New Act, New Skills

November, 2010

INTRODUCTION

The adjudication provisions in the 1996 Construction Act have been amended by the Construction Act 2009. Others have already written in the Newsletter about the substance of these changes. What do they mean for the skills which adjudicators need to decide the disputes referred to them?
The 2009 Act extends the right to adjudication to all construction contracts, whether oral, part oral/part written or wholly written. It does this by straightforward repeal of Section 107 of the 1996 Act, under which adjudication only applied to ‘agreements in writing’ meeting the provisions of Section 107. The repeal of Section 107 extends the right to adjudication much further than returning to what was thought to be the law before RJT Consulting Engineers, i.e. that the terms material to the disputed issues had to comply with the Act’s requirements for being in writing.

Under the changes, there is no need for any part of the contract to be written. The adjudication provisions of the Scheme for Construction Contracts are implied into the contract unless the parties agree written adjudication provisions complying both with the existing requirements in Section 108 (2) to (4) and with a ‘slip rule’ in a new Section 108 (3A).

Currently disputes arising out of oral contracts will end up in the County Court or even in the TCC. In future there will be the option of referring such disputes to adjudication. If so, it will be an adjudicator making the decisions, not an experienced judge. What are the new challenges which adjudicators will face in dealing with such disputes and will they require new skills?

TAKING THE DISPUTE TO ADJUDICATION
Let us consider first how the parties to an oral contract might conduct their dispute if referred to adjudication. After the notice of adjudication and appointment of the adjudicator, the referral is served, accompanied by a short witness statement from the referring party seeking to establish the existence and terms of the oral contract.

At this point the respondent party may well write to contest jurisdiction. The argument is that there was no proper construction contract and so statutory adjudication does not apply. Nevertheless the respondent, whilst reserving the right to challenge future enforcement proceedings, agrees to participate in the adjudication for the time being.

We can expect such jurisdictional challenges to be even more popular in adjudications involving oral contracts, as respondents seek to retain the right to argue in court that the adjudicator lacked jurisdiction as the (oral) contract never existed. The opportunities for contesting the existence of an oral contract must be greater than for a written contract, if only because oral evidence is easier to challenge than written evidence.

The response is served, with a longer witness statement flatly contradicting the referring party’s evidence, perhaps contending that the alleged contract was at best a quantum meruit agreement.

The referring party insists on the right to submit a reply, on the grounds that to refuse this will be a breach of the rules of natural justice. The reply is submitted, with a second witness statement amplifying the previous statement and a third witness statement from a new witness.

It is now the respondent’s turn to ask permission to respond to new evidence, which is agreed.

Both representatives write to ask for a hearing, as they wish to have the opportunity to cross-examine the other party’s witness.

What are the tasks which the adjudicator faces?

To start with, there is the question of the formation of the oral contract. The essential elements of an oral contract are no different from those of a simple written contract, but the evidence of contract formation and of the terms, being oral, are more likely to be challenged. The parties to oral and part oral contracts may lack cogent evidence of the contract itself, relying instead on subsequent statements and/or conduct as evidence of a contract. The adjudicator must distinguish between disregarding such evidence as corroboration of the formation of the contract and its terms and allowing evidence of conduct which is in itself evidence of acceptance or is consistent with the party in question having previously accepted the other party’s offer.

The task for the adjudicator is to weigh the evidence – not only to decide its relevance but also its accuracy. Oral evidence is likely to be less accurate than evidence in a document as it is not contemporaneous – it is a memory, given after the event, sometimes years after, and, most importantly, after the dispute has arisen. Inevitably memories are likely to develop to be consistent with the result which the witness hopes for, even if only in the selection of facts favourable to the case being advanced.
Documentary evidence on the other hand is usually created much closer in time to the facts recorded – and if there is a gap, it becomes less probative. Most documents are addressed or copied to others, making later forgery highly unusual. The contents of the document are rarely disputed as generally both sides have at some point had their own copies, although of course their significance is often hotly contested.
Where the contract is in writing, the overwhelming majority of the evidence required to make out a referring party’s case will normally be in the documents (and, if it is not, that can undermine the case being made). But if the contract is wholly or substantially oral, it is likely that few documents recording significant events will have been produced, e.g. variation instructions, site meeting minutes and payment and other certificates. In these circumstances, oral evidence will form the bulk of the evidence on which the adjudicator’s findings will be based.

With oral evidence the standard of proof remains the balance of probabilities, i.e. more probable that it did happen than it did not. When weighing oral evidence, adjudicators should remember that this is not always the same as finding party A’s evidence better than party B’s. Party A’s evidence may be better, but the fact in issue may remain improbable. This applies particularly where oral evidence is contested – the ‘quality’ of the evidence may depend on the demeanour of the witness, and that may not be the same as truthfulness.
How then to test the oral evidence before weighing it and coming to decisions on the disputed facts? There is really no substitute for holding a hearing.

