The validity of complex adjudicator nomination procedures under the Construction Act

A recent TCC decision has considered the validity of a complex contractual adjudication procedure requiring nomination from a panel of adjudicators. The fact that the procedure had the potential to run beyond 7 days from the date of the adjudication notice did not result in its invalidity. The Court’s decision will be of importance to those drafting adjudication clauses and parties subject clauses with complex nomination provisions. Similar panel-based nomination procedures are very common in PFI contracts. The Court’s decision also makes important findings as to other issues arising in connection with the validity of contractual adjudication procedures.

Bellway Homes Ltd v Surgo Construction Ltd

Bellway employed Surgo to undertake construction work on a site near Newcastle under an amended JCT Intermediate Building Contract with Contractor's Design 2016. The contract provided that disputes could be referred to adjudication under the Scheme for Construction Contracts save that:

• the adjudicator was to be chosen from a panel of adjudicators maintained by Bellway and where “the chosen adjudicator does not indicate his willingness to act within 2 days …, then the referring party shall choose a second Adjudicator from the Panel and so on through the list”.
   
• in the event that none of the adjudicators on the panel were able to act, the adjudicator nominating body specified in the contract particulars, in this case RICS, was to nominate an adjudicator; and
   
• paragraph 7(1) of the Scheme was amended so that appointment would need to occur “as soon as reasonably possible after” the notice of adjudication instead of “not later than 7 days from” the notice.

Bellway commenced an adjudication under these provisions and appointed Mr Cope from its panel. The adjudicator accepted an objection from Surgo that the contractual provisions were void because they did not comply with section 108 of the Housing Grants, Construction and Regeneration Act 1996  by providing “a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within 7 days of” the notice of adjudication. However, Mr Cope indicated that he believed that the panel nomination provisions would remain applicable were Bellway to recommence its adjudication under the Scheme. Bellway followed this suggestion and reappointed Mr Cope after commencing a fresh adjudication under the Scheme.

Mr Cope’s decision was favourable to Bellway and Surgo resisted enforcement of the decision on the basis that the entirety of the contractual adjudication provisions were invalid and that an adjudicator ought to have been appointed by an adjudicator nominating body under the Scheme.

Did the contract provide a timetable with the object of securing an appointment within 7 days?

The Technology and Construction Court upheld the validity of the contractual adjudication provisions. His Honour Mr Justice Steve Davies noted that there was some flexibility in the wording of section 108. Rather than a “hard-edged” requirement, the section only required that the parties provide a timetable with the “object” of securing appointment and referral within 7 days. A provision which does not prohibit a referral after 7 days does not, therefore, automatically contravene section 108.

Surgo had emphasised the possibility of an appointment not being made within 7 days if each of the three panel members were to take 2 days to decline an appointment and an application were then required to be made to RICS. However, the Court noted that it was “inherently unlikely” that all three panel members would have refused appointment and each taken the full two days to respond. A panel of 10 adjudicators who were each allowed up to 5 days to respond was given as an example by the Court of a position which would be “very different” and presumably, therefore, non-compliant.

Could an invalid clause continue to specify the adjudicator nominating body?

Despite upholding the validity of the provisions, the Court considered whether the panel and/or nominating body arrangements in the contract particulars could still be operated, as Bellway had done, if the Scheme were to apply. Bellway contended that, as the Scheme itself refers to the nomination of a person “specified in the contract” and/or a “nominating body named in the contract”, these aspects of the contract remain applicable even where the adjudication clause as a whole is invalid and the Scheme applies.  

The Court disagreed with Bellway, finding that “all of the existing provisions relating to adjudication fall away” and that the Scheme is brought in “lock stock and barrel”. This finding reflects an earlier decision of the Court in Sprunt Limited v London Borough of Camden, but conflicts with John Mowlem & Co Plc v Hydra-Tight Ltd which was not referred to in the judgment.

Wrong power, right adjudicator?

