Tag: Housing Grants

The Doctrine of Privity

The Doctrine of Privity is an area of English contract law covering the relationship between parties to a contract and other parties or agents (3rd parties). At a basic level, the rule is that a contract can neither give rights to, nor impose obligations on, anyone who is not a party to the original agreement, the 3rd party.

Historically, 3rd parties were able to enforce the terms of a contract, as evidenced in Provender verses Wood in 1630. A series of further cases during the 19th and early 20th century changed how this was interpreted, the most well-known cases Tweddle verses Atkinson in 1831 and Dunlop Pneumatic Tyre verses Selfridge and Co Limited in 1915.

For various reasons the Doctrine of Privity was seen as unfair as it made no exception for cases where the parties to a contract obviously intended for it to be enforced by a third party, and it was inconsistently applied and provided no solid rule. It was seen as “bad” law. The doctrine attracted criticism from numerous figures and as early as 1937 the Law Revision Committee recommended that significant alterations should be made.

With the ascent of the Contract (Right of Third Parties) Act [1999] on 11th November 1999, the Doctrine was significantly altered, 3rd Parties can now enforce the terms of a contract where the 3rd party is specifically authorised to do so by the Contract or if the contractual terms “purport to confer a benefit” to such 3rd party.

Original doctrine

The original Doctrine of Privity consisted of two rules

  • A 3rd Party may not have obligations imposed by the terms of a contract
  • A 3rd Party may not benefit from the terms of a contract

The first rule was not contested, however the second rule was universally criticised and disliked.

This second rule was not originally held to be valid, and during the 17th Century 3rd Parties were allowed to enforce terms of a contract that benefited them, such as in Provender verses Wood where the judgement stated that “the party to whom the benefit of a promise accrues, may bring his action.”

The first reversal was in 1669 in Bourne verses Mason where it was found that a 3rd Party had no rights to enforce a contract that benefited him. However this case was quickly reversed, and decisions immediately after Bourne verses Mason took the view 3rd Parties could enforce contracts that benefited them.

Judicial decisions then differed over the next 200 years as to whether or not a 3rd Party could enforce a contract that benefitted them before the issue was finally settled in 1861. This was in the case of Tweddle verses Atkinson which confirmed a 3rd Party could not enforce a contract that benefited him. This decision was affirmed by the House of Lords in 1915 in Dunlop Pneumatic Tyre verses Selfridge and Co Limited where Lord Haldane stated only a person who was party to a contract could sue on it.

This version of the doctrine is commonly known as the original or basic doctrine.

Views of the original doctrine

Supporters of the original Doctrine of Privity argued it was reasonable not to allow third parties to enforce contracts as this would harm the rights of the original parties to amend or terminate Contracts. A further argument put forward was the doctrine was deliberately retained by judges to protect consumers from exclusion clauses designed to protect third party manufacturers from liability.

The second rule that a 3rd Party could not claim benefits from a contract, was widely criticised by the judiciary, legal professionals and academics, particularly as the rule made no exceptions for cases where it was obviously intended for the third party to claim a benefit.

In Beswick verses Beswick in 1968, an uncle gave his nephew a business, on the condition his nephew would pay his uncle a certain amount per week. In the event of his uncle’s death, a similar amount would be given to his widow. Clearly in this instance it was intended that 3rd Parties benefit.

A further argument used was the large number of exceptions to the rule that various Acts of Parliament passed. This indicated parliament had issues with the Doctrine of Privity and it is clear that the large number of inconsistencies and exceptions made the Doctrine of Privity “bad” law as there were no reliable rule in how law worked in theory to how it was enforced by the courts.

Loopholes

As the Doctrine of Privity was extremely unpopular, several ways of circumnavigating it were developed which were at times both complex and extremely artificial. These exceptions were extremely limited in how they could be used however.

 Estates

In Beswick verses Beswick as described above, when the Uncle passed away his nephew refused to pay the widow the money required, arguing that as she was not party to the original agreement she could not benefit from it.

