24 Adversarial dispute resolution
Where a dispute arises under a construction contract, the first method of resolving that dispute in a binding manner is often through the contract administrator. As seen in Chapter 18, the contract administrator usually has extensive decisionmaking powers, and the terms of the contract will govern the extent to which a decision, whether or not it is formally embodied in a certificate, will be legally binding upon the parties, at least for the time being. However, unless the contract makes a particular certificate ‘conclusive’ (in the sense discussed in Section 18.2.1), its effect can be challenged and, if appropriate, overturned in later proceedings of the kinds described below.
Until 1996, a party wishing to pursue a dispute beyond the contract administrator (or to challenge the contract administrator’s decision on an existing dispute) had two options: either to go to arbitration, if the contract made provision for this, or to begin proceedings in court. This changed in 1996 with the enactment of the Housing Grants, Construction and Regeneration Act 1996, which was amended by Part 8 of the Local Democracy, Economic Development and Construction Act 2009.1 Under section 108(1) of the Construction Act, a party to every construction contract to which the Act applies (see Section 9.1) has the right to refer any dispute arising under that contract to an independent third party for a process called ‘adjudication’. The intention of the lawmakers, following recommendations of Latham (1994), was that this should be a speedy and inexpensive procedure and that it should result in a decision that would be legally enforceable by both parties, at least until such time as the dispute might be finally settled at arbitration or in court.
This chapter describes the process of adjudication and also the more traditional mechanisms of arbitration and litigation, considering in particular the relative merits of the latter two as means of achieving a final solution to a construction dispute. In this connection it may be noted that the law of arbitration has been substantially reformed by the Arbitration Act 1996, with the intention of providing a more ‘user friendly’ form of dispute resolution procedure. However, many of the procedural reforms are dependent on the will of the parties to implement them, and the construction industry appears to have been rather slow to make use of them.
24.1ADJUDICATION
Section 108(1) of the Construction Act creates a statutory right to adjudication, designed to produce a decision which is binding on the parties unless the dispute is subsequently resolved in arbitration or litigation, or settled by agreement.
1 In this Chapter, ‘Construction Act’ refers to both the Act and the amendment, LDEDC 2009 refers to specific provisions in the amendment.
392 Construction contracts
24.1.1The nature of adjudication
Prior to the Construction Act, a number of standard form construction contracts (mainly sub-contracts) already incorporated a form of adjudication procedure for the temporary resolution of disputes. These frequently provided that the adjudicator should act as ‘an independent expert and not as an arbitrator’ in reaching a decision. However, it is clear that an adjudicator under the Construction Act, while not an arbitrator, is more than an independent expert. He or she must accept and consider any information properly submitted by the parties and must make any information submitted by one party, which the adjudicator intends to take into account, available to the other party. An independent expert would not be required to do either of these things.
This quasi-judicial aspect of adjudication has led to suggestions that it constitutes ‘legal proceedings’ for the purposes of the Human Rights Act 1998. However, in Austin Hall Building Ltd v Buckland Securities Ltd2 it was held that this is not the case; the adjudicator’s decision is not directly enforceable and so the adjudicator does not satisfy the definition of a ‘court or tribunal’. The court in that case also held that, even if adjudication did fall within the Human Rights Act, the adjudicator would not have to hold a public hearing. This is because the adjudicator’s decision can only be enforced by a court order (considered in Section 24.1.4), and so the ‘hearing’ required to satisfy the Human Rights Act would take place in court. Nor could an adjudicator’s decision be regarded as contravening human rights by virtue of any restrictions imposed by the Construction Act, such as the very short time allowed for making a decision. A contrary view was been reached in Scotland in Whyte and Mackay Ltd v Blyth & Blyth Consulting Engineers Ltd3 where the Court of Session refused to enforce an adjudicator’s decision on the grounds that to do so would be an unjustified interference to a paying party’s right to peaceful enjoyment of his possessions, in this case money in breach of Article 1 of the European Convention on Human Rights. Although only of persuasive influence outside Scotland, and based on unusual facts, the case is of considerable interest because it indicates a further ground for refusing enforcement beyond those previously thought to be applicable.
Where a construction contract is made with a residential occupier, it has been held that an adjudication clause is potentially an unusual and onerous provision which, if it has not been individually negotiated, may be invalidated by the Unfair Terms in Consumer Contracts Regulations 1999.4 However, where it is the employer or his/her professional adviser who is responsible for the inclusion of the adjudication clause, it will be enforceable.5
2 [2001] BLR 272.
