Adjudication - he who refers pays?
Posted: Tuesday 20 July 2010
Section 108 of the Housing Grants Construction & Regeneration Act 1996 provides for parties to a construction contract to be entitled to refer any dispute arising between them to adjudication “at any time.” This has lead to a practice of adjudications throughout the contract period based on interim certificates, variations, extensions of time and defects. The contractor and employer do not have to wait until the conclusion of the contract to refer any dispute for determination. In the event that any construction contract does not have an express provision for adjudication the statutory scheme for Construction Contracts applies.
In the recent case of Yuanda (UK) Limited v WW Gear Construction Limited the adjudication provisions of the standard terms of the Employer under a building contract were put to the test. In the contract, in the event that the Contractor sought to refer a dispute to adjudication it would become liable for its own costs and expenses as well as those of the Employer.
The parties were free to contract although arguably the Employer was in a stronger negotiating position and imposed its own standard terms on the Contractor. Disputes arose and the Contractor paid some attention to the dispute resolution provisions and realised that it had contracted to pay both parties expenses in any adjudication irrespective of the outcome. Was this fair?
Yuanda raised a court action seeking a declaration that the adjudication provisions of the standard terms and conditions of the Employer were void or invalid. It was argued that the mandatory payment of the expenses of both parties inhibited Yuanda’s right to refer any dispute to adjudication in accordance with s108. The court determined that where the effect of a contractual provision is to discourage parties (or a party) from referring any matter to adjudication at any time then it is contrary to the requirements of the Act.
The judge in this case went on to determine that as the adjudication provisions in the contract were contrary to the Act, Part I of the Scheme for Construction Contracts replaces those provisions.
The Local Democracy, Economic Development and Construction Act 2009 has the effect of outlawing so called Tolent clauses but is yet to come into force. Whilst awaiting the parliamentary process required to effect the amendments to the HGCRA reflected in this legislation any Employer with a standard adjudication provision which is contrary to the Act may find that their exposure to the cost of adjudication is just as great as the Contractor
Lisa Dromgoole, Associate
