Much ado about ‘disputes’

In Macbeth, when Macduff is told that his wife and children have been slain, he is implored by Malcolm to ‘Dispute it like a man’. Macduff replies: ‘I shall do so; But I must also feel it as a man’.

In the context of adjudication, lawyers (perhaps unsurprisingly for some) also dispute what is required of a ‘dispute’. Take a reasonably common type of example. A contractor claims from his employer an interim payment of £100,000, or an extension of time, or loss and expense. The question is: at what point does the contractor’s claim crystallize into a dispute that he can refer to adjudication? This question is fundamental for those advising parties who are considering referring claims to adjudication. If the claim has not crystallized into a dispute, but is nonetheless referred, the adjudicator will have no jurisdiction and the decision he eventually reaches will be a nullity.

There could be said to be three alternative definitions of when a ‘dispute’ arises:

• As soon as the contractor makes his claim (unless and until it is admitted). This is very much Malcolm’s ‘dispute it like a man’ approach, because it effectively means that the contractor can submit his claim and, without delay, commence an adjudication. This is the wide definition of dispute.
• Only after a process of discussion or negotiation between the employer or his advisers and the contractor, it having become clear that there is something that needs to be decided. This is quite a touchy-feely definition, like Macduff’s ‘But I must also feel it like a man’. This is the touchy-feely definition of dispute.
• Once the employer has had a reasonable opportunity to consider the contractor’s claim. This approach seemingly held sway until recently, when dissenting voices have emerged. This is the narrow definition of dispute.

Judges of the Technology and Construction Court (‘TCC’) have adopted all three definitions and it is sometimes useful to know, when seeking to enforce an adjudicator’s decision, which definition the presiding Judge has previously adopted.

The wide definition of ‘dispute’

Judge Kirkham, in the Birmingham TCC (see Cowlin Construction Ltd v CFW Architects, 15/11/02, and Orange EBS Ltd v ABB Ltd, 22/5/03) and Judge Moseley QC, in the Cardiff TCC (Watkin Jones & Son v Lidl UK GMBH), have both held that a dispute arises once a claim is made and subsists until the claim is admitted i.e. the wide definition.

The wide definition has apparently found favour on the grounds that it is simple to apply and the parties know where they stand. It means that adjudicators do not spend time analysing the lead up to an adjudication to determine whether a dispute came into existence. This is often a particularly cumbersome task when the narrow definition is applied, because the adjudicator has to determine whether the respondent was given a reasonable opportunity to consider each part of the claim.

The wide definition also seems to be what Sir Michael Latham had in mind when he produced his report, Constructing the Team, that prefigured Parliament enacting the adjudication regime. The wide definition would seem to improve the cash flow of parties who carry out work under construction contracts (which was supposedly the main purpose of the adjudication and payment regimes introduced by the Housing Grants, Construction and Regeneration Act 1996).

The touchy feely definition of dispute

The highest authority yet on the meaning of dispute is the decision of the Head of the TCC, Sir Thayne Forbes, in Beck Peppiatt Ltd v Norwest Holst Construction Ltd (20/3/03). The judgment was given extempore (i.e. without the Judge adjourning to consider and write it). Sir Thayne endorsed a passage from Judge LLoyd’s judgment in Sindall Ltd v Solland (15/6/01): “For there to be a dispute for the purposes of exercising the statutory right to adjudication it must be clear that a point has emerged from the process of discussion or negotiation that has ended and that there is something that needs to be decided.” In any given case it will be a matter of feeling whether the process of discussion or negotiation has ended (and whether there is something that needs to be decided). Unfortunately for the advisor the test is not whether he feels there is a dispute, when he refers the matter to adjudication, but whether the adjudicator and, subsequently (should court action prove necessary) the Judge, feel there was a dispute when the adjudication commenced.

The overall decision in Sindall appears to support the narrow definition of dispute. However, there may be subtle differences between the passage Sir Thayne Forbes approved and the narrow definition (see below). This is particularly likely given that Sir Thayne seemingly also approved the wide definition of dispute, even though it appears to conflict considerably with the passage he approved from Sindall.

The difficulty with reconciling the two can be seen from the facts in Orange. Orange advanced a ‘Final Account’ claim on 2 December 2002. It was accepted that Orange’s employer, ABB, had not seen parts of the claim before; the Judge found that the ‘Final Account’ was well over twice the value of Orange’s previous application. On 12 December 2002, ABB said that it considered a dispute had not yet arisen and that it needed until 20 January 2003 to consider Orange’s claim. ABB also said that if an agreement was not reached within 7 days thereafter, ABB would accept that there was a dispute, so that the claim could be referred to adjudication. The next day Orange’s representatives said that they would take instructions on this and revert in due course. Without further ado, on 6 January 2003, Orange served a Notice of Adjudication on ABB. The adjudicator gave a decision in favour of Orange, which Orange sought to enforce.

Applying the wide definition of ‘dispute’ Judge Kirkham held that there was a dispute by 6 January 2003 when the Notice of Adjudication was served (because by then ABB had not admitted Orange’s claim). Judge Kirkham arrived at the same result by applying the test approved by Sir Thayne Forbes in Beck Peppiatt. Judge Kirkham’s decision is worth quoting at length: “I have found this aspect of the application difficult. On balance, I conclude that, by 6 January 2003, sufficient time had elapsed for evaluation then any discussion or negotiation of Orange’s claim. I reach that conclusion notwithstanding that the holiday period intervened. Holidays at any time of year are a practical problem which companies must deal with. It is not fair that a company stands out of substantial sums of money simply because some in the industry do not work over the Christmas and New Year holiday. I bear in mind that [Orange’s representatives] had not let ABB know that Orange did not accept the latter’s suggestion to consider matters by 20 January. On the other hand, there was no agreement between the parties that Orange would hold off until 20 January…I bear in mind that ABB had engaged Daly [a firm of costs consultants and quantity surveyors] in December. Daly were already familiar with the project. Neither ABB nor Daly came to the matter cold.” Judge Kirkham’s observations on the irrelevance of holiday periods (and the industry’s shutdown for a fortnight over the Christmas/ New Year period) are worth noting.

