfred MacAlpine Construction Limited (25th March 2002) again considered the question of what constitutes a dispute for the purposes of adjudication. A series of issues in dispute had been set out in Chamberlain’s Notice of Adjudication. All of those issues (save for one) related to the value of the subcontract, raising discrete points for the Adjudicator to consider. A further point referred to in the Notice of Adjudication related to the ascertainment of the fair and reasonable costs incurred by MacAlpine during the course of adjudication. The subcontractor had included this issue as MacAlpine’s bespoke rules of adjudication applied, and one of the provisions in those rules stated that the referring party should be responsible for all the costs incurred on a full indemnity basis. This was unless MacAlpine were the referring party, in which case both parties were to bear their own costs. Adopting the rationale in Halki he went on to hold that a dispute within section 108 of the Act can only arise when a claim has been notified and rejected. However, it should be noted that a rejection can occur when a party refuses to answer the client. Finally, HHJ Thornton QC stated that Fastrack would have recovered no sum at all if it had limited its Notice of Adjudication to Application 13, but as the Notice of Adjudication was expressed in extremely wide terms and so covered the matters in dispute. The Notice included such matters as: disputes that have arisen, issues as to Fastrack’s right to payment, or such other sums as the adjudicator shall find payable in respect of breaches of contract, loss of profit etc. The interim payment procedure had come to an end as a result of Fastrack’s acceptance of Morrison’s repudiation, and so had been replaced by an entitlement to damages of sums due as a result of the repudiation. Therefore, there had been a notification and rejection of the claims forming the subject matter of the dispute which had been captured in the Notice of Adjudication. This year the case of Chamberlain Carpentry & Joinery Limited v Alfred MacAlpine Construction Limited (25th March 2002) again considered the question of what constitutes a dispute for the purposes of adjudication. A series of issues in dispute had been set out in Chamberlain’s Notice of Adjudication. All of those issues (save for one) related to the value of the subcontract, raising discrete points for the Adjudicator to consider. A further point referred to in the Notice of Adjudication related to the ascertainment of the fair and reasonable costs incurred by MacAlpine during the course of adjudication. The subcontractor had included this issue as MacAlpine’s bespoke rules of adjudication applied, and one of the provisions in those rules stated that the referring party should be responsible for all the costs incurred on a full indemnity basis. This was unless MacAlpine were the referring party, in which case both parties were to bear their own costs. HHJ Seymour QC referred to Judge Thornton’s analysis in Fastrack Contractors v Morrison Construction considering that whilst it was up to a claimant to set out the nature of the dispute in the Notice of Adjudication, the claimant was not the sole judge of whether there was in fact a single “dispute”, and a series of discrete matters could be characterised as a single dispute for the purposes of adjudication. Of more interest, HHJ Seymour QC referred to the principles of interpretation recently restated by Lord Hoffman in Investors Compensation Scheme v West Bromwich BS (1998). In that case, Lord Hoffman said that interpretation was the ascertainment of the meaning, which the particular document would convey to a reasonable person having the background knowledge that would have been reasonably available to the parties. On this basis HHJ Seymour QC considered that the subcontractor had clearly referred to adjudication a dispute as to how much the sub contractor should have been paid. Further, an integral part of that dispute was the ascertainment of MacAlpine’s costs as the adjudication rules required Chamberlain to pay MacAlpine’s costs. Finally, MacAlpine argued that documentation submitted with the application was such that the Adjudicator had to “hunt through” those documents in order to identify the payment application referred to in the Notice of Adjudication. They argued that the dispute was therefore not sufficiently identified, and as a result the Adjudicator lacked jurisdiction. HHJ Seymour QC held that a difficulty locating documents did not mean that the “dispute” had not been identified with sufficient clarity. The Adjudicator had identified the matters in dispute and had correctly understood what he had been asked to do. Balfour Kilpatrick Limited v Glauser International SA Salford TCC, (27 July 2000) considers the nature of a dispute in respect of the complexity of the matters. On an application under Part 24 of the CPR to enforce the decision of an adjudicator, the defendant to the adjudication argued that the notice to refer was defective in that it sought to refer more than one dispute in a single reference. The contract between the parties incorporated the TeCSA Rules (Version 1.3), which, at rule 3, adopts the singular word "dispute". They also argued that the number and complexity of the disputes made it unsuitable for adjudication, and given the short time scale the process was unfair and in breach of the rules of natural justice. Judge Gilliland held that a "dispute" under the TeCSA Rules was not confined to a single dispute, as Rule 