Foresight sagas

A recent decision shows it is not always plain sailing to challenge an adjudication decision through arbitration. Indeed, whereas a contractual mechanism of a contract cannot stop an adjudication as long as there is a dispute, it can stop an arbitration process even when the purpose of the arbitration is to review an adjudication decision.

The Technology & Construction Court in the case of JT Mackley & Company Limited vs Gosport Marina Limited (8 July 2002) decided that a notice of arbitration was invalid because the party serving it had not used a procedure under the contract that required a notice of dispute to be served first on the engineer. The court held that, because of a condition precedent, the right to issue a notice of arbitration depended on the matter being referred to the engineer in this way. Because this had not been done, the right to arbitrate had not yet arisen.

However, in Mackley there had already been two adjudications, both of which had taken place after substantial completion of the works in March last year. The court's decision that, given the contract terms (ICE 6th edition), a notice of dispute is required before using arbitration to review an adjudicator's decision(s), has a number of unusual consequences.

First, it may be a feature of arbitration that an arbitrator has to review matters long after they occurred on site, but a review by the engineer was always intended as a quick process that would take place during the works. Following the TCC decision, the engineer will now be required to revisit issues that occurred a long time before – in this case a year or more before.

Second, the decision has curious effects in relation to the competing status of adjudicator, engineer and arbitrator under such a contract.

If a party adjudicates, then the adjudicator gets first bite of the cherry and, as we all know, the adjudicator's decision must be honoured (subject to a few limited exceptions).

The movement to allow arbitration immediately after adjudication is likely to shorten the dispute process

Under the ICE Conditions 6th edition, it is then necessary to re-rehearse the matter as one of dispute before the engineer. This process could take one of two forms. One could either choose to rehearse why the adjudicator was wrong if the intention is merely to dispute the issues originally determined by the adjudicator, or the notice of dispute could be of a wider ambit, capturing the subject matter of the previous adjudication decision(s). Once the engineer has reached his or her view, then the way to arbitration is clear, as long as you are still in time under the terms of the contract.

Is the notice-of-dispute procedure under contracts such as the ICE really an applicable procedure once there has been an adjudication? After all, if the engineer agrees with the adjudicator, then the aggrieved party may still want to arbitrate. Nothing has changed. If the engineer does not agree with the adjudicator, then that disagreement will simply be perceived as confirmation to the aggrieved party that its grumble with the adjudicator's decision is justified. The engineer's view does not, in itself, upset or replace the adjudicator's previous decision. The benefit of the notice-of-dispute procedure once there has been an adjudicator's decision is therefore open to some question.

The current ICE Conditions 7th edition vary from the 6th in some material respects but only make the existence of an adjudication a matter of dispute when a party "is not giving effect to the decision" of the adjudicator. If the adjudicator's decision is honoured, then it is still necessary to go through a notice-of-dispute procedure before arbitrating.

The general movement to allow arbitration immediately after adjudication is likely to shorten the dispute process and lead to any arbitrations occurring sooner rather than later in the life of a project. It has been argued in these pages that adjudication has had negative consequences for on-site relationships. That said, it is possible to argue that adjudication represents the acceptable face of dispute resolution, allowing the parties to continue relationships on site. But an early escalation of the dispute to arbitration, with its greater consequences in terms of commitment and costs, is only likely to be viewed as extremely adverse to good on-site relationships during the project.