Chances of Winning in Adjudication - Term Paper Example

Adjudication Summary: In several cases such as Balfour Beatty Construction Ltd v the Mayor and Burgess of the London Borough of Lambeth (2002), the award of the adjudicator was challenged by the losing party on the grounds of lack of jurisdiction or procedural unfairness. The subject of this research effort is to identify whether such decisions can be challenged and what would be the chances of winning a suit challenging an adjudication. The possible grounds under which such decisions may be challenged have been identified as (a) no contract exists (b) no construction contract exists (c) the work pertains to residential dwellings (d) the adjudicator went outside the terms of reference spelt out in the intention to adjudicate (e) the adjudicator acted in breach of the rules of natural justice. The challenging of an adjudication is a complicated process with slim chances of success and may be relevant only in rare cases where there has been a serious contravention of law or jurisdiction by the adjudicator. Introduction: Adjudication is a quick and effective method to resolve disputes, wherein a third Party decides upon the issues involved in a dispute between two parties and renders a decision. Adjudication is being widely applied in the field of construction1. Under Section 108 of the 1996 Housing Grants, Construction and Regeneration Act2, adjudication has been deemed to be a statutory right and even in instances where a contract between two parties does not cover this issue, it can be enforced through a statutory default provision.(www.cic..org.uk). Adjudicators generally decide upon only the issues that are raised in the referral notice but they have wide ranging powers to resolve disputes, decide which party must pay whom and also award interest or punitive damages. Additionally, the Adjudicator will also decide which party is liable to pay his fees. An adjudicator is also not required to provide written reasons for his decision, unless one or both parties specifically asks for such a written notice (www.cic.org.uk) . An adjudicator’s decision must be rendered within a period of 28 days and can be enforced very quickly thereafter through an application to the Courts. Exclusions from mandatory adjudication of construction: There are certain instances where the provisions of adjudication may not apply. The Act of 1996 is intended to compulsorily introduce adjudication of disputes in housing and construction activity, but there are some specific exclusions: (a) Adjudication cannot involve parties who are residents of the constructed building. (b) Contracts that are not in writing but even unsigned contracts will be deemed to be in writing, as also references to written material. (c) PFI and supply only contracts (d) Work on process plant, extraction of natural gas and purely artistic work Dissension with an adjudicator’s decision: If a party does not agree with an adjudicator’s decision, it should firstly try to determine if there is any accidental error or omission, which can be referred to the adjudicator for correction. If the adjudicator refuses to admit there is an error, this leaves no recourse but to go for arbitration or litigation.(www.cic.org.uk) There are a few grounds on the basis of which an adjudicator’s decision and award granted may be contested: These are: (a) Contravention of natural justice: This provision will apply when (i) when the adjudicator has not acted in a fair, impartial manner (ii) when the adjudicator has not followed the procedures required to ensure impartiality – for example if the adjudicator has not allowed each party the opportunity to make its case. However, in general, the decisions of an arbitrator are respected by the Courts and rarely overturned. For example in the case of Project Consultancy group v The Trustees of the Gray Trust5, Justice Dyson clarified that an adjudicator’s decision could not be contested on the grounds of not following natural justice. He corroborated this decision in the case of Bouygues UK Limited -v- Dahl-Jensen UK Limited8, wherein an adjudicator had made a mistake of fact which resulted in his making a decision on a matter not referred to him. (b) The non availability of a contract: The provisions of mandatory adjudication are specific to “a dispute arising under the contract”3. Therefore in the event that there is a dispute about the formation of the contract itself, this clause by extension implies that the provisions of adjudication may not apply.4 However, in the case of Pegram Shopfitters v Tally Weijl, the Court rejected this premise on the basis that when there is some evidence of written communication between the parties pertaining to a contract for construction work, but when these are not clearly defined, default provisions will apply and the adjudication process