Alternatives to adjudication: Part 8 proceedings
Inevitably in difficult economic times, disputes between parties arise more frequently. However, if a dispute arises, should parties automatically jump to adjudication? As Jourdan Edwards discusses, whilst undoubtedly adjudication remains one of the more popular forms of dispute resolution, one new tactic to note is the way in which Part 8 proceedings are being brought as a complement to the adjudication process.
What is Part 8 all about?
Paragraph 9.2.1 of the Revised TCC Guide provides that the TCC has jurisdiction to hear Part 8 applications for declaratory relief arising out of a disputed adjudication and so, rather than being a complete alternative to adjudication, parties are seemingly using the Part 8 process as a complement to adjudication. The Part 8 process is one which can be used if the claimant seeks a court’s decision on a question that is unlikely to involve a substantial dispute of fact. If a substantial dispute of fact is likely then the more appropriate means, if seeking final determination of the issue, is to commence regular Part 7 proceedings (or to arbitrate, depending on what the contract specifies, if indeed it does so).
Why are parties doing this? Well it depends when the Part 8 proceedings are brought. If they are initiated before an adjudication is commenced, then it might inform the submissions a party makes in an adjudication or it might well obviate the need to adjudicate at all. Take the following situation: (i) a construction contract contains payment provisions, but the Employer’s Requirements for that same project contain differing provisions as to payment; (ii) the employer and contractor differ as to which payment provisions are operable; (iii) the employer is administering the contract as he thinks appropriate; (iv) the contractor is not being paid pursuant to what he sees as the contract payment provisions and is thinking of adjudicating.
As the dispute between the parties turns on the construction of a particular contract clause, then putting the matter to a judge to get a binding decision might well influence the contractor as to whether or not any adjudication on this point is worth while. Equally, if the contractor’s view is shared by the judge then this might prevent any adjudication, because it might militate towards a change of tack by the employer in the way it administrates the contract.
Fenice Investments Inc v Jerram Faulkus Construction Ltd 1
Whilst not strictly the substance of the case, the above analogy has been drawn from Fenice Investments Inc v Jerram Faulkus Construction Ltd . In this case Fenice argued that the payment provisions in the Employer’s Requirements were the ones that were operable and not those contained in the contract (as Jerram Faulkus asserted). Fenice was the unsuccessful responding party in an adjudication during which it made the same submissions and it brought these proceedings to finally determine the dispute between the parties. Fenice, however, was ultimately unsuccessful again. Part 8 is being used for a variety of other reasons, too. There have been recent cases where:
(i) Parties successfully seeking final determination of part of a dispute (see Geoffrey Osborne Ltd v Atkins Rail Ltd2);
(ii) Part 8 proceedings commenced during an adjudication itself (Banner Holdings Ltd v Colchester Borough Council3 on the issue of an adjudicator’s jurisdiction); and
(iii) Part 8 proceedings seeking a declaration that an adjudication clause was incompatible with the Housing Grants Construction and Regeneration Act 1998 (“the Act”) (see Yuanda (UK) Co. Ltd v WW Gear Construction Ltd4 - a case in which Fenwick Elliott represented Yuanda).
Yuanda (UK) Co Ltd v WW Gear Construction Ltd
Yuanda was engaged by Gear to work on the Westminster Bridge Park, Plaza Hotel project. The amended adjudication clause in the contract between the parties stated that Yuanda would meet any of Gear’s legal and professional costs of any reference to adjudication that Yuanda made, regardless of the outcome. Mr Justice Edwards-Stuart stated that the adjudication clause was not compliant with the Act as it fettered the statutory right to adjudicate “at any time” because, in effect, the value of any adjudication would have to be sufficiently large to warrant Yuanda spending money on both parties’ costs – victories on small claims might, in fact, result in a net financial loss to Yuanda. In the circumstances, the judge held that the clause should be replaced wholesale by the Scheme.
A note of caution
Though judges are encouraging the use of Part 8, there is an undertone of caution embedded in recent judgments; caution with regard to ensuring that the type of case is proper for Part 8 proceedings and also that they are not brought in improper circumstances.
A very recent example of the former of the two cautionary notes is in Forest Heath District Council v ISG Jackson Ltd.5 There was a dispute about, inter alia, delays relating to the painting of steelwork in a pool hall in a community sports centre. In respect of this point ISG Jackson had obtained an adjudicator’s decision that the painting in situ, rather than off site, was as a result of late design information and was a relevant event for which Forest Heath was responsible. Forest Heath commenced Part 8 proceedings on this discreet part of the decision but Mr Justice Ramsey did not grant the declarations sought. He stated that there was a substantial dispute of fact that would require further evidence to be considered (Part 8 decisions are not appropriate in circumstances where there is a substantial dispute of fact). Also, in any event, this dispute was not suitable to be determined by an application for such a declaration, as any declaration would not lead to a final resolution of the dispute - nor would it serve to do justice between the parties to grant it. To do so, in the words of Ramsey J, would prove a “treacherous shortcut”.
Another cautionary note came from Mr Justice Akenhead in Build Ability Ltd v O’Donnell Developments Ltd.6 The proceedings were concerned with costs alone, as the parties had, by consent, dealt with the substantive points at issue. Build Ability had entered into a conditional fee arrangement with its solicitors that provided for a 100% uplift on their fees in the event of success. Akenhead J stated that it would be “wholly inappropriate” to permit any contingency fee because, among other reasons, Build Ability had made no effort to comply with the TCC Pre-Action Protocol.
Further recent words of warning have come from Mr Justice Coulson in Fenice. Although Part 8 can be used to seek final determination of a dispute, this does not mean that the adjudicator’s decision is any less binding temporarily. In other words, you still have to pay whatever amounts the adjudicator decides you should pay. Coulson J underlined this by stating that a party that does not comply with an adjudicator’s decision should “expect to be penalised by way of interest and costs”; he instructed that the costs of the enforcement proceedings be paid by Fenice on an indemnity basis.
Conclusion
If you have a dispute that does not require a substantial dispute of fact, the Part 8 process seems an eminently sensible one to utilise. It can be used to finally determine all or part of a dispute that has been the subject of adjudication; Part 8 declarations can be sought during adjudications themselves; and, indeed, before adjudications have been started. The attraction of the process is not just the final, binding nature of the decision that is obtained; unlike in adjudications where the costs of referring or responding to adjudications are lost, there is the chance of cost recovery in Part 8 proceedings. Plus, given that the TCC suggests that a one-day hearing can be obtained as quickly as four to six weeks after issuing the claim form, a party can get this binding decision in a time limit not dissimilar to the one in which an adjudication is concluded. Simple.