A hearing in adjudication fulfils a very different function from that in litigation or arbitration. The parties will already have made detailed written submissions, and there is neither the time nor the need for them to present their cases again.

Many adjudicators have held hearings but anecdotal evidence suggests that these are discussion meetings rather than formal hearings at which the parties make submissions and evidence is tested in cross-examination. Writers on adjudication have argued for avoiding too much formality at such meetings/hearings. This is understandable where the evidence in the dispute is mostly in the documents and the purpose of the ‘hearing’ is to give the parties their ‘day in court’ and a final opportunity to make submissions.

Where oral evidence is more critical, more formality will be required to comply with the rules of natural justice, i.e. to give each party a reasonable opportunity to put its case and to answer the case of its opponent. The latter must surely include the opportunity to test an opponent’s oral evidence through cross-examination.

To retain control of the (less formal) meeting, adjudicators are sometimes recommended to require that questions be put through the adjudicator. Nevertheless, if there is a meeting or hearing, the parties can question the other side’s witnesses, directly or indirectly. In future, where oral contracts are concerned, adjudicators will need to conduct meetings in such a way that an unsuccessful respondent cannot later resist enforcement proceedings on the grounds that it was not afforded a reasonable opportunity to question witnesses giving oral evidence, thereby suffering significant injustice.

A procedural problem will arise where oral evidence is key to deciding the dispute but where the respondent does not participate. If this occurs, the referring party must still prove its case. If the adjudicator is not fully satisfied with the evidence submitted, what is the best procedure? It would be an option to hold a meeting without the absent respondent. If the adjudicator’s decision is to be enforceable, adequate notice would have to be given, the meeting would have to be conducted with care and perhaps a record provided to the respondent. The alternative option, if the adjudicator is reasonably certain of the evidence, would be to abandon the meeting and notify the parties that the adjudicator proposed to infer from the respondent’s silence that the referring party’s evidence was reliable. If the adjudicator is less certain of the evidence, the referring party has probably failed to prove its point.
Witness-conferencing at a meeting may help to identify the key disputed facts, but experience has shown that it is not a universal panacea. It is perhaps best employed where there is conflicting evidence of fact or conflicting expert opinion on a clearly-defined matter in dispute.

The hearing is finished, the parties have a final opportunity to make submissions, and the adjudicator weighs the evidence and makes and publishes to the parties the decisions sought.

However the dispute is not over if the decision is not complied with. In recent years the TCC and the Court of Appeal have consistently enforced adjudicator’s decisions unless the adjudicator has materially strayed outside jurisdiction or has breached the rules of natural justice and has thereby caused a significant injustice. Might this approach change once oral contracts are brought within the scope of the Act? Judges have certainly in the past expressed reservations about referring disputes arising from oral contracts to adjudication. We may therefore expect them to approach enforcement of adjudicators’ decisions in such disputes with caution. But there is no reason to think that they will start to consider arguments from losing parties that the adjudicator has made an error of fact or law, however serious. Their concerns are more likely to focus on the oral evidence for the existence of the contract: this will be much easier for losing respondents to establish as a triable issue to resist summary judgement. It is also an argument which calls into question the adjudicator’s jurisdiction: no contract, ergo no dispute and no jurisdiction. Parties and their representatives (and judges) have always been adept at finding new issues to raise. This will not change and we can therefore expect new angles to be found on transgressions of jurisdiction or breaches of the rules of natural justice.

CONCLUSION
Adjudicators will have to work within new rules laid down by Parliament extending adjudication to oral contracts. This will pose new challenges and require new skills, particularly procedural skills for dealing with witnesses giving oral evidence - evidence which sits less comfortably within the timescales of adjudication than documentary evidence. Adjudicators will need to anticipate new issues arising in contested enforcement proceedings and will need to make sure that their procedure and practice can stand up to such new challenges.

The question is not whether this will be easy for practitioners, but whether disputes arising under oral contracts will be resolved more (dare I say it) efficiently if adjudication is available to the disputants. In my opinion, the answer is yes, even if only because of the benefits of the tight timescales of adjudication. But these timescales make it an imperfect process, perhaps even more so when applied to oral contracts with their greater uncertainties.

Giving parties to oral contracts the right to adjudication will have a much greater effect on the adjudication process than the proposed changes to the payment provisions, important though those are for the parties. The ability of adjudicators (and of the parties and their representatives) to adapt to these changes will determine whether adjudication retains its popularity with claimants or whether it suffers as more decisions are challenged at enforcement or are taken further to litigation or arbitration.