3 [2013] ScotCS CSOH_54 (09 April 2013).
4 Picardi v Cuniberti [2003] BLR 487.
5 Bryen & Langley Ltd v Boston [2005] BLR 508.
Adversarial dispute resolution 393
24.1.2The right to adjudication
As mentioned above, section 108(1) of the Construction Act 1996 provides that every party to a construction contract (the definition of which is discussed in Chapter 9) has the right to refer any dispute arising under the contract for adjudication under a procedure complying with the Act. This will be most useful while the contract work is being carried out (since it avoids undue delay); however, the right to adjudication may be exercised at any time, even after the contract has been determined.6 Indeed, there is nothing in the statutory provisions to prevent adjudication from taking place at the same time that the parties are engaged in arbitration or litigation.7
The remainder of section 108 lays down certain minimum provisions about adjudication which the contract itself must contain. If it does not do so, either explicitly or by incorporating an appropriate set of rules to govern adjudication, the parties will be subject to the Scheme for Construction Contracts, which was issued by the government as a statutory instrument made under the Act.8 It should be noted that, even if the contract only fails to provide a part of what is required, the whole of the Scheme is then incorporated into the contract.
In order to satisfy the Act (and hence avoid the intervention of the Scheme), the contract must:
Enable a party to give notice at any time of the intention to refer a dispute to adjudication.
Provide a timetable with the object of appointing an adjudicator and referring the dispute within seven days of the notice.
Require the adjudicator to reach a decision within 28 days (which the adjudicator may extend by up to 14 days if the referring party agrees), or such longer period as both parties agree to.
Impose a duty on the adjudicator to act impartially.
Enable the adjudicator to take the initiative in ascertaining the facts and the law.
Provide that the adjudicator’s decision is binding unless and until the dispute is finally determined by legal proceedings, arbitration or agreement of the parties (though the parties may agree that the adjudicator’s decision is finally binding).
Provide that the adjudicator is not liable for anything done or omitted unless the act or omission is in bad faith.
A number of organizations have drafted sets of adjudication rules which satisfy these minimum conditions and which parties may choose to incorporate into their contracts. Of these, the most important are:
Construction Industry Council (CIC) Model Adjudication Procedure.
Institution of Civil Engineers (ICE) Adjudication Procedure.
6 A & D Maintenance and Construction Ltd v Pagehurst Construction Services Ltd (1999) 16 Const LJ 199.
7 Herschel Engineering Ltd v Breen Property Ltd (2000) 70 Con LR 1.
8 SI 1998 No 649, Scheme for Construction Contracts (England and Wales) Regulations.
394Construction contracts
Technology and Construction Solicitors’ Association (TeCSA) Adjudication Rules.
Centre for Effective Dispute Resolution (CEDR) Rules for Adjudication.
In JCT SBC 11 clause 9.2 of the contract states that the statutory adjudication scheme shall apply, subject only to certain provisions which relate to the nomination of adjudicators and to cases of opening up and testing.
NEC3 contains an optional supplement W2 providing for parties to submit disputes to adjudication in accordance with the UK legislation. The provision is optional, it seems, in order that the form might be used outside the UK without the adjudication provisions.
FIDIC 1999 Red Book does not contain provisions which comply with the UK adjudication legislation as the form is not drafted primarily for use in the UK. Instead, it provides for parties to submit disputes to a dispute adjudication board that will, rather like UK adjudication, produce a decision that is binding on parties.
24.1.3Adjudication under the statutory scheme
Where the Scheme for Construction Contracts applies, it lays down detailed rules to govern both the setting up and the conduct of the adjudication process (though the parties may agree to waive any of these rules). The process begins when the party seeking adjudication (the referring party) serves written notice on every other party to the contract, briefly setting out the nature of the dispute and the relief sought. A copy of this notice is sent to the adjudicator named in the contract, if there is one, or to one of the bodies (such as professional institutions) that offer an adjudicator nominating service. Such a body must nominate an adjudicator within five days, and the person nominated has a further two days to confirm his or her willingness and availability. The Scheme provides that this person must not be an employee of a party to the dispute, but does not specifically prohibit the appointment of the contract administrator as adjudicator. However, such an appointment would not normally be advisable, since it could easily result in a conflict of interest if the adjudication involved the challenge of a contract administrator’s decision.
