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Recent Developments domestic and international

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Recent Developments domestic and international

    Recent Developments: domestic and

international

by Nicholas Gould

    Paper given at the 10th Adjudication Update Seminar

     8 November 2004

Introduction

    Adjudication under the Housing Grants, Construction and Regeneration Act 1996 (HGCRA) has now been with us for 6? years. The Adjudication Society’s website identifies over 200 cases predominantly dealing with the adjudication, although some focus on payment issues arising from the HGCRA.

     Adjudication can no longer be said to be a UK phenomenon. Adjudication has

    been introduced in Australia (New South Wales, Victoria, Queensland and Western Australia) and New Zealand . Adjudication, or related measures in respect of security for payment in respect of construction work, has been

    considered in Singapore, Hong Kong, Texas and the State of New York (excluding the World Trade Centre Developments area). In addition, the Dispute Review

    Board has, in the eyes of the World Bank, matured into an adjudicative binding process captured by the World Bank’s own procurement of works procedure, and

    also the Dispute Adjudication Board procedure set out in the FIDIC forms of

     contract.

    Adjudication has spread as a result of the right to call in an adjudicator

    because of an implied term in the contract (arising from statute) and the right

     to adjudication quite simply because the parties have expressly included it within their contract (even though there may be no legislative requirement

     on the parties to adjudicate because of the jurisdiction they are operating within).

    The focus of this paper, therefore, is recent developments not just in the

    1. Gould, N. (2002) domestic arena but also in the international arena. Bearing in mind the

    Caution from the introductory points made above, this paper seeks to briefly consider the

     6 th Courts”development of adjudication as a contractual mechanism before then considering

    Adjudication how it has spread into the international arena and how it might continue to

    Update, Fenwick spread internationally as further legislation develops. In addition, the

    Elliott, Savoy, issues that have arisen from some of the recent case law will also be

considered. 4 November.

     Domestic Developments

    2. TCC, HHJ Havery

    There have been several interesting cases since the last Fenwick Elliott QC, 25 June 2004.

    Adjudication Update some 6 months ago. These fall under the category of “in

     writing”, scope of dispute referred, and payment provisions. For a more complete analysis of a range of jurisdictional challenges see N. Gould 1 “Caution from the Courts”.

     “In Writing”

     In the case of Connex South Eastern Limited v MJ Building Services Group Plc,

    MJ Building Services Group Plc carried out work in connection with the 2 installation of close-circuit television systems for the claimant. MJ had been

    invited to tender for work to 50 stations. They were given a verbal instruction to carry out the work, but no written order, nor was any written contract issued. On 20 September 2000 work was suspended. On 18 October 2000 it was agreed that work would proceed, but that MJ would not claim compensation for the suspension. In February 2002 the scope of the work was considerably reduced. On 24 February 2004 MJ served a Notice of Adjudication in respect

    of Connex’s failure to make payment. The adjudication was stayed by consent

    pending the outcome of this hearing.

Connex sought the following declarations:

    ; That there was no agreement as required by Section 107 of the Act;

    ; MJ no longer had a right to adjudicate as the contract had been

    repudiated; and

    ; MJ’s Notice of Adjudication was an abuse of process as the issues

    between the parties had been settled.

HHJ Havery QC held:

    o That Connex’s instruction to proceed with the work in the minutes

     of the meeting of 15 September 2000 constituted an acceptance of

    MJ’s tender. The minutes were in writing and were therefore

     sufficient evidence within section 107 (4) of the Act.

    o It was well established that adjudication can occur after

     completion of the works. The right to adjudicate at any time

    survived repudiation as would an arbitration clause.

    3. TCC, HHJ Thornton o The 11 February 2002 letter was not particularly clear and did

    QC, 11 June 2004. not relate to an existing claim. It could not, therefore, amount

    to a settlement. As a result MJ’s Notice of Adjudication was not

    an abusive process.

    He therefore declined to make the declarations sought.

    Scope of dispute referred

    In the case of William Verry Limited v North West London Communal Mikvah,

    William Verry Limited agreed to construct for the North West London Communal

     Mikvah a Jewish ritual Bath in Golders Green, London for approximately ?2.4 3million. Several disputes arose and there were three consecutive

     adjudications in respect of interim valuations. This application related to the third adjudication by which the adjudicator decided that Verry should be

     paid ?67,055.97 plus interest in respect of retention.