Lord Denning in the Court of Appeal tried to use this as an opportunity to claim that the Doctrine of Privity was invalid. However this was rejected by the House of Lords although they agreed Mrs Beswick could sue, not as a 3rd Party to the contract but as Executrix of her husband’s estate. The consequence of this was she was acting as a representative of Mr Beswick, and the Doctrine of Privity would not apply.

Trusts

Trusts (an arrangement where the owner of property gives it to a second party (The Trustee) to manage on behalf of a 3rd Party (The Beneficiary) have been a method of circumnavigating the Doctrine of Privity. In Les Affreteurs verses Walford in 1919 the House of Lords determined that that the trustee’s ability to sue the owner of the property is to be exercised on behalf of the beneficiary, a 3rd Party. This is known as a “trust of the promise.” While an artificial measure, it bypassed the Doctrine of Privity. The trust exception has been heavily undermined by the decision in 1944 in the Court of Appeal (Re Schebsman) which required a court to find evidence of an intent to create a trust of the promise rather than simply using the requirement as an intention as a fiction to allow the courts to enact the trust exception.

Insurance contracts

As parliament is not bound by the common law several acts of parliament unwittingly created valid exceptions to the Doctrine of Privity.

The Road Traffic Act [1988] obliges motorists to take out third party liability insurance which allows victims of car accidents to can claim monies from the insurer of the driver at fault, even though they are not part of the original contract. Under the Married Woman’s Property Act [1882] a husband can take out insurance in his own name, but make it enforceable by his wife and children despite the Doctrine of Privity.

 Claiming on behalf of another

In 1975 in Jackson verses Horizon Holidays Limited a second exception was created where a party could sue on behalf of another, if the other party would have benefited from the contract.

In this case, Mr Jackson booked a holiday in his own name with Horizon Holidays Limited which did not match the particulars as laid down in the contract. Mr Jackson sued with the company accepting liability but claimed no damages were due to the family as under the Doctrine of Privity they could not sue. The Court of Appeal found that the loss of enjoyment suffered by the family was also a loss to Mr Jackson as he had paid for a family holiday but not received it. As such damages were awarded.

Collateral Contracts

A Collateral Contract exists side by side with the Main Contract where this contract is a consideration into another subordinate contract. As normally this involves parties who are not parties to the Main Contract it was able to circumnavigate the Doctrine of Privity, which co-exists side by side with the main contract. Because this normally involves parties who are not part of the main contract, it has been used as a way around the doctrine of privity. The courts allowed an injured party to sue under this Collateral Contract despite it being artificial. The Contracts (Right of Third Parties) Act [1999] has now limited this significantly.

In the 1951 case of Shanklin Pier Limited verses Detel Products Limited, Shanklin were having their pier refurbished and contracted with a painting contractor where they were required to use Detel products. This was as Detel had provided assurances their paint would last for 7 years. However after 3 months the paint was already flaking. While Shanklin had no contractual relationship with Detel the Court of Appeal found like there was a collateral contract they could use to sue.

The use of Collateral Contracts as a loophole are however limited as the courts must first find evidence to imply some kind of Collateral Contract, as well as consideration. Attempts by the courts to do this have added to the perception of this as an artificial device, such as in Charnock verses Liverpool Corporation in 1968 where the Collateral Contracts used were described as “invented” consideration, and “fictitious”.

In certain commercial contracts, such as goods sold to consumers by a dealer, there is automatically a collateral contract between the consumer and the manufacturer of the goods.

 Exceptions

There are several ways around the original doctrine which were not loopholes created by case law but situations which by their very nature must involve three parties. We will now look at the 3 most common examples.

 Negotiable instruments

A Negotiable Instrument is a type of contract that allows the transfer of money, such as a Credit Card which involves three parties.

