2 ENGLAND AND WALES

Chapter 2
England and Wales




Introduction



“…but with fairness to all involved. Above all, it needs teamwork. Management jargon calls that ‘seeking win-win solutions’. I prefer the immortal words of the Dodo in Alice’s Adventures in Wonderland, ‘Everybody has won and all must have prizes’. The prize is enhanced performance in a healthier atmosphere. It will involve deeper satisfaction for clients. It will lead to a brighter image and better rewards for a great industry.1


2.1 As explained more fully in paragraphs 1.2 to 1.10 inclusive in chapter 1 above, adjudication has been included in the past as a dispute resolution mechanism in various contractual agreements in the United Kingdom, including in a number of standard form contracts used in the construction industry.2 Such contractual provisions would frequently limit the scope of disputes that could be referred, such as to disputes arising under certain specific provisions of the contract.3 This chapter, however, focuses upon the more recent, statutory, form of adjudication now used in England and Wales, with separate chapters considering the position in Northern Ireland (chapter 15) and Scotland (chapter 16).


2.2 The concept that parties to a construction contract should have a general right to adjudicate all disputes arising under that contract at any stage was originally proposed by Michael Latham in his Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry, published in July 1994.


2.3 Part 2 of the Housing Grants, Construction and Regeneration Act 1996 (the HGCRA) [Appendix 1.1], which, amongst other things, incorporated Michael Latham’s suggestion in the form of the adjudication provisions (appearing at section 108 thereof), came into force on 1 May 1998 and has applied to any disputes arising out of contracts entered into subsequent to that date. Under section 108 of the HGCRA, compulsory adjudication is now commonplace – in most construction disputes.4



Illustrations



  1. Facts: Bovis Lend Lease Limited (C) engaged Cofely Engineering Services (D) as sub-contractor to carry out mechanical and public health works at the new Civil Justice Centre in Manchester, for the sum of £9,652,946.70. Four adjudications were referred by D, in which the same adjudicator was nominated by the RICS. Following the commencement of the fifth adjudication by D, C purported to commence a separate, sixth adjudication. Although the latter concerned the same issue as that raised in the fifth adjudication, C sought to refer it to a Mr Smith (who appears to have been unavailable, or unwilling, to act as adjudicator and nominated instead one of his partners). The court was asked to determine, as a matter of construction of the sub-contract, which adjudicator had the necessary jurisdiction to deal with the new dispute. Held: by Coulson J, that the parties had agreed that the RICS would be the nominating body and therefore C was not entitled to the declaration that it sought under CPR Part 8 that Mr Smith was the agreed adjudicator: Bovis Lend Lease Limited v Cofely Engineering Services.5
  2. Facts: Glendalough Associates SA (C) engaged Harris Calman Construction Co Limited (D) to carry out works, pending agreement. In the end, no formal contract was ever signed and D completed the works under the terms of the original letter of intent. The works took longer than anticipated and C claimed to be entitled to £250,000 in liquidated damages for delay, issuing a withholding notice. D disputed this and referred the matter to adjudication. C objected to the jurisdiction of the adjudicator, reserving its right to challenge the enforcement of any decision on the grounds of lack of jurisdiction. C sought a declaration from the court that (a) the adjudicator had no jurisdiction, (b) further, or in the alternative, an injunction restraining D from continuing with the adjudication, and (c) further, or in the further alternative, a declaration that any decision reached by the adjudicator was a nullity and unenforceable. Held: by Edwards-Stuart J, that: (1) C’s applications must be dismissed, (2) in light of section107(5) of the HGCRA, the parties were to be taken as having agreed that there was an agreement in writing and it was therefore not open to either party to contend, or to the adjudicator to decide, to the contrary, (3) no part of this judgment should be communicated to the adjudicator before he gave his decision, except for the declaration set out in (2) above: Glendalough Associated SA v Harris Calman Construction Co Limited.6

2.4 Publication of the HGCRA provoked a welter of criticism from specialist construction law practitioners. The opening paragraph7 of an article by the (late, great) Ian Duncan Wallace QC contained the following strident passage:



The invasion of freedom of contract by this Act and its overt intervention designed to tilt the tactical advantage in favour of contractors or sub-contractors as performing parties, and against client owners and main contractors in their paymaster capacities, represents a disastrously misguided intervention by the DETR in the affairs of the construction industry. It can only serve to paralyse the effective administration of construction projects and act as a powerful impetus to increased litigation and higher construction costs.


(emphasis added)


2.5 In December 1997, publication of A Plea for Sanity8 sought to persuade the new Labour administration to delay bringing the HGCRA into force, so as to enable its provisions to be reconsidered. As Mr Duncan Wallace further observed thereafter:9



“The official responses to the ‘A Plea for Sanity’ objections subsequently emanating from the DETR have been that the Act:



  • (a) represents a necessary protection by Government for small business sub-contractors against the bullying tactics of main contractors, particularly in the area of payment;
  • (b) will reduce the amount of adversarial litigation in the industry; and
  • (c) will reduce building costs in the order of 30 per cent overall.



