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Five adjudication lessons learned in 2013

Jane Fender-Allison outlines the main lessons and outcomes from adjudication cases in 2013

2013 saw a raft of adjudications come before the courts. Adjudication remains a powerful tool, offering a potentially quick and effective outcome to a dispute.

But cases show there are a number of adjudication lessons to be learned from the courts this year and important questions to ask when considering adjudication.

What type of contract do you have?

The first question is, as always: do you have a construction contract under section 104 of the Housing Grants, Construction & Regeneration Act 1996? It seems a straightforward question, but has given rise to many a jurisdictional challenge.

“Look out for adjudications on collateral warranties in 2014”

This year the courts confirmed for the first time that a collateral warranty could be a construction contract (Parkwood Leisure Ltd v Laing O’Rourke Wales & West Ltd).

In that case, a warranty included wording that a contractor “warrants, acknowledges and undertakes” that it had carried out and shall carry out and complete the works in accordance with the building contract.

The court was in no doubt that this was a contract for the carrying out of construction operations.

It said whether a particular warranty will amount to a construction contract will always depend on its wording and the relevant factual background, and a strong pointer is whether the contractor is undertaking to the beneficiary of the warranty to carry out construction operations, or simply warranting a past state of affairs.

Look out for adjudications on collateral warranties in 2014. 

If you can go to adjudication, is it appropriate? 

Remember, your strategy in tackling disputes with a contractor or subcontractor is crucial.

This year the courts noted that even where adjudication is competent, it might not be the appropriate forum – in that case the court was talking about a professional negligence claim being adjudicated (the Scottish case of Whyte & Mackay Limited v Blyth & Blyth Consulting Engineer Limited). 

Increasingly creative ways to avoid payment

What about when you win an adjudication and the other side won’t pay up? Be prepared to face increasingly creative arguments which resist enforcement of the adjudicator’s award.

In Whyte & Mackay Limited v Blyth & Blyth Consulting Engineer Limited, the contractor successfully used Article 1 of the First Protocol of the European Convention on Human Rights (peaceful enjoyment of possessions) to avoid paying.

“Be prepared to face increasingly creative arguments which resist enforcement of the adjudicator’s award”

Although that was an unusual case, other arguments against enforcement are common. Arguments claiming there has been a breach of natural justice by the adjudicator have been particularly popular this year.

The courts generally deal with enforcement actions quickly, but be prepared to spend time and money on these where an adjudicator’s award is challenged.  

The effect of insolvency

What about where one side is in financial difficulty? Insolvency is a hot topic in adjudication.

There have been a number of cases this year looking at when and to what extent financial difficulties mean an adjudicator’s award may not be enforced.

This is a complex area, but generally speaking it is a tough test to resist paying an adjudicator’s award on the grounds of financial difficulty as opposed to insolvency. As the courts reminded us: “The essence of adjudication is to provide cashflow” (True Fix Construction Ltd v Apollo Property Services Group Ltd).

Be wary of the time bar

Finally, what about time bar? This is always an area to be wary of in adjudication.

It is well established that you have a period of six years to enforce an award of an adjudicator. But what about when you have handed over money to satisfy an award and you then want to challenge that?

“Generally speaking it is a tough test to resist paying an adjudicator’s award on the grounds of financial difficulty as opposed to insolvency”

A Court of Appeal case of December 2013 – Aspect Contracts (Asbestos) Limited v Higgins Construction plc – has now said that you have an implied right to recover that money in court proceedings and six years to do so from the date you paid. 

The full impact of that is yet to be felt, but the crucial point is to make sure you are aware of potential time bar and when the clock is ticking.

Jane Fender-Allison is an associate at Dundas and Wilson

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