is applicable. Therefore, when the parties agree that their relationship is governed by a contract, the relevant procedures will not be relevant, the default provisions of the Housing Act of 1996 will apply and either party will have the right to approach an adjudicator. When there is some evidence of a written set of terms in agreement and when the specific provisions where adjudication is being sought are included in this written area, the contract will be deemed valid from the purposes of applying Section 108 of the Act. It is only when the adjudicator is being asked to resolve issues that are not set out in the general terms of understanding between the parties, that the adjudication can be contested. Alternatively, if the arrangement is purely an oral one, there is also a difficulty in enforcing adjudication procedures. (c ) When the contract is not caught within the purview of the Act: An adjudication process can be contested if the contract in question falls outside the purview of the Act of 1996. For example it may fall under the provisions of Construction Contracts 1998, into the Excluded Contracts, which also includes PFI contracts. For example in the case of Project Consultancy group vs Trustees5, the date of entering into the contract was May 1, 1988 which precluded the Act and therefore its provisions were not deemed applicable. Other kinds of contracts that would fall out of the purview of the mandatory adjudication clause would be employment contracts or contracts relating to residential dwellings. Other types of contracts that would be excluded would be those which are not deemed to be in writing as per the provisions of the Act, i.e, where any agreement is completely on an oral basis and no written agreement, or setting out of terms or written confirmation of nay kind exists. A dispute may also fall outside the area authorized for the adjudicator operation. For example, his authority is restricted to disputes arising out of the provisions in the contract. In the event a prior dispute resolution exists or in the event the disputes pertains to obligations created outside the contract, the adjudicator must resign. (d) Lack of jurisdiction: If the lack of jurisdiction is to be cited as an issue, it must be put forward as early as possible, and reservations must be expressed in writing as early as possible in order to provide recourse in the courts later. The adjudication can also be stopped on these grounds by going to a court and seeking a stay on the proceedings. The Technology and Construction Court is the forum through where adjudication disputes can be raised. Lack of jurisdiction may be cited as a cause when (a) the adjudicator has decided on issues that have not been referred (b) when the adjudicator has avoided issues he was asked to address (c) when the adjudicator was appointed wrongly (d) when there was no dispute in the first place.6 . For example in the case of Homer Burgess Limited v Chirex (Annan)7, the decision of the adjudicator was challenged on the grounds that he had made an error in the interpretation of the word “plant” and thereby had overstepped his authority by making decisions in area where it was not his prerogative to make decisions. But this has not always held good, for example in the case of Bouygues UK Limited -v- Dahl-Jensen UK Limited8, the adjudicator’s decision was upheld in spite of the fact that he had made a decision on a matter not specifically referred to him. Alternatively, an adjudicator decision that is not acceptable to the losing Party can be contested in the Courts, through litigation or arbitration. Litigation or arbitration: The decisions of adjudicators are usually final. However, a party can approach the courts for arbitration of the dispute, in which case the dispute will be heard afresh, rather than as an appeal against the adjudication. Alternatively, formal litigation can also be commenced in the courts. In the case of Northern Developments (Cumbria) Ltd v V&J Nicol 9 reference was made to the opinions expressed on adjudication in the case of Sherwood and Casson Ltd v Mackenzie; “a decision that is erroneous even if the error is disclosed in the reasons, will still not ordinarily be capable of being challenged and should, ordinarily, still be enforced.” “the adjudication is intended to be a speedy process in which mistakes will inevitably occur. Thus, the court should guard against characterising a mistaken answer to an issue, which is within an adjudicators jurisdiction, as being an excess of jurisdiction” Through this, a distinction is made in that an adjudicator’s decision will be held to be valid even if it contains an error of fact or law, but will be held to be invalid or unsound only if the adjudicator made a decision that he had no jurisdiction to make. This principle was validated in the case of Barr Ltd v Law Mining