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HGCR Act 1996 - Adjudication © Daniel Atkinson 1999
The statutory right to adjudication under Section 108(1) of HGCR Act 1996 only arises for those construction contracts to which Part II of the Act applies. If it applies then either of the parties may refer disputes under the contract to be resolved by adjudication, without the agreement of the other party. Since it is a right, and not an obligation, the parties may agree to resolve disputes by arbitration and litigation and not by adjudication. It is suggested that since it is a statutory right, the parties will not be able to exclude the right by any term of the contract. In construction contracts or disputes to which the Act does not apply, both parties will need to agree to adjudication since this will be a common law adjudication. There may on the same project and even contract, be both statutory and common law adjudication. Section 108(1) provides that "dispute" includes any differences. It is suggested that "difference" is much easier to establish than "dispute", and therefore any sort of disagreement could give rise to a right to adjudication. There may on the same project and event contract, have both statutory and common law adjudication. The right to refer a dispute to adjudication under Section 108(1) applies only to disputes "arising under" the contract. This is a narrower definition that typical construction arbitration agreements. The restriction will therefore exclude disputes arising out of a misrepresentation for instance. During the passage of the bill, Amendment No. 133 sought to insert the words "or in connection with" to widen the type of dispute which was to be referred. The case of Fillite Runcan Ltd -v- Aqua-Lift (1992) CA was quoted, in which the words "arising under the contract" were construed to exclude jurisdiction for such matters as negligent misstatement and misrepresentation. It was argued for the Government that Amendment No. 133 would widen the scope of adjudication from disputes under the contract to disputes under or in connection with the contract, which was considered a huge step. It was stated that the Adjudicator was appointed under the contract and should be guided by its terms. Section 108(2) lists terms (a)-(f) which the contract is required to provide. These are that the contract shall: (a) enable a party to give notice at any time of his intention to refer a dispute to adjudication; (b) provide a timetable with the object of securing the appointment of the Adjudicator and referral of the dispute to him within 7 days of such notice; (c) require the Adjudicator to reach a decision within 28 days of referral or such longer period as is agreed by the parties after the dispute has been referred; (d) allow the Adjudicator to extend the period of 28 days by up to 14 days with the consent of the party by whom the dispute was referred; (e) impose a duty on the Adjudicator to act impartially; and (f) enable the Adjudicator to take the initiative in ascertaining the facts and the law. Any construction contract to which Part II of the Act applies must comply with the requirements of Sections 108(1)-(4) otherwise the Scheme for Construction Contracts applies -- Section 108(5). It is necessary therefore to examine each of the sub-Sections 108(2)(a)-(f) as well as the relevant clauses of the Scheme. It is suggested that the contract must comply with all the provisions of Sections 108(1) - (4), otherwise the contract provisions will be totally displaced by the adjudication provisions of the Scheme, which are Part I of the Schedule to the Scheme Regulations. Notice - Section 108(2)(a), 115 The contract is required to enable a party to give notice of an intention to refer a dispute to adjudication "at any time". It is suggested that a contract cannot therefore prevent such a notice by for instance; - time restrictions based on say completion of the works; - procedural conditions such as conciliation or amicable settlement; It is by no means clear what is the relationship between adjudication and arbitration/litigation, but the Act does not preclude the right being exercised during arbitration or litigation. Section 115 deals with the service of notices. Section 115(1) provides that the parties are free to agree on the manner of service of any notice. Section 115(2) provides that if there is no such agreement, then the provisions of Section 115(3)-(6) apply. The relevant sub-section is Section 115(3) which provides that notice may be served by any effective means. However, Section 115(4) provides that notice addressed, pre-paid and delivered by post to a company's registered or principle office is to be treated as effectively served. Paragraph I.1(1) defines the "referring party" as the party to the construction contract which has given written notice of his intention to refer any dispute arising under the construction contract to adjudication. Such notice is defined as the "notice of adjudication". This provision therefore repeats the scope of statutory