What happens if your construction contract contains adjudication provisions that do not comply with the Construction Act 1996 (Act)? “That’s easy”, you say, “the Scheme for Construction Contracts 1998 (Scheme) applies because section 108(5) of the Act says that if the contract does not comply with section 108(1) to (4), the adjudication provisions of the Scheme apply.”
Here comes the tricky question: does the Scheme substitute the contractual adjudication provisions in whole or only in part?
How has the Technology and Construction Court (TCC) dealt with this?
There does not appear to be a clear answer. HHJ Havery QC considered this question in two cases in 2007. In Epping Electrical, he held that paragraph 25 of the 3rd edition of the CIC adjudication rules (which has since been amended and replaced by the 4th edition) fell foul of the Act and concluded that the Scheme substituted the contractual adjudication provisions, otherwise there would be two sets of competing adjudication provisions that would apply. He considered that this would be a recipe for confusion and not the intention of section 108(5).
Within two weeks of handing down this decision, the same issue arose in Aveat Heating. The same judge heard submissions from counsel that he was wrong in Epping Electrical to decide that the Scheme applied in place of the contractual adjudication provisions. HHJ Havery QC rejected counsel’s submissions concluding that the Scheme and the contractual provisions cannot co-exist in the contract unless provision is made as to how that is to work.
He found support in the decision of HHJ Toulmin CMG, QC in John Mowlem & Co plc v Hydra Tight Ltd 17 Const LJ 358, where he had said:
“the words of the Act are clear, either a party complies in its own terms and conditions with the requirements of the Act or the provisions of the Scheme apply”.
What about in Scotland?
So far so good. However, there are a couple of Scottish decisions (Ballast v The Burrell and Hills Electrical v Dawn Construction) that suggest that the relevant provisions of the Scheme and the contractual adjudication provisions can co-exist and that it is only those adjudication provisions that do not comply with the Act that should be replaced by the Scheme.
Where does this leave us?
Although Scottish decisions are not binding authority in England and Wales, it is not uncommon for the TCC judges to follow Scottish decisions on construction adjudication issues. These judgments predate both Aveat Heating and Epping Electrical, but still suggest an element of uncertainty on this issue.
This uncertainty can affect the parties to adjudication in many different ways: for instance, it may alter the tactical decisions they take when they are starting the process, or increase their costs of the process.
What happens in practice?
We recently advised on this issue in the context of joinder and NEC2, and this raised a number of interesting practical issues.
Let’s say you act for a contractor and your contracts with the employer and your sub-contractor contain adjudication provisions that are non-compliant with the Act. Both contracts also contain a joinder provision, allowing you to appoint the same adjudicator to decide two similar and related disputes that are referred to adjudication simultaneously (dispute 1 with the employer, dispute 2 with the sub-contractor), upon which you wish to rely.
Your contracts do not specify what happens if one or more of the agreed adjudication provisions fall foul of the Act, so you are not sure whether your joinder provision stays or goes (because it is uncertain whether the adjudication provisions of the Scheme substitute all of the contractual adjudication provisions or just those provisions which fall foul of the Act). It is in your best interest that the same adjudicator decides both disputes, as different adjudicators may come to different decisions leaving you in an unsatisfactory position (i.e. you could end up being made to pay amounts to the sub-contractor and not getting this back from the employer).
Both the sub-contract and the main contract say that the parties are to choose an adjudicator and, in the absence of this agreement, the named adjudicator nominating body (ANB) is to appoint one. Before you send the notice of adjudication, you write to both the employer and the sub-contractor to try to agree the identity of an adjudicator. After a short time, it becomes clear that you have a better chance of herding cats than agreeing an adjudicator with the employer and/or the sub-contractor, so you have to apply to the named ANB.
You are now ready to serve your notices of adjudication and apply for the appointment of an adjudicator in both disputes. The question is, do you refer both of the disputes to adjudication under the Scheme, or a hybrid of the Scheme and the relevant contractual adjudication provisions? A referral under the Scheme will not guarantee that the same adjudicator will be appointed to decide both disputes and/or that both disputes will be heard together. A referral under the hybrid might.
What is the best approach?
In light of the current uncertainty, the most uncontroversial approach would be to refer both disputes to adjudication under the Scheme and request the ANB to appoint the same adjudicator. To be persuasive, the application should set out cogent reasons why the same individual should be appointed in both instances. In the event that the ANB doesn’t appoint the same individual, an alternative approach would be to withdraw one of the disputes and refer it to adjudication once the first adjudication was over. That way, at least you would have another chance of either agreeing the same adjudicator with your contractual counterparty or asking the ANB to appoint the same adjudicator as in the first adjudication.
