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Back to basics: A practical guide to adjudication and enforcement

If you are a party to a construction contract and are trying to find a fast and efficient way to resolve a dispute arising out of the contract, you may be able to take advantage of the adjudication procedure set out in the Housing, Grants, Construction and Regeneration Act 1996 and the Statutory Scheme for Construction Contracts Regulations 1998.  Catherine Piercy has written an article to assist in determining whether your contract falls within the statutory scheme (click here).  Once you have decided that you have a construction contract which falls within the HGCRA and is subject to the Statutory Scheme, this article provides a step by step guide to the adjudication and the adjudication process. 

Notice of Adjudication

The first step that the referring party will take is to serve on every party to the construction contract a notice of its intention to refer a dispute to adjudication. This is arguably the most important document in any adjudication, because it defines the scope of the dispute that is to be decided by the adjudicator.
The notice must provide the following information1:

  • a brief description of the contract, together with the names and address of the parties to the contract (including any addresses specified for the giving of notices);
  • a brief description of the dispute that has arisen between the parties, including where and when the dispute arose;
  • a clear description of the nature of relief being sought in the adjudication, and, essentially, what the claiming party wants the adjudicator to do.

Unless all of the parties to the dispute give their consent or the form of contract specifically permits the referral of multiple disputes at the same time, the notice of adjudication should identify just one single dispute.  In the vast majority of adjudications, it will be potentially fatal to the adjudication, if the notice of adjudication is drafted so as to refer to disputes (plural) between the parties. The referring party must, therefore, be careful to be accurate in the characterisation of the dispute it wishes to adjudicate over.

For example, where a contractor’s application for an interim payment has not been paid (either in whole or in part) by the employer, that interim application is likely to be made up of several disparate elements, such as claims for unpaid contract work, variations, the expenditure of prime cost items as well as loss and expenses. Notwithstanding this fact, the dispute between the parties is properly characterised as a single dispute, comprising the employer’s failure to pay the sum claimed by way of an interim payment.

It is also important that the notice spells out accurately exactly what relief is sought. It is not enough for a contractor simply to identify the submission of an interim payment application and its non-payment by the employer, because the adjudicator has then only been given the power to determine the amount due and not, in fact, to award any sums of money.  To avoid unnecessary technical challenges, the notice should ask for a specific sum or “such other sum as the adjudicator sees fit” in order to allow the adjudicator to award at least some, if not all, of the sums claimed.

Appointment of the adjudicator

The next step is for the parties to appoint an adjudicator within 7 days of service of the notice of adjudication. In order to ensure that the matter proceeds as efficiently as possible, it is usually helpful to send the request to the adjudicator at the same time as the notice of adjudication is sent to the responding party.

  • Where the contract names a specific adjudicator, then the parties should make sure that he or she will be able to deal with the dispute within the statutory period. The parties will then be in a position to decide whether to utilise the named adjudicator, allow him an extended period to complete his decision or, if not, to activate the default mechanism within the contact for the appointment of an alternative adjudicator.
  • Other contracts will stipulate that the parties must contact the relevant nominating body. The request for an adjudicator must be accompanied by a copy of the notice of adjudication.
  • If either party object to the appointment of a particular adjudicator, then written notice should be given of that fact, giving reasons for the objection, as soon as possible, and copying in the opposing party.
  • Furthermore, if upon receipt of the notice of adjudication, the opposing party considers that the adjudicator does not have jurisdiction to hear the dispute, then they must notify the referring party of this challenge immediately.

Referral Notice

The purpose of this document is to allow the referring party to set out the legal and factual basis of its claim in more detail.  The referring party should also attach all the documents relied upon in support of the claim, including copies of the relevant parts of the contract, contemporaneous documentation of the progress of the works (e.g. meeting minutes) and any witness or expert evidence.

Care should be taken to include only those documents directly relevant to the dispute, focussing on documents that have already been seen by the other side, to prevent the responding party from arguing that the referral notice relates to a dispute that has not yet arisen.