adjudication under the Act. Paragraph I.1(2) requires the notice of adjudication to be given to every other party to the contract. This is an obvious but necessary provision, since the Act is silent and does not state precisely to whom the notice is to be given. It is suggested however that the provisions in paragraph I.1(2) would be the common sense interpretation of the Act. Paragraph I.1(3) goes further than the Act and sets out the required contents of the notice of adjudication. The notice is required to set out briefly:- "(a) the nature and a brief description of the dispute and the parties involved, (b) details of where and when the dispute has arisen, (c) the nature of redress sought, and (d) the names and addresses of the parties to the contract (including, where appropriate, the addresses which the parties have specified for the giving of notices)." Appointment of Adjudicator - Section 108(2)(b) The Contract is required to provide a timetable with the objective of securing the appointment of the Adjudicator and the referral of the dispute to him within seven days of the notice -- Section 108(2)(b). Appointment of Adjudicator -- the Scheme The Scheme sets out detailed provisions for the appointment of the Adjudicator at paragraphs I.2 - II.11. Adjudicator Named in the Contract Paragraph II.2(1)(a) requires the referring party to request the person specified in the contract to act as adjudicator. Since this provision is stated to be "subject to any agreement between the parties" it is suggested that the parties may agree to refer the dispute to someone other than the adjudicator named in the contract. The parties in any event are always able to vary the terms of the contract by agreement. Paragraph I.3 requires the request to be accompanied by a copy of the notice of adjudication. This is intended to allow the proposed adjudicator to decide whether he is able to act as adjudicator. Paragraph I.2(2) requires the person requested to act as adjudicator to indicate within two days of receiving the request whether or not he is willing to act. Paragraph I.7(1) requires the "referring party" to refer the dispute in writing to the adjudicator, the "referral notice", not later than seven days from the date of the "notice of adjudication". Paragraph I.7(2) requires the "referral notice" to be accompanied by copies of, or relevant extracts from, the construction contract and such other documents as the "referring party" intends to rely upon. The "referral notice" is therefore accompanied by the main submission of the case of the "referring party". Paragraph I.7(3) requires the "referring party" to send copies to every other party to the dispute, of the documents referred to in paragraphs 7(1),(2) at the same time as he sends them to the adjudicator. The above provisions therefore are detailed procedures for complying with the seven day requirement of Section 108(2)(b) of the Act, for Adjudicator's specified in the contract. Conflicts of Interest Paragraph I.4 requires the person requested or selected to act as adjudicator to be a natural person acting in his personal capacity. This does not appear in the Act and prevents firms being employed to act as adjudicators. Paragraph I.4 requires that no request is to be made to an employee of any of the parties to the dispute. Paragraph I.4 also requires any person requested to declare any interest, financial or otherwise, in any matter relating to the dispute. Failure to Appoint Named Adjudicator Paragraph I.6(1) deals with the situation where the person named in the contract indicates that he is unable or unwilling to act, or fails to respond within two days of receiving the request. The "referring party" may "(a) request another person (if any) specified in the contract to act as adjudicator, or (b) request the nominating body (if any) referred to in the contract to select a person to act as adjudicator, or (c) request any other adjudicator nominating body to select a person to act as adjudicator." The request is required to be accompanied by a copy of the "notice of adjudicator" (Paragraph I.3). Paragraph I.6(2) requires the person requested to indicate within two days of receiving the request, whether or not he is willing to act. Selection by Nominating Body Where the parties fail to agree the selection of an adjudicator, or where the adjudicator named in the contract has indicated he is unwilling or unable to act, or where no person is named in the contract, then the person is selected by the nominating body. This may be the nominating body named in the contract (Paragraph I.2(b)) or an "adjudicator nominating body" selected by the referring party (Paragraph I.2(c)). There appears to be no restriction on the body to be selected by the referring party, other than Paragraph I.2(3) which defines "adjudicator nominating body" as "...a body (not being a natural persona and not being a party to the dispute) which holds itself out publicly as a body which will select an adjudicator when requested to do so by a referring party". Paragraph