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Adjudicator's jurisdiction: a case of no contract, no dispute

legal matters

In the early days of adjudication, we, the chattering classes of the world of construction law, poured over every court decision looking for clues as to the best way to unravel the new process - or shore it up, depending upon our standpoint. From the outset the courts supported adjudicators' decisions, good, bad or indifferent, provided the adjudicator had jurisdiction to make them. Now there are more than 100 decided cases, the key grounds upon which an adjudicator's jurisdiction can be successfully challenged have begun to emerge.They include:

Is there a 'dispute' which can be referred to adjudication?

Does it arise out of a contract in writing as defined by S.107 of the 1996 Construction Act?

Both questions arose in Carillion Construction v Devonport Royal Dockyard (Judgment 27.11.02). The defendant's management company, DML, engaged Carillion to upgrade the dock on a cost-plus contract, with a 'target cost' of £56 million and a 'gainshare' agreement to share the cost of any overspend. The target cost was increased to £100 million and discussions took place to revise the payment provisions. As a result, the contractor alleged an oral agreement was reached that it would be paid on a cost reimbursable basis without the gainshare restriction. It applied for payment on that basis and when nothing was paid, gave notice of adjudication.

The adjudicator decided that there was a binding agreement that the project would become cost reimbursable and that DML should pay £7.45 million plus VAT within 18 days - such is the nature of adjudication. DML disputed the adjudicator's jurisdiction to make the decision. It contended that:

The variation relied upon by Carillion was an oral agreement said to vary the terms of a written contract. It was not evidenced in writing and was not, therefore, a contract in writing as required by S.107.

Carillion did not clarify the basis upon which it applied for payment before referring its claim to adjudication. DML had been unable to consider, accept or reject Carillion's claim and could not therefore be said to have 'disputed' it.

The 'no contract in writing' point was considered recently by the Court of Appeal, which held in RJT Consulting v DM Engineering (2002) that all the terms of an oral agreement must be evidenced in writing, and that the mere existence of documents which show that there was a contract did not necessarily amount to written evidence of its terms.

The judge also had in mind Grovedeck v Capital Demolition (2000), in which he had observed that disputes as to the terms of oral construction agreements are surprisingly common and not easily resolved by a summary process such as adjudication. The judge agreed that with a written agreement in front of them, adjudicators were entitled to work out what it meant. They could not, however, look at an oral agreement. In this case, therefore, the adjudicator had no jurisdiction to consider the alleged oral agreement.

The 'no dispute' point required an examination of all the correspondence between the application for payment in April and the reference to adjudication in August. The judge expressed considerable sympathy for the adjudicator who would not have been in a position to discover their lack of jurisdiction until they had embarked upon a good deal of reading.

Carillion argued that as DML had not paid up but had, in effect, ignored the application, it disputed it. It relied upon cases such as Tradax International v Cerrahoqullari (1981) and Ellerine v Klinger (1982).DML said that it had not ignored the application but had asked for more information, which Carillion had failed to supply. The judge observed that although the lawyers might be tempted to examine the correspondence in minute detail to ascertain the precise details of any dispute, it would be undesirable to do so. He favoured the broader approach: application for payment was made and not paid.

Is that a dispute? The fact that DML sought clarification ultimately swung the balance. It neither denied it nor ignored it. Carillion's failure to provide clarification therefore put paid to both the alleged 'dispute' and to the adjudicator's jurisdiction to decide it.

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