The Court’s conclusion meant that Bellway had commenced its adjudication under the wrong power (i.e. the Scheme instead of the express contractual provisions). However, as it had followed the contractual nomination procedure, Bellway claimed that the error did not affect the validity of the adjudication. The Court agreed, noting that:

“it is always necessary to consider with some care the particular issue arising in the particular case and to see whether or not the identification of the correct contractual provisions makes a substantial difference as regards the proper contractual basis of jurisdiction, the proper contractual basis of appointment and the proper contractual procedure for the conduct of the adjudication. If it does not, then a defence on these grounds should be rejected as inconsistent with the policy of the HGCRA to provide quick, effective and accessible remedies.”

As the contractual provisions in this case incorporated the Scheme rules, the only difference of potential relevance was the specific nomination procedure under the contract, which would not apply under the Scheme. However, as Bellway had used the contractual nomination procedure (i.e. by appointing Mr Cope from their panel) its incorrect reliance on the Scheme did not make any material difference.

Conclusions and implications

This decision appears to be the first time an adjudication clause has been upheld whose provisions contemplate an appointment procedure which may take more than 7 days to conclude. The decision is of particular relevance to those contracts which contain complicated nomination provisions, such as requiring consultation or a panel of adjudicators to be used. PFI sub-contracts commonly include such clauses, reflecting the requirements of standard form PFI Project Agreements (such as SoPC4 and PF2) that adjudicators to be appointed from a panel.

Issues commonly arise as to whether such nomination procedures allow for the referral of a dispute within 7 days. A clause might, for example, allow for agreement or a panel appointment within 5 days with a nominating body appointment, if necessary, within  a further 2 days. Although superficially amounting to 7 days, it can be overlooked that subsequent steps in the procedure may only be initiated after the expiry of the preceding time period. In this example, therefore, resort to the nominating body could only be had on day 6 after the expiry of the 5 day period for agreement or panel appointment. The clause would then allow the nominating body until day 8 to make a nomination.

The clause in the present case had a similar effect, as the requirement to allow each of the three adjudicator’s on Bellway’s panel 2 days to respond meant that 8 days could pass before the panel would be exhausted (i.e. the second panel member would be approached on day 3 and the third on day 6).

The Court’s more flexible reading of section 108 may take much of the sting out of such points in the future. However, one case of particular relevance appears not to have been cited to the Court. In Hart Investments Ltd v Fidler, HHJ Coulson QC (as he then was) emphasised the requirement in section 108 for the appointment and referral notice to be “secured” within 7 days. The learned judge also noted strong policy reasons for insisting on a strict seven day rule:

“The whole point of adjudication is that speed is given precedence over accuracy. What matters is a quick decision, not necessarily a correct one. There is a summary timetable with which both the parties and the adjudicator must comply. If the swift timetable is kept to, the vast majority of adjudicators' decisions are then enforced by this court in accordance with the 1996 Act. If the timetable can be extended without consent either … at the beginning of the process or … at the end of the 28 days, there is a great danger of uncertainty and of a watering-down of the critical importance of the tight timetable on which the entire adjudication process is based. In other words, if, as I consider it to be, [the 28 day period cannot be unilaterally extended], it seems to me that the same principle must also apply to the event which signals the commencement of the same 28 day period, namely the provision of the referral notice within 7 days of the intention to refer.”

The Court’s decision as to the other issues noted above provides helpful guidance for cases where the validity or existence of contractual adjudication powers are uncertain, although it is unfortunate that the Court was not able to comment on the tension between the Hydra-Tight and Sprunt cases on the relevance of (invalid) contractual provisions to adjudications under the Scheme. A final resolution of that point may ultimately require an appellate decision.

References:

John Mowlem v Hydra-Tight [2002] 17 Const LJ 358

Hart Investments Ltd v Fidler [2006] EWHC 2857 (TCC)

Sprunt Limited v London Borough of Camden [2011] EWHC 3191 (TCC)

Bellway Homes Ltd v Surgo Construction Ltd [2024] EWHC 269 (TCC)