Do you really have the right to Adjudicate?

Since the Housing Grants, Construction and Regeneration Act 1996 came into force, parties to construction contracts have had a statutory right to refer disputes arising under those contracts for adjudication. Although not without its critics, there can be no doubt that adjudication is an effective method for assisting parties with getting a prompt resolution of their disputes (even if that can be fairly “rough justice”).

However, it pays to consider from time to time just what the scope of this statutory right is, and certainly before any dispute is referred to adjudication.

The definition of construction contracts

In addition to agreements for the provision of certain design and advisory services, construction contracts are defined under the Act as agreements for the carrying out, arranging for the carrying out and/or providing labour for the carrying out of construction operations. Construction operations are also defined within the Act; very broadly speaking, they refer to activities which erect, demolish or alter buildings or structures which form part of the land.

As with most defined terms, there may well be contracts which one might ordinarily assume were “construction contracts” but which in fact do not fall within the specific definitions of the Act.

This occurred in the recent case of Fahstone Ltd v Biesse Group UK Ltd. In that case Fahstone obtained a favourable adjudicator’s decision, which it sought to enforce by issuing proceedings (which included an application for summary judgment) in the TCC. Upon considering Fahstone’s application, the Judge declined to order summary judgment on the basis that there was at least an arguable case that the contract (for the supply and installation of a large woodworking machine) was not a construction contract. If it was not a construction contract then of course there was no automatic statutory right to adjudicate.

The Judge therefore granted Biesse leave to defend the claim. In holding that there was an arguable case that the contract was not a construction contract (within the meaning of the Act), the Judge considered the degree to which the machine was fixed to the land (by 50 rods) and the extent to which it could easily be removed (in other words, the degree to which it formed part of the land).

It remains to be seen what the Court will make of this issue if and when the claim eventually reaches trial. However, the case serves as a warning to those considering commencing adjudication. If there is any doubt, advice should be sought as to whether the contract is in fact a construction contract within the meaning of the Act and, therefore, whether statutory adjudication is available. If it is not, the parties will of course be free to litigate but the timescale will inevitably be much longer than that of adjudication. If that is the route that a party must take then it would be wise to save time and costs by starting on that route immediately, rather than wasting time on an inappropriate adjudication.