REUTERS | Navesh Chitrakar

Multi-party disputes post-Yuanda. Are you confused too?

Unless you have been trapped overseas by the volcanic eruption in Iceland for the last week or so, you will have seen the furore that Edwards-Stuart J’s judgment in Yuanda v WW Gear has caused and the column inches that have been written about it.

Last week I discussed the possibility of an end to Tolent clauses, but another aspect of that judgment is also worthy of a mention; the position of multi-party disputes post-Yuanda.

Amending the JCT standard form adjudication clause

In Yuanda, the parties had amended the JCT standard form adjudication clause. Instead of the Scheme for Construction Contracts 1998, their clause provided that the TeCSA Adjudication Rules would apply, amended to allow:

“joining of the members of the professional team in a multi-party dispute situation”.

Edwards-Stuart J held, obiter, that this joinder provision did not conflict with section 108 of the Construction Act 1996 as it did not “lack contractual certainty”, nor was it “inoperable” or “incapable of being performed”, as Yuanda argued.

Rather, he held that there could be a multi-party situation where WW Gear would want a member of the professional team to be bound by an adjudicator’s decision in a claim brought by Yuanda. Edwards-Stuart J sought to limit this to situations where the issue needed to be resolved against the professional team member “but without extending the referral to the separate potential dispute about the liability of the member of the professional team”. Edwards-Stuart J went on to suggest a few, simple amendments to the TeCSA Rules to give effect to this joinder provision.

I think this means that the professional team member would be bound by the adjudicator’s decision but that, in Yuanda’s adjudication, there would not be a full-blown dispute between WW Gear and the professional team member.

Where does this leave us?

If Edwards-Stuart J’s decision means that the professional team member (let’s choose an architect) is joined to a contractor’s adjudication and is bound by that adjudicator’s decision that (for example) the defect was caused by a failure in the architect’s design, then, in practice, I can see a number of problems.

If the adjudicator decides it was a design issue, then the contractor will succeed in its adjudication, but where does that leave the architect and the employer? Do they have to start another adjudication, arguing that as the first adjudicator decided the issue was a design defect, adjudicator two only has to decide the quantum of that? Why would the architect want to do this when there hasn’t been a full hearing of the design issue?

This also raises other practical implications, such as the architect’s right to make submissions in the first adjudication. I can see no suggestion of that in Edward-Stuart J’s proposed amendments to the TeCSA rules.

Drawing an analogy with joinder in arbitration

In arbitration, joinder of parties typically happens in employer versus main contractor disputes, where the main contractor joins the sub-contractor, perhaps in a defects and/or delay claim. But there is a difference. Not only do all the parties have to agree to the joinder, but the rights and remedies of the parties are generally considered separately. It’s just the facts common to all three parties, and the findings of fact on them, that are then applied to both contracts and the claims that arise. There is also a lot more time in an arbitration to deal with the joined disputes.

But is joinder in adjudication practical?

In contrast to arbitration, adjudication, with its time constraints, could prove to be a logistical challenge with three parties, two contracts and two separate claims to consider. How could any adjudicator realistically deal with joined disputes within the statutory framework of adjudication?

Even if the notice of adjudication on one contract triggered another notice of adjudication on the other contract, for the joinder to take effect, an adjudicator would still need to consider both claims and try and set up a procedure to allow time for the parties’ submissions and, if applicable, a hearing to take place. Not impossible but, arguably, the 28 days time table could be under threat.

One option would be for the adjudicator to resign if he didn’t think it was possible to reach a decision in the time allowed (the “fairness” principle of CIB Properties Ltd v Birse Construction Ltd). Would an adjudicator resigning in those circumstances defeat the joinder provision in the first place? How many adjudicators would be appointed and would subsequently resign because of the practical difficulties? Would this force the parties to give the adjudicator more time to deal with the dispute and would this, in some way, prejudice the party who had referred its dispute to adjudication in the first place? After all, that party is entitled to have its dispute dealt with within 28 days.

Ultimately, though, I can’t get my head around how an adjudicator’s findings under one contract could bind parties to a separate contract unless those contracts were appropriately worded. One way around this would be to ensure that the sub-contract was drafted on a back-to-back basis so that, in practical terms, the main contractor’s claim against the sub-contractor would simply replicate the employer’s claim against the main contractor, and the main contractor would simply be acting as a “post box”.

Finally, the judgment in Yuanda suggests that not all of the trade contractors agreed to the joinder provision. Surely it could only be effective in practice if all of the trade contractors and all of the professional team have the same, back-to-back wording. Otherwise, some disputes on the project would be multi-party, and others not. What a mess that would be, and what a drafting and negotiating headache it would cause.

Confused? You bet!

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