Thursday, October 15, 2009

12 reasons why an adjudicator’s decision may fail

For firms involved in construction disputes, having an adjudicator decide in their faviour may seem an ideal outcome. However an adjudicator’s decision does not necessarily mean the other party will pay up – indeed, in some cases they may not have to. Steven Bate explains how firms can legitimately resist paying вЂ“ and what claimants can do to safeguard their rights.

1. No construction contract

If the contract is a proper construction contract under the Housing Grants Construction and Regeneration Act 1996, then it contains implied terms permitting adjudication. If it is not a proper construction contract under the Act, the courts will not enforce an adjudicator’s decision - unless there are standalone and effective provisions within it which allow adjudication.


12 reasons why an adjudicator’s decision may fail


To be a construction contract it must, amongst other things, provide for the carrying out of construction operations and must not be excluded. For example, the head contract in a PFI deal is not a construction contract and neither is a contract for the extraction of oil or natural gas.

Check that the construction contract is covered by the Act or draft in a standalone set of adjudication rules.2. Terms not all in writing

If all of the terms of a contract are not in writing, then again it does not count as a construction contract for the purposes of the Act. If this is the case, again the courts will not be able to enforce an adjudicator’s decision unless there is an effective standalone set of adjudication rules within it.

Make sure all of your terms and conditions are in writing – this is good practice anyway. Check the correspondence as all of the terms and conditions may be in writing if the correspondence gave rise to a contract.3. Using the wrong rules

This is particularly a problem for sub-contractors whose sub-contracts are вЂback to back’ with the main contract. In this case the subcontract usually contains a term that deems that the sub-contractor has seen the main contract and is bound by its conditions. Subcontractors often never see the main contract and may not realise that the provisions within it are different to those in the subcontract or implied by the Act. If the subcontractor starts adjudication under rules that are not in the main contract the courts will not enforce.

Before you sign the sub-contract check the main contract - this is good practice anyway. Before starting adjudication ask the main contractor for a copy of the main contract or at least the parts of it that refer to adjudication.  Then you can ensure the correct adjudication rules are used or cite any refusal by the main contractor in any subsequent court proceedings.4. Adjudicator bias

If there is a real risk that the adjudicator was biased, the courts will not enforce.

Choose an adjudicator from a well respected nominating body which will have properly trained its adjudicators – both at the contract drafting stage and at the nomination stage. Ask the nominating body to ignore any individuals that you do not believe to be reputable or unbiased. If the adjudicator starts to display bias stop the adjudication and start again - as long as you do not get to the decision stage. There will be wasted costs, but not as many as if you went all the way to enforcement and lost.5. Unfair procedures

If the adjudicator fails to give each side a fair crack at the whip for putting their case forward or if he fails to give them the chance to comment on his findings - classically, doing his own delay analysis - then the courts will not enforce.

If the other side raises this issue and asks for an extension, agree it. Do not try too hard to ambush the other side – it can backfire. Do not overload the adjudicator or the other side with documents, unless they are absolutely necessary.6. Adjudicator oversteps the mark

As long as the adjudicator answers the right question – in other words, stays within the bounds of the question put to him for resolution - then his decision is enforceable, even if he makes a complete hash of it. If the adjudicator answers a question that was not put to him or otherwise exceeds the bounds of his jurisdiction then the courts will not enforce.

Draft your notice of adjudication very carefully to make sure that you are asking the right question - the question that you want an answer to. If you realise that the adjudicator might be going off track, stop the adjudication and start again - as long as you have not reached the decision stage.7. Winner’s financial position

If the вЂwinning party’ is impoverished then the courts may order that the enforcement be postponed. If this happens, the losing side will usually have to pay the amount into a specially designated court bank account where it will sit until the dispute is resolved.  Usually it is possible to then negotiate the release of these funds for a discount.

If you are the winning party, gather together evidence that shows that you would be able to repay the money if subsequent decisions went against you.8. No formal dispute

If at the time that the adjudication is started the other side has not had the chance to respond, or has indicated that it needs more information, then a dispute may not have вЂcrystallised’. Often this is the case with interim payment disputes where the creditor wants to start an adjudication before the final date for payment. In these circumstances the court will not enforce a decision and adjudicators have been known to resign once this is pointed out.

Wait until any relevant deadlines have passed. Check the contract.9. More than one decision

If there is a series of disputes under the same contract, for example for subsequent interim applications for payment, then it may be possible to ask the court to refrain from enforcing an earlier decision because a later decision may be set off against it.

Check with your advisers as the law on this point is still developing.10. Wrong adjudicator

The contract may specify the identity of the adjudicator or which body is to nominate him.  In some cases where the parties have appointed the wrong adjudicator or nominating body - in one case the body named did not even exist - the courts have refused to enforce. There have also been problems where a named adjudicator has died.

Check that any specified individual adjudicator is alive, well and likely to remain so. Check that the adjudicator nominating body exists.  If it does not then you should be able to choose your own adjudicator nominating body.11. Decision is delayed

The Act provides for a tight timescale of 28 days from the referral notice for the adjudicator to publish his decision, although this may be extended by the parties.  If the adjudicator fails to publish his decision within this or any extended timescale the courts may refuse to enforce.

If the adjudicator wants more time, give it to him, providing you can get the other side’s agreement if the extension takes the timescale over 42 days from the referral notice.12. Previous judgment exists

If another adjudicator has already given his decision on a dispute then the courts cannot enforce.

Draft your notice of adjudication and referral notice very carefully, so as to give maximum scope of being able to separately refer the disputes that may arise. Carefully draft any subsequent adjudication notice or referral to make it clear that it is not the same dispute as a previous adjudication.

Steven Bate is a construction and engineering partner with law firm DWF and a specialist in adjudication. Earlier this month, DWF launched the first 'no win, no fee' service for construction.

Renters help fill unsold Nashville condosShepherd and McAlpine in payment bust-up