HGCR Act 1996 - Adjudications under ICE Forms

© Daniel Atkinson 1999        04 October 2002

SUMMARY

The provisions for adjudication do not sit easily with the procedure for dispute resolution in Clause 66 of the ICE 7th Edition.  Three recent cases demonstrate this.

The ICE 7^th Edition of Contract has a long established dispute resolution procedure at Clause 66 modified recently to take into account the right to adjudication.  The Clause 66 procedure is a multiple tier approach.  It is intended to allow the parties the opportunity to discuss and if possible settle their differences.  The referral to the Engineer for his decision marks a key stage in the process.  The Engineer has one month to notify his written decision.  Clause 66 provides that the parties agree that there is no dispute unless a Notice of Dispute has been issued.  The Notice cannot be issued unless the one month period has expired or the Engineer has given his decision, or an adjudicator has given a decision on a dispute and that decision is not being implemented.  Thereafter the parties may adopt conciliation and arbitration to resolve the dispute.  Arbitration is commenced by a Notice to Refer.

The right to Adjudication, at least where the Housing Grants Construction and Regeneration Act 1996 applies, does not sit easily within the ICE Clause 66 procedure.  There have been three recent cases that examine the operation of Clause 66 and the relationship with adjudication.

In J T Mackley & Company Limited v Gosport Marina Limited (2002) the contract was the ICE 6^th Edition but without amendments to allow for adjudication.  Accordingly terms were implied into the contract by operation of the Housing Grants Construction and Regeneration Act 1996 which allowed the parties the right to adjudication at any time.   Disputes 1 and 2 were referred and decided in Adjudication.  Dispute 3 was referred to the Engineer for his decision under Clause 66.  A dispute was referred to Arbitration, but the Notice to Refer did not identify whether it was Disputes 1, 2 or 3.

Mackley argued that if it was Dispute 3 that had been referred then it was out of time and the Notice to Refer was invalid.  Under ICE 6^th Edition arbitration must be commenced within 3 months of the Engineer’s decision.  It was accepted by Gosport that the decision of the Engineer was too long before the Notice to Refer to be relied upon to justify the giving of the Notice to Refer.

Mackley argued that if it was Disputes 1 and 2 that had been referred, then the Notice to Refer was invalid because there was no decision of the Engineer on these disputes, only the decision of an adjudicator.  Mackley argued that the Engineer’s decision had to be obtained first before a reference could be made to adjudication under the ICE 6^th Edition – it was a condition precedent to arbitration.  Gosport argued that the 1996 Act provided that an adjudicator’s decision was binding until finally determined (in this case) by arbitration.  There was no time limit for the reference to arbitration.  The requirement for a decision of the Engineer did not apply when the reference to arbitration was a challenge on the adjudicator’s decision.

Judge Richard Seymour QC held that a decision of the Engineer was a condition precedent to the right to refer a dispute to arbitration.  Arbitration was only available to challenge the decision of an adjudicator, if the contract provided for arbitration.  The ability to do so was to be determined by the terms of the arbitration clause.  The terms of the ICE 6^th Edition required the decision of an Engineer first.  Accordingly Judge Seymour held that the Notice to Refer was invalid.

The decision leaves open the prospect of disputes being referred not only to an adjudicator but also being referred to the Engineer if the parties wish to finally determine the dispute.  To avoid this problem, the contract must be carefully drafted to incorporate adjudication into the Clause 66 procedure.

In the Scottish case of The Construction Centre Group Limited -v- The Highland Council (2002) Lord MacFadyen considered terms similar to Clause66(4)(b) of the ICE Conditions 7^th Edition. The Clause provides that the parties shall give effect to an adjudicator’s decision unless and until the decision is “revised” pursuant to Clause 66 which provides for arbitration.  Construction Centre argued that the effect of the above clause was that the arbitrator should review the decision of the adjudicator. It followed that if the Court enforced the adjudicator’s decision, the provisional quality of the adjudicator’s decision would be removed. Construction Centre would be prevented from obtaining a different determination of the dispute by arbitration, since the arbiter had no power to open up and revise the adjudicator’s decision and still less to alter the effect of a final decree of the court.

Lord MacFadyen held that the same dispute which was referred to the adjudicator for provisional determination, could be referred to arbitration but for final determination. There was a sense in which the arbitral decision would “revise” the adjudicator’s decision in that it may produce a different decision.  However the use of the word “revised” in Clause 66(4) did not require the arbiter to review the adjudicator’s decision.  Instead he had to approach the resolution of the dispute de novo.  It was not surprising therefore that whilst the arbiter had power to open up, review and revise decisions, opinions certificates etc. of the Engineer, there was no such similar power in relation to the adjudicator’s decision. Such power was unnecessary.

Lord MacFadyen emphasised that the enforcement of an adjudicator’s decision, was enforcement of the contractual obligation that the parties would comply with the provisional determination by the adjudicator’s decision on its merits. Using that approach the difficulties of the term “revise” was avoided.

In John Mowlem & Company plc v Hydra-Tight Ltd (2000) the standard form of contract was the Engineering Construction Contract 2^nd Edition Subcontract with the secondary option for Adjudication Option Y(UK).  The contract had a similar term to Clause 66 of the ICE 7^th Edition that the parties agreed that no matter was a dispute unless a Notice had been given.  It was common ground between the parties and confirmed by Judge Toulmin that the effect of the term of the contract re-defining “dispute”, was to deprive the parties of an immediate right to refer a dispute at any time to adjudication. Accordingly the Contract did not comply with the Act and the Scheme for Construction Contracts applied, displacing the adjudication provisions in the Contract.  Some commentators have argued that having defined what is a “dispute” the parties are bound by that agreement.  It is clear that this argument would allow the parties to contract out of the provisions of the 1996 Act, by making all sorts of notices condition precedent to the right to adjudication.  The statement by Judge Toulmin must be a correct statement of the law, albeit not necessary for his decision in that case.