  • The person who holds the credit card
  • The entity who the card is given to, to pay for a transaction
  • The entity who issues the holder of the credit card and promises to make payment to the entity who the holder of the credit card transacted with

Assignment

Assignment is covered by both Contract Law and Property Law that governs the transfer of rights from one party to another, including the right to enforce a debt. In this situation the party who is assigned the debt can sue the debtor despite any contractual agreement between them. This being permitted by the Law of Property Act [1925].

 Agency

Agency is a relationship between a Principal who authorises an Agent to make a contract on his behalf with a 3rd Party.

In agency, the agent can make a contract with a 3rd Party that is binding on the principal, even though he was not privy to the original contract. The Consumer Credit Act [1974] is an example as this allows a dealer for a financial company to set up credit agreements as a representative of that company, for example.

It could be argued this is not a genuine exception to the Doctrine of Privity as once the contract is made the “agent” plays no further part and it is effectively an agreement between the two parties.

Although certain elements of the Doctrine of Privity are believed to clash Agency. An example would be where the principal could sue the 3rd Party even when the agent has not disclosed to the third party that he is acting as an agent to the principal. In this situation, the third party can be sued by somebody that he had no idea was involved in the contract.

 Privity and consideration

A general consensus is that privity is distinct from consideration although there is a strong relationship between the two. This causes problems with the idea that the Doctrine of Privity should be abolished, as the idea that third parties can claim benefits from promises that they gave nothing for clashes with the doctrine of consideration, which prevents parties who did not contribute something to the agreement from benefiting from it.

Consideration is a rule that there must be a “benefit or detriment” involved in any contract, and that this must initially come from the promisee. It is argued this rule and the Doctrine of Privity are two ways of saying the same thing, that someone not party to the contract is the same as saying that they gave no consideration in the initial agreement.

In Tweddle verses Atkinson the decision made was reached because the claimant had not provided consideration. In Dunlop Pneumatic Tyre verses Selfridge and Co Limited a similar conclusion was reached, although it should be noted that Lord Haldane noted that independent of consideration, it was a rule in English law that “only a person who is party to a contract can sue on it”.

As with most elements of law where rules and precedents have evolved over centuries the arguments are often complex and must be based on the facts presented, such as how well the contract documents have been drafted. At the same time this post over a centuries old legal rule shows that even attempts to reform the law can make it more complex by unintended consequences, such as Collateral Warranties being defined as “Construction Contracts” in accordance with the Housing Grants, Construction and Regeneration Act [1996].

However the Contracts (Right of Third Parties) Act 1999, which we will examine in the next post, has gone some way to clear up this anomaly.

The Scheme, “Part 2 – Payment”

In the previous post we looked at “Part 1 – Adjudication” of the The Scheme for Construction Contracts which gives a statutory right to the Alternative Dispute Resolution, Adjudication.

In this post we will look at “Part 2 – Payment.”

Entitlement to and amount of stage payments

  1.  Where the parties to a relevant construction contract fail to agree— (a) the amount of any instalment or stage or periodic payment for any work under the contract, or (b) the intervals at which, or circumstances in which, such payments become due under that contract, or

     (c) both of the matters mentioned in sub-paragraphs (a) and (b) above,

    the relevant provisions of paragraphs 2 to 4 below shall apply.

  2.  (1) The amount of any payment by way of instalments or stage or periodic payments in respect of a relevant period shall be the difference between the amount determined in accordance with sub-paragraph (2) and the amount determined in accordance with sub-paragraph (3).(2) The aggregate of the following amounts:

    (a) an amount equal to the value of any work performed in accordance with the relevant construction contract during the period from the commencement of the contract to the end of the relevant period (excluding any amount calculated in accordance with sub-paragraph (b)),

     (b) where the contract provides for payment for materials, an amount equal to the value of any materials manufactured on site or brought onto site for the purposes of the works during the period from the commencement of the contract to the end of the relevant period, and

     (c) any other amount or sum which the contract specifies shall be payable during or in respect of the period from the commencement of the contract to the end of the relevant period.

