Christopher Dancaster FRICS FCIArb MBAE
The Housing Grants, Construction and Regeneration Act became a part of the law of England and Wales on 24 July 1996. In part it also applies to Scotland and Northern Ireland.
This Act is a substantial piece of legislation. It contains 5 Parts and 151 Sections running to 89 pages. It also contains a further 14 pages of Schedules. It contains what in many ways appears to be a hotch potch of matters allied to the property field that needed to be dealt with by legislation.
Most of the Act is taken up with grants for the renewal of private sector housing and for regeneration, development and relocation. There are a few Sections which deal with the registration of Architects but the part of particular interest to anyone involved in construction contracts is Part 2 which is so entitled and deals with the payment for construction work and introduces the statutory right to adjudication.
Part 2 applies in Scotland but not in Northern Ireland.
There are thirteen Sections in Part 2 but only one of these deals with adjudication. That is Section 108. A number of other sections in Part 2 do have an influence on adjudication but only principally in relation to its applicability.
As adjudication applies only to construction contracts it is of great importance to define just what such a contract is and this is done in Section 104.
Of particular note for professionals involved in the construction industry is that not only does the statutory right to adjudication apply to contracts relating to the physical act of construction but it also applies to contracts for professional services relating to construction operations.
One other matter of particular note is that Section 106 of the Act provides that the statutory right to adjudication does not apply where the contract is with a residential occupier.
What is adjudication? It is a process whereby a dispute arising between the parties to a contract is referred for the decision of a third party. That in itself does not sound much different from the existing processes of arbitration and the courts. In actual fact, in its basic concept it is not. Adjudication is all to do with the rights and obligations of the parties. It must therefore be a Judicial process. The big difference is in the time scales imposed on the adjudicator. He has to reach a decision within 28 days of the dispute being referred to him. There is therefore insufficient time for detailed Statements of Case, discovery and all the other procedural matters beloved of the legal and arbitral establishment. The adjudicator has to do the best he can on the basis of the information available to him. Adjudication is a Judicial process but does not utilise the formal procedures of that process.
It is the hope of the proponents of adjudication that the adjudicator's decision (or the fact that he may make a decision) will resolve the dispute by dealing with it as and when it arises and not allowing it to fester and grow out of all proportion over a long period of time.
Adjudication is closer to the processes of the courts than arbitration in one respect in that there is no need for an agreement to adjudicate. It is a statutory right. One party can start the process and get the adjudicator moving whether or not the other party objects.
Now for the Act itself Section 108 reads as follows:
(1) A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section.
for this purpose dispute includes any difference.
(2) 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 qf'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,'
(f) enable the adjudicator to take the initiative in ascertaining the facts and the law.
TThe contract shall provide, that the decision o 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 parties may agree to accept the decision of the adjudicator as finally determining the dispute.
The Contract shall also provide that the adjudicator is not liable for anything done or omitted in the discharge or purported 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 room liability.
(5) If the contract does not comply with the requirements of subsections (1) to (4), the adjudication provisions of the Scheme for Construction Contracts apply.
(6) For England and Wales, the Scheme may apply the provisions of the Arbitration Act 1996 with such adaptations and modifications as appear to the Minister making the scheme to be appropriate
For Scotland the Scheme may include provision conferring powers on courts in relation to adjudication and provision relating to the endorsement of the adjudicator's decision.
Sub-Section (1) provides the statutory right to adjudication. At one stage it included the words "for resolution by adjudication" but these were removed as it was felt by some that the courts might interpret those words to mean that the process was final and binding in all circumstances and not open to review in arbitration or by the court.
There is one specific point in this sub-section that relates to the applicability of the adjudication process. That is the words "a dispute arising under the contract which restricts the adjudicator to dealing with contractual matters alone, excluding him from those arising in tort. Arbitrators generally have a wider jurisdiction in that they can deal with disputes arising "in connection with" contracts.
Sub-Section (2ka) includes the words "at any time". Concern was expressed by Nick Raynsford MP, the Labour spokesman during the debate in Parliament regarding the open ended nature of this provision. There is however the opposing concern that if the wording was changed to "within the period prescribed in the contract there could be extremely short periods inserted by the drafters of contracts which would disadvantage the weaker party in a typical contractor/sub-contractor situation.
Sub-Sections (2)(b) (c) and (d) set out the time scale. a maximum of 35 days, that is allowed, unless an extension is agreed, between the notice of an intention to refer the dispute to adjudication and the time that the adjudicator must reach his decision.
There is a body of opinion that the adjudicator should be allowed to extend the period unilaterally in order to avoid the situation where he feels that he is unable to deal with the dispute presented to him within the set time scales. This view has not been accommodated and many consider that this will be for the best in the interests of a "quick-fix". Human nature being what it is, an adjudicator offered the opportunity to extend the time could well take it in order to make full investigations and the adjudication process become just as long winded as arbitration seems often to be.
The down side of this is that the adjudicator might feel that the dispute is "unadjudicable", and be tempted to opt out and not to make a decision. The problem here is that the claiming party has not had its statutory right to adjudication fulfilled. The consultation document on the Scheme for Construction Contracts, of which more later, suggests that the parties should start again with a new adjudicator in this event.
