Adjudication
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KEYWORDS: |
Housing Grants Construction and Regeneration Act 1996, jurisdiction challenges, dispute, pre-existing dispute, multiple disputes, characterisation, multiple adjudications, the scheme for Construction Contracts, Judge Thornton. |
The decision in Fastrack Contractors Ltd v Morrison Construction Ltd (4th Jan 2000) TCC gives valuable guidance in identifying those matters which can be decided in adjudication. The facts themeselves demonstrate the difficulties now being experienced in resolving disputes by adjudication.
Morrison were the main contractors constructing the new Leisure Work and Arena complex in Coventry. Fastrack was the brickwork subcontractor. The subcontract works were delayed for reasons which were in dispute.
On 26th February 1999 Fastrack submitted an Interim Application No. 12 for interim payment. On 10th March 1999 Morrison served a notice of payment relating to the interim application which reduced several heads of claim in the application. The Final Date for Payment was 20th March 1999. No payment was made.
Interim Application No. 13 was made on 17th March 1999. Between Application Nos 12 and 13 Morrison had informed Fastrack that in accordance with the subcontract third parties were to be engaged to expedite and progress part of the works. Fastrack treated this notice as a repudiatory breach and withdrew from the site. Morrison served a Notice of Determination. Interim Application No. 13 included claims for variations, prolongation costs and loss and expense arising from delay and disruption caused by the alleged breaches of contract and loss of profit due to alleged repudiation together with additional overheads.
Fastrack commenced an adjudication on Interim Application No. 12 which resulted in a decision on 13th May 1999 that Morrison should pay Fastrack £35,199.70. Morrison complied with the decision.
Fastrack immediately gave notice seeking a second adjudication on 14th May 1999 in relation to Interim Application No. 13. The adjudicator decided that Morrison should pay Fastrack an additional £85,401.98. This had not been paid, and enforcement proceedings were brought by the liquidator, since Fastrack had gone into liquidation following the second decision.
Application No. 13 was for a gross sum of £383,873,97, but the sum claimed in the second adjudication was considerably greater - £478,959.93.
The six specific heads of claim in Application No. 13 were repeated in the Notice to Adjudicate but the sums claimed were significantly different. This Morrison argued meant that the Notice of Adjudication was a new claim since there had been no opportunity for the claim to ripen into a dispute. Accordingly, Morrison argued, the adjudicator had no jurisdiction since there was no dispute. Morrison objected to the adjudicator’s jurisdiction, and his jurisdiction to decide his own jurisdiction, throughout the proceedings.
In deciding that Fastrack were entitled to summary judgment for the amount awarded in the second adjudication, H.H. Judge Thornton QC answered many questions relating to adjudication and in particular four specific questions;
How to deal with challenges to the adjudicator’s jurisdiction.
How to decide whether or not there is a dispute properly referred.
How to deal with Multiple and Part Disputes.
He also raised the issue whether multiple adjudications which could have been avoided are an abuse of process.
How should an adjudicator deal with a challenge to his jurisdiction? An adjudicator will in any event investigate any partial, or entire jurisdictional challenge. If satisfied the challenge is good he will decline to adjudicate on the part of the reference he regards as lacking jurisdiction. The decision is not binding on the parties, since without the agreement of the parties, the adjudicator does not have power to decide for the parties his own jurisdiction.
How should the parties deal with challenges to jurisdiction? H.H. Judge Thornton QC suggested that there are four possible approaches to deciding the jurisdiction issue:
The parties can agree to widen the jurisdiction of the adjudicator so that he can decide his own jurisdiction. If the adjudicator accepts this second dispute, then the jurisdiction of the adjudicator could be resolved as part of the reference.
The challenging party could refer the issue of jurisdiction to another adjudicator. This would not halt an adjudicator already appointed since he has a statutory duty to decide in a very short timescale, unless the parties otherwise agree.
The challenging party could seek a declaration from the court. This was of little use unless the adjudicator had yet to be appointed or the parties agreed to put the adjudication into abeyance pending the courts determination of the jurisdiction question. The TCC could for example, resolve questions of that kind within days of being referred to them.
The challenging party could reserve its position whilst participating in the adjudication and then challenge any attempt to enforce the adjudicator’s decision.
The Court would give appropriate weight to any findings of fact relevant to the jurisdictional challenge but would not be bound by them and would either have to hear out the challenge with evidence or, if that was not necessary, determine the challenge and either enforce or decline to enforce the whole or part of the adjudicator’s decision.
The adjudicator’s jurisdiction extends to deciding disputes, so that the meaning of this term is vital. The first question to be answered is - what is a "dispute"?