    (3) The aggregate of any sums which have been paid or are due for payment by way of instalments, stage or periodic payments during the period from the commencement of the contract to the end of the relevant period.

     (4)  An amount calculated in accordance with this paragraph shall not exceed the difference between:

     (a) the contract price, and

     (b) the aggregate of the instalments or stage or periodic payments which have become due.

     Dates for payment

  3. Where the parties to a construction contract fail to provide an adequate mechanism for determining either what payments become due under the contract, or when they become due  for payment, or both, the relevant provisions of paragraphs 4 to 7 shall apply.
  4. Any payment of a kind mentioned in paragraph 2 above shall become due on whichever of the following dates occurs later: (a) the expiry of 7 days following the relevant period mentioned in paragraph 2(1) above, or (b) the making of a claim by the payee.
  5. The final payment payable under a relevant construction contract, namely the payment of an amount equal to the difference (if any) between:(a) the contract price, and

     (b) the aggregate of any instalment or stage or periodic payments which have become due under the contract,

     shall become due on the expiry of:

     (a) 30 days following completion of the work, or

     (b) the making of a claim by the payee,

     whichever is the later.

  6. Payment of the contract price under a construction contract (not being a relevant construction contract) shall become due on (a) the expiry of 30 days following the completion of the work, or

     (b) the making of a claim by the payee,

     whichever is the later.

  7. Any other payment under a construction contract shall become due (a) on the expiry of 7 days following the completion of the work to which the payment relates, or (b) the making of a claim by the payee,

     whichever is the later.

     Final date for payment

  8. (1) Where the parties to a construction contract fail to provide a final date for payment in relation to any sum which becomes due under a construction contract, the provisions of this paragraph shall apply.(2) The final date for the making of any payment of a kind mentioned in paragraphs 2, 5, 6 or 7, shall be 17 days from the date that payment becomes due.Notice specifying amount of payment
  9. A party to a construction contract shall, not later than 5 days after the date on which any payment: (a) becomes due from him, or

     (b) would have become due, if:

    (i) the other party had carried out his obligations under the contract, and

    (ii)no set-off or abatement was permitted by reference to any sum claimed to be due under one or more other contracts,

     give notice to the other party to the contract specifying the amount (if any) of the payment he has made or proposes to make, specifying to what the payment relates and the basis on which that amount is calculated.

    Notice of intention to withhold payment

  10. Any notice of intention to withhold payment mentioned in section 111 of the Act shall be given not later than the prescribed period, which is to say not later than 7 days before the final date for payment determined either in accordance with the construction contract, or where no such provision is made in the contract, in accordance with paragraph 8 above.Prohibition of conditional payment provisions
  11. Where a provision making payment under a construction contract conditional on the payer receiving payment from a third person is ineffective as mentioned in section 113 of the Act, and the parties have not agreed other terms for payment, the relevant provisions of:(a) paragraphs 2, 4, 5, 7, 8, 9 and 10 shall apply in the case of a relevant construction contract, and

     (b) paragraphs 6, 7, 8, 9 and 10 shall apply in the case of any other construction contract.

    Interpretation

  12. In this Part of the Scheme for Construction Contracts:

    “claim by the payee” means a written notice given by the party carrying out work under a construction contract to the other party specifying the amount of any payment or payments which he considers to be due and the basis on which it is, or they are calculated;

     “contract price” means the entire sum payable under the construction contract in respect of  the work;

     “relevant construction contract” means any construction contract other than one:

     (a) which specifies that the duration of the work is to be less than 45 days, or

     (b) in respect of which the parties agree that the duration of the work is estimated to be less than 45 days;

     “relevant period” means a period which is specified in, or is calculated by reference to the construction contract or where no such period is so specified or is so calculable, a period of 28 days;

     “value of work” means an amount determined in accordance with the construction contract under which the work is performed or where the contract contains no such provision, the cost of any work performed in accordance with that contract together with an amount equal to any overhead or profit included in the contract price;

     “work” means any of the work or services mentioned in section 104 of the Act.