     The second adjudicator’s decision dealt with an interim valuation. A further interim valuation (No. 34) was then issued. No further work had been carried out, but half of the retention was due for release. However, the Interim Certificate showed that no amount was to be paid because of an allegation of defects. Verry referred to the adjudicator the issue of whether retention should be paid. The adjudicator decided that Verry should be paid the half release of retention.

     Mikvah refused to pay on three jurisdictional grounds. First, that the referral was one day late, out of time and therefore the adjudicator did not have the

    jurisdiction to consider it. Second, that there was no dispute because Verry had not challenged Mikvah’s non-payment of the retention, such that a claim

    had not been made which had then been rejected in order to crystallise the dispute. Finally, that the adjudicator had failed to decide all of the critical

    issues referred to.

    Proceedings started pursuant to CPR Part 8, but were transformed into a Part 7 proceedings in order that the judge could consider the factual issues rather

    than strictly legal ones.

    HHJ Thornton QC considered the three jurisdictional changes. He decided that

     the 7-day period for service of the referral notice ran from the date that the Adjudication Notice was issued and not from the date that it was served.

     The referral was therefore as a matter of fact served one day late. However,

    the language of section 108(1)(b) was not rigid, and there was nothing in that

     subsection to preclude a contract from allowing an adjudicator to extend the timescale for issue of the referring document. Clause 41 A.5.6 of the JCT Contract provided that a failure by any party to comply with the contract would not invalidate the decision of an adjudicator. The adjudicator once appointed asked that the referral be faxed to him by 11 December 2003 . Verry complied with this direction and therefore HHJ Thornton QC decided that the Referral

Notice was served within time. 4. [2003] TCLR 5.

    In respect of the no dispute point, HHJ Thornton QC made it clear that William

    Verry Limited’s Adjudication Notice referring to the release and payment of

     the first half of retention was to be considered against the background that was known to the parties at the time or shortly before the issue of the notice.

     It was clear that the subject matter of the dispute required an adjudicator to consider the interim valuation machinery of the contract, to open up review

     and revise the last certificate therefore carrying out a full revaluation in order to determine whether retention should or should not be released. While Verry had not specifically challenged the release of retention with Mikvah,

    they had taken issue with allegation of defects, which impacted upon the financial calculation of the Interim Certificate which in turn determined whether retention would be released. Consideration of the defects was therefore an integral part of the adjudication even though it was not specifically mentioned in the Adjudication Notice.

    The adjudicator had decided that he could not revalue the work nor consider

    any defects. This was based on his incorrect understanding of Ferson 4v Levolux A.T. Limited. The adjudicator felt that he was Contractors Limited

    bound by his previous gross valuation of the work in the second adjudication. However, this rationale failed to consider the contractual interim valuation

    machinery of the contract, which provided him with the ability to revalue the

    5. [2004] EWHC 1285 works on a gross basis. The adjudicator’s error in failing to value the works

    (TCC). afresh and failure to consider the defects was an error of law, and was also unfair to Mikvah.

HHJ Thornton QC considered whether these jurisdictional errors were so

     fundamental as to transform the third adjudication decision into a decision that a different question or dispute to that which was actually referred. On

     balance he decided that the adjudicator had answered the right question albeit

    incorrectly. However, he wanted to provide Mikvah with an opportunity to refer

     their defects dispute to adjudication and therefore proposed that the judgment would not be drawn up for 6 weeks in order to provide Mikvah with an opportunity to refer the defects issue to adjudication and receive a decision which could then be considered against the enforcement of this decision in order to arrive at a balance to be paid to one or the other party.

     Payment provisions

     The case of Alstom Signalling Limited (t/a Alstom Transport Information

    v Jarvis Facilities Limited, considered a variety of interesting Solutions) 5issues including the application of section 110 and 111 of the Act. Alstom

    Signalling Limited had been engaged as main contractor by Railtrack to design,

    manufacture and install plant for an extension to the Tyne and Wear Metro.

Jarvis Facilities Limited were subcontractors to Alstom for the design,

    supply, installation, testing and commissioning of signalling and

     telecommunications equipment. The form of contract was the IChemE Model Form for Process Plant, Sub-Contract, Second Edition 1997. A target cost summary

     applied. A dispute had arisen about the existence of and/or operation of a “pain/share” or “pain/gain” clause, which was the subject of separate

     proceedings.

