 |
 |
 |
 |
 |
|
 |
 |
|
 |
 |
|
 |
 |
|
 |
||
Chicago International Dispute Resolution Association
Undisputed Facts
Newsletter of The Chicago International Dispute Resolution
Association
Winter 2003
English-Style Adjudication of Construction Disputes
by Mahir Jalili 1
Introduction
The resolution of disputes in the construction industry has been the subject of a number of recent developments. In England, the Housing Grants, Construction and Regeneration Act of 1996 (the "Act") introduced the right to adjudication in all construction contracts. A party to a construction contract has a statutory right to refer a dispute to adjudication.
A "construction contract" is defined as an agreement with a person for the carrying out of construction operations or for arranging the carrying out of construction operations by others, including subcontractors. The definition includes an agreement to do architectural, design or surveying work or to provide advice on building or engineering.4
The term "construction operations" include the construction, alteration, repair, maintenance, demolition or dismantling of buildings, roadworks, power-lines, telecommunication apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defense. 5 However, "construction operations" do not include drilling for, or extraction of, oil or natural gas; the extraction of minerals, tunneling or boring, or construction of underground works; or the assembly, installation demolition of plant or machinery on a site where the primary activity is power generation, nuclear processing or bulk storage of chemicals, pharmaceuticals, oil, gas, steel or food and drink. 6
Minimum Requirements
The Act gives a party to a construction contract the right to refer a dispute to adjudication. If the construction contract does not contain an adjudication clause, or if the adjudication clause does not comply with the Act, then the adjudication provisions of the Act would apply automatically. The minimum requirements 7 are as follows:
The contract shall enable a party to give notice at any time of his intention to refer a dispute to adjudication.
The contract shall provide a timetable with the object of securing the appointment of the adjudicator and the referral of the dispute to him within 7 days of such notice.
The contract shall require the adjudicator to reach decision within 28 days of referral or such longer period as is greed by the parties after the dispute has been referred.
The contract shall 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.
The contract shall impose a duty on the adjudicator to act impartially.
The contract shall enable the adjudicator to take the initiative in ascertaining the facts and law.
The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement.
The contract shall also provide that the adjudicator is not liable for anything done or omitted in the discharge of his functions as adjudicator unless the act or omission is in bad faith, and that any employee or agent of the adjudicator is similarly protected from liability.
Procedure
Following the giving of a notice of adjudication and subject to any agreement between the parties to the dispute as to who shall act as adjudicator, the referring party will request the person (if any) specified in the contract to act as adjudicator. 8 If no such person is named in the contract or agreed between the parties, the referring party can request an adjudicator nominating body to select a person to act as adjudicator. 9
Once the adjudicator is selected, the referring party must, not later than 7 days from the date of the notice of adjudication, refer the dispute in writing to the adjudicator. 10 The adjudicator takes the initiative in ascertaining the facts and the law and decides on the procedure to be followed in the adjudication. 11 The procedure can include oral representations 12 by lawyers. 13
The adjudicator is required to reach his decision not later than 28 days after the date of the referral notice or 42 days after the referral notice if the referring party so consents. 14 Alternatively, the parties may agree to any other period exceeding 28 days. 15
Adjudicator's Decision
The adjudicator may open up, revise and review any decision taken or any certificate given by an engineer/architect unless the contract states that the decision or certificate is final and conclusive. 16 He may decide that any party is liable to make payment under the contract as well as the rate of interest. 17
The parties are required to comply with any decision of the adjudicator immediately on delivery of the decision. 18
If requested by one of the parties, the adjudicator must provide reasons for his decision. 19
Effect of the Decision
In his decision, the adjudicator may, if he thinks fit, order any of the parties to comply peremptorily with his decision or any part of it. The decision of the adjudicator is binding on the parties, and they must comply with it until the dispute is finally determined by litigation or arbitration or by agreement between the parties.
Enforcement
The English courts will generally enforce any decision made by the adjudicator as long as he has jurisdiction to adjudicate the dispute. The appropriate procedural route for enforcement is by summary judgment.
It is accepted that adjudication is a summary procedure using a timetable that may make it inherently unfair. However, such procedure was deliberately introduced in all construction contracts as a speedy, provisional stage in the dispute resolution process. If the losing party is unhappy with the adjudicator's decision, he has the normal right to commence litigation or arbitration for a final resolution of the dispute.