11 stated that the dispute related to the "matters identified in the notice", and therefore anticipated a range of matters within a single adjudication reference. He went onto hold that neither the number nor complexity of the matters made them unsuitable for adjudication, nor was there a breach of natural justice. British Waterways Board (Judicial Review) Opinion of Lord McCluskey (5 July 2001) also considered the meaning of a “dispute” and in particular whether one had crystallised. The petitioner, British Waterways Board, sought an interim order in a petition for judicial review. The issue was whether there existed between the parties, at the time of the petition, a dispute that could properly be referred to adjudication. The petitioner contended that no "dispute" existed within the meaning of the Act. The respondents maintained that there was a dispute within the meaning of the Act, and that the definition in clause 90 of the contract (inserted by Addendum Y (UK) 2) between the parties should be disregarded. Lord McCluskey was satisfied that the petitioner and respondent had raised substantial arguments, and as a result he could not hold that there was no issue to try. He stated that the Act and clause 90 both envisaged a speedy resolution of the matters between the parties. If the matters were not properly in dispute then the matter should be put in an appropriate form before an adjudicator. Accordingly the motion was declined. The case of Maxi Construction Management Limited v Mortons Rolls Limited (7 August 2001) highlights the dangers of failing to assert a claim. If a claim has not been submitted, then it cannot be rejected. This case concerns the application of the payment mechanisms in the Act and the Scheme in respect of the building contract. The pursuer, Maxi Construction, contended that they were entitled to an interim payment in respect of "Application Number 10", and that the defenders, Mortons, had no relevant defence. There was some debate about which terms had been incorporated into the contract, but ultimately the decision turned upon the nature of the contractor's submission for payment, which the judge characterised as a request for the employer's agent to value the work, rather than an application for payment. Lord MacFadyen held that the application by the contractor did not amount to a claim under the Scheme because:
Edmund Nuttall Limited v R. G. Carter Limited (21 March 2002) concerns the issue of what constitutes a “dispute”. In that case, a breakdown of additional costs relating to delay and disruption was provided in May 2001. There were some further exchanges in correspondence before a notice of adjudication was issued on 14 December 2001. The claimant’s expert prepared a report in support of the claim, but adopted different figures and relying upon several different matters in support of the claim. The defendant objected on the basis that the expert’s report set out a new claim, which Carter had not seen before. They argued that, therefore, it did to relate to the dispute referred to adjudication. The adjudicator continued and nonetheless made a decision. HHJ Seymour QC considered the authorities relating to the meaning of the words “dispute”, and “claims”, and came to the conclusion that a claim must be formulated, put to the other party and cannot become a “dispute” until that other party have had an opportunity to consider the claim and reject it. Failure to respond within a reasonable time will amount to a rejection. HHJ Seymour QC held that the claim advanced in the expert’s report was different to the original claim referred to in the notice of adjudication. He therefore declined to enforce the award. Care is therefore needed not just to adequately identify the matters in dispute but also to identify the precise scope of the supporting arguments. A change to the detail supporting a claim may well result in a different claim. The other party must then have the opportunity to consider, and accept or reject it. A dispute in respect of the revised claim cannot crystallise until that revised claim has been rejected. In summary:
4. When is a construction contract “in writing” RJT Consulting was the third decision of the Court of Appeal in respect of adjudication. It is an appeal from the TCC decision of HHJ Mackay, who dismissed RJT’s claim for a declaration that the construction contract was not an “agreement in writing” within section 107 of the Act. The adjudicator had decided that the oral contract was sufficiently evidenced in writing by drawings, schedules and minutes of the meeting etc. HHJ Mackay agreed. However, the appeal was allowed by the Court of Appeal. Lord Justice Ward and Lord Justice Robert Walker held that all of the terms of the construction contract had to be evidenced in writing. It was not sufficient for merely the material terms, such as the identity of the parties, nature of the work and price, to be recorded in writing. Further, even if they were wrong, the documents relied upon in this particular case were described as “wholly insufficient”. Auld J considered that only the material terms of the agreement were required, and therefore trivial or unrelated issues did not need to be recorded. But his approach was not shared by the majority. So on one view, all of the terms of the contract need to be recorded in writing in order that a dispute under any contract can be referred to adjudication. Some might consider this an unfortunate decision, perhaps opening the door to a flood of jurisdictional challenges. The