2.6 Mr Duncan Wallace’s criticisms continued unabated in a further seminal article,10 in which he asserted:11



2.7 He concluded as follows:12



Unfortunately for the enlightened interest and long-term health of the industry as a whole, modern parliamentary imperatives coupled with empire-building pressures in the Department itself, may well mean that the industry has to live with this damaging and oddly mistitled Act for a long time. This does not prevent it from being a monument of what legislation should not be – an inadequately considered surrender of public and customer/consumer interests to thinly disguised producer lobbies in an industry which has done little or nothing to deserve it. One obvious inference from this legislation is that the traditionally long arm of the Treasury and of Public Accounts Committees as guardians of the public interest is no longer as percipient or as effective as formerly. Indeed, it seems to be entirely absent. Another is the need for genuine and properly directed consultation before embarking on interventionist commercial legislation – here the Law Commission’s record in recent legislation indirectly affecting the construction industry is as impeccable as the Department’s has been lamentable, reaching the point of an outright disinformation exercise in its May 1995 Fair Contracts paper, and with time limits for consultation responses almost as unforgiving as those in the Act itself.


(emphasis added)



2.8 Not all those who originally criticised the HGCRA remained critical for very long, however!


2.9 In A Plea for Sanity, Professor John Uff QC predicted in his paper:



“that the new statutory proposals would have the following effects:



  • .1 The unavoidable and permanent downgrading of the rôle of the professional contract administrator, necessarily affecting the status of all professional architects and engineers;
  • .2 The duplication of dispute resolution machinery already in place and seen to be working, particularly the new facility for provisional awards introduced by section 39 of the Arbitration Act 1996; and
  • .3 The inevitable generation of greater numbers of formal disputes and the need to call on legal services at a much earlier stage in the process of any ‘dispute’ under the contract.13


2.10 By 1998, however (doubtless, having received a number of appointments as adjudicator!), Mr Uff changed his spots somewhat as follows:14



“While the inevitable curtailment of the adjudicator’s freedom of action may be welcomed by some, I do not share their anticipation for this reason. One positive benefit of adjudication has been the freeing of technical dispute resolvers (who have hitherto generally confined themselves to arbitration) from the constraints usually associated with an appointment as arbitrator. In this rôle, their operation has generally been cautious and, arguably, unduly respectful of legal controls and threatened sanctions.


Adjudication appears to have broken the mould and produced a new breed of confident technical adjudicators, who have suddenly found the ability to cut through swathes of Gordian knots to produce workable and sensible answers in remarkably short order to the most complex of disputes. Would that they had found this ability as arbitrators. If the effect of curtailing the discretion of adjudicators is to dampen their new frontier spirit, this will be a regrettable and backwards step. It is hoped, by myself at least, that the new found confidence will be maintained and persisted in, whatever the particular label attached to the dispute resolution procedure.


(emphasis added)


2.11 Mr Duncan Wallace sadly went to his grave with his hatred (which bordered on the rabid!) of the HGCRA15 unabated.


2.12 By 1999, the first case under the HGCRA reached the English Court of Appeal, where it received the first of many judicial commendations.


2.13 In Macob Civil Engineering Limited v Morrison Construction Limited,16 Dyson J (as he then was) removed all doubt that the adjudication process under the HGCRA was not only endorsed by the courts, but that decisions of adjudicators would generally be enthusiastically enforced:



The intention of Parliament in the Act was plain. It was to introduce a speedy mechanism for settling disputes under construction contracts on a provisional interim basis, and requiring the decision of adjudicators to be enforced pending the final determination of disputes by arbitration, litigation or agreementThe timetable for adjudication is very tight … many would say unreasonably tight, and likely to result in injustice. Parliament must have been taken to be aware of this … It is clearly Parliament’s intention that the adjudication should be conducted in a manner which those familiar with the grinding detail of the traditional approach to the resolution of construction disputes apparently find it difficult to accept. But Parliament has not abolished arbitration and litigation of construction disputes. It has merely introduced an intervening provisional stage in the dispute resolution process. Crucially, it has made it clear that decisions of adjudicators are binding and are to be compiled with until the dispute is finally resolved.”


(emphasis added)



Reform of the HGCRA


2.14 In 2009, Part 2 of the HGCRA was amended by the Local Democracy, Economic, Development and Construction Act 2009 (the LDEDCA) [Appendix 1.3], which came into force on 1 October 2011. Subsequent to that amendment, it is no longer required for the construction contract to be in writing, or evidenced in writing;17 the HGCRA henceforth also applies to oral and partly written such contracts. However, if the parties wish to include the possibility of statutory adjudication, the specific adjudication provisions (ie the adjudication clause) must still be in writing, since, otherwise, the Scheme for Construction Contracts ( the Scheme) [Appendices 1.2 and 1.4] applies.18


2.15 A second important change is that the parties are no longer permitted to provide for which of them is to bear the cost of any adjudication, prior to the notice of adjudication being issued; if they do so nonetheless, the clause will be rendered ineffective. Since October 2011, the parties are only allowed to determine the allocation of costs once the notice has been served and they must then do so in writing19 (which is, of course, hugely unlikely).