     The matter was referred to adjudication and as a result Alstom complied with the decision paying Jarvis ?1,695,501.50 and interest. The decision was expressed to be provisional and it was hoped that there would be a dialogue

    between the parties in order to resolve the final account. Application No. 32 was then made in May 2003. Alstom asked that all documentation be sent to their Birmingham office in order to avoid delay. This was not done. Two Notices of Adjudication were served by Jarvis in January 2004 and Alstom

    cross-adjudicated. The separate enforcement proceedings were consolidated.

    HHJ LLoyd QC held that there was not an absolute right to have an adjudicator’s

    decision paid. Apart from jurisdictional challenges or the fact that a decision

    could be initiated by a failure to comply with the concepts of fairness, a

    judge when considering a summary judgment application also needed to consider the overriding objective of CPR Part 1. To consider one summary judgment

    application in respect of an adjudicator’s decision and then at a second

     summary judgment application to track back over old ground was inconsistent with the overriding objective of CPR Part 1. Further, if it were possible to

     resolve a point of law and determine it finally by way of summary judgment

    then the interests of the parties would be best served.

    His Honour therefore considered how the payment provisions of the Act operated

     and came to the conclusion that the decision of the adjudicator should not be enforced. This was because the adjudicator was asked to decide what sum

     was “due”. The adjudicator decided that in the absence of a withholding notice Jarvis’ application should be paid, but HHJ LLoyd QC held that the amount “due” was the amount identified in Alstom’s certificate not the

    payment application of Jarvis.

    The adjudicator had decided that section 110(1)(b) of the HGCRA required a final date for payment to be “embedded in the contract between the parties”, a date that was not capable of being changed. He therefore concluded that the contract did not satisfy section 111(1)(b) of the HGCRA and therefore applied the Scheme by default. Section 110(1) states:

    (1) Every construction contract shall

    (a) provide an adequate mechanism for determining what payments become due

under the contract, and when, and

    (b) provide for a final date for payment in relation to any sum which becomes

    due.

    The parties are free to agree how long the period is to be between the date

     on which a sum becomes due and the final date for payment.

     His Honour referred to the last part of section 110(1), noting that it was clear that the parties were free to agree on the period between the due and

     final date of the payment. He stated:

    6. 12 May 2004, TCC, The event could be a stage, or milestone or completion, practical or

    HHJ Toulmin CMG, QC. substantial. It could be the result of an action by a third party, such as a certificate under a superior contract or transaction, as is found in

     financing arrangements. Provided that the event is readily recognisable and will produce a date by reference to which the final date can be set, there is no reason why it cannot be used.

     If Railtrack, even in breach of a contract with Alstom, failed to issue a certificate then that did not mean that, for the purpose of section 110(1)(b), there was no final date for payment. A failure of Railtrack to provide a certificate on time could not be used by Alstom as a defence as clause 2.6 of the contract stated that Alstom were to pay their subcontractor the amount due within 7 days of Railtrack’s certificate being issued in accordance with

    Annex F1, which set up the project cut-off dates. As a result, the final date

    for payment could be ascertained and the adjudicator was wrong to conclude

    that the Scheme applied.

Natural justice

The case of McAlpine PPS Pipeline Systems Joint Venture v Transco Plc,

    considered the subject matter of the dispute and breaches of natural justice

    in terms of providing a party with a proper opportunity to respond to new 67. [1998] 1 WLR 727. material.

     Transco engaged McAlpine to carry out work in respect of 37 km of steel pipeline

    between Farningham and High Halden in Kent for approximately ?15?m. The

     contract was based on the NEC form priced with an activity schedule, option A. An adjudicator was named in the contract. There was a lengthy series of

     events dealing with a variety of claims during and after completion of the work. McAlpine referred to adjudication a dispute relating to Transco’s

     liability to pay interest to McAlpine.

    Transco argued that the adjudicator made a decision on a much wider range of

issues that had arisen during the course of the adjudication and there was

    therefore an issue about what constituted the dispute, and a breach of natural

     justice.