industry rarely records all of the material terms in writing, indeed those terms which are material are often not recorded in writing. However, the House of Lords has refused a petition to appeal. RJT was followed recently in the case of Carillion Construction Limited v Devonport Royal Dockyard Limited (27 November 2002) in the TCC before HHJ Bowsher. In 1997 the Ministry of Defence employed Devonport Royal Dockyard (DML) as main contractor for the upgrading of a dockyard. In turn, DML employed Carillion to upgrade the No. 9 dock, provide new buildings and associated infrastructure. That contract was contained in two documents, a subcontract and an Alliance Agreement both dated 10 March 2000. Carillion was to be paid its actual cost plus accruals and a fee. A gain share agreement provided that any overspend of the target cost would be shared between DML and Carillion. The target cost was originally £56 million, but was amended six times between September 2000 and December 2001 to a target cost of £100 million. A meeting of the Alliance Board (a board comprising two representatives of the parties with the power of authority to make decisions) met on 30 October 2001 with a view to revising the payment provisions. Carillion believed that a binding oral agreement had been reached at that meeting whereby payment was to be on a cost reimbursable basis without the gain share restrictions. However, the amount of the fee could not be agreed. Carillion submitted application no. 33 on 16 April 2002 to DML for achieving milestone 33. Carillion claimed £121,522,511.29 less the previous certified sum of £110 million. The sum was not paid, but there was an exchange of correspondence in respect of the calculation of the figure and the basis of the figure. This culminated in a letter from Carillion dated 25 July 2002 stating that the basis of their claim was the oral agreement reached on 30 October 2001. By further letters dated 26 and 29 July 2002 Carillion threatened adjudication proceedings. By letter dated 1 August 2002, DML wrote to Carillion stating that this was the first time that Carillion were seeking to rely upon an agreement reached on 30 October 2001, and DML asked for more detailed information in respect of that agreement. Carillion responded with a Notice of Intention to Refer the Dispute to Adjudication dated 6 August 2001. An adjudicator was appointed on 12 August 2002. His decision dated 24 September 2002 decided that a binding agreement was concluded on 30 October 2001, the project would become cost reimbursable and that DML should pay £7,451,320 plus VAT within 18 days together with fees. DML did not pay. They claimed that the adjudicator did not have jurisdiction for two reasons. First, the alleged oral agreement did not comply with the requirements of section 107 of the Act insofar as it was not in writing. This was irrespective of whether or not an oral agreement was in fact reached. Second, that a dispute had not crystallised between the parties as DML had not rejected Carillion’s allegation that there was an oral agreement, but had merely requested further information. HHJ Bowsher QC held that the oral agreement did not comply with section 107 of the Act, and further that there was no dispute capable of being referred to adjudication. He therefore refused to enforce the decision. In respect of the oral agreement, he considered that the agreement had not been evidenced in writing pursuant to section 107(2)(c) and had not been recorded otherwise than in writing pursuant to section 107(3) of the Act. He referred to the Court of Appeal case of RJT Consulting v D M Engineering [2002] 5 BLR 217 which supported his conclusion. In respect of the “No Dispute” point he considered by analogy that the arbitration cases raise the issue of whether or not a dispute entitles a claimant to start arbitration proceedings. In particular he referred to Judge Gilliland QC in Cruden Construction Limited v Commissioners for the Newtown [1995] 2 Lloyds Rep 387 in which he noted that the plaintiff had requested further information but that information was not supplied until after the service of a Notice of Arbitation. He therefore took the view that there was no dispute at the time of the service of the Notice of Arbitration. HHJ Bowsher QC made the point that one should not examine the minute details of the correspondence leading up to the Notice of Adjudication, but should take a broad approach. On this basis, he still considered that DML was not aware in what respects it was alleged to have broken its obligations on the date on which the Notice of Adjudication had been served. HHJ Bowsher QC therefore held that there was no dispute, and as a result the adjudicator did not have jurisdiction. Permission to appeal was given HHJ Bowsher QC. His decision raises issues of some public importance, given that many construction disputes involve oral agreements, or part oral agreements which maybe material to the issues in dispute. Following the Court of Appeal case of RJT and this case, it appears that an adjudicator will not have jurisdiction if any of the material terms have not been recorded in writing. 