 

The effect of “Part 1 – Adjudication” and “Part 2 – Payment”

Part II of the Housing Grants, Construction and Regeneration Act 1996 makes provision in relation to construction contracts where in Section 114 the Secretary of State is empowered to make the Scheme for Construction Contracts. Where a construction contract does not comply with the requirements of sections 108 to 111 (adjudication of disputes and payment provisions), and section 113 (prohibition of conditional payment provisions of the Housing Grants, Construction and Regeneration Act 1996), the relevant provisions of the Scheme for Construction Contracts have effect.

The Scheme in effect in Part I provides for the selection and appointment of an adjudicator, gives powers to the adjudicator to gather and consider information, and makes provisions in respect of his decisions and in Part II makes provision with respect to payments under a construction contract where either the contract fails to make provision or the parties fail to agree:

  • The method for calculating the amount of any instalment, stage or periodic payment
  • The due date and the final date for payments to be made
  • Prescribes the period within which a notice of intention to withhold payment must be given

The last two past are what the current regulatory framework (in February 2017) defines and requires. However we will return to this subject again later as this is a constantly moving as the courts interpret and have effect on how the legislation is to be interpreted.

The Scheme, “Part 1 – Adjudication”

In recent posts we have seen two pieces of Primary Legislation being referred to, these being The Housing Grants, Construction and Regeneration Act 1996 and the Local Democracy, Economic Development and Construction Act 2009. Intrinsic to this legislation is The Scheme for Construction Contracts, a Statutory Instrument that has come into force following these acts to regulate key elements of the construction process. In this post we will examine The Scheme and its major points in Part 1 which gives a statutory right to the Alternative Dispute Resolution, Adjudication.

In effect if you read the wording of the Statutory Instrument it sets out the step by step process under which Adjudication is contested and the following text is the text of the Statutory Instrument.

Notice of Intention to seek Adjudication

  1. (1) Any party to a construction contract (the “referring party”) may give written notice (the “notice of adjudication”) of his intention to refer any dispute arising under the contract, to adjudication.

    (2) The notice of adjudication shall be given to every other party to the contract.

    (3) The notice of adjudication shall set out briefly—

           (a) the nature and a brief description of the dispute and of the parties involved,

           (b) details of where and when the dispute has arisen,

           (c) the nature of the redress which is sought, and

    (d) the names and addresses of the parties to the contract (including, where   appropriate, the  addresses which the parties have specified for the giving of notices).

  2.  (1) Following the giving of a notice of adjudication and subject to any agreement between the parties to the dispute as to who shall act as adjudicator: (a) the referring party shall request the person (if any) specified in the contract to act as adjudicator, or

     (b) if no person is named in the contract or the person named has already indicated that he is unwilling or unable to act, and the contract provides for a specified nominating body to select a person, the referring party shall request the nominating body named in the contract to select a person to act as adjudicator, or

     (c) where neither paragraph (a) nor (b) above applies, or where the person referred to in (a) has already indicated that he is unwilling or unable to act and (b) does not apply, the referring party shall request an adjudicator nominating body to select a person to act as adjudicator.

     (2) A person requested to act as adjudicator in accordance with the provisions of paragraph (1) shall indicate whether or not he is willing to act within two days of receiving the request.

    (3) In this paragraph, and in paragraphs 5 and 6 below, an “adjudicator nominating body” shall mean a body (not being a natural person and not being a party to the dispute) which holds itself out publicly as a body which will select an adjudicator when requested to do so by a referring party.

  3. The request referred to in paragraphs 2, 5 and 6 shall be accompanied by a copy of the notice of adjudication.
  4. Any person requested or selected to act as adjudicator in accordance with paragraphs 2, 5 or 6 shall be a natural person acting in his personal capacity. A person requested or selected to act as an adjudicator shall not be an employee of any of the parties to the dispute and shall declare any interest, financial or otherwise, in any matter relating to the dispute.
  5. (1) The nominating body referred to in paragraphs 2(1)(b) and 6(1)(b) or the adjudicator nominating body referred to in paragraphs 2(1)(c), 5(2)(b) and 6(1)(c) must communicate the selection of an adjudicator to the referring party within five days of receiving a request to do so.

