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Referral for adjudication
00:00 11 Aug 1999
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Adjudication is in full swing. Section 108 (1) of the Housing
Grants, Construction and Regeneration Act 1996 states that "a party
to a construction contract has the right to refer a dispute arising
under the contract for adjudication under a procedure complying
with this section. For this purpose 'dispute' includes any
difference."
It is common practice for the referring party to a dispute to carefully prepare its case before referring the matter for adjudication. The responding party is then placed under enormous pressure to deal adequately with the contentions made in the referring document within the strict timescales which apply.
This has been termed the 'adjudication ambush,' but the ambush can be taken a step too far. Referring parties should be careful not to refer matters for adjudication which have not previously been raised with the opposing party. In such a case the opposing party might be justified in arguing that at the point of referral, there was no dispute capable of being referred to adjudication.
Such issues were raised in connection with arbitration proceedings in the 1994 case of Cruden Construction Ltd -v- the Commission for the New Towns.
Cruden was main contractor for the construction of 145 houses at Tanterton in Lancashire under a JCT 1963 form of contract. The contract was executed under seal in May 1980, and the works were carried out with the final certificate issued in May 1986. In July 1985 the Commission sold the houses to the North British Housing Association giving warranties in respect of the building works.
In September 1993 the Housing Association served a writ upon the Commission. It alleged defects in one out of every seven of the houses. The Commission were of course concerned to pass any liability which may arise on to its contractor, and immediately recognised that the limitation period within which they might be able to commence proceedings against Cruden was soon to expire.
Accordingly, the Commission's solicitors wrote to Cruden's solicitors in the following terms: "Our clients, the Commission for the New Towns, have recently received a very substantial claim from North British Housing Association Limited alleging structural defects and non-conformities with the Building Regulations in some of the properties transferred pursuant to an agreement dated 1 July 1985.
The Schedules of Defects referred to in the claim run to 5236 pages and are available for inspection by prior appointment. We are instructed to protect our client's position in relation to the structural defects and non-conformities alleged in relation to your clients' work by the commencement of arbitration proceedings in respect thereof. We would be grateful if you would please confirm by return of fax whether you are authorised to accept service of Notices of Arbitration for and on behalf of your client Cruden Construction Limited."
This letter was unusual in a number of respects. First of all it did not call upon Cruden to put right any defects, nor did it in terms assert that Cruden was in breach of its obligations under the building contract. Indeed the Commission did not itself assert that there were defects in the houses. The assertion was that the Housing Association had alleged defects.
Indeed, the letter did not request Cruden to do anything; it merely requested their solicitors to confirm whether they were authorised to act on behalf of Cruden. Cruden's solicitors responded to the effect that while they would not in any way acknowledge or admit that there was any basis for a claim against Cruden, they confirmed they were authorised to act on their client's behalf.
A few days later a notice of arbitration was served and in due course Cruden applied to the court for a declaration that the notice was ineffective and that the appointment of the arbitrator was void because no dispute or difference had arisen capable of being referred to arbitration by the date of the notice.
The judge concluded that for there to be a dispute there must be something in the nature of an assertion by one party. A situation in which the parties neither agree nor disagree about the true position was not one in which there was a dispute. Lord Denning was quoted in the case of Monmouthshire County Council -v- Costelloe and Kemple in which he said "there must be both a claim and a rejection in order to constitute a dispute or difference."
Accordingly, Cruden was entitled to the declaration that the arbitration could not proceed.
When adjudication is being sought upon the value of a final account, the referring party will seek to present the account in the best possible light. The referral documents will be a reorganisation of the papers such that within the short timescale the adjudicator is given the best possible opportunity to fully review the account. Providing this does no more than re-organise and amplify for the benefit of the adjudicator the facts and matters previously in dispute between the parties, there can be no question over the jurisdiction of the adjudicator.
However, if the referral documents introduce for the first time new evidence, new complaints, and a radically different account which the responding party has not seen prior to the adjudication, there is a very real risk that the adjudication will be invalid. This of course is providing the responding party does not in any subsequent conduct waive its rights to argue that there was no dispute capable of being adjudicated at the date of referral.
BOXTEXT: INBRIEF
The Case: Cruden Construction Limited -v- Commission for the New Towns ORB, 21 December 1994.
The Issue: The meaning of the term 'dispute or difference' in the context of arbitration or adjudication procedures .
