Adjudication And The Construction Act - Avoiding The Pitfalls
It has now been over three years since the Construction Act 1996 ("the Act") came into force setting out requirements for payment and adjudication to be contained in construction contracts entered into after 1 May 1998. In that time the Courts have been active in dealing with challenges to adjudication decisions and applications to enforce those decisions. From these cases have emerged a number of guiding principles and practical issues relating to adjudication which are outlined below. Practical steps to avoid the pitfalls that arise as a result of these principles are then suggested.
Enforcement Of Adjudicator's Decisions
The early cases of Macob -v- Morrison Construction and Outwing -v- H Randell robustly asserted the basic principle that adjudicators' decisions were binding and would be enforced summarily by the courts whether or not the merits or validity of the decision were challenged.
These decisions were of interest to many within the construction industry due to concerns about the fairness of adjudication given the timescales involved and the advantages in case preparation that these timescales gave the Claimant.
Whilst these decisions undeniably give effect to the Act as drafted, concern within the construction industry about the fairness of adjudication in principle and in practice existed. The Courts were treating adjudication very much as the first stage of dispute resolution whereas those within the industry were perceiving it as more final. Indeed in many cases the parties have agreed in advance that the decision will be binding. An enforceable decision, even if obviously erroneous, gives the holder of it a much stronger position when negotiating a settlement.
Case law over the last ten months has however seen clarification of the Courts interpretation of the Act with qualifications to the general principles established when the Courts were first addressing issues of adjudication beginning to emerge.
Challenges to the general principle established by Macob can be divided generally into three categories:
In the cases of Discain Project Services Limited -v- Opecprime Developments Limited and, most recently, Woods Hardwick Limited -v- Chiltern Air Conditioning the Courts have prevented enforcement due to a breach of the rules of natural justice (i.e., a fair trial for both parties) and/or a breach of the terms of the adjudicator's appointment.
In both cases the Judges concerned considered the behavior of the adjudicator carefully and found that they had failed in a material degree to comply with the rules governing the conduct of the adjudications. The rules of natural justice will be implied terms of the adjudicator's appointment. It is suggested that an insignificant failure would not allow successful attempts to stay enforcement.
This matter will no doubt be subject to further developments in case law.
In the case of Herschel Engineering Limited -v- Breen Property Limited, whilst no stay of enforcement was granted where proceedings had been commenced in the County Court in connection with matters subject to the adjudication, the Judge made an obiter statement that if there had been a real doubt as to the Claimant's ability to repay such sums following a reversal in the County...
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