Contractual adjudication provisions

The court has construed contract adjudication provisions - which set out the timetable for adjudication - in three recent cases. The adjudication provisions in dispute were:

  • the JCT adjudication provisions;
  • the Construction Industry Council Model Adjudication Procedure; and
  • GC/Works sub-contract adjudication provisions.

Adjudication provisions setting out the timetable for the adjudication are of fundamental importance: failure by the parties to adhere to the timetable could result in the adjudicator not having jurisdiction, whilst failure by the adjudicator to adhere to the timetable could result in his decision being a nullity.

Cubitt Building & Interiors Ltd v Fleetglade Ltd [2006] EWHC 3413 (TCC)

Disputes arose between the parties concerning the Final Certificate issued under a JCT 1998 contract.

The contract incorporated the JCT adjudication provisions which provided (in summary):

The appointment of the adjudicator

If either party gave notice of his intention to refer a dispute or difference to adjudication, then:

  • any agreement by the parties on the appointment of an adjudicator “must be” reached; and
  • any application to the nominator (in default of such agreement by the parties) “must” be made,

with the object of securing the appointment of, and the referral of the dispute to, the adjudicator within 7 days of the date of the notice of intention to refer.

The referral of the dispute

If an Adjudicator was agreed or appointed within 7 days of the notice then the party giving the notice “shall” refer the dispute or difference to the Adjudicator within 7 days of the notice of intention to refer.

If an Adjudicator was not agreed or appointed within 7 days of the notice of intention to refer, the referral “shall” be made immediately on such agreement or appointment.

Decision of the adjudicator

The Adjudicator “shall”, within 28 days of the referral, reach his decision and “forthwith” send that decision in writing to the Parties.

The referring party may consent to an extension of the period of 28 days by up to 14 days; and the parties may agree, after the referral has been made, to a longer period for the adjudicator to reach his decision.

The actual timetable

20 September - the contractor issued a notice of intention to refer a dispute to adjudication (the “adjudication notice”).

21 September - the contractor asked the RICS to nominate an adjudicator.

27 September - at 5.06 pm - RICS provided the nomination and at 5.35pm the nominated adjudicator accepted his appointment.

The court concluded that the adjudicator was appointed within seven days from the date of the adjudication notice, albeit, late on the seventh day.

Since the adjudicator was appointed within seven days from the adjudication notice, the contractor was required (under the provisions summarised above) to refer the dispute to the adjudicator within the seven day period.

The contractor’s solicitors offered to fax the employer’s solicitors the notice referring the dispute to adjudication (the “referral notice”), but they could not send the accompanying documents (12 lever arch folders) by fax or courier until the next day since they were with the contractor’s claims consultants. The employer’s solicitors refused partial service and required the contractor to serve the referral notice with the accompanying documents at the same time.

28 September - the contractor’s solicitors served the referral notice and accompanying documents on the employer’s solicitors.

24 November - the extended date (agreed by the parties) for the adjudicator to give his decision. The adjudicator reached his decision on this date, but declined to issue it since he claimed a lien until his fees had been paid.

25 November - the adjudicator changed his mind and, just after midday, sent his decision (by email) to the parties.

29 November - the adjudicator corrected an arithmetical error and provided replacement pages of his decision.

The adjudicator decided in favour of the contractor and the contractor brought proceedings for summary judgment to enforce the adjudicator’s decision.

Was the referral notice served in time?

The employer argued that the adjudicator did not have jurisdiction to hear the dispute because the contractor’s referral notice was required to be served within seven days from the date of the adjudication notice i.e. by 27 September, but was served out of time, on 28 September.

The judge analysed the JCT adjudication provisions (summarised above) and concluded that the provision requiring the referral notice to be served within seven days from the date of the adjudication notice was mandatory, rather than discretionary.

However, the judge said that if the provisions were operated in a “sensible and commercial” way, the referral notice was served in time.

The provisions addressed two scenarios: one in which the appointment of the adjudicator was made within seven days from the adjudication notice; and one in which it was not. The provisions did not cater for everything that might happen. Thus, they did not provide for a situation in which, through no fault of the referring party, the appointment did not occur until very late on the seventh day.

A sensible interpretation of the JCT adjudication provisions therefore was to imply that, if the appointment happened late on day 7, the referral notice had to be served as soon as possible thereafter. Otherwise, if the appointment was not made until 11.55 pm on day 7, and the referral notice was not provided within five minutes in the middle of the night, the referral notice would be out of time and the adjudicator’s decision would be a nullity. That would be contrary to business common sense.

On the facts of this case, it would also be wrong to decide that service of the referral notice was out of time because:

  • the bulk of the delay was caused by the RICS, and it would be wrong to penalise the contractor in consequence; and
  • the contractor’s solicitors had offered to serve the referral notice (without accompanying documents) on day 7. Was the adjudicator’s decision issued in time?

The JCT adjudication provisions (summarised above) required the adjudicator to reach his decision by 24 November and to issue it “forthwith” to the parties. Had the adjudicator done so here, when the decision was sent by email just after midday on the day following the agreed date by which the adjudicator was required to reach his decision?

The judge found that the adjudicator had issued his decision “forthwith”. In days of the email and fax, the time for the communication of the decision should be very short - a matter of a few hours at most. In this case, it would be wrong in principle to penalise the contractor for the adjudicator’s failure to send his decision on 24th November due to his mistaken view as to his legal entitlement to a lien - particularly since the adjudicator changed his mind and published the decision within a few hours of his original incorrect decision to withhold the document.

As a word of warning, the judge added that he struggled to see how a decision which was not communicated at the latest by the middle of the day after the final deadline could be communicated “forthwith”.