I.5(1) requires the nominating body or the adjudicator nominating body to communicate the selection of an adjudicator to the referring party within five days of receiving a request to do so. If the nominating body or the adjudicator nominating body fails to so communicate then under paragraph 5(2) the referring party may: "(a) agree with the other party to the dispute to request a specified person to act as adjudicator, or (b) request any other adjudicator nominating body to select a person to act as adjudicator." Under paragraph I.5(3) the person requested to act as adjudicator is required to indicate whether or not he is willing to act within two days of receiving the request. Objection to Appointment Paragraph I.10 provides that where any party to the dispute objects to the appointment of the adjudicator, then that objection shall not invalidate the adjudicator's appointment nor any decision he may reach. Multiple Disputes/Contracts Paragraph 8(1) allows the adjudicator to adjudicate on more than one dispute under the same contract, if all the parties to the disputes consent. It is suggested that this is more restrictive than the Act itself, which does not restrict the right of a party to refer disputes to an adjudicator appointed to deal with another dispute under the contract. Similarly Paragraph 8(2) allows the adjudicator to adjudicate at the same time on related disputes under different contracts, whether or not one or more of those parties is a party to those disputes. The consent of all the parties to those disputes is required however. Sensibly, Paragraph 8(3) provides that all the parties to the disputes may agree to extend the period for the adjudicator making his decision in relation to all or any of these disputes. Paragraph I.8(4) envisages that an adjudicator already appointed may cease to act, because the dispute is joined to other disputes in accordance with Paragraph I.8(1) or I.8(2). In that case the adjudicator is entitled to payment of reasonable fees and expenses incurred (Paragraph I.25). Resignation of Adjudicator Paragraph I.9(2) provides that the Adjudicator can resign at any time on giving notice in writing to the parties to the dispute. In that case the referring party may serve a fresh notice under I.1 and request an adjudicator to act as previously described. The new Adjudicator may request, and the parties shall supply insofar as is reasonably practicable, copies of all documents made available to the previous adjudicator. Paragraph I.9(2) requires the adjudicator to resign where the dispute is the same or substantially the same as one decided in adjudication. In that case the adjudicator is entitled to reasonable fees and expenses incurred (Paragraph I.9(4)). If the dispute varies significantly from the dispute referred to him in the "referral notice" and for that reason the adjudicator is not competent to decide it, then he may resign. In that case the adjudicator is entitled to reasonable fees and expenses incurred (Paragraph I.9(4)). Revocation of Appointment Paragraph I.11(1) provides for the parties to a dispute to agree to revoke the appointment of the Adjudicator at any time. The Adjudicator is then entitled to reasonable fees and expenses incurred. The parties are not liable to pay the adjudicator's fees and expenses where the revocation is due to the default or misconduct of the adjudicator. Adjudicator's Decision - Section 108(2)(c),(d) The Contract must require the Adjudicator to reach a decision within 28 days of referral. A longer period can be agreed by the parties, but only after the dispute has been referred (Section 108(2)(c)). In practice the party by whom the dispute was referred is likely to have prepared a thorough case before referring the dispute. The other party will therefore be at a substantial disadvantage. In such a case it is unlikely that there will be agreement to extend the 28 day period. The Contract must also allow the Adjudicator to extend the 28 day period by up to 14 days, with the consent of the party by whom the dispute was referred (Section 108(2)(d)). The initiative comes from the Adjudicator and may be due to a number of causes such as the complexity of the case, or pressure of other commitments although the Act does not require reasons. It is suggested that such a request is unlikely to be refused by an informed party. Adjudicator's Decision -- the Scheme Timetable for Decision The Scheme fulfils the timetable requirements of Sections 108(2), c and d in paragraph I.19. Paragraph I.19(1) requires the adjudicator to reach his decision no later than:- "(a) twenty eight days after the date of the referral notice in paragraph 7(1), or (b) forty two days after the date of the referral notice if the referring party so consents, or (c) such period exceeding twenty eight days after the referral notice as the parties to the dispute may, after the giving of that notice, agree." Where the adjudicator fails to reach his decision in accordance with Paragraph I.19(1), then Paragraph I.19(2) provides a re-notification