I suggest that it is acceptable for a named adjudicator to opt out if he feels that he is unsuitable for the dispute because he does not have the necessary experience to understand the issues. A second adjudicator may be quite able to deal with the matters raised. But what of the truly "unadjudicable" dispute? It may be that the limit of 28 days that makes it impossible to deal with all the matters particularly if the dispute may be of great complexity or there is a need to carry out independent tests before a decision can be reached. The parties ought to recognise the problem and decide to give an extension of time to the adjudicator by agreement, perhaps with a little guidance from the adjudicator himself
But what if one party is hell bent on adjudication? It may be that even after a second adjudicator has withdrawn for entirely valid reasons that party still wants to exercise its statutory right. Will a third or even more adjudicators be appointed? One of them will have to make a decision on the issues eventually if the process is not to become a laughing stock. In that circumstance the adjudicator will just have to do his very best. It may well be that the party insisting on adjudication will be disappointed with the result, as the last thing an adjudicator should do is to find in favour of the applicant in the absence of his being satisfied as to the validity of the claim. The end result is probably that the dispute will end up before an arbitrator or in the Courts where it can be given proper consideration.
Sub-Section (2)(e) which requires an adjudicator to act impartially, is self explanatory. It is to be noted that there is no requirement that he be independent. Certain forms of contract in the public sector do, in fact, allow a member of the authority to be adjudicator.
Sub-section (2)(f) is quite an innovation m that it specifically empowers the adjudicator to take the initiative in ascertaining the facts and the law. It is however not unique as a similar wording is, of course, set out in Section 34(g) of the 1996 Arbitration Act. There is a slight difference in emphasis in that the Arbitration Act gives the parties the opportunity to preclude the arbitrator from doing this. The adjudicator however has total freedom whether or not to investigate the facts and the law. In this it must be remembered that he does not act as expert.
There is a divergence of opinion concerning this provision. There are some who consider that the interests of the adjudication process will be best served by the adjudicator taking the submissions of the parties and making his decision on the information in front of him. There are however others who are of the view that, providing that the time limits are complied with, the adjudicator should actively seek to amplify the information supplied to him in order to reach his decision especially if he is of the view that his decision will benefit thereby. There is, I suggest, no right answer. What the adjudicator should bear in mind is that he should carry out his duties in a way that best fits the dispute he has to decide.
SSub-Section (3) is self explanatory. There was much discussion in Parliament concerning the review procedure. The initial stance of the Government was that there should be no appeal whatsoever in the interests of reducing the level of disputes. Such was the outcry in the industry that the idea of adjudication was being final and binding that the review procedure set out in this sub-section was included.
Sub-Section (4) gives contractual immunity. There was also much discussion as to whether the immunity should be statutory, the Government being adamant that it should not on the basis that adjudication is a matter for the contract. It does leave the adjudicator in the position that should he make a decision between the two parties to a contract that adversely affects a third party he is not immune from suit.
Sub-Section (5) deals with what became the "bete-noir" of the industry. "The Scheme for Construction Contracts". This is the fall back provision which has to pick up the contracts which do not comply with the Act. By its very nature as a fall back, it has to deal with all contingencies. It is a statutory document. This means that, in addition to basic procedure, it has, for example, to cover a situation where a party commences legal proceedings, the appointed adjudicator cannot act or there is an argument relating to his jurisdiction. It also has to be approved by Parliament. If it is not to be debated line by line it has to extract its provisions from existing legislation. Hence the reference to the Arbitration Act in Sub-Section (15). This has caused consternation in some quarters but is a matter that has to be lived with.
The Scheme is currently in the process of development. A consultation document has been issued and the government has asked for responses by Christmas 1996.
The format of the consultation document is a series of questions regarding the provisions that the Scheme will need to cover set out side by side with the Department of the Environment's proposals in respect of each one. All the questions are very important. There is not space to deal with them all but there are a few proposals that 1 consider to be worth a mention now.
An adjudicator must be one person acting in an individual capacity.
If an appointing body is involved that body will be required, within 4 days of receiving the request, to provide the name of an adjudicator who has confirmed his or her willingness to act.
The written case should be no longer than 5000 words of text.
The adjudicator in setting the dates for meetings is not obliged to allow extra time for the parties to brief representatives.
The adjudicator is not obliged to accept information or submissions that are provided late. The adjudicator may continue the adjudication in the absence of information or submissions from a party. The adjudicator may draw such adverse inferences as he considers appropriate from non-compliance with his requests.
An adjudicator may indicate that he cannot make a decision. In that event the parties may treat the procedure as in failure and start again with another adjudicator. The original adjudicator will only be entitled to reasonable expenses.
After the consultation is complete the scheme has to be revised as necessary and then considered in Parliament. There is no current confirmed date for bringing the Act into force as the time needed to deal with the results of the consultation process is not known. It is however considered unlikely that the Act will come into force in the current parliamentary session if the final proposals are not placed before Parliament in early March 1997.
Sub-Section 6 also caused some concern in the industry in that it was felt that the reference to the Arbitration Act gave the wrong impression of what was expected of the adjudication process. It is however apparently necessary in order to avoid having to examine the wording of the Scheme line by line in Parliament.
Part 11 of the Act and what can be seen of the Scheme at the time of writing make a fascinating package. It could provide the construction industry with the answer to its prayers. It is to be hoped that decisions will be made by adjudicators which are accepted by the parties and disputes that would have otherwise festered will be settled as a result. Alternatively, the industry, or those elements who are require dto dip into their pockets as a result of an adjudicator's decision, may decide to see what can be done to avoid complying with that decision. The enforcement of adjudicator's decisions or the resistance thereto may become the next playing field for those elements of the industry to whom the dispute resolution process is a convenient method of delaying the evil day of payment until the last possible moment.
I hope that this latter scenario will not develop. 1 believe that the adjudication process has a lot going for it. It is to be hoped that it will provide the industry with what many of its participants desire, that is a quick and relatively cheap method of resolving a dispute before it is allowed to develop into something that needs vast resources thrown at it to untangle the mess.