It was held that the adjudicator derives his jurisdiction from his appointment and that appointment is governed by HGCR Act 1996. The Act requires that a dispute must already have arisen between the parties, and the Notice of Adjudication and the Referral Notice must relate to that same pre-existing dispute. Any selection, acceptance of appointment or subsequent adjudication and decision which are not confined to that pre-existing dispute would be undertaken without jurisdiction. It may be that only that part not covered by the pre-existing dispute would invalid. This would depend on the facts and relevant wording of notice of adjudication and referral notice.
The next question to be answered is - is there a pre-existing dispute? It was held that a "dispute" can only arise once the subject-matter of the claim, issue or other matter had been brought to the attention of the other party, and that party had the opportunity of considering and admitting, modifying or rejecting the claim or assertion. Two cases showed that a claim and its submission do not necessarily constitute a dispute; Halki Shipping Corporation -v- Spex Oils Ltd (1998) and Monmouthshire County Council -v- Costelloe & Kemple. A claim has to be notified and rejected to be a dispute. Rejection can occur when an apposing party refuses to answer the claim. A dispute can arise when there has been a bare rejection of a claim to which there is no discernable answer in fact or law.
How many disputes can be referred to an adjudicator? H H Judge Thornton QC noted that HGCRA referred to a "dispute" and not to "disputes". He held that at any one time a referring party should only refer a single dispute. The dispute however may cover one, several or many of one, some or all of the claims, heads of claims, issues contentious and causes of actions which had arisen. In other words the "dispute" which may be referred is all or part of whatever is in dispute.
In deciding whether more than one dispute had been referred or whether the dispute referred was not a pre-existing dispute, it is necessary to characterise the dispute. The characterisation establishes what was actually referred.
How is the dispute characterised? This is not determined solely by the wording of the notice of adjudication but must be construed against the underlying factual background known to the parties. A dispute could be characterised in the form "What sum is due for a particular interim payment" or "What sum is due for a particular item of work?" or "What sum is due at the Final Account stage?" without any particular sum being included as part of the claim. Alternatively the dispute could be characterised in the form "Is a particular specified sum due?".
In the instant case the dispute referred had been in issue before the date that the notice of adjudication was served - there was a pre-existing dispute. The notice of adjudication was wide enough to embrace all the disputed questions - the dispute was referred to the adjudicator. In addition the dispute was in the form: "What sum is due?", rather than in the form seeking specific sums, some of which had never been notified to Morrison. It followed that the adjudicator had full jurisdiction to determine and decide all the questions decided.
H.H. Judge Thornton QC examined the possible actions by an adjudicator when faced with problems with the extent of the dispute referred.
It was held that if two or more disputes are to be referred, each must be the subject of a separate reference. It would then be for the relevant adjudication nominating body to decide whether it was appropriate to appoint the same adjudicator on different adjudications to deal with each reference. A referring party must refer a single dispute, albeit that the Scheme allows the disputing parties to agree thereafter to extend the reference to cover "more than one dispute under the same contract" and "related disputes under different contracts".
It is possible that a dispute validly referred can become enlarged and change its nature and extent as details unfold during the adjudication. If that happens then it is possible that some matters referred to adjudication which were not encompassed within the pre-existing dispute could legitimately become incorporated within the dispute. It is also possible that the adjudicator may resign if he considers he is not competent to deal with the varied dispute.
Instead of extending the dispute, a referring party might decide to cut out of the reference some of the pre-existing matters in dispute and refer only part of the dispute. So long as that exercise does not transform the pre-existing dispute into a different dispute, such a pruning exercise is permissible. However a party cannot unilaterally tag onto the existing range of matters in dispute a further list of matters not yet in dispute and then argue that the resulting "dispute" is substantially the same as the pre-existing dispute.
If there is a challenge that the dispute referred differs in detail and degree to the pre-existing dispute, this is not a challenge to jurisdiction. It is for the adjudicator, assisted by the referral notice, to identify the common core of the referred dispute which can legitimately form the subject matter of an adjudication. He then adjudicates on the common core and either dismisses or does not determine the residue. The Scheme only requires the adjudicator to decide "the matters in dispute" and the residue would not constitute of matters "in dispute".
H.H. Judge Thornton QC considered that Fastrack could have referred all disputes in the first adjudication, but had decided instead to conduct a limited first adjudication confined to the sum due following Interim Application No. 12. It was held that HGCRA allowed such a splitting up of disputed claims. H.H. Judge Thornton suggested that at an appropriate occasion, the court would need to consider whether there is a doctrine analogous to the abuse of process doctrine in court proceedings which requires a referring party to refer all disputed questions to the same adjudicator. This question did not arise in this case.