and re-appointment process similar to Paragraph I.9(3). It is to be noted that the timetable refers to the Adjudicator reaching his decision, and not the date of publication to the parties. Paragraph I.19(3) makes clear the distinction, since it requires the Adjudicator to deliver a copy of the decision to each of the parties to the contract, as soon as possible after he has reached his decision. The Adjudicator is not therefore entitled to withhold publication pending payment of his fees it is suggested. Contents of Decision Although Section 108(2)(f) require the contract to enable the adjudicator to take the initiative in ascertaining the laws, Paragraph I.12(a) of the Scheme makes it clear that the Adjudicator is required - to carry out his duties in accordance with any relevant terms of the contract and - shall reach his decision in accordance with the applicable law in relation to the contract. The process envisaged by the Scheme is clearly a quasi-judicial process, and not intended to be a commercial view of how the disputed matter should lie until resolved by litigation or arbitration, as envisaged by OSRA rules (Appendix 1 to these notes). Reasons Paragraph I.22 requires the adjudicator to provide reasons for his decision, if requested by one of the parties to the dispute. It is to be noted that this does not require that reasons should be part of the decision, but could be provided separately to the decision. Adjudicator's Duty to Act Impartially - Section 108(2)(e) The Contract must impose a duty on the Adjudicator to act impartially. An adjudication differs from a construction contract in that there is no owner responsible for the Engineer or Architect acting impartially. To be clearly effective, the duty to act impartially needs to be part of the tri-partite Adjudication Agreement. There is no requirement of independence but only of impartiality. Adjudicator's Duties -- the Scheme Impartiality The duty of impartiality required under the Act is set out in Paragraph I.12(a). Quasi-Judicial Paragraph I.12(a) requires the Adjudicator to reach his decision in accordance with the applicable law of the contract which is a quasi-judicial approach. Efficiency Paragraph I.12(b) requires the Adjudicator to avoid incurring unnecessary expense. Confidentiality Paragraph I.18 requires that the adjudicator and any party to the dispute shall not disclose any information or document which the party supplying has indicated was to be treated as confidential, except to the extent that it is necessary for the purposes of, or in connection with, the adjudication. Inquisitorial Approach - Section 108(2)(f) The contract must enable the Adjudicator to take the initiative in ascertaining the facts and law. Although most commentators take this to mean that the Adjudicator can carry out his own investigations, it is suggested that this is not practical in the timescales involved, nor desirable. It is suggested that Section 108(2)(f) is intended to allow the Adjudicator to adduce evidence or invite legal argument from the parties by asking questions either at a hearing or in correspondence, giving both parties the opportunity to answer. After all, the parties will have been involved with the issues for a longer period than the Adjudicator and better able to respond quickly. It is clear that the Adjudicator cannot adopt the same approach to hearing arguments and evidence as in a court or arbitration proceedings. He must take a robust approach, restricting the time for the parties. It is suggested that an Adjudicator when presented with a thorough statement of case, with clear legal argument and presentation of relevant evidence and logical analysis, will have little need to take such initiatives in ascertaining law and fact. This gives a clear advantage to the well prepared party making the reference to adjudication. Adjudication Procedure -- the Scheme Ascertaining Facts and Law The requirements of Section 108(2)(f) of the Act are met by Paragraph I.13 of the Scheme which provides: - the adjudicator may take the initiative in ascertaining the facts and law necessary to determine the dispute; and - the adjudicator shall decide on the procedure to be followed in the adjudication. The Scheme goes farther than the Act in that the adjudicator must ascertain facts and law "necessary to determine the dispute". The need to determine the dispute quasi-judicially will place a heavy burden on the adjudicator, unless the words are interpreted to take into account the timetable of the adjudication. It is suggested that the adjudicator has to decide on the evidence submitted to him and on the evidence he is able to ascertain for himself in the time available. It is suggested that this is the proper interpretation. Paragraph I.17 requires the adjudicator to consider any relevant information submitted to him by any of the parties to the dispute. The adjudicator is required to make available to the parties any information to be taken into account in reaching his decision. It is suggested that this applies to information