    (2) Where the nominating body or the adjudicator nominating body fails to comply with paragraph (1), the referring party may:

     (a) agree with the other party to the dispute to request a specified person to act as adjudicator, or

     (b) request any other adjudicator nominating body to select a person to act as adjudicator.

     (3) The person requested to act as adjudicator in accordance with the provisions of paragraphs (1) or (2) shall indicate whether or not he is willing to act within two days of receiving the request.

  6. (1) Where an adjudicator who is named in the contract indicates to the parties that he is unable or unwilling to act, or where he fails to respond in accordance with paragraph 2(2), the referring party may:

    (a) request another person (if any) specified in the contract to act as adjudicator, or

     (b) request the nominating body (if any) referred to in the contract to select a person to act as adjudicator, or

    (c) request any other adjudicator nominating body to select a person to act as adjudicator.

     (2) The person requested to act in accordance with the provisions of paragraph (1) shall indicate whether or not he is willing to act within two days of receiving the request.

  7.  (1) Where an adjudicator has been selected in accordance with paragraphs 2, 5 or 6, the referring party shall, not later than seven days from the date of the notice of adjudication, refer the dispute in writing (the “referral notice”) to the adjudicator.(2) A referral notice shall be accompanied by copies of, or relevant extracts from, the construction contract and such other documents as the referring party intends to rely upon.

     (3) The referring party shall, at the same time as he sends to the adjudicator the documents referred to in paragraphs (1) and (2), send copies of those documents to every other party to the dispute.

  8. (1) The adjudicator may, with the consent of all the parties to those disputes, adjudicate at the same time on more than one dispute under the same contract.

    (2) The adjudicator may, with the consent of all the parties to those disputes, adjudicate at the same time on related disputes under different contracts, whether or not one or more of those parties is a party to those disputes.

     (3) All the parties in paragraphs (1) and (2) respectively may agree to extend the period within which the adjudicator may reach a decision in relation to all or any of these disputes.

     (4) Where an adjudicator ceases to act because a dispute is to be adjudicated on by another person in terms of this paragraph, that adjudicator’s fees and expenses shall be determined in accordance with paragraph 25.

  9. (1) An adjudicator may resign at any time on giving notice in writing to the parties to the dispute.

    (2) An adjudicator must resign where the dispute is the same or substantially the same as one which has previously been referred to adjudication, and a decision has been taken in that adjudication.

    (3) Where an adjudicator ceases to act under paragraph 9(1)—

     (a) the referring party may serve a fresh notice under paragraph 1 and shall request an adjudicator to act in accordance with paragraphs 2 to 7; and

    (b) if requested by the new adjudicator and insofar as it is reasonably practicable, the parties shall supply him with copies of all documents which they had made available to the previous adjudicator.

    (4) Where an adjudicator resigns in the circumstances referred to in paragraph (2), or where a dispute varies significantly from the dispute referred to him in the referral notice and for that reason he is not competent to decide it, the adjudicator shall be entitled to the payment of such reasonable amount as he may determine by way of fees and expenses reasonably incurred by him. The parties shall be jointly and severally liable for any sum which remains outstanding following the making of any determination on how the payment shall be apportioned.

  10. Where any party to the dispute objects to the appointment of a particular person as adjudicator, that objection shall not invalidate the adjudicator’s appointment nor any decision he may reach in accordance with paragraph 20.
  11. (1) The parties to a dispute may at any time agree to revoke the appointment of the adjudicator. The adjudicator shall be entitled to the payment of such reasonable amount as he may determine by way of fees and expenses incurred by him. The parties shall be jointly and severally liable for any sum which remains outstanding following the making of any determination on how the payment shall be apportioned.