5. The status of an adjudicator’s decision; does it create a debt? An issue that is not yet fully resolved is the status of an adjudicator’s decision. Does an adjudicator’s decision create a debt (following VHE Construction plc v RBSTB Trust Co Limited (13 January 2000)). Alternatively when seeking to enforce the decision of an adjudicator is the cause of action the right or obligation in dispute, rather than the decision itself? In the case of VHE Construction plc, VHE applied for summary judgment for sums claimed by way of enforcement in respect of two adjudications. Several issues arose, the third of which was whether VHE were automatically entitled to the amount applied for, or whether RBSTB was entitled to pay a lesser amount by relying on a right of abatement or a “proper” assessment of the valuation to clause 30.1 and 30.2a of the contract in question. HHJ Hicks QC considered that this raised the two questions. First, the construction and effect of the decision in this particular case, and where the adjudicator’s decision gave rise to independent obligation for the payment of money, which was distinct from the contractual obligations in dispute. The second question, was not merely confined to the facts of a particular case but concerned the status of adjudication decisions themselves, which required payment of monies. In VHE Construction, there had been two sequential adjudications. In the first adjudication the adjudicator had accepted the defendant’s submission that it was entitled to withhold money until VHE delivered a VAT invoice in accordance with the payment provisions in the contract. The delivery of a VAT invoice was a condition precedent to payment. The adjudicator decided that VHE would be entitled to payment within 28 days of receipt of the VAT invoice. The defendant argued that the decision could only amount to a declaration as to the effect of the contractual provisions. If that approach was right, then VHE would need to commence a court action under the contract in order to obtain the payment. Proceedings to enforce payment of the decision would be a waste of time. HHJ Hicks QC considers that it was implausible that the statutory purpose of section 108 of the Act would be that “either of the parties or the adjudicator intended his decision to be vacuous”, and went on to state:
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13. Para 20. 14. Para 22 |
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In effect, summary judgment is given for the payment of a sum not actually due at the date of the decision because of an unfulfilled condition precedent in respect of the awaited VAT invoice. But, there had been a second adjudication. In that decision the one million pound odd had been revalued to £254,831.83. The judge therefore had to consider the effect of the second adjudicator’s decision. There were two views as to its effect. First, the amount of the first decision was reduced to the amount of the second decision, or, second, the amount of the first decision was to be paid in full, and the difference between the first decision and the second was to be immediately repaid. HHJ Hicks QC preferred the second option. This appears to be on the basis that the second adjudicator did not have any jurisdiction to revise the first adjudicator’s decision. He therefore concluded that the first adjudication decision remained. Little guidance is given in the Act as to the status of an adjudicator’s decision. Section 108(3) merely states that decisions of the adjudicator shall be binding on the parties until the dispute or difference is finally determined by arbitration or litigation or by agreement. Section 108(3) does not, therefore, deal directly with enforcement but with the relationship between adjudication, and arbitration or litigation in respect of the same dispute. It does however lay the ground for enforcement by use of the word “until final determination the decision is binding”. By comparison, the Arbitration Act 1996 sets out a fairly detailed code, in sections 66-71 inclusive, dealing with the powers of the court in respect of arbitral awards. Section 66 provides that:
In section 67(3) the court may enforce an arbitration award, vary it,
or set it aside in whole or in part if there is a question of substantive
jurisdiction. The Housing Grants Construction and Regeneration Act 1996
makes no such provision for enforcement. HHJ Hicks QC came to the conclusion
that enforcement proceedings in respect of an adjudicator’s decision
were “proceedings to enforce a contractual obligation, namely
the obligation to comply with the decision.”(16) This
is of course consistent with the second approach to the analysis of
the implication of the second adjudication upon the first. Arguably,
the implication of this rationale is that the decision of an adjudicator
should be enforced pursuant to the contractual rights of the parties,
but it is not the contractual obligations between the parties in respect
of the determination of the amount due that is being reassessed and
then enforced. One reading of this judgment is that the decision creates
a debt that must be paid. |
15. Para. 43
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However, this approach has not been followed. In the case of Glencot Developments and Design Co Limited v Ben Barr ett and Son (Contractors) Limited (2000) BLR 207 HHJ Lloyd QC held that the cause of action is the right or the obligation in dispute. The same judge had to consider this same issue again in the more recent case of David McLean Housing Contractors Limited v Swansea Housing Association Limited (27 July 2001). HHJ Lloyd QC was referred to the approach of HHJ Hicks QC in VHE Construction, and in particular to HHJ Hicks QC statement that a residual right to set off liquidated damages does not exist against an adjudicator’s decision. Adopting this rationale, the claimant argued that the adjudicator’s decision created a debt, and so the cause of action was in respect of the payment of that decision pursuant to the contract. HHJ Lloyd QC did not agree, considering his approach in Glencot was correct and so the claim in this case was not payment for the decision, but was the unmet claim for payment application 19. Enforcement was therefore sought for the right under the contract that had not been met by the defendant, and that was the claimant’s right to payment under the contract. He supports this view with five arguments:
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16. Para. 34
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| It is respectively submitted that this approach
must be right. If one were to treat each adjudicator’s decision
as to be enforced without question then important issues that may come
to light during the course of the progression of a project would be potentially
ignored. Further, attempting to unravel the complexities of multiple decisions,
all of which must be treated as enforceable, in the face of mistakes not
just between the parties in respect of valuation, payment notices and
withholding notices, but also in respect of the reasoning of the time
of the adjudication decisions might be difficult to unravel and perhaps
would lead to unjust results. It certainly makes more sense to treat an
adjudicator’s decision as a highly persuasive “snapshot”
of the rights and obligations between the parties at a particular time
during the chronology of the project. However, the ramifications of this approach are that a subsequent valuation (where periodic monthly valuations apply) will in effect supersede the decision of an adjudicator in respect of the previous valuation. A carefully constructed valuation and/or withholding notice might therefore effectively nullify an adjudicator’s decision just in time for the paying party to avoid the effects of enforcement. The recent Court of Appeal case of Parsons Plastics (Research & Development) Limited v Purac Limited, 12 April 2002, touches on this issue, although not directly. This was an appeal from the TCC, which refused to enforce an adjudicator’s decision in favour of a subcontractor, and refused a stay to arbitration. The Judge granted the main contractor respondent summary judgment for their money claim, and ordered an interim payment of £12,000 in their favour. The main contractor, Purac Limited, was engaged by Anglia Water Services for the design and construction of a sewage treatment plant. Purac then engaged Parsons Plastics as a subcontractor for an odour control package. subcontract works progressed slowly. In addition and at the request of the subcontractor, Purac paid the sum of £30,963 direct to the subcontractor’s steel supplier. On 20 December 2000 the subcontractor applied for a payment, claiming £261,749.76 in respect of a certain milestone. The main contractor declined to pay, claiming on 21 December that the works had not reached the required stage. On 11 January 2001 Purac gave notice that they were taking over the works, and employing others to complete the works. The following day the subcontractor was ejected from site. An issue arose in respect of the jurisdiction of the adjudicator on the ground that the work was not a “construction operation” as defined in the Act. However, Purac’s solicitor confirmed that they would submit to the jurisdiction of the adjudicator, and there was therefore an ad hoc referral. The adjudicator’s decision was given on 17 May 2001. He decided that the subcontractor was entitled to a payment of 40% of the value of the completed works. In addition, he also decided that Purac’s letter of 21 December 2000 was not a payment notice, nor a withholding notice within the terms of the contract. On 23 May 2001 Purac issued a notice of its intention to withhold payment of the sum awarded in the adjudicator’s decision. They claimed £303,000 which had been paid to another subcontractor who had completed Parsons’s work. The central issue in the Court of Appeal was whether Purac was entitled to the defence of the set-off raised after the date of the adjudicator’s decision. Lord Justice Pill (Mummery and Latham agreeing) concluded that the Judge had reached the correct conclusion. He stated that it is acceptable for the respondent to set off against the adjudicator’s decision “any other claim they have against the appellants which had not been determined by the adjudicator”. The adjudicator’s decision cannot be re-litigated in other proceedings but, on the wording of this subcontract, can be made subject to set-off and counterclaim. The appeal was therefore dismissed. Care is however needed in respect of this case. It could be said that it turns on its own facts in particular the terms of the contract in question. It was not a statutory adjudication, but was a contractual adjudication. Further, decisions were to be “final and binding” and so no subject to the usual potential for a fresh hearing in arbitration or litigation. Further, it was in a contract provided that set-off and abatement were always available, and so the common law rights to equitable common law set-off were quite clearly available. The issues arose again in respect of 2 conflicting adjudicators' decisions in the case of Bovis Lend Lease Limited v Triangle Development Limited (2 November 2002). Bovis was a management contractor for Triangle Developments for the fit-out of three Victorian schools into three residential apartments. The contract was in the form of the JCT Standard Form of