     HHJ Toulmin CMG QC considered that while the dispute appeared to relate to interest it was important to consider not just what the parties referred to

     adjudication but secondly on what basis those issues had been referred to adjudication. He referred to a series of adjudication cases considering the

     issue of what constituted a dispute, but noted that many of them did not

    consider the point addressed by the Court of Appeal in Halki Shipping v Sopex Oils, because in adjudication it is the nature of the Corporation

    dispute that has been referred to adjudication that is in fact the key 7question. In order to determine what the parties had referred to adjudication, and thus what constituted a dispute in this case, HHJ Toulmin CMG QC asked the parties nine questions:

     1. What were the issues discussed at the meeting before the referral?

    2. What dispute was referred to the adjudicator, after the defendant had

    had the chance to respond to claims made?

    3. What is the basis upon which the dispute was referred?

    4. Was the adjudicator’s decision responsive to the issues referred?

    5. Were the issues raised during the adjudication? 8. 5 April 2004, TCC,

    6. If so, were they objected to by the other party? HHJ Toulmin CMG QC.

    7. Was any objection fundamental to the nature of the dispute referred?

     8. If so, does that objection go to the fairness of the procedure?

    9. If there was a breach of procedure does it “significantly affect the

     fairness of the decision”?

     During the course of the adjudication a large quantity of new material was served on 18 December 2003 on Transco. Transco responded under protest on 23

     December 2003 . HHJ Toulmin CMG QC held that the case originally put forward

    by McAlpine changed substantially during the course of the adjudication. The

     service of this and further information should not have been considered by the adjudicator because, first, the information should have been served with the referral notice and second, it was new evidence in support of a new case which did not afford Transco a fair opportunity of responding.

    As a result the adjudicator had dealt with a different dispute, and Transco had not been given a fair opportunity to respond. He therefore declined to

    enforce the decision.

    In AWG Construction Services Limited v Rockingham Motors Speedway Limited, AWG Construction Services Limited (previously Morrison Construction Limited) 8entered into a contract with Rockingham Motor Speedway Limited. This was for

    the design and construction of a new motor racing track and facilities near

Corby in Northamptonshire. AWG was to design and build an oval racetrack and

    within that a conventional racetrack together with a four-storey grandstand

    9. [2002] BLR 312. and ancillary works.

     On completion of the development, problems with the track arose and disruption to a race was caused by seepage of water through the surface of the track.

     Rockingham claimed loss of revenue and the cost of providing refunds. A withholding notice was served, but then remedial works were undertaken. A

     dispute arose as to whether the problem had in fact been rectified. One adjudication resulted in a decision in favour of AWG, which was the subject of separate proceedings. Rockingham commenced an adjudication on

    1 October 2003 in respect of the quality and fitness for purpose of the works.

     A decision in favour of Rockingham was challenged on the basis that the adjudicator decided something that was not referred to him and/or he breached the principles of natural justice because he allowed new matters or new claims to be introduced during the course of the adjudication and did not give the

    claimant a sufficient opportunity to consider those new matters and respond. Finally, they argued that there were multiple disputes that were not suitable

    for the adjudication procedure.

     9HHJ Toulmin CMG QC considered that the approach in Nuttall v Carter was too

    rigid and contrary to the classification of a dispute in Halki Shipping. He

    preferred the Halki approach of the wide interpretation of the word “dispute” in order to preserve an adjudicator’s jurisdiction. However, where the

    decision was on a different basis from that on which the dispute had been

     referred an objection could be made to the jurisdiction of the adjudicator,

    which would amount to a breach of natural justice.

    He concluded that the basis on which the adjudicator found for Rockingham was

     entirely different to that identified in the referral notice. As a result, the adjudicator’s decision for that part of the dispute was beyond the scope

     of the dispute referred to him. The ability for an adjudicator to conduct an entirely inquisitorial process did not assist the enforcement of the decision. In respect of natural justice, the adjudicator did not give AWG a sufficient

    opportunity to consider the new matters put to them. This was, therefore, also a breach of natural justice.

     Finally, there were three separate disputes under the contract which by agreement had been referred to adjudication. As only two of them had been challenged the third was severable and Rockingham was entitled to immediate payment of that sum. He did not order a stay in respect of arguments raised

    about AWG’s financial status. As a result the adjudicator’s decision in respect of the oval track was not enforced because there was no jurisdiction

to make that decision, and the adjudicator had failed to comply with the rules

    of natural justice. Summary judgment was, however, given in relation to the

     severable grandstand works.

