Constructing an adjudicated settlement

IN July 1994 Sir Michael Latham published his report entitled “Constructing the Team”.  

This was the final report of the snappily entitled “Government/Industry Review of Procurement and Contractual Arrangements in the UK Construction Industry”. This report followed on from a Government/industry review of the construction process.

.In the report Sir Michael and his committee came forward with numerous recommendations. In the foreword there was a specific warning against “cherry picking” parts of the package. Despite this clear warning the government chose to ignore large sections of Sir Michael’s report when framing the Housing Grants, Construction and Regeneration Act 1996. This Act dealt with a number of disparate matters but Part II of the Act dealt with construction contracts. This part of the Act incorporated provisions to define what constitutes a construction contract and provides for such contracts to include a right to stage payments and a final date for payment, prohibits conditional payment arrangements, makes a provision for a right to suspend performance in the event of non payment and most significantly creates a mandatory right to refer disputes to adjudication. Adjudication is in effect intended to be an interim resolution of the position pending final determination (unless otherwise settled) by the courts or in arbitration. For a while there was considerable uncertainty about whether Part II of the Act would ever be implemented, though that finally happened on 1 May 1998. 

Prior to Part II coming into effect it was generally thought the provisions in relation to adjudication would have the most significant effect. By way of example the then named Official Referees Court in England (which principally deals with construction disputes) set up procedures to deal with disputes arising from the adjudication process in anticipation that a significant number of referrals to adjudication would be made and that these referrals would result in early and numerous legal disputes. In fact adjudication was very slow to get going. The Adjudication Reporting Centre at Glasgow Caledonian University published a report in August of last year which inter alia commented upon the trends in respect of adjudication. While the report acknowledged that some care had to be used in respect of the data available the 21 Adjudicator nominating bodies (see below) had appointed 187 Adjudicators in the twelve months from May 1998, 259 in the next four months and 743 in the next six months. This raw data is consistent with practical experience which suggests that after a slow start in the course of the latter part of 1999 and throughout 2000 there was a greater willingness to pursue disputes by way of adjudication. The report from Glasgow Caledonian University suggests that the majority of Adjudication Notices are served by sub-contractors and again this is consistent with experience. In the 1980s and 1990s the phenomenon of “subbie-bashing” was well known. It appears that sub-contractors have adopted the Act enthusiastically with a view to re-asserting their rights. 

The willingness to serve Adjudication Notices has resulted from the robust attitude of the Courts both in England and Scotland to support the adjudication process. In the first significant reported decision Macob Civil Engineering v Morrison Construction [1999] BLR 93 the Court decided that a decision which was properly made by an adjudicator, even if challenged, was a decision for the purposes of the Act and therefore fell to be enforced. This early approach has been echoed in subsequent decisions.  The Courts have indicated that they are willing to uphold an Adjudicator’s decision despite the fact that mistakes may have been made. The Court of Appeal in England in the case of Bouygues (UK) Limited v Dahl Jensen (UK) Limited [2000] BLR 522 upheld the decision of an Adjudicator in principle even although the Adjudicator had failed to take into account the position in respect of retention. Had he done so rather than there being a significant award in respect of the party referring the dispute to adjudication there would have been a significant sum due to the responding party. The Court’s view was that the award still fell to be enforced because to do otherwise would in effect be contrary to the intention of the Act.

Recent challenges to the decisions of Adjudicators have concentrated on the issue of (a) jurisdiction and (b) whether the rules of natural justice have been breached - in other words does the Adjudicator have the requisite jurisdiction to make a decision and has he in any way mis-used that jurisdiction. Inevitably the Human Rights Act has been relied upon to challenge the adjudication process – so far without any significant effect.  In at least two decisions – Elaney Contracts v The Vestry and Austin Hall Building Limited v Buckland Securities the High Court in England has ruled that Article 6 is not applicable to the adjudication process. It appears that reference to issues such as jurisdiction are made in an attempt to avoid the robust approach the Court has taken to the enforcement of awards made by adjudications. 