Management Contract 1998 Edition. The contract contained, at clause 7.6.4.1, a clause which stated that any further payment or release of retention shall not apply as a result of the determination of those in his employment. A dispute arose in respect of the valuation of two interim certificates, in which the architect had reduced certain sums so that each of the two certificates certified a negative value to Bovis. The architect also served a notice on Bovis to the effect that they were failing to proceed regularly and diligently with the works. Triangle then issued a withholding notice in respect of liquidated and ascertained damages following a certificate of non-completion. Bovis claimed that Triangle had repudiated the contract by engaging new contractors, and that Bovis had accepted that repudiation. During this period three adjudications were being progressed. The first related to the negative interim certificates, the second in respect of Triangle’s claim that Bovis was in breach for a requirement to provide documents, and the third relating to the question as to whether the contract had been repudiated. A variety of questions arose, but one central question related to the status of an adjudicator’s decision. The first adjudicator’s decision was in conflict with the third in respect of the payments of sums due. The first decision related to the interim valuation, whilst the third related to payments of sum due as a result of the counting process upon determination of the contract. HHJ Thornton QC held:
Finally, the Court of Appeal has considered the status of an adjudicator’s decision when compared to “superseding” clauses of the contract in Levolux AT Limited v Ferson Contractors Limited (22 January 2003), [2002] EWCA Civ 11, Court of Appeal (Civil Division). This was an appeal from the summary judgment decision of HHJ Wilcox on 26 June 2002 enforcing an Adjudicator’s decision. The question in this appeal was whether the Adjudicator’s decision should be enforced in the derogation of contractual rights which could be in conflict with the decision. The Defendant raised several issues by way of appeal. First, they argued that the contract had been validly terminated, and so the Adjudicator’s decision was inconsistent with the determination. Lord Justice Mantell held that that argument was rejected, as the Judge had held that there had plainly been no valid determination. It was the Adjudicator’s first instance decision that payment should be made, on the basis that the Withholding Notice was invalid, that meant that the subcontractor had a right to suspend such that the Contractor did not have a right to determine the contract for wrongful suspension. Second, the Defendant argued that there were some exceptions to the principle that an Adjudicator’s decision is binding and enforceable pending final resolution by arbitration or litigation. In respect of this appeal, one of those exceptions was that the terms of the contract to stated that no further payment would be made as a result the obligation to make a payment in accordance with the Adjudicator’s decision. This exception was based upon HHJ Thornton Q.C’s judgment in Bovis Lend Lease v Triangle Developments (2 November 2002). Lord Justice Mantell considered that case and the cases upon which Bovis relied. He came to the conclusion that the logic in the cases relied upon by HHJ Thornton was insufficient to support the conclusion reached in Bovis. However, Lord Justice Mantell construed the terms of the contract so as to give effect to the Adjudicator’s decision, and so held that the determination clauses must be read as not applying to amounts due by reason of the Adjudicator’s decision. He therefore dismissed the Appeal. Lord Justice Longmore, and Lord Justice Ward agreed. In conclusion, is seems that an adjudicator’s decision will be required in order to defeat an earlier decision, even where the machinery of the contract can be said to have overtaken the earlier decision. 6. Expert determination and Anisminic The second Court of Appeal decision relating to adjudication, and touching on section 111 withholding notices was C&B Scene Concept Design Limited v Isobars Limited, 31 January 2002. The case concerned the jurisdiction of the adjudicator, and appeared to focus on appendix 2 of the JCT WCD. In the absence of the selection of either payment alternative A or B, the judge decided that the payment mechanism fell away and was replaced with the Scheme. The result was that the decision was not enforced. At the summary judgment application in the TCC, three reasons for non-compliance with the adjudicator’s decision had been advanced. First, since the parties had failed to select alternative A or B, the whole of clause 30 fell away, the provisions requiring the employer to give notice also fell away, and the provisions of the Scheme applied. Second, failure to give notice does not preclude the employer from arguing that sums are not “due under the contract”. Third, the adjudicator had asked the wrong legal question by failing to appreciate that clause 30 had been superseded by the Scheme. Sir Murray Stuart Smith considered that the real question was whether the error on the part of the adjudicator went to his jurisdiction. He applied the law which has developed in respect of expert determination, citing the test set out by Knox J. in Nikko Hotels (UK) Limited v MEPC plc [1991] 2 EGLR 103;
