Acting up

It is now two years since adjudication was introduced to resolve contractual disputes within the construction industry. The past year has seen a massive increase in the use of adjudication, primarily to obtain payment of monies due. The adjudication process has, in practice, led to some rough and ready justice. Nonetheless, it is justice of a sort, and achieved far quicker and at much less cost than has historically been the case.

This increased use has resulted in many cases brought to the courts concerning challenges to, and enforcement of, adjudicator’s decisions.

Set out below is a brief synopsis of some of the important cases that have established important principles of enforcement of an adjudicator’s decision, and the jurisdiction of an adjudicator to decide a dispute. It is clear from these cases that the policy of Parliament for a quick fix on a temporary basis is working to good effect, even though on occasions it produces outcomes that are at first sight surprising.

These cases, and in particular, the case of Bouygues -v- Dahl-Jensen, demonstrate very clearly the commercial threats and opportunities presented by adjudication, and the court’s policy of trying to avoid overturning adjudicator’s decisions wherever possible.

The Housing Grants, Construction and Regeneration Act 1996 (“the Act”), in force for approximately two years, requires that every party to a construction contract shall have the right to refer a dispute to adjudication. If a construction contract (the Act defines “construction contract”) does not contain such a procedure, then the Act imposes one through the “Scheme for Construction Contracts”, (“the Scheme”).

Adjudication is not defined in the Act. However, there have been some recent court decisions that have defined it as including: “The intention of Parliament in enacting the Act was plain. It was to introduce a speedy mechanism for settling disputes in construction contracts on a provisional basis and requiring the decisions of adjudicators to be enforced pending the final termination of disputes by arbitration, litigation or agreement (Mr Justice Dyson in Macob Civil Engineering -v- Morrison construction (1999)).”

The statutory time scale for adjudication is inflexible and very short. The Referring Party has seven days within which it must appoint an adjudicator and refer the dispute to them.

There is no provision in the Act for the Respondent to have the opportunity to reply to the notice of adjudication and no separate time scale for the Respondent to serve submissions. The decision of the adjudicator must be within 28 days after referral of the dispute. The parties can mutually agree a longer period, or a further 14 days, but only with the consent of the party who sought the adjudication.

Macob Civil Engineering -v- Morrison Construction

Macob was a subcontractor. It alleged in court that Morrison had failed to pay in excess of £300 000 following the decision of an adjudicator appointed under the Act.

Macob wanted the court to enforce the adjudicator’s decision. Morrison issued a summons to stay the proceedings to arbitration under Section 9 of the Arbitration Act.

Two key points:

• The court accepted that where there is a challenge to the validity of an adjudicator’s decision that decision remains binding and enforceable until or unless it is revised by an arbitrator or by a court.

• A stay to arbitration of the enforcement proceedings was refused. The point that arose from this case was that under the Act and the Scheme, enforcement of an adjudicator’s decision should be by way of an application to the court for summary judgment.

A & D Maintenance -v- Pagehurst Construction Services

This case involved an application under the Scheme for summary judgement seeking immediate payment of £103 665.80 that had been awarded by an adjudicator.

The potential paying party argued that as the contract had been terminated, the implied terms for adjudication did not survive the termination and the adjudicator had no jurisdiction.

It was held that the adjudicator did have jurisdiction to decide the dispute regardless of the fact that the contract had been terminated. The right to adjudication therefore survives termination of the contract.

  

The Project Consultancy Group -v- The Trustees of the Gray Trust

In this case, the court refused an order for enforcement of an adjudicator’s decision on the ground that the adjudicator had no jurisdiction to make the decision. The Judge had found there was either no contract concluded between the parties or, if there was, it had been concluded in April 1997 ie before the date when construction contracts fall under the Act.

Palmers -v- ABB Power Construction

ABB was a subcontractor to Stork Energy. The subcontract work involved the assembly and erection of a heat recovery steam generator boiler as part of a co-generation plant. The Judge found that the contract between ABB and Stork was not a construction contract and so the Act did not apply to it.

ABB retained Palmer to supply and erect scaffolding. The Judge considered whether Palmer’s contract was also outside the scope of the Act. The Judge concluded that scaffolding which is preparatory to an excluded construction operation could nonetheless itself be a construction operation. On that basis Palmer’s contract with ABB was a construction contract, so that adjudication proceedings could be brought pursuant to that contract.

Bouygues UK -v- Dahl-Jensen UK

Bouygues purported to determine Dahl-Jensen’s contract and had their work completed by others. In August 1999 Bouygues started an adjudication claiming sums allegedly overpaid, liquidated damages for delayed completion and damages arising out of the termination.

Bouygues claimed £1.165 million for over payments, £315 000 for liquidated damages and £3.9 million damages. Subject to that, it admitted that it owed £147 000 to Dahl-Jensen.

The adjudicator found that Dahl-Jensen was owed £305 560 for work done and, £808 912 for pre-termination breaches by Bouygues. As to Bouygues’ claim, he found that they had validly terminated Dahl-Jensen’s contract so he decided that Dahl-Jensen owed liquidated damages of £135 000, £26 447 for remedying damaged work, £102 969 for direct labour payments made by Bouygues for Dahl-Jensen and £382 213 for the additional costs of completing the work. The adjudicator did a “netting” off calculation on the gross contract figures and decided that there was to be a net payment of £178 801.51 from Bouygues to Dahl-Jensen.

The problem was that the adjudicator had fallen into error in that he took a gross sum including 5% retention and deducted from it sums that had been paid (excluding the retention). The result was that instead of a payment to Dahl-Jensen from Bouygues of £178 801.51 there should have been a net-payment from Dahl-Jensen to Bouyges of £241 254. The effect was to release the retention to Dahl-Jensen.

The court ordered that Dahl-Jensen should immediately be paid the monies awarded by the adjudicator. In so doing, the court gave effect to an amount incorrectly calculated by the adjudicator requiring payment to flow in the ‘wrong’ direction.

The court decided that even though the adjudicator made a mistake, it was a mistake in the calculations on the disputes that were referred to him, not a mistaken decision to deal with a dispute that was outside his jurisdiction. Accordingly there was no jurisdiction point that might have entitled the Court to refuse to enforce the award.

Fasttrack Contractors -v- Morrison Construction and Impregilo UK

This case concerned an argument by Morrison that no dispute had arisen at the date of the notice of adjudication, and so there could be no dispute capable of being referred to adjudication. Accordingly, the adjudicator had no jurisdiction. On the facts in this case, the court dismissed that argument and found that there was a dispute. The Judge recognised that a dispute could only arise once the subject matter of the claim had been brought to the attention of the opposing party and that party had had an opportunity of considering, admitting, modifying or rejecting the claim or assertion. A refusal to consider the claim or to answer it could constitute such a rejection.

Grovedeck -v- Capital Demolition

In this case, the adjudicator’s award was overturned by the High Court on the basis that the contract was not in writing.

The claim centred on demolition work carried out by Grovedeck on two construction contracts. In each case the contract was oral.

Grovedeck stopped work claiming that money owing to the firm had not been paid. An adjudicator was appointed for both disputes after Grovedeck served a notice of referring the dispute under both contracts to adjudication.

The Judge held that the Act did not apply to the contracts, as they were not in writing. He also ruled that the referral notice was bad as it referred to two contracts, not one.

The Judge said that the adjudicator had no jurisdiction over the matter and even if he had, Grovedeck had no right to refer more than one dispute or more than one contract without the consent of Capital Demolition.

Adjudication does throw up some surprising decisions but the speed of dispute resolution, coupled with the reduced costs when compared with a court case, make it a winner for the specialist contractor.