Once the adjudicator is appointed, and no more than seven days from the original notice of adjudication, the referring party must serve a referral notice on the adjudicator, accompanied by copies of all the documents on which that party intends to rely. Copies of this notice and the documents are sent at the same time to all other parties to the dispute. Thereafter it is for the adjudicator to decide on the appropriate procedure, but it is clearly intended to be one in which the adjudicator takes the initiative. The Scheme accordingly empowers the adjudicator to demand documents from the parties, appoint expert advisers, make site visits, meet and question any party to the contract and issue timetables and deadlines. If a party fails to comply with any direction of the adjudicator, the latter may draw whatever inferences he or she feels are justified. If the adjudicator decides that an oral hearing would be helpful, the Scheme limits each party to one representative unless the adjudicator specifically directs otherwise.
The adjudicator must reach a decision on all matters referred, impartially and in accordance with all relevant terms of the contract, within 28 days of the referral
Adversarial dispute resolution 395
notice. However, this period may be extended by up to 14 days with the consent of the referring party, or indefinitely if both parties agree. The adjudicator is not automatically obliged to give reasons for the decision, but any party is entitled to require this to be done. In addition to directing that something should be done or not done or, more commonly, that a sum of money be paid by one party to another, the adjudicator has power to award interest. Interestingly, however, the Scheme does not specifically empower the adjudicator to award costs, stating merely that the parties are jointly responsible for the adjudicator’s reasonable fees and expenses.
24.1.4Enforcement of the adjudicator’s decision
Exactly what form an adjudicator’s decision takes will depend on the nature of the dispute. The statutory provisions are not very helpful, the Scheme for Construction Contracts merely stating that ‘the adjudicator shall decide the matters in dispute’. However, the Scheme goes on to say that the adjudicator may ‘open up, revise and review’ any certificates issued under the contract, other than those which are stated to be conclusive, and may decide that a party is liable to pay money to another (specifying the due date and final date for payment). In fact, the adjudicator has power to decide on any referred matter as long as it arises under the agreement. Unlike adjudication as introduced in Australia, for example, the disputes are not limited to payment matters. It could be a dispute over interpretation or actions taken or not taken under any provision of the construction contract.
The intention underlying the Construction Act is clearly that an adjudicator’s decision should be binding and enforceable, at least until such time as it may be overturned in legal proceedings or arbitration. The Scheme for Construction Contracts (following the pattern of section 42 of the Arbitration Act 1996), accordingly requires the adjudicator to issue the decision in the form of a (peremptory) order, following which the party who gained an award has to apply to the court for a second order (a mandatory injunction), instructing the other party to comply with the adjudicator’s order.
In practice, this route is seldom if ever pursued, at least not in respect of adjudication decisions on payment. Instead, as pointed out by the TCC judge in
Macob Civil Engineering Ltd v Morrison Construction Ltd,9 the usual remedy to enforce an adjudicator’s order for the payment of a sum of money will be to issue proceedings claiming the sum due, followed by an application for summary judgment. The Technology and Constrution Court has developed standard procedures for enforcement of adjudication decisions.
Three further points are worth mentioning. First, actions to enforce adjudicators’ decisions are processed very quickly by the courts. For example, the judgment in the Macob case (12 February 1999) was delivered just five weeks after publication of the adjudicator’s decision (6 January 1999). Second, the route to apply to the courts for a mandatory injunction is the appropriate route to enforce other types of order, for example an order to provide access or to open up work.10
9 [1999] BLR 93; confirmed by Outwing Construction Ltd v H Randell & Son Ltd [1999] CILL 1482.
10 Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93.