Response to the Referral Notice

This is the key document in which the opposing party can set out the detail of its case. If possible, the responding party should set out its response to the Referral on a paragraph-by-paragraph basis, so that the adjudicator can see clearly how the opposing party responds to each element of the referring party’s claim.

It will often be unnecessary and undesirable for the responding party to attach reams of documents to the Response, as most key documents should have been attached to the Referral Notice. If they are clearly numbered, then the responding party can simply refer to the relevant documents without having to copy them. Only if important documents have been omitted, should further copies be annexed.

Reply

The referring party does not have any automatic right to Reply to the Response but it may be possible to persuade the adjudicator that, in all the circumstances, a reply is appropriate. However, the adjudicator may limit the scope of the Reply to only new points raised in the Response, given the tight time constraints in which he must give his decision.

Hearing

Save in very large and complex cases, it is unlikely that the adjudicator will require an oral hearing. However, where there are significant legal or factual differences between the parties, the adjudicator might decide that a formal oral hearing is necessary, where oral evidence may be required from witnesses of fact and/or experts.

The Decision

The Adjudicator must give his decision within 28 days of the Referral Notice and must give reasons if either party to the dispute so requests2.  The adjudicator must decide the matters in dispute and in doing so he may take into account any matters which the parties to the dispute agree should be within the scope of the adjudication or which are matters under the contract which he considers are necessarily connected with the dispute3.  The parties must comply with his decision immediately, unless the adjudicator sets out the time for performance of his decision4.

Enforcement

The decision of the adjudicator is temporarily binding, until the underlying dispute is litigated, arbitrated or settled.  The courts have made plain that the right way for a party to enforce the decision of an adjudicator is to seek summary judgment on the decision. The mere fact that the adjudicator’s decision may later be revised does not prevent summary judgment being awarded in the first place. 

The general principles that the court will apply when deciding whether to grant summary judgment are:

  • A decision of an adjudicator whose validity is challenged as to its factual or legal conclusions or as to procedural error will usually be enforced;
  • A decision may be challenged on the ground that the adjudicator was not empowered by the HGCRA to make the decision, either because there was no underling construction contract between the parties or because he had gone outside the terms of reference (and thus he was acting in excess of his jurisdiction or in breach of natural justice);
  • An issue as to whether a construction contract ever came into existence is a challenge to the jurisdiction of the adjudicator and, so long as it is reasonably and clearly raised, must be determined by the court on the balance of probabilities with, if necessary, oral and documentary evidence.

In the recent case of Carillion Construction Ltd v Devonport Royal Dockyard Ltd5, Chadwick LJ explained that whilst it is only too easy to identify points upon which to present a challenge under the labels “excess of jurisdiction” or “breach of natural justice”, he emphasised that the courts would give no encouragement to an approach that could aptly be described as “scrabbling around to find some argument, however tenuous, to resist payment”. He said that the HGCRA provided a means of meeting the legitimate cash-flow requirements of contractors and their sub-contractors; it was not enacted in order to provide definitive answers to complex questions.

Therefore, it is likely that, save in very rare cases, adjudicators’ decision will be enforceable by summary judgment and unsuccessful parties may well be advised to comply with the adjudicator’s decision and seek to rectify the position through litigation or arbitration proceedings.

As a result of the court’s approach to enforcement, adjudication is a quick and effective way of resolving a dispute and enforcing the provisions of a contract both during the course of, or at the end of, a construction project. 

  1. Part 1, Paragraph 1 of the Statutory Scheme
  2. Part 1, Paragraph 22 of the Statutory Scheme
  3. Part 1, Paragraph 20 of the Statutory Scheme
  4. Part 1, Paragraph 21 of the Statutory Scheme
  5. [2005] EWCA Civ 1358
 

We offer a Fixed Fee Adjudication Scheme - if you would like to find out more about it, please contact the Practice Management Team or read our Fixed Fee Adjudication flyer.