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Adjudication Update

05 September 2014 #Construction

Parties to a construction contract, much like any other contract, may find themselves embroiled in a dispute at some point during the life of the contract. For disputes ‘arising under’ a construction contract, adjudication is a compulsory procedure (it cannot be contracted out of), developed in order to provide a speedy (usually adjudicators must render their decision within 28 days of appointment) and cost efficient resolution to a dispute, on an interim basis. The reason that it is ‘interim’ is that the decision of the adjudicator is binding on the parties temporarily, or at least unless, or until the underlying dispute is determined through litigation, arbitration or by agreement.

A common misconception is that the purpose of adjudication is to find the ‘right’ answer to the dispute – to trawl through the available evidence, approximating past events and then enforcing the contract terms to reach a decision. Whilst this may seem a desirable approach, it is actually subordinate to the primary purpose of adjudication - to administer a quick resolution to a point in dispute, designed with the intention of protecting cash-flow during a construction project. It has been described as a “pay first, argue later” mechanism (Tally Wiejl (UK) Ltd v Pegram Shopfitters Ltd (2003) 1 WLR 2990). Further, the adjudicator is under no obligation to consider evidence presented later in the process. In fact, he must exclude evidence, if, to do so would result in an unjust process.

Enforcement of an adjudicator’s decision can be achieved through an application for summary judgment and case law demonstrates that successful challenge of an adjudicator’s decision in the Technology and Construction Court (TCC) is rare. The TCC’s approach is that decisions will be robustly upheld even if the adjudicator has made an error in procedure, fact or law.  Decisions will only be overturned if the adjudicator plainly did not have jurisdiction or there has been a breach of the rules of natural justice and recent case law heard in the TCC (summarised below) serves to reinforce this conclusion.

Wales and West Utilities Ltd v PPS Pipeline Systems GmbH [2014] EWHC 54 (TCC)

The parties contracted using NEC3 for the laying of a gas pipeline. The works (£8.6m) included excavation and a requirement to add “Rockguard” product to protect against abrasion in rocky sections. More rock was encountered than the Contractor expected and the Contractor made a claim for a “Compensation Event” due to the excessive rock excavation required. This was disputed by the Employer, who referred the question of liability for ground conditions to adjudication. In its Response to the Referral Notice, the Contractor raised a claim for a “Change” in relation to its increased use of Rockguard. The adjudicator decided that the Contractor was responsible for cutting through the excess rock but the Employer was responsible for the additional Rockguard. The Employer argued that the Adjudicator had strayed beyond the scope of the “dispute” referred to him because the Rockguard claim was not part of the dispute referred and that it had only referred the question of whether the additional rock amounted to a “Compensation Event”. The Contractor argued that the dispute “encompassed intrinsically” the claim for additional Rockguard. The Court held that the Adjudicator had jurisdiction to award the Contractor additional monies in respect of Rockguard.

City Basements v Nordic Construction [2014] (TCC) (unreported)

N employed C to construct a basement car park on a standard JCT Sub-Contract. C made an interim payment application and no Pay Less Notice was issued by N within the required timescales. The parties were still in “discussions” and C had not served a notice of dispute pursuant to the contract. However, C commenced adjudication proceedings after the Final Date for Payment had passed and N put forward the argument that a “dispute” had not yet crystallised for referral to adjudication as the parties were still in negotiations. The Court held that the Adjudicator did have jurisdiction as a “dispute” was inferred from N’s failure to pay.

It should be noted that the Construction Act 1996 provides a right to refer a dispute without the need to give notice of that dispute or enter into formal negotiations.

KNN Coburn LLP v GD City Holdings Ltd [2013] EWHC 2879 (TCC)

A dispute arose between the parties that the Contractor referred to adjudication. On 31 January 2013 it sent an electronic copy of the Referral pleading only to the Adjudicator and the Employer by email; and it delivered a hard copy of the supporting documentation the next day. The Adjudicator wrote to the parties setting out the timetable for the adjudication. He determined this on the basis that 1 February was “day zero”, which he concluded meant that he needed to reach his decision by 1 March 2013. The Employer did not take issue with the timetable, and participated in the adjudication in accordance with the timetable. The Adjudicator published his decision on 1 March 2013. The Employer resisted enforcement on the basis that the Adjudicator issued his decision late, because the Referral had been served on 31 January 2013 and therefore the decision should have been issued by 28 February 2013. Despite finding that the Adjudicator’s decision had been delivered one day late, the Court upheld the Adjudicator’s decision as the Employer’s participation in the adjudication could not be ignored; by its silence it had accepted the Adjudicator’s timetable; and it could not now contend that the decision was issued late.

Clarkslegal, specialist Construction lawyers in London, Reading and throughout the Thames Valley.
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