submitted or obtained from one of the parties, as well as from separate investigations such as test, experiments, site visits and inspections. Paragraph I.15 allows the adjudicator to make a decision on the basis of information before him if a party fails to produce information requested by the adjudicator, without just cause. He can attach such weight as he thinks fit to any evidence submitted to him outside any period he may have requested or directed. Procedure Paragraph I.13 makes clear that the Adjudicator is master of the adjudication procedure. Particular powers of the adjudicator are listed in subclause I.13(a)-(h). Paragraph I.14 requires the parties to comply with any request or direction of the adjudicator in relation to the adjudication. Paragraph I.15(a) allows the Adjudicator to continue in the absence of a defaulting party, or in the absence of requested information. Under Paragraph I.15(b) the Adjudicator may draw such inferences from the failure as in his opinion are justified. All this is subject to the defaulting party not being able to show sufficient cause for his failure to comply. Representation Paragraph I.16(2) provides that where the Adjudicator is considering oral evidence or representations, a party to the dispute may not be represented by more than one person, unles the adjudicator gives directions to the contrary. Paragraph I.16(1) provides that any party to the dispute may be assisted by, or represented by, such advisers or representatives (whether legally qualified or not) as he considers appropriate, subject to agreement between the parties to the contrary. Finality of Decision - Section 108(3) The contract must provide that the decision is binding until the dispute is finally determined by legal proceedings or arbitration (if there is an arbitration agreement) or by agreement. The Act does not define the status of the adjudication Decision except in Section 108(3). The wording of Section 108(3) suggests that the Courts and arbitrator may examine the issues de novo without regard to the Decision or indeed the evidence adduced and legal reasoning in the proceedings. It is possible, however, for the Adjudicator to review or open up decisions of the Engineer/Architect under the contract, since the ambit of Section 108(1) is wide enough it is suggested. In the absence of an arbitration agreement, such a Decision would be finally binding. The Courts have no power to open up or revise such certificates or opinions properly given in the absence of agreement of the parties otherwise. Recent cases confirm that the Courts will intervene where certificates are shown to be invalid. It is by no means clear that the Courts will adopt the same approach to the statutory process of adjudication as it does to the contractual determinations of an appointed Engineer/Architect. It is suggested, however, that the Courts will wish to maintain jurisdiction over the process of adjudication, and will interfere where the Decision can be shown to be invalid, either by misapplication of the contractual provisions or by failure to observe the principles of natural justice. It has been suggested that there is no mechanism for enforcing an Adjudicator's decision in the Courts. The reasoning is that Section 9 of the Arbitration Act 1996 at Section 9(4) requires the Court to grant a stay if applied for. This applies notwithstanding that the matter is to be referred to arbitration only after exhaustion of other dispute resolution procedures Section (9)(2). Section 86 of the Act has not been enacted. It is suggested however that this will only be the case if the enforcement of the adjudicator's decision is subject to final determination by the arbitrator. If the arbitration clause is drafted to prevent arbitration of the enforcement of the decision then this will not be the case. It is to be noted that Section 111(4) provides that an adjudication decision which requires that an amount should be paid, is to be construed as requiring payment not later than either (a) seven days from the date of the decision, or (b) the final date for payment, whichever is the later. This creates a separate right to payment which it is suggested could be enforced in the normal way through the Courts and even under the Act Part II through adjudication. Effect of Decision -- the Scheme Status of Decision The Courts have jurisdiction to decide matters de novo. The parties may agree under Section 108(3) that the decision finally determines the dispute, otherwise it is binding until the dispute is finally determined in legal proceedings. Paragraph I.20 refers to the operations of the contract. The Adjudicator may take into account any matters under the contract which he considers are necessarily connected with the dispute. Paragraph I.20(a) gives the adjudicator power to open up, revise and review any decision taken or any certificate given by any person referred to in the contract. It is to be noted that the Scheme envisages that the contract may state that an Engineer/Architect decision or certificate