UK: Adjudication: What is a Dispute?

Last Updated: 29 November 2002

It is a truism that in order to refer a dispute to adjudication under section 108 of the Housing Grants, Construction and Regeneration Act 1996 (the "Act"), a "dispute" within the meaning of the Act must have occurred. However, beyond stating that a dispute "includes any difference", the Act offers no assistance in defining "dispute", and the meaning of "dispute" has been considered in very few of the court decisions concerning adjudication. This is perhaps surprising given the fears of many when the Act came into force that adjudication would be used by referring parties to "ambush" the other party. The issue has however recently been considered in detail by HH Judge Seymour QC in the case of Edmund Nuttall Limited v. R G Carter Limited.

This case concerned the construction of a new civic community centre and library in Norwich. Carter was the main building contractor and Nuttall was the sub-contractor. The works were problematic, and in May 2001, Nuttall submitted a claim for an extension of time and associated loss and expense amounting to almost £2,000,000. The claim was formulated by listing in an appendix to the claim document a list of events alleged to have caused delay.

Carter rejected the claim on the grounds that no entitlement to an additional extension of time had been demonstrated and that a negative amount was in fact owed to Nuttall. Extensive correspondence followed and Nuttall referred the matter to adjudication in January 2002. However, although the Referral Notice claimed the same extension of time as had previously been identified by Nuttall, the formulation of the claim was different. Specifically, the Referral Notice attached a report on the claim which was previously unseen by Carter. This report set out different amounts of loss and expense to those previously claimed, and included justification which differed significantly from that contained in the May claim.

Carter argued that the Referral Notice and attached report was effectively a new claim and that the Adjudicator therefore had no jurisdiction to consider it. The Adjudicator rejected this and reached a decision ordering Carter to pay Nuttall approximately £1,000,000 including VAT. Carter resisted enforcement on the grounds that there was no dispute at the date of the Referral Notice since it had not had a chance to consider the new claim, and that the Adjudicator therefore had no jurisdiction to decide the claim.

Both parties sought to rely upon the decision of HH Judge Thornton QC in Fastrack Contractors Limited v. Morrison Construction Limited. Nuttall argued that the dispute met Judge Thornton's test that the dispute in the Referral Notice was "substantially the same as the pre-existing dispute" since the issue remained whether Nuttall was entitled to an extension of time, and what amount Nuttall was entitled to in respect of loss and expense as a result of that extension of time. Moreover, the amount claimed was lower than that claimed in May.

This was rejected by HH Judge Seymour QC who decided that the new report on the claim was inconsistent with the original claim document. The dispute was characterised by the package of arguments advanced by each side before the dispute began. After crystallisation of the dispute, the parties were only entitled to refine the arguments already raised, and were not entitled to introduce new material. The judge considered that for reasons of policy, such restrictions were necessary in order to prevent premature adjudications. In short, the adjudicator’s decision was unenforceable since it was made without jurisdiction.

This judgment has resulted in a good deal of confusion amongst adjudicators and the construction industry alike since it raises more questions than it answers. Specifically, the limit of "refining" an argument as opposed to presenting a new one has not been established. This has resulted in inconsistent interpretation by adjudicators as to when a dispute has occurred.

Nuttall v. Carter has recently been heard by the Court of Appeal. Unfortunately, the matter was settled before judgment was given and the Court consequently felt that it was constrained by authority not to deliver a decision. Unusually, however, the Court has decided to publish in various journals the order of Lord Justice Dyson giving permission to appeal. This stated that: "There are real prospects of success on appeal. Further, the issues are of general importance and relevant to the efficiency of the adjudication scheme". This has been considered by some as a hint that the Court of Appeal would have allowed the appeal had it had the opportunity.

This notwithstanding, Judge Seymour’s decision remains good law, and the meaning of "dispute" remains unsatisfactorily defined. Unless and until the principle in Nuttall v. Carter is overruled, parties should be careful to ensure that their full package of arguments and material is presented before commencing the adjudication. Responding Parties should nevertheless be aware that the ambiguities in the Nuttall decision mean that the receipt of new information with the referral notice provides no guarantee of persuading an adjudicator that a dispute has not crystallised. Convincing an adjudicator that he or she does not have jurisdiction will therefore remain an uphill struggle. It is to be hoped that the Court of Appeal will have another opportunity to consider this issue before long.

© Herbert Smith 2002

The content of this article does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

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