A construction contract requires to include adjudication provisions which comply with the Act, failing which The Scheme for Construction Contracts set out in a Statutory Instrument applies. There are separate schemes for England and Scotland. The Act provides that the Adjudicator must reach a decision within 28 days or such longer period as may be permitted by the parties. The referring party has unilateral discretion to extend this period by 14 days. Any further extension requires the consent of both parties. While the Adjudicator is only making an interim decision that decision is to bind both parties until the outcome of any further arbitration or court proceedings and may be of considerable practical effect. The parties may resolve the dispute in the meantime. The Adjudicator’s decision therefore may be of considerable significance and may indeed provide the basis for resolution of disputes which previously would have ended up in litigation or arbitration. There is no financial limit to the level of claims referred to adjudication and adjudications commonly relate to six figure sums. Despite the short timetable for reaching a decision the disputes which may be referred to an Adjudicator are not restricted to only disputes about payment. Any dispute may be referred to an Adjudicator to the extent that it arises out of a Construction Contract. 

The report from Glasgow Caledonian University referred to above highlights the fact the majority of the disputes referred to Adjudicators do simply concern payment.  Commonly disputes are also referred which relate to “loss and expense claims”, defective work, claims for extension of time and claims about the alleged wrongful determination of employment in terms of a Building Contract. All of these disputes may raise complicated issues of law and fact and challenge the ability of any Adjudicator to make a decision within 28 days. 

Experience to date suggests that surveyors are leading the way in dealing with adjudications closely followed by engineers. As many of the disputes referred to adjudication can raise complicated issues of law it is not uncommon for Adjudicators to seek independent legal advice. The process is not as formalised as that which often applies in arbitrations in Scotland where a legal clerk is appointed who in addition to providing the Arbiter with legal advice deals with procedure. In adjudication the normal practice is for the Adjudicator to continue to deal with the administration of the dispute with the role of the independent lawyer being to express a view in respect of the legal issues. 

In the event that a dispute is to be referred to adjudication and if the identity of the Adjudicator cannot be agreed between the parties then an application requires to be made for the appointment of an Adjudicator. The Adjudicator has to be appointed within a seven day period. It is still relatively rare for a contract to specifically name an Adjudicator. Many contracts do however provide that an application for the appointment of an Adjudicator shall be made to a specific body identified in the relevant provision within the contract. In the event that no such provision is made then application requires to be made to “an adjudicator nominating body” to select a person to act as an adjudicator. An adjudicator nominating body is defined to mean “a body (not being an actual person and not being a party to the dispute) which holds itself out publicly as a body which will select an adjudicator when requested to do so by a referring party”. 

The Law Society of Scotland is an adjudicator nominating body. To the best of the writer’s knowledge the Law Society of Scotland is not identified in any form of contract as the body who must nominate an adjudicator. The Society therefore is in a position to appoint either where the contract is silent on who is to appoint the Adjudicator or the contract does not comply with the Act, the consequence then being that the Scheme applies. 

The Society maintains a list of solicitors who are prepared to act as Adjudicators – all of whom (including the writer) are accredited as specialists in Construction Law. This year the Society has appointed adjudicators in five disputes. The fact the Society has been called upon in this way may reflect the fact that parties involved in  adjudications are now raising what are essentially “legal issues” (such as whether the arbiter has jurisdiction to deal with a dispute by, for example, contending the contract does not relate to “construction operations within the ambit of the Act) with a view to avoiding the consequences of the process. There is no reason why the use of solicitors as adjudicators should be limited to situations where only legal issues are involved.  Many technically qualified adjudicators take legal advice. It would equally be open to legally qualified adjudicators to take technical advice should that be necessary.  Members of the profession should therefore consider whether to seek the appointment of members of the Society’s panel as adjudicators or indeed where appropriate to identify in a contract the Society as the body who shall appoint the adjudicator. 

While adjudication was slow to take off it is commonly resorted to now. There is an ongoing review by the Government into the operation of the Act. The initial report suggests that slight amendments to the Act may be necessary. There is clearly no lack of commitment to the adjudication process however. Before the Act was implemented it was suggested that the right to adjudicate would reduce the number of disputes proceeding to arbitration or litigation.  It is too early to come to a view about that. If that is the position then despite the fact Sir Michael’s report was not implemented in full his objective of reducing adversarial attitudes in the construction industry will have been achieved. 

Murray Shaw has been a partner with Biggart Baillie since1987. He is head of their construction and development unit, specialising in planning and construction  and is accredited by the Law Society of Scotland in both areas.