is final and conclusive. In that case the Adjudicator does not have power under the Scheme to open up, etc the decision or certificates. This is a sensible provision, since it simply recognises the autonomy of the parties and reflects the approach taken by the Courts. Paragraph I.20(b) gives the Adjudicator power to decide that any of the parties to the dispute is liable to make payment under the contract and when that payment is due and the final date of payment. The Adjudicator can therefore directly affect the cashflow of the parties and the financial administration of the contract. In addition Paragraph I.20(a) gives the adjudicator power to decide the circumstances in which, and the rates at which, and the periods for which simple or compound rates of interest shall be paid. It is clear that this latter provision relates to contractual interest, since Paragraph I.20(c) requires the Adjudicator to have regard to any term of the contract relating to the payment of interest. Performance of Decisions -- the Scheme Paragraph I.21 requires the parties to comply with the decision of the Adjudicator immediately on delivery of the decision to the parties. The Adjudicator may however give directions in his decision for the time for performance. Paragraph I.23(1) allows the Adjudicator, if he thinks fit, to order in his decision any of the parties to comply peremptorily with his decision or any part of it. Paragraph I.24 incorporates Section 42 of the Arbitration Act 1996 with modifications, in the following terms, and allows the peremptory order to be enforced by the Courts: "----(1) Unless otherwise agreed by the parties, the court may make an order requiring a party to comply with a peremptory order made by the tribunal. (2) An application for an order under this section may be made- (a) by the Adjudicator (upon notice to the parties), (b) by a party to the Adjudication with the permission of the Adjudicator (and upon notice to the other parties), or (3) The leave of the court is required for any appeal from a decision of the court under this section." Finality of the Decision -- the Scheme Paragraph 23(2) provides that the decision of the Adjudicator is binding on the parties and requires them to comply with it until the dispute is finally determined either by legal proceedings, arbitration (if the contract so provides or the parties agree) or by agreement. This implements Section 108(3) of the Act. Section 108(3) of the Act also provides that the parties may agree to accept the decision of the Adjudicator as finally determining the dispute. Adjudicator's Fees -- the Scheme Paragraph I.25 provides that the Adjudicator is entitled to payment of fees and expenses reasonably incurred. He determines the reasonable amount to be paid. Paragraph I.25 states: "The parties shall be jointly and severally liable for any sum which remains outstanding following the making of any determination on how the payment shall be apportioned." The Scheme therefore envisages that the parties will have made payments before the Adjudicators determination, and that the Adjudicator may apportion his fees on a basis other than equal shares. Adjudicator Immunity - Section 108(4) The contract must provide that the Adjudicator is not liable for anything done or omitted in the discharge or purported discharge of his functions as Adjudicator, subject to bad faith. The contract must also provide that any employee or agent of the Adjudicator is similarly protected. Generally, a common law Adjudicator who is not an arbitrator is likely to be liable to the parties in negligence if he fails to exercise his duty of care to the parties. This is far from clear, however, and the Courts could well follow Pacific -v- Baxter and hold that the parties have their remedy in subsequent arbitration. This will turn on whether the parties have the right to have the matters decided de novo. Section 108(4) resolves the issues for statutory adjudications by providing the Adjudicator with some immunity. This is regarded as important to ensuring that the high calibre of Adjudicators are attracted, and allowing him to focus on ensuring a fair decision. It is to be noted, however, that this immunity only operates if there is a contract between the parties, and it is of the type covered by Part II of the Act. The main reasons for immunity are: the likelihood of a quick, robust decision is unlikely if there is a threat of action; there is likely to be a big demand for Adjudicators, the number available may be drastically reduced if there was no immunity; if the Adjudicator is requested to give reasons for a decision he will be unlikely to do so if he could be sued; there would be a need for professional indemnity insurance which could increase the Adjudicator's costs and therefore increase the fees; to establish a case for negligence is far from straightforward or easy. Adjudicator Immunity -- the Scheme Paragraph I.26 of the Scheme implements Section 108(4) of the Act in the same terms. |
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