The first occasion upon which the courts had to consider these adjudication provisions was in Macob Civil Engineering Ltd. v. Morrison Construction Ltd. 20 The highly-regarded Mr. Justice Dyson made the following observations:
"The intention of Parliament under the Act was plain. It was to introduce a speedy mechanism for settling disputes and 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 agreement. … The timetable for adjudication is very tight ... many would say unreasonably tight, and likely to result in injustice. Parliament must have 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 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 an are to be complied with until the dispute is finally resolved."
Ambush
Despite Parliament's good intentions, adjudications have produced very unfair results. The referring party has built-in advantages, which sometimes have been used to ambush the other party. There are two kinds of ambush:
The referring party spends months preparing his case and then gives notice of adjudication, sometimes just before a traditional construction industry holiday. The opposing party would come under tremendous pressure to prepare an adequate defense considering that the adjudicator, who is already in possession of the referring party's voluminous submission, has to reach his decision not later than 28 days after receiving the referral notice. Although the Scheme allows for the extension of this 28-day period, no extension is possible without the consent of the referring party.
A number of subcontractors decide to serve referral notices on the same main contractor at the same time.
Adjudicators must be alert to such tactics so that, within the limited time available to them, they can treat the parties with fairness and equality.
In addition, some employers have appointed the same adjudicator in their "take it or leave it" standard adjudication clause. Such adjudicator tends to favour the employer in his rulings, but it is difficult to prove lack of independence or actual bias.
Mistakes
Courts will enforce the adjudicator's decision even if there is an obvious error in his reasoning. In Bouygues UK Ltd. v. Dahl-Jensen UK Ltd., 21 the adjudicator made a mistake in his figures, which meant that his award was in favour of one party instead of the other. The court still enforced the decision. Mr. Justice Dyson made some frank comments regarding the risk of injustice in adjudication:
"It is inherent that injustices will occur, because from time to time, adjudicators will make mistakes. Sometimes those mistakes will be glaringly obvious and disastrous in their consequences for the losing party. The victims of mistakes will usually be able to recoup their losses by subsequent arbitration or litigation, and possibly even by a subsequent adjudication. Sometimes, they will not be able to do so, where, for example, there is intervening insolvency, either of the victim or of the fortunate beneficiary of the mistake."
Mr. Justice Dyson seems to be saying, "There is nothing I can do about this piece of legislation."
The available unfairness-correction mechanism in "subsequent arbitration or litigation" may be of no use to the losing party even if there is no intervening insolvency. Some losing parties may be so devastated by the adjudicator's decision that they give up and decide not to arbitrate or litigate. They may conclude, rightly or wrongly, that the judge or arbitrator is likely to reach the same result as the adjudicator.
European Convention of Human Rights
England has incorporated the European Convention of Human Rights into its domestic laws by enacting the Human Rights Act of 1998, which came into force in October 2000. Article 6 of the Convention states as follows:
"In the determination of his civil rights or obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law."
It is thought that Article 6 does not apply to adjudications because they are not a final determination: An adjudicator's decision is binding only until the dispute is finally determined by arbitration or litigation. 22
Conclusion
Adjudication provides a statutory "quick fix," which is subject to correction in a subsequent arbitration or litigation. This can be a useful interim step, for example, where a main contractor treats with contempt the claims of a small subcontractor who cannot afford arbitration or litigation. However, adjudication is a rough procedure that can be exploited by unscrupulous parties to produce unfair results.
1 Mr. Jalili practices from Chicago and London.
He is qualified as an English barrister and an American attorney. His practice
is concentrated on international arbitration.
4 Section 104 of the Act.
5 Section 105(1) of the Act.
6 Section 105(2) of the Act.
7 Section 108 of the Act.
8 Section 2(1)(a) of the Part 1of the Scheme for Construction
Contracts (England and Wales) Regulations of 1998 (the "Scheme").
9 Section 2(1)(c) of Part I of the Scheme.
10 Section 7 of Part I of the Scheme.
11 Section 13 of Part I of the Scheme.
12 Section 13(g) of Part I of the Scheme.
13 Section 16 of Part I of the Scheme.
14 Section 19(1)(a) and (b) of Part I of the Scheme.
15 Section 19(1)(c) of Part I of the Scheme.
16 Section 20(a) of Part I of the Scheme.
17 Sections 20(b) and 20(c) of Part I of the Scheme.
18 Section 21 of Part I of the Scheme.
19 Section 22 of Part I of the Scheme.
20 [1999] BLR 93.
21 [2000] BLR 49.
22 KEATING ON BUILDING CONTRACTS (7th ed., 2001), page 535,
16-115.
| previous page |
Peter V. Baugher,
President
One South Wacker Drive, Suite 2800, Chicago, IL 60606 USA
312-409-1373 (Telephone), 312-701-9335 (Facsimile),