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Conflicts over the status of adjudication

Law Report: Does adjudication still hold good after a contract's termination? Daniel Atkinson considers a recent case

ADJUDICATION under the Construction Act 1996 is proving highly successful and there is now emerging a significant body of case law which establishes the process as separate and distinct from arbitration and litigation. But there are still some issues relating to adjudication which need to be resolved.

One is the status of the right to adjudication. Can the contractor or the employer still resolve their differences by adjudication if the obligation of the contractor to perform has come to an end?

The decision in A&D Maintenance and Construction v Pagehurst Construction Services (June 1999) gives some guidance.

A&D was a subcontractor working on a school for main contractor Pagehurst. The date stated in the contract for completion was October 4 1998 and no extension of time had been requested by, or given to, A&D. The work was not completed on the appointed date.

On October 28 Pagehurst gave notice that, unless the work was completed by November 9, it would terminate A&D's employment under the contract. Pagehurst itself received a notice from the employer that the subcontract works were seriously delayed.

On November 19 the employer terminated Pagehurst's employment under the main contract and, on the same day, Pagehurst attempted to terminate A&D's employment under the subcontract. Pagehurst also gave notice to A&D that it would withhold further payments.

A&D commenced adjudication and obtained a decision in its favour for the payment of its outstanding invoices. Pagehurst failed to comply with the adjudicator's decision and A&D applied for summary judgment under Court Procedure Rule 24.

Pagehurst argued that, because the subcontract had been brought to an end, adjudication was no longer the appropriate process for resolving its disputes with A&D. It also argued that the process of adjudication was intended mainly for minor disputes during the course of the contract. In this case there were several complicated issues. In addition, there were other parties involved, including insurers, as a fire had broken out on November 28 causing extensive damage to the school.

Pagehurst argued that litigation was the most appropriate process to deal with these inter-related and complicated issues.

The court would have none of this. It assumed that the subcontract had come to an end on November 19 for the purpose of the summary proceedings. Even in that case, the matters referred to the adjudicator remained disputes under the contract. If there were disputes arising out of a contract which were to be adjudicated, the adjudication provisions remained operative in much the same way as an arbitration clause would. Whereas parliament had provided time limits for the appointment of adjudicators and the timetable for the process, there were no limits on the time a party could refer a matter to adjudication.

The position on arbitration was clearly in the minds of the legislators when the adjudication provisions had been enacted.

Another important part of the A&D decision was how to deal with the issue of the jurisdiction of the adjudicator and late attempts to open up applications for payment or open up an adjudicator's decision.

Pagehurst argued that certain invoices raised by A&D had not become payable and should not have been for the adjudicator to decide. Pagehurst had also consistently taken the position in the adjudication that it was not appropriate for the issue referred to adjudication to be decided in isolation of its claims for losses allegedly caused by A&D.

But although Pagehurst had threatened to challenge the adjudicator it did not do so, and had instead participated in the adjudication. The court held that in this case the adjudicator had the power to deal with the issues raised by Pagehurst and it would not review the adjudicator's decision.

Citing the decision in Outwing Construction v H Randell & Son (1999) in which it was held that the decision of the adjudicator has to be complied with pending final determination, the court ruled that there could be no 'stay of execution' for Pagehurst.

The court therefore gave judgment for A&D for the full amount with costs.

This decision makes clear that any objection to jurisdiction must be given at the earliest stage of the adjudication proceedings, otherwise a party will be treated as having submitted to the process.

The A&D decision also makes clear that all issues need to be raised in the adjudication proceedings since they will usually be within the power of the adjudicator to decide. The appropriate time to raise these matters is by notices before the final date for payment. Once a decision is made on payment the court will not open up, review or revise the decision of an adjudicator, as these are matters for subsequent proceedings. It is important therefore to fully argue the case in adjudication.

Key points

If there are disputes arising out of a contract which were to be adjudicated, the adjudication provisions remain operative after determination of the contract in the same way as an arbitration clause does.

In the case of A&D Maintenance v Pagehurst Construction, Pagehurst failed to challenge the jurisdiction of the adjudicator during the adjudication process. The court ruled that Pagehurst should comply with the adjudicator's decision.

Any objection to jurisdiction must be given at the earliest stage of the adjudication proceedings, otherwise a party will be treated as having submitted to the process.

Law Report is a weekly column in Construction News 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; and Rudi Klein, a barrister and chief executive of the Specialist Engineering Contractors group. If there are subjects you think we should be covering, please contact Kristina Smith on Tel: 0171 505 6848 or e-mail: davidct@construct.emap.co.uk