Seven pillars of wisdom to guide adjudications

Despite the Construction Act of 1996, many grey areas still remain in adjudication cases. Daniel Atkinson outlines the seven guiding principles to help settle such disputes.

SINCE THE introduction of the Construction Act 1996 there have been some 75 cases subjected to adjudication under it. While there remain some areas of uncertainty concerning adjudication and the Act, there is now sufficient case law information to establish seven clear principles that have been developed by the courts.

The first (developed in the cases of Grovedeck v Capital, RJT v DM Engineering and Millers v Nobles) is that the Act applies to agreements in writing.

This has a wide meaning and includes oral agreements, provided there is sufficient written evidence of the agreement. It is not necessary for all the terms to be identified. Correspondence during construction or after completion may be sufficient evidence. Also, submissions made in legal proceedings and in previous adjudications may be sufficient if there is no denial of the terms of the agreement.

The second principle is that the Act applies only to contracts relating to construction operations.

The main criterion is that the work should relate to buildings, structures or installations which form part of the land.

But contracts for moveable structures or fittings are not caught by the Act. Contracts for fittings which are not attached to the building are outside the Act, as are fabricated components fitted to structures which form part of land beyond low-water mark. The three cases in which this was established are Palmers v ABB, Gibson v Makro and Staveley v Odebrecht.

Certain construction operations are, however, excluded by the Act under Section 105(2).

This includes work on 'plant' on sites with defined types of primary activity such as processing and power generation.

There are five cases making this point: Palmers v ABB, Homer v Chirex, ABB v Norwest, ABB v Zedal and Mitsui v Foster.

Principle number three is that the paying party must give notice of payment. It is not clear whether the payee is required to make application for payment in the absence of express terms.

Simply making an application does not create the right to payment, unless there is a pre-existing right or unless the contract so states. If payment is not to be made in full, then the payer must give an effective notice and this applies to set-off and abatement as well as claims of overpayment.

There are numerous cases on this issue but the most recent are SL Timber v Carillion and Millers v Nobles.

And principle number four is that the parties cannot contract out of the Act but they can contract in. The courts will enforce decisions in such adjudications as if they were statutory adjudications. The two relevant cases are Nordot v Siemens and Christiani & Nielsen v The Lowry Centre.

Principle number five is that a party has an unfettered right to adjudication to resolve disputes in construction contracts. This right cannot be limited by procedural restrictions in a contract such as the redefinition of 'dispute' or a pre-condition of mediation. The right can be exercised even if there are concurrent proceedings in litigation or arbitration.

Generally, the courts will not intervene to prevent an adjudication continuing even if the dispute referred has previously been decided in another adjudication.

The relevant cases are: Mowlem v Hydra-Tight, Carter v Nuttal, Naylor v Greenacres, British Waterways Board, Herschel v Breen and Absolute Rentals v Gencor.

The sixth principle is that adjudicators must have jurisdiction.

The most fertile ground for resisting enforcement of an adjudicator's decision is that he lacked jurisdiction. If the adjudicator has jurisdiction, his decisions will normally be enforced. But there is an indication in recent cases, and particularly those under Scots law, that this area of law is still ripe for development. If the adjudicator makes a mistake which results in him answering the wrong question, then his decision will not be enforced. If an adjudicator fails to exercise his jurisdiction to determine the dispute for his decision, then his decision will be a nullity. The relevant cases are C&B Scene v Isobars, Barr v Law and Finney v Vickers.

The cases of Austin Hall v Buckland, Glencot v Barrett, Karl v Sweeney and Discain v Opecprime inform the seventh principle: that an adjudicator is required to act without bias.

Each party must be given an opportunity to make submissions on all issues of fact and law on which the adjudicator relies. If the adjudicator does not comply with these rules, and this has a material affect on the outcome, his decision will not be enforced.

Key points

The Construction Act applies only to agreements in writing.

The Act only applies to contracts relating to construction operations.

The paying party must give notice of payment or any intention to withhold payment.

Parties cannot contract out of the Act, but they can contract in.

All parties have an unfettered right to adjudication in order to resolve disputes.

Adjudicators must have jurisdiction.

An adjudicator must always be able to act without bias.