396 Construction contracts
Third, it appears that, where an adjudicator makes an order for payment, this must be complied with; the paying party may not rely on a defence, such as a right of set-off, which it did not raise at the adjudication.11
24.1.5Challenges to the adjudicator’s decision
There is no mechanism by which an adjudicator’s decision can be appealed, since it is inherently binding. In subsequent proceedings, whether by arbitration or litigation, the dispute is dealt with afresh. Nevertheless, there are certain grounds on which the enforcement of an adjudicator’s decision may be resisted, notably lack of jurisdiction, error of law and procedural unfairness. These will be briefly considered, although it must be said that the courts have so far appeared reluctant to allow a party to evade an adjudicator’s decision by raising what are in truth technical objections.12
Lack of jurisdiction
An adjudicator has no jurisdiction to act unless certain conditions are fulfilled. There must be an existing dispute between contracting parties, arising under a construction contract. If the dispute arose on a contract that falls within the Housing Grants, Construction and Regeneration Act 1996, the contract must have been in writing. The requirement for the contract to be writing was removed by LDEDCA 2009, taking effect from 1 October 2011 in England and Wales and 1 November 2011 in Scotland. The dispute must be referred, in accordance with the relevant contractual provisions, to an adjudicator properly appointed under the contract.
If it is alleged that one of these conditions has not been fulfilled, and the court finds that there is sufficient doubt to make this a triable issue, it will not award summary judgment in a claim to enforce the adjudicator’s decision.13
Failing to answer the correct question
Although the legal position is not entirely clear, it has been accepted by both the Technology and Construction Court and the Court of Appeal that an error of law is not in itself sufficient to render an adjudicator’s decision invalid, so long as the effect of the error is merely that the adjudicator has given the ‘wrong answer to the right question’.14 If, however, the error is such that the adjudicator has answered the ‘wrong question’, the decision is outside the adjudicator’s jurisdiction and is therefore invalid.
11Levolux AT Ltd v Ferson Contractors Ltd (2003) 86 Con LR 98.
12See, for example, Macob Civil Engineering Ltd v Morrison Construction Ltd [1999] BLR 93; Carillion Construction Ltd v Devonport Royal Dockyard Ltd [2006] BLR 15.
13The Project Consultancy Group v Trustees of the Gray Trust (1999) 65 Con LR 146.
14Bouygues UK Ltd v Dahl-Jensen UK Ltd [2000] BLR 49; 522.
Adversarial dispute resolution 397
Procedural irregularities
All judicial and quasi-judicial proceedings are subject to the principles of natural justice. The most important of these principles involve:
Giving each party a reasonable opportunity of learning what allegations are made by the other party and of putting forward a case in answer to those allegations.
Not acting with bias, or in a way that would lead a fair-minded observer to conclude that there was a real possibility of bias.
There is no doubt that an adjudicator must act in accordance with these principles, or as fairly as the statutory rules permit (given, for example, the very short time limits and the fact that this is not an adversarial procedure, in the traditional sense). Any failure to do so, at least where the breach is a relevant and substantial one, will mean that the adjudicator’s decision will not be enforced.15 Difficulties have arisen where adjudicators have departed from the principles of natural justice, deciding matters either based on one party’s submissions on a point only, or matters not referred to them. In one case the Court of Session in Scotland held that the responding party had not been given an adequate opportunity to present its case on a number of points, and therefore the adjudicator had breached the requirement for natural justice.16 This can be contrasted with Lane Group plc v Galliford Try Infrastructure Ltd17 where the adjudicator issued preliminary views and findings of fact before he had even received the responding party’s response. The Court of Appeal decided that the adjudicator was not tainted with apparaent bias because a fair-minded person would note this was a preliminary, not a final, view.
Where procedural irregularities do not raise questions of natural justice, the courts have appeared reluctant to allow them to invalidate an adjudicator’s decision. In one case, for example, a court upheld an adjudicator’s decision which, although made within the contractual time limit, was not communicated to the parties until shortly after the time limit had expired.18
More than one dispute
Under the statutory scheme, only one dispute may be referred to an adjudicator at any time, unless the parties agree otherwise. An adjudicator to whom two or more disputes have been referred does not have jurisdication to deal with both of them. This can be confusing, as a dispute may comprise a single issue or a number of issues: whether one dispute or more have been referred is a question depending on the facts, as it may be that two apparently separate issues are related and a decision on one depends in part on the other.19
15Discain Project Services Ltd v Opecprime Development Ltd [2000] BLR 402; Discain Project Services Ltd v Opecprime Development Ltd (No 2) [2001] BLR 285.
16SGL Carbon Fibres Ltd v RBG Ltd [2011] CSOH 62.
17[2011] EWCA Civ 1617.
18Barnes & Elliott Ltd v Taylor Woodrow Holdings Ltd [2004] BLR 111.
19Witney Town Council v Beam Construction (Cheltenham) Ltd [2011] EWHC 2332 (TCC).