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Cautious approach best for adjudication review

LAW REPORT

The DTI's review of adjudication could lead to greater dissatisfaction and may fail to address the issue of ambush.And the ICE has had to drop plans to defer the process, warns Jeremy Winter

ADJUDICATION under the Construction Act stands at a crossroads.There is frantic activity preparing submissions to the DTI Review Committee under Sir Michael Latham, which, along with the Construction Umbrella Bodies Adjudication Task Group, will make recommendations as to any changes made to the act.

This is all the result of the Chancellor's surprise announcement in his Budget speech that the Government would be reexamining the adjudication and payment provisions in the act.

Important changes being considered include granting adjudicators power to decide whether they have jurisdiction to decide a case, reducing the strictness of court decisions on what is necessary to constitute the 'agreement in writing'that is required before an agreement will be subject to the act, and bringing within the ambit of the act some sectors that were originally excluded - in particular residential occupiers and the power generating, water treatment and process plant equipment contractors.

It is my view that any major change to the act should be avoided.Widening its application would increase the level of unease over the quality of adjudication decisions among those involved in the process.These decisions can be badly reasoned.

Although the majority of adjudication decisions are not challenged in any way and are accepted as the final outcome of the dispute, that is not in itself evidence of satisfaction with the process. It may simply be recognition of the huge psychological advantage an adjudication decision provides the winner in any attempt to re-argue the subject in litigation or arbitration.

A fair trial is a fundamental human right.

In the early days of the act it was held that adjudication did not infringe that right because the decision only had interim effect and it was always possible to go to litigation or arbitration.

But if the reality is that losers do not pursue any form of challenge because they perceive it to be futile, the human rights issue might have to be revisited. In the Halsey v Milton Keynes General NHS Trust case in May 2004, the Court of Appeal held that 'compulsion of alternative dispute resolution would be regarded as an unacceptable constraint on the right of access to the court and a violation of Article 6 of the Convention on Human Rights'The type of ADR that the Court of Appeal was referring to was mediation but you could argue that adjudication is another form of ADR and one which, for the respondent, is compulsory.

One aspect of adjudication that gives rise to discontent is the lack of influence the respondent has over the timing and content of the process.The claimant can 'ambush' the other party, preparing at leisure and presenting its claim at a time tactically calculated to be most disadvantageous to its opponent.The other common trick is for claimants to keep back important evidence and argument and give it to the adjudicator after the respondent has served its response.

This trick has not always worked, as in some recent cases the courts have held that this can amount to a new dispute that had not been previously referred to the adjudicator.

Nothing seems to be proposed by way of amendment to the act to counter these problems. On the contrary, the trend is in the opposite direction - the Institution of Civil Engineers has recently had to abandon its sensible aim of deferring the time when a dispute can be said to have arisen (and so be capable of referral to adjudication).

Clause 66(2) of the ICE 7th Edition Conditions of Contract used to provide that any 'matter of dissatisfaction'should initially be referred to the engineer for a decision and that the matter would only become a 'dispute' if the parties were unhappy with the engineer's decision.That was a potentially excellent way of reducing the prospects of ambush. The trouble was that it almost certainly fell foul of Section108 of the Construction Act, which says clearly that a party has to be able to refer a dispute to adjudication 'at any time'and that the term 'dispute' included any difference.

In John Mowlem v Hydra-Tight (June 2000), Judge Toulmin had to consider an equivalent clause in an amended NEC subcontract.The judge confirmed that this was unlawful since it constituted a delay in the right to seek adjudication.The effect of this non-compliance with the act was that the whole of the dispute resolution provisions in clause 66 were replaced by the Scheme for Construction Contracts - the net that catches contracts outside the act.

The new version of the ICE dispute resolution provisions is nevertheless sensible and, even if it cannot prevent a claimant rushing off to adjudication, it does its best to discourage this by providing several alternatives.The 'notice of dissatisfaction'has gone, as has the old-style engineer's decision. A new clause 66A provides that either party can give notice of dispute, identifying clearly the nature of the dispute.

Then either party can seek the agreement of the other for the dispute to be considered for resolution by negotiation or by other means, including conciliation or mediation.

Clause 66B makes it clear that the right to go to adjudication exists in parallel with the alternatives provided in clause 66A.

Clause 66C contains the familiar arbitration provisions.

The ICE launched these provisions on July 5 and they will no doubt be incorporated into any new versions of the ICE conditions of contract. For those still using the old versions of ICE 7th, it is wise to obtain and incorporate the new provisions.

Key points

Adjudication under the Construction Act is under review

Change may increase dissatisfaction with the process

'Ambush' is a problem but no change is proposed to address this

The ICE has had to abandon its attempt to defer the right to adjudicate until the dispute is well defined