DISPUTES AND DIFFERENCES | RIGHT TO ADJUDICATION – SECTION 108

Section 108(1) creates the “right to refer a dispute arising under the contract for adjudication under a procedure complying with this section”. The statutory right to adjudication therefore only arises if four requirements are met:

  • The “construction contract” must fall within the statutory definition.
  • The Referring Party must be a party to the “construction contract”.
  • There must be a dispute.
  • The dispute is a “dispute arising under the contract”.

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. It appears however from the decisions of the Courts that this is not the approach taken and a clear dispute needs to be established.

An 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 pre-existing dispute. A dispute only arises when the issue or claim has been brought to the attention of the other party, and crucially that party has the opportunity of considering and then either admitting, modifying or rejecting the claim or assertion. Simply making a claim and submitting it may not be enough. A claim has to be notified and rejected to be a dispute, but refusing to answer a claim may also be a rejection. Any selection, acceptance of appointment or subsequent adjudication and decision that is not confined to the pre-existing dispute is 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 Fastrack Contractors Ltd v Morrison Construction Ltd (4th Jan 2000) TCC.

A dispute is not lightly to be inferred. Care must be taken when looking at correspondence to bear in mind by whom they were written and to whom they were addressed. There had to be time to consider the claim and time to discuss and to resolve the matter by agreement, since only if that fails will there be a dispute. Adjudication was not a substitute for discussion and negotiation nor was it to be used to provide the agenda for discussion and negotiation where no dispute had truly existed. A dispute will not exist if the claiming party accepts or has no real answer to a justified criticism of the whole or part of a claim. Only when the stages of discussion or negotiation are at an end may there be a dispute that could be referred to adjudication Ken Griffin and John Tomlinson v Midas Homes Limited (July 2000).

The dispute may cover one, several or many of one, some or all of the claims, heads of claims, issues contentions and causes of actions which are in dispute when the reference is made to adjudication. In other words the “dispute” which may be referred is all or part of whatever is in dispute at that time. Whether this is in fact more than one dispute depends upon the nature of the question being put to the Adjudicator Sherwood & Casson Ltd v Mackenzie (Nov 1999) TCC and Fastrack Contractors Ltd v Morrison Construction Ltd (4th Jan 2000) TCC.

In Sherwood & Casson Ltd v Mackenzie (Nov 1999) TCC His Honour Judge Thornton QC decided that both HGCR Act 1996 and the Scheme envisage that only one dispute can be referred at any one time. He held that the Scheme in particular envisages that each dispute will be the subject of a different notice and a different appointment of an adjudicator. He developed this further inFastrack Contractors Ltd v Morrison Construction Ltd (4th Jan 2000) TCC. He held that if two or more disputes is to be referred, each must be the subject of a separate reference. It would then be for the nominating body to decide whether it was appropriate to appoint the same adjudicator. 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”. 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.

In order to decide whether there is more than one dispute, it is necessary to determine the nature of the question being put to the Adjudicator. So, for example, in the case of payments there are two different questions. One is 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. The other and different question is in the form “Is a particular specified sum due?” How the question is put to the Adjudicator is vital and requires careful consideration.

In Grovedeck Ltd v Capital Demolition Ltd (24 Feb 2000) TCC His Honour Judge Bowsher QC recognised the practical importance of this matter. He distinguished both the judgments by Judge Thornton as being decisions on contracts to which the Scheme applied. He decided that there was nothing in the HGCR Act 1996 itself which prevented more than one dispute or even more than one contract being included in one referral. Any restriction on the number of contracts, or the number of disputes under one contract, to be referred must be derived from the contract or the Scheme, since there was no such restriction in the Act. Where the Scheme applied only one dispute could be referred unless the parties consented otherwise. A construction contract however could provide for the referral of more than one dispute or more than one contract without the consent of the other party. Judge Bowsher questioned whether this might be unwise but decided that there was no reason why this could not be done.

It is necessary to consider each dispute in the round. For instance, a claim for variations which are required to be remeasured and revalued on the final account is not the same as the claim under the previous interim application. This is particularly so if the variations in the Final Account have to be considered for the first time in the context of loss and expense. If part of the dispute is a claim which is the same as decided in a previous adjudication, then the second adjudicator should decide that there was no dispute on this part. He should abide by the previous decision. The contractual machinery is superseded by the first adjudicator’’s decision which is an independent obligation to comply with his decision. The second adjudicator has no jurisdiction to set aside, revise or vary the first adjudicator’’s decision. The Court itself has no appellate jurisdiction with regard to an adjudicator’’s decision. There is no possibility of the Adjudicator resigning from determining part of a dispute referred to him. He must resign from the dispute in its entirety or confirm his appointment in its entirety. The Adjudicator cannot resign from part that has been referred whilst retaining jurisdiction to determine the balance of the reference. If there are two conflicting decisions, it may be appropriate to set one off against the other in enforcement proceedings, depending on the timing of the decision. Sherwood & Casson Ltd v Mackenzie (Nov 1999) TCC and VHE Construction plc v RBSTB Trust Co Ltd (13 Jan 2000) and Northern Developments (Cumbria) Ltd v J&J Nichol (24 Jan 2000).

