Jane Fender-Allison, Associate in our Construction & Engineering team, summarises the adjudication lessons to be learnt from 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 in 2013 and key questions to ask when considering adjudication.
1 Are you sure that you have a "construction contract"?
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. 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.
2 You may have the right to adjudicate but is it appropriate?
If you have got the right to go to adjudication, is it appropriate to do so? Remember, your strategy in tackling disputes with a contractor or subcontractor is key. 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).
3 Are you ready for increasingly creative arguments to resist enforcement of an adjudicator's award?
What about when you win an adjudication and the other side won't pay up? Well, be prepared to face increasingly creative arguments to resist enforcement of the adjudicator's award. In the case mentioned above, Whyte & Mackay 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. Although that was an unusual case, other arguments against enforcement are common. In particular arguments claiming there has been a breach of natural justice by the adjudicator have been very 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.
4 Adjudication and the impact of insolvency is a hot topic
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).
5 Be wary of time bar arguments
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 6 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? 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 6 years to do so from the date you paid. The full impact of that is yet to be felt (and the case may be appealed again), but the key point is to make sure you are aware of potential time bar and when the clock is ticking.
* Note that the law on time bar in Scotland is different and the relevant period is likely to be 5 years.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
