Adjudication: Is There a Dispute Yet?
Introduction
The statutory power to refer a dispute to Adjudication is set out in section 108 of the Housing Grants, Construction and Regeneration Act 1996, which states that “A party to a construction contract has the right to refer a dispute arising under the contract for adjudication...”.
For that power to arise, there has to be “a dispute arising under the contract”.
In this article, Hamshaw examines when it can be said that a dispute exists.
A Claim
A "dispute" arises when one party makes a claim, and the other party disputes it. That might seem obvious, but sometimes it is not.
For a claim to have been made, one party must have clearly communicated to the other party that there is an entitlement, and must give the other party a chance to respond.
The claim does not need to be set out in formal legal language, but it must be specific enough to enable the other party to understand the nature of the request and its justification.
The best way to make a claim is in writing, whether in an email or a letter, so that you have a dated, contemporaneous, document to point to later on if the other party suggests that there cannot be a dispute because a claim has not yet been made.
A claim does not need to be for a specific amount of money, or for any money at all. It could, for example, be a claim for an indemnity, or a claim for an extension of time.
The Rejection
Even if a claim is made, a dispute only arises if that claim is not accepted. Evidence of non-acceptance might take the obvious form of a reply from the other party in which liability for the claim is denied. However, non-acceptance can also take the form of the other party ignoring the claim, or saying something in reply that is inconsistent with it being accepted.
There is no strict legal timeframe in which an ignored claim will transform into a dispute, but the responding party should be given a reasonable period to respond before a dispute is declared. What is reasonable will depend on the nature and complexity of the claim. A reasonable period for a relatively simple claim might be a matter of (say) 10 days, but for a much larger and more complex claim it might be reasonable to give the other party a month or more to consider and respond to the claim.
The Adjudication
One thing that can catch parties out is making a claim in correspondence which is rejected or ignored, but then inadvertently going on to refer a different claim to Adjudication.
For example, a party might claim in correspondence that the other party is in breach of contractor for having not paid an invoice, but then might go on to ask an Adjudicator to decide a different dispute (such as to an extension of time) in the mistaken belief either that these two things are part of the same dispute, or that the extension of time has been properly set out (and rejected) in the earlier correspondence. Parties should therefore take care to make sure they understand what their dispute is, before commencing Adjudication.
Issues Forming part of a Dispute
Sometimes, a party will argue that a dispute has not formed because the matters referred to the Adjudicator are wider than the matters that had been set out in earlier correspondence.
In determining what dispute has crystallised, a broad view should be taken. Legal textbooks explain that:
“…the word ‘dispute’ is not to be given a restrictive or particular meaning for the purposes of adjudication.
… the word ‘dispute’ was an ordinary English word which should be given its ordinary English meaning…
… a wide interpretation should be given to the word ‘dispute’ so that the adjudicator’s jurisdiction was preserved wherever possible.
… a court should approach the question of what comprised the dispute with robust commonsense …”
Likewise, the courts have distinguished between different claims or assertions (and the like) on the one hand, and different disputes on the other hand, holding as follows:
“During the course of a construction contract, many claims, heads of claim, issues, contentions and causes of actions will arise. Many of these claims will be, collectively and individually, disputed. When a dispute arises, it may cover one, several or many of one, some or all of these matters. … In other words, the ‘dispute’ is whatever claims, heads of claim, issues, contentions or causes of action that are then in dispute …”.
The courts have therefore taken a broad interpretation of the word ‘dispute’, with the result that if, for example, a contractor’s application for an interim payment involves claims for variations, extensions of time and loss and expense, the rejection of that application, or its part-payment, will result in a single dispute, even if the investigation into the claims for payment will be entirely separate from the investigation into the claims for an extension of time and consequential loss and expense, which latter issue also carries with it the inherent assertion that the employer is not entitled to liquidated damages for the same period of delay.
It would appear, therefore, that a party refers a single dispute to adjudication if it can be demonstrated that his claim, which may be made up of several different elements, can be fairly described as a single, disputed claim for a sum due (or some other relief, like an extension of time) under the contract. … It is thought that it will be rare for the court to decide that a claim in relation to one contract and one site gives rise to more than one dispute, unless the referring party is making two different and unrelated claims…or seeking two different declarations as to its contractual entitlement which involve entirely different aspects of the contract”
As well as taking a broad view of what constitutes a dispute, the difference between a dispute (on the one hand), and individual issues, contentions, or assertions which make up or form a part of that dispute (on the other hand) must be recognised.
As a practical yardstick, it may be sensible to ask whether or not it can be properly said that matters referred to Adjudication are “different and unrelated” to the matters stated in the prior correspondence between the parties, or can be said to “involve entirely different aspects of the contract”.
"Under the Contract"
For a dispute to be eligible for Adjudication, it must arise “under the contract”. This requirement means the issue at hand must relate to the obligations, rights, or conditions contained within the contractual agreement. If a claim concerns matters outside a contract's scope, Adjudication may not be available (or appropriate).
For instance, disputes arising from negligence, or breach of statutory duty, which are unrelated to contractual obligations may fall outside the scope of statutory Adjudication.
Summary
The concept of a dispute having arisen (or having “crystallised”, in legal terms) is essential to the Adjudication process. Without a clear dispute, an Adjudication cannot proceed.
The claimant must be able to prove that they made a claim and that the opposing party either rejected or failed to respond within a reasonable period.
Parties involved in construction contracts should be vigilant about documenting claims and responses to avoid disputes over whether a dispute has crystallised. Thorough documentation and timely communication are key to ensuring that the Adjudication process can be invoked when necessary.
A dispute must arise from the contract for the statutory right to adjudicate to arise.
There is an important difference between broad disputes, and individual issues, contentions, or assertions which make up or form a part of those disputes.
If you need to advice or assistance with ensuring that a dispute has crystallised, or with analysing whether one has crystallied, contact Hamshaw today.