Ltd (2001)10, where the Court agreed that mistakes on the part of an adjudicator should not readily used to render the decision unenforceable. In the case of Ballast plc v the Burrell Company11, Lord Reed clarified that the adjudication decision was only intended as a preliminary measure and did not preclude litigation to arrive at a final, binding decision. However, since the arbitration process is time based, mistakes may occur, but this does not mean that the parties can avoid complying with it. An arbitrator’s decisions will not be subject to dispute in the Courts because that would undermine their enforceability. Therefore, in spite of the fact that an adjudicator’s decisions may be lacking in some areas of procedure and despite the fact that some errors may creep in due to the speed with which the decisions are to be made thereby undermining the time to go into detail on the issues of the dispute, the decision will be held to be binding on the parties and there is little scope for the courts to reverse the decision. Lord Reed did however specify that this did not mean that patently unjust or unfair decisions would be condoned. However the best route to challenge an adjudicator’s decision is through a claim that the adjudicator acted “ultra vires” which covers various types of serious errors or impropriety that negates or vitiates a decision that has been made. Notably this would involve three primary areas (a) he had no jurisdiction to take up the dispute referred to him (b) he acted unfairly in the procedure which he followed and (c) he erred in a manner which meant that he failed to exercise his jurisdiction or acted in a scope that fell beyond his jurisdiction. Substantive challenges to adjudication: Some cases have examined whether adjudication itself is contrary to the Human Rights Act, which offers one recourse to challenge an adjudicator’s decision. In the case of Elnay Contracts Ltd v The Vestry15, two major adjudication issues were raised: (a) whether violation of the Human Rights Act could be a possible cause of action (b) whether the Courts could order a stay on execution of an adjudicator’s order on grounds of financial constraints of the party required to pay up damages. The Court held however that that Article 6 of the European Convention on Human Rights would not apply to an adjudication issue since it was not a proceeding conducted in public. In regard to the issue of financial constraints, the Court dismissed the possibility of ordering a stay on execution, since the party to whom damages were to be paid was likely to be in greater financial constraints and in need of the awarded amount. In the case of Austin Hall Building v Buckland Securities Ltd16, the Court held that the decisions of an adjudicator could be relied upon as a basis for application to the Court for judgment, but were not in themselves enforceable. Further the Court also rejected the challenge to the adjudication process itself on grounds of the short timescale or contravention of natural justice. In the case of Woods Harwick v Chiltern Air-conditioning17, the decision of an arbitrator was challenged and it was held that the adjudicator was in clear breach of the statutory requirements and the adjudicator was found to have violated the principles of neutrality required of him. This is an important and rare case wherein an adjudicator’s award and application for summary judgment was dismissed. In the case of Discain v Opecprime, the decision of the adjudicator was not enforced on the grounds that it was a contravention of natural justice.18 The Court concluded that if the Adjudicator had applied the rules properly, he may have reached a different decision. In the case of Sheperd v Mecright19, the Court upheld the challenge to an adjudicator’s award on the grounds of misconduct of one of the parties. It was held in this case that the request for adjudication had been brought up by one party with a full and honest revelation of all the facts of its case and therefore the decision of the adjudicator was held to be invalid and of no effect.. Possible approaches to adjudication decision disputes: In view of the foregoing, it may be noted that while there are some cases where an adjudicator’s award has been challenged, the instances of success are rare and therefore the possibilities of contesting an adjudicated decision are limited. However in the case of Fast Track Contractors Ltd v Morrison Construction Limited12, Judge Thornton QC suggested four possible alternatives for the parties to consider in resolution of disputes: (a) The parties can agree to widen the jurisdiction of the adjudicator, so that his jurisdiction could be resolved as part of the wider reference (b). The issue of jurisdiction may be referred to another adjudicator, although this would not limit enforcement of the decision of the first