Everyone involved in the construction industry is familiar with the terms “interim binding” and “final and binding”, especially when referring to the effect of a certificate. Equally, they are familiar with the idea that an adjudicator’s decision is an interim one, which can only be overturned by a court, arbitrator or by agreement.
So, you can imagine my surprise when I read Edwards-Stuart J’s recent judgment in Straw Realisations v Shaftsbury House.
For those not au fait with the judgment, one of the issues before the court was whether two adjudicators’ decisions had become final and binding. This was possible because, in their contract, the parties had agreed an amendment to paragraph 23 of the Scheme for Construction Contracts 1998, giving them three months to serve a notice if they challenged an adjudicator’s decision. (In effect, it was like a notice of dissatisfaction used by dispute boards, although it wasn’t called that.) If a party didn’t serve a notice, then the adjudicator’s decision would become final and binding. Any court proceedings to challenge the decision would be delayed, presumably to allow the parties to continue working together and to also ensure that all disputed adjudicators’ decisions were dealt with together, in one set of proceedings after practical completion.
After looking at the facts, and reviewing a good deal of case law (the case was further complicated by Straw’s administration and the impact that may have on enforcement), Edwards-Stuart J held that only one of the decisions was final and binding. He concluded that Shaftsbury had served a notice in relation to the later of the two decisions.
Final and binding
It isn’t often that you see the Scheme amended in this way. It runs contrary to the “pay now, argue later” philosophy of the Construction Act 1996. Arguably, not many contractors/sub-contractors would agree to such a contract term, as they wouldn’t want to be kept out of their money until the end of the project. As this contract was entered into in 2007, I wonder if economic pressure was brought to bear this time.
On the flip side, I’m not sure why parties don’t do it more, since parties often refuse to pay up and then challenge the decision in enforcement proceedings. Arguable, serving a notice would be much easier than incurring that expense.
What about final and binding under the Scheme?
The final and binding point also made me think about the bit in the Scheme (paragraph 20(a)) which says an adjudicator cannot “open up, review and revise” a certificate if the contract says it is “final and conclusive”. How often is this used to prevent contractors and sub-contractors from referring disputes to adjudication that they otherwise would have a right to refer?
Arguably, any time a contract is amended in this way, the parties are getting around the Act. This may be a thing of the past when the Scheme is amended, but until then, it looks like “final and binding” is with us.
If the adjudicator makes a decision, and that decision orders one of the parties to pay up. Does that party have to pay straight away or can they delay payment until court proceedings are concluded?
Is it a case of “pay now, argue later”?
Paul, yes, adjudication is “pay now, argue later”. For a summary, see our Quick guide.