The Housing Grants, Construction and Regeneration Act 1996 commonly referred to as the Construction Act - is one of the most important pieces of legislation to affect the construction industry in the last 50 years. Following extensive consultation with the construction industry and a long road to reform, legislation has now been enacted that makes very significant changes to the 1996 Act - certain of which relate to adjudication.
There are three such changes, although the proposed changes to the payment regime are likely to give rise to substantive disputes that will be resolved by adjudication.
Contract In Writing No Longer Required
The provisions of Part 2 of the 1996 Act (which include the right to adjudicate) only apply where the construction contract is made in writing, made by exchange of communications in writing or is evidenced in writing.
This requirement will be swept away by s.135(1) of the Local Democracy, Economic Development and Construction Act 2009. The rationale underlying this change is that s.l 07 has been interpreted restrictively by the courts, such that all of the non-trivial terms of construction contracts must be in writing, as that term is presently defined. Part 2 of the 1996 Act will now apply to all construction contracts - whether wholly in writing, partly in writing or wholly oral.
In practice, this opens up the possibility of large amounts of time (and money) being spent determining what exactly the parties' contract provides, prior to moving on to the dispute itself.
Introduction of a Slip Rule
The absence of an express power to correct errors (or "slips") has always been of more significance in Scotland, than in England where the existence of a "slip rule" in adjudication has long been accepted; see Bloor Construction (UK) Ltd v. Bowmer & Kirkland (London) Ltd (2000).
The changes to the 1996 Act will require that construction contracts include a provision in writing permitting the adjudicator to correct his decision so as to remove a clerical or typographical error arising by accident or omission. Certain issues will arise with this. Firstly, the new provision contains no time limit. Secondly, what, exactly, is a "clerical or typographical error"? Does it include errors of arithmetic?
Whilst there may be something in these questions, in reality, the courts are only likely to determine the answer if a correction is made and the party who does not benefit from the correction challenges that correction.
At the time the 1996 Act came in to force, a number of main contractors spent a lot of time devising contractual provisions that meant subcontractors were required to bear all the costs of an adjudication (including the main contractor's legal costs) if they had the temerity to refer a dispute to adjudication. Such clauses remain to this day.
A new s.l08A of the 1996 Act will provide that any contractual provision which concerns the allocation as between parties of costs relating to the adjudication of a dispute will be ineffective unless it is made in writing after a notice of intention to refer the dispute to adjudication has been served.
The provision will cover both the adjudicator's fees and expenses and the costs incurred by the parties themselves. It is not difficult to suggest that the likelihood of such agreements being entered into is, to say the least, remote!
This article featured in the December 2009 issue of Project Scotland