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Adjudication: all change

A recent ruling from the Technology and Construction Court will have a profound effect on adjudications under all the ICE forms of contract, writes Daniel Atkinson (left)

IN JUNE, the Technology and Construction Court (TCC) made a decision which had important implications for construction industry adjudications - particularly those under the standard forms published by the Institution of Civil Engineers (ICE).

The case of John Mowlem v Hydra-Tight concerned work on the London Underground. HydraTight was subcontractor to main contractor Mowlem for steel erection. A dispute arose relating to the performance of the contract as a result of which Hydra-Tight claimed £162,699.65. Hydra-Tight issued an adjudication notice to Mowlem and applied to the Royal Institution of Chartered Surveyors (RICS) for the nomination of an adjudicator. He notified both parties that he regarded his nomination as invalid. Hydra-Tight then applied to the Institution of Civil Engineers (ICE) which appointed another adjudicator.

The standard form of contract in this case was the ICE's Engineering Construction Contract 2nd Edition Subcontract. This comprises core clauses to which is added one 'Main Option', selected from a list of six (A to F) to define the payment terms. Further clauses can be selected from a list of Secondary Option Clauses (G to Z). Core clauses and the selected option clauses together make up the full terms of the contract.

In this case, the parties had chosen Main Option A, (which is a lump sum payment) and Secondary Option Clause Y. Option Y is intended to ensure the contract complies with the adjudication provisions of the Construction Act. It is a term of Option Y that the parties agree that no matter shall be a dispute unless a Notice of Dissatisfaction has been given and a period of four weeks has elapsed without the matter being resolved. In selecting this clause, the parties in effect attempted to redefine the meaning of 'dispute' under the Act.

Judge Toulmin held that the Act gives an unfettered right to refer a dispute to adjudication, but that the effect of Option Y was to deprive the parties of the right to refer to adjudication. Accordingly, the contract as amended by Option Y did not comply with the Act and so the Scheme for Construction Contracts automatically applied, displacing adjudication provisions in Option Y.

Since this approach of redefining the meaning of dispute using the device of a Notice of Dissatisfaction is found in other ICE standard forms of contract, Judge Toulmin's decision will have a profound effect on the conduct of adjudications under all the ICE forms of contract.

Having decided the Scheme applied in this case, the next issue which arose was whether the ICEappointed adjudicator had jurisdiction to act. This depended on whether he had been properly appointed under the Scheme.

Paragraph 2.1(a) of the Scheme requires the person specified in the contract to act as adjudicator. If no person is named, then under Paragraph 2.1(b), the specified nominating body (in this case the ICE) is required to select an adjudicator. The adjudicator had indeed been appointed by the ICE and that adjudicator determined that he had jurisdiction. Mowlem disagreed and sought an injunction to prevent further steps being taken in the adjudication.

At issue was whether the adjudicator had been properly appointed under Paragraph 2.1(b), or whether there was a person specified in the contract so that paragraph 2.1(a) applied.

The contract did not identify a single individual by name, but provided for the adjudicator to be selected from a list. This was not a list of individuals included in the contract, but was defined as the list of those adjudicators considered suitable by the contractor Mowlem. Only after the dispute had arisen did Mowlem identify the list as consisting of members of a barrister's chambers in London. The question therefore was whether or not, under paragraph 2.1(a) of the Scheme, 'person' means a specific individual identified by name.

Judge Toulmin held that the list did not need to be a piece of paper headed 'Approved List of Adjudicators' but should only be capable of identification and be able to be communicated on request. The list of barristers of a particular chambers gives a range of adjudicators depending upon availability, the size and complexity of the dispute and allows the appointment of an impartial adjudicator. On this basis, paragraph 2.1(a) applied and the adjudicator appointed by the ICE did not have jurisdiction.

Judge Toulmin granted an injunction restraining Hydra-Tight from taking any steps in the adjudication or seeking to enforce or implement any decision which the adjudicator may make without the agreement of Mowlem.

This disposed of the matters, but it is interesting that Judge Toulmin considered the Engineering Construction Contract 'rather convoluted' - perhaps an indication of how the courts might view the form in future.

Further articles by Daniel Atkinson can be found on www.jrklawyers.com

Key points

Option Y (UK) of the NEC Engineering Construction Contract 2nd Edition does not comply with the Construction Act.

The ICE 7th Edition will also be affected.

In contracts which include Option Y, the adjudication provisions of the Scheme for Construction Contracts applies for any contract that does not comply with the Act.

A 'person' under Paragraph 2.1(a) of the Scheme may be identified in a list issued after the dispute arises.

Law Report is a weekly column covering legal issues of all kinds - contractual, employment, industrial relations and many others. To help us provide a steady flow of quality, readable legal articles we have created a panel of expert advisers. They are: Jeremy Winter, a partner with law firm Baker & McKenzie; Frances Alderson, a partner with law firm Masons; Guy Cottam, a conciliator, arbitrator and chairman of the arbitration advisory panel of the Institution of Civil Engineers; Daniel Atkinson, executive director (International, Legal and Arbitration Division) of James R Knowles; Andrew Rawstron, senior lawyer at CMS Cameron McKenna's Construction Group; and Rudi Klein, a barrister and chief executive of the Specialist Engineering Contractors group. If there are subjects you think we should be covering, contact Aaron Morby on Tel: 020 7505 6858 or e-mail: aaron.morby@construct.emap.com