The Implication: Where an adjudication referral notice includes facts and arguments not previously in issue between the parties, the referring party should give the other party sufficient time to consider these issues before commencing adjudication proceedings.
It is common practice for the referring party to a dispute to carefully prepare its case before referring the matter for adjudication. The responding party is then placed under enormous pressure to deal adequately with the contentions made in the referring document within the strict timescales which apply.
This has been termed the 'adjudication ambush,' but the ambush can be taken a step too far. Referring parties should be careful not to refer matters for adjudication which have not previously been raised with the opposing party. In such a case the opposing party might be justified in arguing that at the point of referral, there was no dispute capable of being referred to adjudication.
ADVERTISEMENT
Such issues were raised in connection with arbitration proceedings in the 1994 case of Cruden Construction Ltd -v- the Commission for the New Towns.
Cruden was main contractor for the construction of 145 houses at Tanterton in Lancashire under a JCT 1963 form of contract. The contract was executed under seal in May 1980, and the works were carried out with the final certificate issued in May 1986. In July 1985 the Commission sold the houses to the North British Housing Association giving warranties in respect of the building works.
In September 1993 the Housing Association served a writ upon the Commission. It alleged defects in one out of every seven of the houses. The Commission were of course concerned to pass any liability which may arise on to its contractor, and immediately recognised that the limitation period within which they might be able to commence proceedings against Cruden was soon to expire.
Accordingly, the Commission's solicitors wrote to Cruden's solicitors in the following terms: "Our clients, the Commission for the New Towns, have recently received a very substantial claim from North British Housing Association Limited alleging structural defects and non-conformities with the Building Regulations in some of the properties transferred pursuant to an agreement dated 1 July 1985.
The Schedules of Defects referred to in the claim run to 5236 pages and are available for inspection by prior appointment. We are instructed to protect our client's position in relation to the structural defects and non-conformities alleged in relation to your clients' work by the commencement of arbitration proceedings in respect thereof. We would be grateful if you would please confirm by return of fax whether you are authorised to accept service of Notices of Arbitration for and on behalf of your client Cruden Construction Limited."
This letter was unusual in a number of respects. First of all it did not call upon Cruden to put right any defects, nor did it in terms assert that Cruden was in breach of its obligations under the building contract. Indeed the Commission did not itself assert that there were defects in the houses. The assertion was that the Housing Association had alleged defects.
Indeed, the letter did not request Cruden to do anything; it merely requested their solicitors to confirm whether they were authorised to act on behalf of Cruden. Cruden's solicitors responded to the effect that while they would not in any way acknowledge or admit that there was any basis for a claim against Cruden, they confirmed they were authorised to act on their client's behalf.
A few days later a notice of arbitration was served and in due course Cruden applied to the court for a declaration that the notice was ineffective and that the appointment of the arbitrator was void because no dispute or difference had arisen capable of being referred to arbitration by the date of the notice.
The judge concluded that for there to be a dispute there must be something in the nature of an assertion by one party. A situation in which the parties neither agree nor disagree about the true position was not one in which there was a dispute. Lord Denning was quoted in the case of Monmouthshire County Council -v- Costelloe and Kemple in which he said "there must be both a claim and a rejection in order to constitute a dispute or difference."
Accordingly, Cruden was entitled to the declaration that the arbitration could not proceed.
When adjudication is being sought upon the value of a final account, the referring party will seek to present the account in the best possible light. The referral documents will be a reorganisation of the papers such that within the short timescale the adjudicator is given the best possible opportunity to fully review the account. Providing this does no more than re-organise and amplify for the benefit of the adjudicator the facts and matters previously in dispute between the parties, there can be no question over the jurisdiction of the adjudicator.
However, if the referral documents introduce for the first time new evidence, new complaints, and a radically different account which the responding party has not seen prior to the adjudication, there is a very real risk that the adjudication will be invalid. This of course is providing the responding party does not in any subsequent conduct waive its rights to argue that there was no dispute capable of being adjudicated at the date of referral.
BOXTEXT: INBRIEF
The Case: Cruden Construction Limited -v- Commission for the New Towns ORB, 21 December 1994.
The Issue: The meaning of the term 'dispute or difference' in the context of arbitration or adjudication procedures .
The Implication: Where an adjudication referral notice includes facts and arguments not previously in issue between the parties, the referring party should give the other party sufficient time to consider these issues before commencing adjudication proceedings.
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