The narrow definition of dispute

Four of the London TCC Judges who have given judgment on the meaning of ‘dispute’ favour the view that in order for a claim to crystallize into a dispute the respondent must be given a reasonable opportunity to answer the claim (Judge Thornton QC: Fastrack Contractors Ltd v Morrison Construction Ltd, 4/1/00; Judge LLoyd QC: both Sindall and Tomlinson v Midas Homes, 21/7/00; Judge Seymour QC: Edmund Nuttall Ltd v R G Carter Ltd, 21/3/02; Judge Bowsher QC: Carillion Construction Ltd v Devonport Royal Dockyard Ltd, 27/11/02).

These judgments all pre-date Sir Thayne Forbes’ decision in Beck Peppiatt. However, the narrow definition, whilst inconsistent with the wide definition (that Sir Thayne also seemingly approved), is not a million miles away from the passage in Sindall that Sir Thayne also approved. The next decision of a judge of the London TCC on this issue will be eagerly awaited to see which direction he takes. Unfortunately, this uncertainty means that in the interim claiming parties should follow the passage from Sindall quoted above. The Court of Appeal’s guidance is desperately needed but unfortunately it does not seem to be on the horizon.

The justification often given for the narrow definition of dispute is that it prevents one party ambushing another with a voluminous claim. However, it also means that the responding party can use stalling tactics to delay the commencement of the adjudication (such as by requesting clarification of, or further information in respect of, a claim).

Contractual machinery

Some Judges take the view that a dispute may not arise until a given claim has gone through the appropriate contractual machinery (see, for example, R Durtnell & Sons v Kaduna Ltd, 19/3/03, Judge Seymour QC). Thus, if in our example the contractor’s claim of £100,000 has been referred to a contract administrator, he will have to consider it (or the time for doing so will have to elapse) before a dispute crystallizes. Once the contract administrator has said to the contractor: no, you are only entitled to £40,000, the contractor can refer his claim for the balance of £60,000 to adjudication.

However, it is unclear whether all the Judges (particularly those who subscribe to the wide definition of dispute) take this view, especially where the claim has not been referred to the contract administrator. Until there is greater clarity on this point, it is sensible for claiming parties to seek and await the contract administrator’s decision on a claim before referring that claim to adjudication.

A contractually wider definition of ‘dispute’

The parties to a contract can widen the definition of dispute if they wish, say, to ensure that the wide definition applies. In fact, the parties may unintentionally achieve this by including in the construction contract a provision entitling the parties to refer disputes to arbitration. The wide definition is applied to determine whether a dispute exists that can be referred to arbitration. An adjudicator or a Judge, when interpreting the word ‘dispute’ in the adjudication clause, may give it the same (wide) definition to ensure consistency throughout the contract.

On the other hand, the parties to a construction contract (as defined by the 1996 Act) cannot narrow the circumstances in which a ‘dispute’ can be referred to adjudication. Section 108(2)(a) of the 1996 Act provides that construction contracts shall enable a party to refer a dispute to adjudication ‘at any time’. However, this simply begs the question: ‘what is a dispute?’

Adjudicator limited to deciding the dispute set out in the Notice of Adjudication

An issue linked to the question ‘what is a dispute?’ arises when the adjudicator decides matters that were not included in the Notice of Adjudication (even if they were ‘in dispute’ when the Notice was served).

It has been held that an adjudicator may only decide the dispute that is contained within the Notice of Adjudication. In Nuttall the Notice of Adjudication included a claim for an extension of time of 235 days. The subsequent Referral Notice was served with a report that supported the extension of time claim of 235 days, but advanced a quite different justification for it. Also, sums claimed for loss and expense (as set out in the report) were different from those mentioned in the Notice of Adjudication. Judge Seymour QC held that a party can ‘refine its arguments and abandon points not thought to be meritorious without altering fundamentally the nature of the dispute [as contained in the Notice of Adjudication]’. However, the Judge also held that the bases for the claim advanced were sufficiently different from those existing when the Notice of Adjudication was served, such that the adjudicator did not have jurisdiction to determine the claim (and thus his decision was a nullity).

The effect of this line of authority would seem to be unaffected by the shifting approaches to the definition of ‘dispute’ set out above. Thus, it remains important that advisors remember that in an adjudication there is almost no scope for subsequently adding to (or relying upon different reasons to justify) the claim that is set out in the Notice of Adjudication.

Conclusion

Advisors should take care in ensuring that a dispute has arisen before commencing an adjudication. Unfortunately, the conflicting definitions of dispute make it difficult to know when a ‘dispute’ has arisen and therefore when to commence an adjudication. The safest approach is to follow any relevant contractual machinery and if that does not produce the desired result detail the entire claim that it is intended to refer to adjudication in one set of documents and serve them. The claiming party should only refer the claim to adjudication once it is clear that the process of discussion or negotiation has ended and there is something that needs to be decided.

For further information please contact Rupert Choat at [email protected] or on +44 (0)20 7367 3573