Spotting an adjudication: Amec -v- Department of Transport

Summing up

Spotting an adjudication in the making.

The implication:

A party wishing to adjudicate needs to make its claim with sufficient particularity and supporting evidence so that, should a dispute then crystallise, its chances of succeeding in the adjudication are maximised. Thus detailed submissions with demands for a response by specific dates are the warning signs of a party wishing to crystallise a dispute. It is essential that the notice of adjudication and referral are framed with care.

The current economic environment is increasingly encouraging companies to turn to adjudication to try to secure payment for sums it feels entitled to.

Anecdotally, it also seems that parties who are becoming desperate to secure payment are pushing the adjudication button on the basis of cases that have questionable merit, or that have not been carefully thought through.

Although, in theory, adjudication is only temporarily binding, all the reasons that make other forms of dispute resolution unattractive (and adjudication attractive) mean that in practice adjudication will often finally determine the matter, meaning that the parties are stuck with the decision. Thus if the referring party does not define the dispute or frame its referral in the right way, it can end up with a decision that damages its position rather than improves it.

While adjudication can be a very effective means of resolving a dispute within a relatively short time frame, there are several pre-conditions that must be met. Firstly, there must be either a term in the contract that provides for disputes to be resolved by adjudication, or the contract must be a construction contract as defined in the Housing Grants, Construction and Regeneration Act 1996. In the latter case, all of the terms of the contract must also be recorded in writing.

Secondly, a dispute must have crystallised in order for it to be referred to adjudication. What is meant by a dispute was considered most notably in the case of Amec -v- The Secretary of State for Transport (2004), which was endorsed by the Court of Appeal in the case of Collins (Contractors) Ltd -v- Baltic Quay Management (2004). Essentially, a dispute does not arise upon the making of a claim, but it will arise either upon the rejection of that claim in some form; or a determination by the respondent of that claim which is not accepted by the claimant; or upon any timescale established by the contractual machinery running its course; or in the absence of any timescale, the passage of a reasonable period of time from which it can be inferred that a dispute exists.

Referring party

The referring party must have provided sufficient material to the responding party in advance of the adjudication and allowed sufficient time to pass to enable a dispute in relation to that material to crystallise. Thus, when a party starts making detailed submissions and making serial demands for responses by certain dates, that is usually a sign that it is moving towards adjudication.

For safety all arguments upon which the referring party intends to rely should have been put to the responding party before the adjudication commences otherwise it may be argued that the adjudicator does not have jurisdiction.

There are a number of cases that consider the scope for providing further material and effectively developing the case in the course of the adjudication. While this may be acceptable on the condition that it does not change the dispute, there is a risk that where the responding party challenges the new material, an adjudicator may disregard it.

It must always be remembered that the referring party has the legal and evidential burden of proving its case. It is also often not understood by referring parties that the responding party may respond in any way it pleases, including the production of an entirely new defence.

For example, in William Verry (Glazing Systems) -v- Furlong Homes Ltd (2003), Furlong claimed liquidated damages for delay by Verry in response to which Verry submitted a new extension of time claim that the adjudicator was required to consider as part of his decision.

The real problem with not formulating the dispute in the right way in the first place is the risk of getting an adverse decision or a partial decision that does not solve the problem, leading to an attempt to take further bites at the cherry.

The problem with serial adjudications is that in light of the fact that the same matter cannot be decided twice, it is necessary to determine whether the matter referred has actually already been decided or whether it does arise from new issues or facts that were not previously considered.

For example, in the case of Benfield Construction Limited -v- Trudson (Hatton) Limited (2008), it was decided that it was an abuse of the adjudication process to attempt a second adjudication using different legal arguments but based on the same facts as considered in an earlier adjudication.

In summary, companies wishing to adjudicate should get advice on what the process involves and the real likelihood of success.