05/03/2018
Consultation on the 2011 reforms to the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996) closed at midnight on 19th January 2018. It had been open since October 2017.
The consultation, titled: 2011 Changes to Part 2 of the Housing Grants, Construction and Regeneration Act 1996 – A consultation to support a post-implementation review provided a view into what the government believes are some of the current challenges facing the construction industry.
One of the reasons for the consultation was the government’s commitment after the last set of amendments to the HGCRA 1996 in 2011 to review the impact of the changes after five years.
The consultation was divided into three sections.
Section A covered the effect of the 2011 changes to the HGCRA 1996.
Section B asked those partaking in the consultation to comment on how effective the Act was as a whole, and
Section C considered the costs of adjudication and whether they played a role in preventing its effectiveness as a dispute resolution method.
Section C is likely to result in some strong messages for the government regarding the effectiveness of adjudication, especially when it comes to complex and/or high-value disputes.
The effectiveness of the 2011 changes to the HGCRA 1996
The 2011 amendments to the HGCRA 1996 included:
-
removing restrictions on who can serve payment notices
-
clarifying the content of payment and withholding notices
-
allowing payees to submit payment notices where the payer fails to do so
-
prohibiting “pay when paid” clauses to stop parties withholding payment until they were paid by their creditors
Many of the amendments also centred around encouraging the use of adjudication as a dispute resolution method wherever possible. They included preventing contracting parties from allocating the costs of adjudication and allowing parties to stop work in the event of non-payment.
Recovering costs in adjudication
The issue of costs and adjudication has been a thorny one for some time. Unless there is a written agreement to the contrary (and this passes the requirements of section 10A, designed to discourage ‘Tolent clauses’), parties are responsible for their own costs. This works well for smaller disputes which do not require expert reports. In these situations, the adjudication process is quick and cost-effective, allowing parties to resolve their dispute without affecting progress on the project.
However, since its inception 20 years ago, increasingly complex disputes have been referred to adjudication, a situation which was accelerated by the 2011 amendments to the HGCRA 2011. Complicated disputes referred to adjudication can require extensive preparation to be undertaken in a terrifyingly short time frame – something parties will have to pay for, often dearly. And regardless of the outcome, these costs are generally unrecoverable.
The courts have recently reinforced this principle in the case of Enviroflow Management Ltd v Redhill Works (Nottingham) Ltd [2017] EWHC 2159 (TCC[CM1] ) which seems to clarify that parties to adjudication cannot use the Late Payment of Commercial Debts (Interest) Act 1998 to recover their adjudication costs.
Tactical ambush – an unfair advantage?
The government included a serious of questions in the consultation surrounding the so-called “ambush” approach prevalent in adjudication. The element of surprise is undoubtedly a great advantage for the party commencing adjudication. Because there is a statutory right to refer a dispute to adjudication at any time, the referring party can prepare its case in full, including gathering expert evidence and reports, a process which can take months. Due to the short timeframe in adjudication proceedings, the respondent normally has around 14 days to answer the Notice of Adjudication, putting them severely on the back foot from the start. To prevent inherent unfairness, there is a statutory requirement that any dispute referred to adjudication must be ‘crystallised’. In theory, this requirement ensures the responding party has, in fact, had a full opportunity to consider the claim before it is referred to adjudication. However, it is likely many respondents to the consultation will state this does not make up for the lack of time the respondent has to create a clear, logical and persuasive argument.
In summary
The outcome of the consultation may well cement what many in the construction industry already believe – adjudication is not always a suitable method of resolving a dispute, especially those which are complex.
This is not to say complicated construction disputes should immediately be sent down the litigation path. Parties have many other means of resolving disputes at their disposal, including negotiation, mediation, or even commencing the Pre-action Protocol Procedure. Although these may be initially more expensive than adjudication, they may lead to a more certain result or alternatively, narrow down the issues in a dispute to allow for a more focused adjudication procedure, saving money in the long-run.
Fisher Scoggins Waters is a London based law firm who are experts in construction, manufacturing, and engineering law. If you would like more information on construction contract disputes, please phone us on 0207 993 6960.
[CM1]http://www.fisherscogginswaters.co.uk/blog/article/277/enviroflow-v-redhill