adjudicator (c) The party challenging the order can seek a declaration from the Court and the adjudication decision could be placed in abeyance till the court determined the jurisdiction question (d) the challenging party can participate in the adjudication subject to reservations which will give it greater leeway in challenging decisions later. The courts would be obliged to hear the challenge and decline or enforce the whole or part of the adjudicator’s decision. However an adjudicator’s decisions are legally binding and enforceable, until the challenge to the validity of an adjudicator’s decision is finally determined.13 In the case of KNS Ltd v Sindall Ltd14, the courts advocated that an adjudicator’s decision should not be tampered with. The court should accept the award as it stands and should not attempt to vary it or dismantle it. Conclusion: Based on the above, the grounds that have been laid out in the matter of adjudication of disputes may be summarized as follows: (a) An adjudicator’s decision is fully enforceable and any error in fact that causes an excess of jurisdiction will not nevertheless, vitiate the decision (case of Bouygues) (b) An error in law that resulted in an excess of jurisdiction will also not be sufficient grounds to invalidate an adjudicator’s decision (Case of Project Consultancy) (c ) Even if an adjudicator’s decision is wrong on grounds of fact, law or jurisdiction, it still remains a decision (case of Moab) (d) If the adjudicator made a decision under the Act in an area where he is not empowered to make a decision, it will not be held as a decision (case of project Consultancy) (e) If the requirements of natural justice are met, it could invalidate the decision (case of Discain). Thus in conclusion, it may be stated that appealing an adjudicator’s decision is an area that is still developing, however trends so far do not appear favorable towards the reversal of such decisions, which are deemed to be fully enforceable by the courts that are reluctant to over turn a decision taken by an arbitrator. But there have been instances where an adjudicator’s award has been overturned, if procedural errors have been made, if the rules of natural justice have been contravened or if the conduct of the parties is suspect. Therefore, this area of law is still undergoing changes and it is possible that in future decisions, better precedents may be set for overturning an adjudicator’s decision on the specific grounds cited above. References: 1996 Housing Grants, Construction and Regeneration Act. {online] Available at: http://www.cic.org.uk/services/UsersGuide.pdf; accessed 11/24/2005 “Users Guide to Adjudication” (2003). [Online] Available at: http://www.cic.org.uk/services/UsersGuide.pdf; accessed 11/24/2005. Pegram Shopfitters Ltd v Tally Weijl (UK) Ltd . TCC. Case no: HT/03-25. [Online] Available at: http://www.adjudication.co.uk/cases/pegram.htm; accessed 11/24/2005 * Project Consultancy group v The Trustees of the Gray Trust (1999) TCC * Observations of Lord Reid in the case of Anisminic Ltd v Foreign Compensation Commission (1969) * Homer Burgess Limited v Chirex (Annan) Limited (1999) Crt of Session in Scotland * Bouygues UK Limited -v- Dahl-Jensen UK Limited (In Liquidation) (1999) TCC * Northern Developments (Cumbria) Ltd v V and J Nicol (2000) * Barr Ltd v Law Mining Ltd (2001) [Online] Available at: http://www.atkinson- law.com/cases/CasesArticles/Cases/Article_80.htm; accessed 11/24/2005. * Ballast plc v The Burrell Company (Construction Management) Limited (2001). [online] Available at: http://www.atkinson- law.com/cases/CasesArticles/Cases/Article_81.htm; accessed 11/24/2005 * Fast Track Contractors Ltd Morrison Construction Ltd (4th Jan 2000) [Online] Available at: http://www.atkinson- law.com/cases/CasesArticles/Cases/Article_20.htm; accessed 11/24/2005 * See the case of Macob Civil Engineering Ltd v Morrison Construction Ltd (1999) TCC. [Online] Available at: http://www.atkinson- law.com/cases/CasesArticles/Articles/Macob.htm; accessed 11/24/2005. KNS Industrial Services (Birmingham) Ltd v Sindall Ltd. [Online] Available at: http://www.atkinson-law.com/cases/CasesArticles/Cases/Article_28.htm; accessed 11/24/2005 * Elnay Contracts Ltd v The Vestry (2000) TCC [Online] Available at: http://www.atkinson-law.com/cases/CasesArticles/Cases/Article_47.htm; accessed 11/25/2005 * Austin Hall Building Ltd v Buckland Securities Ltd (April 2001) TCC [Online] Available at: http://www.atkinson- law.com/cases/CasesArticles/Cases/Article_50.htm; accessed 11/25/2005. * Woods Hardwick Ltd v Chiltern Air conditioning (2000) TCC. [Online] Available at: http://www.atkinson-law.com/cases/CasesArticles/Cases/Article_42.htm; accessed 11/25/2005. * Discain Project Services v OpecPrime Development Limited (2000) TCC. * Shepherd Construction Limited v MeCright Limited (2000) TCC Read More