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Making a claim must be open to dispute before adjudication

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When does a claim become a dispute? This is no idle question these days when the Housing Grants, Construction and Regeneration Act entitles a party to a building contract to refer a dispute to adjudication. Importantly, the Act says 'dispute' and not 'claim'. The claim has to be disputed before the right to adjudication arises.

So when does a claim become a dispute?

There are two schools of thought on this one, both supported by the Court of Appeal.

One line of thinking is that a claim is not disputed until it has been made, considered and rejected. There are many stages of consideration, negotiation and general playing for time that do not amount to out-and-out rejection and until the politics of prevarication finally produce the unwelcome answer, it is said, there is no dispute. This was what the Court of Appeal said in Monmouthshire County Council v Costelloe & Kemple (1965), a case that involved an ICE subcontractor 's clause 12 claim in respect of unforeseen ground conditions.

The court found the subcontractor had sought to refer its claim to arbitration before it had been rejected by the engineer, and on that basis the arbitrator had no jurisdiction to act.

The other side of the argument is that unless a claim is paid, it is disputed.

The Court of Appeal adopted this approach in Ellerine v Klinger (1982). In this case the defendant agreed to distribute the claimant's films and to account to it for the proceeds. Instead, the defendant sat on the proceeds and adopted a policy of masterly inactivity when the claimant claimed its statement of account.

When the claimant went to court for its money the defendant wanted to refer the dispute to arbitration. The film-maker objected on the grounds that the defendant had not rejected its claim. In fact it had done nothing at all, so there was no dispute to refer to arbitration.

The Court of Appeal disagreed, saying there is a dispute until the sums claimed are admitted as due and payable. Subsequently, the House of Lords put a further gloss on this question when it held in Halki Shipping v Sopex Oils (1998) that a claim is disputed if it is not admitted, even if there is a ready and obvious answer to the question.

So where does this leave us in the world of adjudication? Well, given that the Act requires a dispute before the adjudication mechanism can be triggered, a party that can show that the whole of the subject matter of the adjudication had not been claimed, notified or rejected before the notice of intention to refer to adjudication was served, can also show that the adjudicator had no power to act and can challenge the adjudicator 's decision. The Technology and Construction Court judges dealt with two such challenges recently.

In Fastrack v Morrison (2000) Judge Thornton QC had to decide whether the claimant was entitled to take a disputed interim valuation to adjudication and then increase the sums claimed. The judge said that the starting point was to decide what had been referred to the adjudicator.

He found it was permissible to prune or enlarge the scale of the dispute but not, unilaterally, to tag onto the existing dispute a new shopping list. More recently, in K&D Contractors v Midas Homes (2000), Judge Humphrey Lloyd QC found that you cannot conjure a dispute from thin air simply by notifying the other side that unless they pay up within a specified period a dispute will be deemed to have arisen.

In the fast-moving waters of construction claims, it seems, it may be possible to add to or improve upon a claim once it has been referred to adjudication, particularly if the original notice asks the adjudicator 'how much is due?' rather than claim particular sums. To avoid confusion, however, a claimant would be well advised to put their claims in order and give the other side an opportunity to consider it before starting an adjudication. The claimant should also make sure the adjudication notice clearly identifies the dispute being referred, otherwise the whole process could be gone through for nothing.

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