Adjudication is no simple matter under ICE contract

ICE 7th Edition contracts have a well-worn dispute resolution process, newly adapted to include the right to refer to adjudication. But, the right to adjudication does not sit easily within Clause 66, writes Daniel Atkinson.

THE ICE 7th edition contract has a long-established dispute resolution process within it, which was adapted recently to take into account the right to refer a dispute to adjudication.

The process, at Clause 66, gives the parties the chance to discuss and settle their differences.

A key stage in the process is the referral of the relevant issues to the engineer for his decision, which must be given in writing within a month of referral. Clause 66 also provides that the parties agree there is no dispute unless a notice of dispute has been issued.

This cannot be issued until the one-month period has expired or the engineer or an adjudicator has given a decision. Once a notice has been issued, the parties may adopt conciliation and arbitration to resolve the dispute.

The right to adjudication, at least where the Construction Act applies, does not sit easily within the ICE Clause 66 procedure, as three recent cases have shown.

In JT Mackley v Gosport Marina (2002), the contract was the ICE 6th Edition but without changes to allow for adjudication.

Accordingly, terms were implied into the contract by the provisions of the Construction Act, which gives the parties the right to adjudication at any time. Two disputes that arose between the parties were referred and decided in adjudication, while a third was referred to the engineer for his decision under Clause 66.

One dispute was referred to arbitration, but the notice to refer did not identify whether it was dispute one, two or three.

Mackley argued that if it was dispute three that had been referred it was out of time and the notice was invalid. Under ICE 6th Edition, arbitration must start within three months of the engineer's decision and in this case too much time had elapsed since the engineer's decision.

Then Mackley said that if it was either dispute one or two that had been referred, the notice to refer was also invalid because there was no engineer's decision.

Mackley argued that the engineer's decision had to be obtained before a reference could be made to adjudication under the ICE 6th Edition - it was a condition precedent to arbitration.

Gosport argued that the Construction Act provided that an adjudicator's decision was binding until determined - in this case by arbitration. There was no time limit for the arbitration reference.

Judge Richard Seymour QC held that an engineer's decision was a condition precedent to the right to refer a dispute to arbitration, which was only available to challenge the decision of an adjudicator if the contract provided for arbitration and as the terms of the ICE 6th Edition required the engineer's decision first, Judge Seymour held that the notice to refer was invalid.

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

In the Scottish case of The Construction Centre Group v The Highland Council (2002), Lord MacFadyen considered terms similar to Clause 66(4)(b) of the ICE 7th Edition. The clause provides that the parties shall give effect to an adjudicator's decision unless and until it is "revised" pursuant to Clause 66, which provides for arbitration.

Construction Centre argued that the effect of the clause was that the arbitrator should review the adjudicator's decision, and that if the court enforced his decision, the provisional quality of that decision would be removed.

Construction Centre would be prevented from getting a different result of the dispute by arbitration, since the arbitrator would have no power to open up and revise the adjudicator's decision.

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 arbitrator to review the adjudicator's decision. But he had to approach the dispute resolution anew. So while the arbitrator had power to open up, review and revise decisions, he has no similar power over the adjudicator's decision.

Lord MacFadyen stressed that enforcing an adjudicator's decision was enforcement of the contractual obligation that the parties would comply with the determination by that decision. By using that approach, the difficulties of the term "revise" was avoided.

In John Mowlem v Hydra-Tight (2000), the standard form of contract was the Engineering Construction Contract 2nd Edition subcontract with the second option for adjudication. The contract had a similar term to Clause 66 of the ICE 7th Edition, that the parties agreed a dispute did not exist unless the right notice was issued. It was also agreed, and confirmed by Judge Toulmin, that the contract term redefining 'dispute' deprived the parties of a right to refer a dispute at any time to adjudication. The contract did not comply with the Act, so the Scheme for Construction Contracts applied, displacing the adjudication provisions.

Some commentators have argued that, having defined a 'dispute', the parties are bound by that definition. This would allow the parties to contract out of the provisions of the Construction Act, by making various notices condition precedent to the right to adjudication.

Key points

Clause 66 of the ICE 7th Edition contract allows the parties the opportunity to discuss and settle their differences.

Two vital features of the clause are the referral to an engineer for a decision, and the agreement that a dispute is non-existent unless the appropriate notice has been given.

Clause 66 lets an arbitrator review and revise the engineer's decision, but does not give the power to review an adjudicator's decision.

In the case of Mowlem v Hydra-Tight, the judge held that the need to issue a notice deprived the parties of the right to refer a dispute to adjudication at any time.

Accordingly, the contract did not comply with the Construction Act and its adjudication provisions did not apply.