Sir Murray Stuart Smith concluded that the adjudicator was asked to decide the amount of the interim application number 6. Within the scope of that referral the adjudicator may have made some errors of law along the way, he had not exceeded his jurisdiction. He has decided the matter put to him and the decision would be enforced. The Court of Appeal simply avoids the issue by referring to the law on expert determination and making its decision on that basis. The question of whether clause 30 of the contract, or the payment provision of the Scheme, were to apply (and so a consideration of whether a valid withholding notice had been given) was not considered. Instead, the adjudicator had jurisdiction to consider which terms were to apply and, whether right or wrong, his decision would be enforced. How “wrong” must a decision be before the court will intervene, if indeed the court would intervene at all? For example, if the parties delete the clause from the standard form in its entirety, the only sensible conclusion must be the Scheme applies. However, the adjudicator nonetheless bases his decision on the terms of the deleted provision. Can that “wrong” decision be one that is within the adjudicators jurisdiction, or is it a decision that no reasonable adjudicator would make, such that a court would invoke the public law Anisminic principles? In the case of Anisminic Limited v The Foreign Compensation Commission [1969] 2 AC 147 Lord Reid said:
The courts have at first instance given some consideration to the applicability
of the public law principals to adjudication. Lord Reed in the case
of Ballast plc v The Burrell Company (Construction Management) Limited
(21 June 2001) considered that Lord Reid’s principles were applicable
to adjudication, and provided some useful guidance for determining when
an adjudicator might be able to make a decision that was both wrong
in law and in fact, but should nonetheless be upheld, and those situations
where the line had been crossed such that the decision was in excess
of jurisdiction and unenforceable. However, HHJ Seymour QC in the more
recent case of Shimizu Europe Limited v Automajor Limited (17
January 2002) rejected the public law approach of Anisminic
or the Wednesbury principles.(18) This appears to
be on the basis that the judicial review principles, whilst applicable
in Scotts Law were not applicable in English law. |
17. Para.19. |
Conclusion Despite the decrease in the number of cases dealing with adjudication and payment many questions remain unanswered. The following is not a comprehensive list, but merely ones which frequently arise:
In respect of payment notices, it is not easy to reconcile the purpose of section 110 given that the sanction does exist relates to failure to give a valid section 111 withholding notice, which in itself does not need to refer to a matter which is not “due under the contract”. If a valid withholding notice is served, the failure to mention in it further sums which will be withheld because they are not due under the contract will not stop the paying party withholding those further sums. However, whilst the judiciary recognise this distinction it seems that many practising adjudicators do not fully appreciate it and so practical advice dictates that one should specifically set out in a withholding notice any and all sums that the payor does not intend to pay. The status of an adjudicator’s decision may not yet be entirely resolved. However, it is respectfully submitted that HHJ Lloyd QC’s view in David McLean that the decision does not itself create a cause, of action but that the cause of action arises out of the rights and obligation set out in the contract between the parties is the preferred approach. On more settled ground is the approach to enforcement of the court, by way of analogy to the test in expert determination. Provided that the adjudicator has asked the right question, then the adjudicator has the jurisdiction to reach an enforceable decision even where that decision is wrong in fact or law. While this approach allows the court to simply assess the jurisdiction of the dispute in question and come to a conclusion about its enforceability, it does not provide an opportunity for the courts to address some of the wider issues. The courts have in some instances adopted a more cautious approach to the enforcement of adjudication. However, it must be right that both parties understand the subject matter of the dispute that is to be referred to adjudication, and can expect the “natural justice” safeguards to apply to the process of adjudication as one would expect those proper checks and balances to apply to any dispute resolution process. Nonetheless, the case of RJT Consulting may provide many opportunities for jurisdictional challenges on essentially technical grounds. As indeed Levolux means that one must cross-adjudicate in order to defeat a decision relating to interim contractual processes, such as interim valuations. It remains to be seen whether future Court of Appeal cases will adopt such a restrictive approach or whether we will see a return to the purposive approach originally pioneered by His Hon. Mr Justice Dyson.
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18. Wednesbury unreasonableness relates to “a decision which is so outrageous in its defiance of logic or accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it.” Per Lord Diplock in Council of Civil Service Union v Minister for the Civil Service [1985] AC 734 House of Lords referring to Associated Provincial Picture House Limited v Wednesbury Corporation [1948] 1 KB 223. |
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