In Barr Limited v Law Mining Limited (2001) Lord Macfadyen stated that there was some force in Law Mining’s criticism of His Honour Judge Thornton’s analysis in Fastrack Contractors Ltd of what constituted a dispute. If everything in dispute between the parties formed a single dispute, paragraph 8(1) of the Scheme was severely restricted in scope or perhaps even deprived of content. It was held in this case that in both adjudications involved the adjudicator had not fallen into error in holding that the whole matters referred to him constituted a single dispute, namely what was due under the contract by Law Mining to Barr. The adjudicator had not gone beyond the proper scope of his jurisdiction. Lord Macfadyen observed that in one of the adjudications that the inadequacy of the adjudicator’s explanation of his view on the “separate disputes” issue was not sufficient to lead to the conclusion that he went beyond the proper scope of his jurisdiction, or affected the validity or enforceability of his decision.

5. DISPUTES ARISING UNDER THE CONTRACT

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 than typical construction arbitration agreements which use terms such as ‘arising out of’ or ‘in connection with’.

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.

If an adjudication clause permits the adjudicator to decide disputes which both arise “under” the contract or “in connection with” or “arising out of” then this will comply with the terms of the Act. The agreement will significantly extend the jurisdiction of the Adjudicator when dealing with matters in dispute.

If not, then the right to adjudication will be limited to disputes arising under the contract. It is suggested that the caselaw which decided the meaning of the term in relation to arbitration will apply.

In Filllite (Runcorn) Ltd v Aqua-Lift (1989) 45 BLR 27,C.A, Nourse L.J. said

“The preposition ‘under’ presupposes that the noun which it governs already has some existence. It operates in time as well as space. I think it means ‘as a result of and with reference to’. The disputes as to express or implied terms in the composite Peterborough contract arise both as a result of and with reference to that contract and are therefore within cl. 14 of the heads of the agreement. The disputes as to negligent misstatement, misrepresentation under the Misrepresentation Act 1967 and collateral warranty or contract, while they may in a loose sense be said to arise with reference to the contract, cannot be said to arise as a direct result of it. They all relate to matters which either preceded the contract or were at best contemporaneous with it. These disputes are therefore outside cl. 14. I agree with Slade L.J. that the material words are not wide enough to include disputes which do not concern obligations created by or incorporated in the Contract.”

In A & D Maintenance And Construction Limited –v- Pagehurst Construction Services Ltd (1999) the Court stated;

“such matters as set off under contract or abatement may properly be within his remit, as matters arising under the contract”.

“Matters of abatement and claims for damages for breach of contract could all have been canvassed before the Adjudicator and it seems they were…”

Keating (“Keating On Building Contracts, 6th Edition at page 427”) suggests in relation to arbitration that where an

“agreement is to refer disputes or differences which have arisen ‘in respect of’, or ‘with regard to,’ or ‘under’ or ‘out of’ the contract, or where similar words are used , then prima facie it will give the arbitrator jurisdiction to decide all allegations of breach of contract by either party, and possibly allegations of tort closely associated with the allegations of breach of contract.”

However, claims for “rectification, misrepresentation, negligent misstatement or a claim under a collateral contract, do not, arise ‘under’ a principal contract.

In Harbour Assurance Co. Ltd v Kansa General International Insurance Co.Ltd. [1993] 1 WLR. 562 , Hoffman L.J. considered the issue as to whether the Arbitration clause was invalidated as a result of the principal contract being void for illegality as follows;

“When one comes to voidness for illegality, it is particularly necessary to have regard to the purpose and policy for the rule which invalidates the contract and to ask , as the House of Lords did in Heyman v Darwins Ltd., whether the rule is such that it would be liable to be defeated by allowing the issue to be determined by a tribunal chosen by the parties…Thus to say that arbitration clauses, because separable, are never affected by the illegality of the principal contract is as much a case of false logic as saying that they must be”

With respect to Adjudication it is submitted that the position is to be distinguished from arbitration because the intention was not to allow all disputes to be referred but only those arising under the contract. The Adjudicator’s jurisdiction and importantly the extent of his jurisdiction is defined by the terms of the contract itself. The intention was that he should be part of the administrative machinery of the contract. In this sense the illegality of the contract itself will be a bar to the adjudicator’s jurisdiction for Statutory Adjudication.

PRACTICE NOTE

The matters which can be referred for resolution by Statutory Adjudication are disputes and differences which arise under a construction contract and comprise:

  • Generally, disputes over obligations created or incorporated in the Contract.
  • Issues of set off.
  • Issues of abatement of price.
  • Issues relating to breach of the contract.

It is suggested that the matters which cannot properly be decided by Statutory Adjudication are:

  • Request for rectification of the contract.
  • Issues relating to misrepresentation.
  • Issues relating to negligent misstatement.
  • Claims under a collateral warranty or contract.
  • Claims under a contract which is void for illegality.
  • Provisionally binding decision on his own jurisdiction.

The parties may confer a greater jurisdiction on the Adjudicator.

This article was written by Daniel Atkinson BSc(Hons) LLB(Hons) CEng FICE FCIArb FInstCES DipICArb Barrister* Advocate, Adjudicator, Arbitrator, Mediator, Chartered Engineer

BDAS specialise in: providing contract advice, resolving construction disputes, managing construction claims & adjudications and will give you competitive, independent advice tailored to your specific construction problems. If you could benefit from this please call Jon now on 07795 231 231 or email:Jon@BDASweb.com