| Date | 27 April 2005 |
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| Judgment | Consultation into the adjudication provision of the Housing Grants Construction and Regeneration Act |
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| The Issue | Potential changes in the legislation following experience of the Construction Act since May 1998. |
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| Implication |
Responses to the consultation are to be returned to the DTI not later than 21 June 2005. |
printIn last week's article I examined the proposals which have been put forward by the DTI and the Welsh Assembly to amend the Construction Act in relation to its payment provisions. Those proposals also extend to the adjudication provisions of the Construction Act in which the overall objectives are described as reducing the disincentives to referring disputes to adjudication, including the avoidance or frustration of the process or outcome and unnecessary legal challenges. The first issue dealt with in the consultation document is to prevent the use of "trustee stakeholder accounts". In the many dozens of adjudications that I have been involved with, both as adjudicator and as party representative, I have yet to come across a situation where the contract required the adjudicator to place monies awarded by him into a stakeholder account. As it presently stands however, the parties may agree a term in their contract with the effect that any sum awarded by an adjudicator must be held in a stakeholder account rather than paid directly to the party receiving the award. Such a term will render the adjudicator's decision ineffective as a means of restoring cash flow. Often the contract term will defer the release of monies from the stakeholder account until the dispute has been finally decided by litigation or arbitration. Those in favour of such arrangements would argue that the provision of a stakeholder account is merited when there is a serious doubt as to the ability of the claimant to repay the monies awarded under an adjudicator's decision, if subsequently that decision is overturned by litigation or arbitration. This contradicts the clear approach intended by the legislation that adjudicator's decisions should have immediate effect. Rightly therefore, the consultation proposes that any contractual provision requiring the payment of an adjudicator's decision into a stakeholder account should be unenforceable. Regrettably however, the consultation unnecessarily complicates this proposal. It is suggested that, under the Scheme for Construction Contracts, the adjudicator should be allowed to direct monies into a stakeholder account if the receiving party is subject to insolvency proceedings. In such a case, the adjudicator would act as a trustee of the award for up to one month or, as the case may be, considerably longer if arbitration or litigation is commenced. This seems an extraordinary, cumbersome and costly proposal which is unlikely to be workable. Quite how the adjudicator is to know when a party is insolvent, or likely to become insolvent, or which types of insolvency procedure are applicable, is not addressed in the consultation. Next the consultation addresses whether the adjudicator should be given the power to rule upon certain aspects of his own jurisdiction. It is relatively common to challenge the adjudicator's jurisdiction to decide the dispute, for instance by questioning whether there is a construction contract for the purposes of the Act, whether the contract is in writing as defined in Section 107 of the Act, whether there is a dispute, or whether the adjudicator was properly appointed. The present situation is that when faced with these sorts of challenge concerning jurisdiction, the adjudicator must decide whether to continue with the adjudication or stand down. Crucially however, he may not, unless specifically requested by both parties, make a binding decision upon his jurisdiction. Consequently, enforcement of an adjudicator's decision can be refused if the court concludes that the adjudicator did not have jurisdiction, regardless of the views taken by the adjudicator. The consultation proposes an amendment to the legislation allowing certain jurisdictional challenges to be resolved by the adjudicator. This would include whether there is a construction contract as defined by the Act, but apparently not whether the construction contract satisfies the requirements of Section 107 for the contract to be in writing. The adjudicator would also be allowed to rule upon whether there is a dispute or whether there was a proper appointment. The consultation also considers whether the adjudicator should be given powers to re-open any "final and conclusive" decisions made by a certifier appointed under the contract. As it presently stands, where a contract dictates that the decision of a supervising officer, architect or engineer is to be "final and conclusive", an adjudicator will be unable to resolve any dispute in connection with that decision. This is reflected in paragraph 20(a) of the Scheme where the adjudicator is permitted to open up, revise and review any decision taken or any certificate given by any person referred to in the contract, unless the contract states that the decision or certificate is final and conclusive. The proposal contained within the consultation is to amend the Construction Act to reflect the Scheme, but with one further gloss; the adjudicator will be bound by a final and conclusive provision if he concludes that the decision or certificate relates to a final payment. That would seem to be a naïve approach which would encourage certifiers to prematurely label payment certificates as final in order to bring them within the "final and conclusive" protection excluding the right to adjudicate. The proposal also contains a recommendation that adjudicators should be provided with statutory immunity from legal action similar to that provided to arbitrators under the Arbitration Act. This seems a sensible move. Finally, a proposal is also made that the Construction Act should be amended such that adjudicators may not be connected to any one of the parties. They should be both impartial and independent. This reflects the requirements of paragraph 4 of the Scheme and it is entirely appropriate that this requirement should extend to all adjudicator appointments. The full text of the proposals contained in the consultation document can be obtained on the DTI website at www.dti.gov.uk.
CJ-0516
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