2.16 In addition, the LDEDCA changed the payment procedure to which the parties have to adhere. The employer is now required to serve a payment notice within five days of the payment due date, which was agreed upon in the contract.20 If the employer fails to do so, the contractor is entitled to serve his own notice (ie a default payment notice).21 The new and final payment due date is, subsequently, prolonged by the number of days between the original date (set out in the contract) and the date of the contractor’s notice.22 The employer has the right to serve a pay less notice before the final due date of payment.23 Payment will be made on the final date, in accordance with the amount set out in the last notice that was served24 (ie either the payment notice, default payment notice, or the pay less notice).


2.17 Next to these main alterations, the LDEDCA amendments also include a number of other specific changes:



  • .1 Pay-when-certified clauses are no longer permitted and, accordingly, contractors can no longer link the payment to, or make it contingent upon, the certification of performance under another contract;
  • .2 The payment of retentions to sub-contractors can no longer be made conditional upon the certification of making good any defects, or paying the main contractor’s retention under the contract;
  • .3 The right of suspension has been amended, so as to allow the contractor to extend the time of suspension, as well as to recover any reasonable costs and expenses incurred in connection therewith;25 and
  • .4 A notice of the contractor’s insolvency must be expressly included in the contract if the employer wishes to withhold money in case of the contractor becoming insolvent.26



When can parties adjudicate a dispute?


2.18 Put shortly, the parties can adjudicate a dispute (1) if the contract provides for it and (2) under any qualifying construction contract entered into after 1 May 1998.


2.19 Sections 104 and 105 of the Act define what constitutes a “construction contract” and what “construction operations” mean, both of which have been interpreted extremely broadly.


2.20 Section 106 of the Act excludes construction contracts with a residential occupier. Section 107 of the Act requires the construction contract to be in writing, although this is very widely defined. There also needs to be “dispute” at the time of the referral to adjudication.



Conduct of an adjudication


2.21 The basic requirements are set out in section 108 of the Act, which, in essence, amount to the following:



  • .1 A party can give notice of his intention to refer a dispute at any time;
  • .2 The timetable must allow for the appointment of an adjudicator and referral to them of the dispute within seven days of the notice of adjudication;
  • .3 The basic period allowed for the whole process from referral to decision is 28 days (the adjudicator having the ability to extend by only 14 days with the consent of the referring party alone, with any further extension needing to be agreed by all parties);
  • .4 The adjudicator must act impartially; and
  • .5 The adjudicator can take the initiative in ascertaining the facts and law (ie adopt an “inquisitorial” approach).


2.22 If the contract does not contain a mechanism that complies with each of the above statutory requirements, then the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the Scheme) [Appendices 1.2 and 1.4] will apply.


2.23 As to the detailed procedure, that is left for the adjudicator (generally with the input of the parties) to decide.


2.24 The net result of this, on a practical level, is that:



  • .1 Adjudications can be properly commenced at any time (once a dispute has arisen), both during and after the completion of work, or the provision of services, under the construction contract and the right to adjudicate, in common with arbitration, survives termination and repudiation of that contract;27
  • .2 Beyond service of the referral on the adjudicator within seven days of the notice of adjudication, neither the Act, nor the Scheme provides for any particular procedure for the adjudication. There is no specific requirement for the service of any response by the “other party”, or any further submissions. The adjudicator has a free hand in establishing the procedure, provided that it is just and impartial. Further, whether the parties attend any “hearing”, or “meeting”, will again be a matter for the adjudicator. The procedure will largely depend upon the preferences of the adjudicator (generally, with input from the parties) and the nature of the dispute;
  • .3 In litigation, the parties might expect a claim followed by a defence and a reply, with no permission for further exchanges of pleadings, or submissions. In an adjudication, it is not unheard of for there to be service of a referral, a response, a reply, a rejoinder, a “surrejoinder”, a “rebutter” and further pleadings and submissions for which names have yet to be invented! An alternative common approach is for the parties to “disguise” further rounds of submissions (up to and beyond the decision!) as letters to the adjudicator which begin “We have no intention of responding in detail to the [X], but. …”!


2.25 Beware costs and interest! The adjudicator has no inherent jurisdiction to award either costs or interest (unless this is expressly stipulated in the contract). Parties must therefore beware of an ad hoc submission to the jurisdiction, by requesting, or failing appropriately to respond to, a request for costs, or interest: see also Hortimax Limited v Hedon Salads Limited.28