ICE Clause 66, Options A, B, C and D

    The Institution of Civil Engineers issued in the summer an amendment to the

     ICE Conditions of Contract 7th Edition Measurement Version January 2003 for contracts commencing on or after 1 July 2004 . In the original ICE Conditions

     of Contract the dispute resolution clause comprised a simple two-stage

    process. There has of course been some controversy about whether clause 66 as originally drafted complied with the HGCRA. This was because the old clause required “matters of dissatisfaction” to be referred to the engineer for an engineer’s decision before a dispute could crystallise for the purposes of adjudication. Many have considered that this process breaches section 10. Clause 66(2)(c). 108(2)(a) of the HGCRA, which requires a construction contract to provide that

    a dispute (including any difference) may be referred to adjudication “at any

    time”.

Amended clause 66 deals with this problem head-on by removing the pre-dispute

    step, but at the same time introduces four distinct resolution processes and

    an appointment procedure:

    ; Avoidance and settlement of disputes

    ; Clause 66A notice of dispute and amicable dispute resolution 11. Clause

    ; Clause 66B adjudication 66A(2)(b).

    ; Clause 66C arbitration

     ; Clause 66D appointment of arbitrator, adjudicator, conciliator or

    mediator.

    New Clause 66, therefore, provides four dispute resolution processes, together

     with appointments procedure. The parties might choose to adopt more than one of the dispute resolution options, but need not adopt all of them.

The introductory part of clause 66 states that the purpose of the clause is

     to overcome differences and avoid disputes, but where this cannot be achieved it is then to facilitate a clear definition of the dispute and its early

     resolution. Clause 66(2) provides an advance warning system, which is

    essentially borrowed from the Engineering and Construction Contract. It requires either party to notify the other in writing (with a copy to the engineer) as soon as it becomes aware of “any matter which if not resolved 12. Clause 66B might become a dispute”. The parties are then to meet within 7 days of that (1)(a). written notification in order to try and resolve the “matter”. Those parts

    10which cannot be resolved are then defined in writing.

    Clause 66A provides an amicable dispute resolution process. It is instigated

    when one party serves on the other (with a copy to the engineer) a notice clearly

     setting out the dispute (referred to as the Notice of Dispute). The parties may then by further notice seek resolution by negotiation, conciliation or

     mediation. The mediation or conciliation is to be carried out in accordance with the ICE Conciliation Procedure 1999 or the ICE Construction Mediation

     Procedure 2002, subject to any amendments or modifications that are in force at the date of the written notice. A settlement will only be effective if it 11is reduced to a written agreement that is signed by the parties. The mediator

    or conciliator is not to be called as a witness in any subsequent proceedings, whether they be by arbitration, adjudication or litigation. During the amicable settlement procedure both parties are to continue to perform 13. [1999] 1 AC 266 obligations under the contract. HL: [1998] 2 WLR 860:

    1998 2 AER 778; 83 Adjudication is dealt with at new clause 66B. In order to avoid previous BLR 1; (1998) CILL contentions with old clause 66, new clause 66B makes it clear that the parties 1386. have a right “at any time” to refer a dispute to adjudication in the following terms:

    Notwithstanding clauses 66 or 66A the Employer and the Contractor each has the right to refer any matter in dispute arising under or in connection with the contract or the carrying out of the works to adjudication and either party

    may at any time give notice in writing (hereinafter called the Notice of Adjudication) to the other of his intention so to do. The adjudication shall

    be conducted under “The Institution of Civil Engineers Adjudication Procedure

    (1997)” or any amendment of modification thereof being in force at the time 12of the said Notice of Adjudication.

    In addition, the clause extends those matters that may be referred to

     adjudication from those that simply arise “under” the contract to those that

    arise “under or in connection” with the contract. The remaining subsections

     of clause 66B(1) then deal with those mandatory requirements of section 108 of the HGCRA, such as the requirement to appoint an adjudicator within 7 days,

     to reach a decision within 28 days and for the adjudicator to act impartially, amongst others.

    14. Clause 66D(3).

    Clause 66B(3) is of particular interest because it provides that the decision

    15. Clause 66D(4). of an adjudicator will become “final as well as binding” if a Notice to Refer

    the matter to arbitration has not been served not later than 3 months after the decision. This has been the approach of some international contract forms (for example, FIDIC), and so perhaps it is of little surprise to see the ICE adopting this approach. The courts are likely to follow the approach of the House of Lords in Beaufort Developments v Gilbert Ash (NI) Limited and hold

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