     (2) Where the revocation of the appointment of the adjudicator is due to the default or misconduct of the adjudicator, the parties shall not be liable to pay the adjudicator’s fees and expenses.

     Powers of the adjudicator

  12. The adjudicator shall:

     (a) act impartially in carrying out his duties and shall do so in accordance with any relevant terms of the contract and shall reach his decision in accordance with the applicable law in relation to the contract; and

    (b) avoid incurring unnecessary expense.

  13. The adjudicator may take the initiative in ascertaining the facts and the law necessary to determine the dispute, and shall decide on the procedure to be followed in the adjudication. In particular he may:

     (a) request any party to the contract to supply him with such documents as he may reasonably require including, if he so directs, any written statement from any party to the contract supporting or supplementing the referral notice and any other documents given under paragraph 7(2),

     (b) decide the language or languages to be used in the adjudication and whether a translation of any document is to be provided and if so by whom,

    (c) meet and question any of the parties to the contract and their representatives,

    (d) subject to obtaining any necessary consent from a third party or parties, make such site visits and inspections as he considers appropriate, whether accompanied by the parties or not,

    (e) subject to obtaining any necessary consent from a third party or parties, carry out any tests or experiments,

    (f) obtain and consider such representations and submissions as he requires, and, provided he has notified the parties of his intention, appoint experts, assessors or legal advisers,

     (g) give directions as to the timetable for the adjudication, any deadlines, or limits as to the length of written documents or oral representations to be complied with, and

     (h) issue other directions relating to the conduct of the adjudication.

  14. The parties shall comply with any request or direction of the adjudicator in relation to the adjudication.
  15. If, without showing sufficient cause, a party fails to comply with any request, direction or timetable of the adjudicator made in accordance with his powers, fails to produce any document or written statement requested by the adjudicator, or in any other way fails to comply with a requirement under these provisions relating to the adjudication, the adjudicator may:

     (a )continue the adjudication in the absence of that party or of the document or written statement requested,

    (b) draw such inferences from that failure to comply as circumstances may, in the adjudicator’s opinion, be justified, and

     (c )make a decision on the basis of the information before him attaching such weight as he thinks fit to any evidence submitted to him outside any period he may have requested or directed.

  16. (1) Subject to any agreement between the parties to the contrary, and to the terms of paragraph (2) below, any party to the dispute may be assisted by, or represented by, such advisers or representatives (whether legally qualified or not) as he considers appropriate.

     (2) Where the adjudicator is considering oral evidence or representations, a party to the dispute may not be represented by more than one person, unless the adjudicator gives directions to the contrary.

  17. The adjudicator shall consider any relevant information submitted to him by any of the parties to the dispute and shall make available to them any information to be taken into account in reaching his decision.
  18. The adjudicator and any party to the dispute shall not disclose to any other person any information or document provided to him in connection with the adjudication which the party supplying it has indicated is to be treated as confidential, except to the extent that it is necessary for the purposes of, or in connection with, the adjudication.
  19. (1) The adjudicator shall reach his decision not later than:

     (a) twenty eight days after the date of the referral notice mentioned in paragraph 7(1), or

     (b) forty two days after the date of the referral notice if the referring party so consents, or

    (c) such period exceeding twenty eight days after the referral notice as the parties to the dispute may, after the giving of that notice, agree.

     (2) Where the adjudicator fails, for any reason, to reach his decision in accordance with paragraph (1)

     (a) any of the parties to the dispute may serve a fresh notice under paragraph 1 and shall request an adjudicator to act in accordance with paragraphs 2 to 7; and

    (b) if requested by the new adjudicator and insofar as it is reasonably practicable, the parties shall supply him with copies of all documents which they had made available to the previous adjudicator.

    3) As soon as possible after he has reached a decision, the adjudicator shall deliver a copy of that decision to each of the parties to the contract.

     Adjudicator’s decision

  20. The adjudicator shall decide the matters in dispute. He may take into account any other matters which the parties to the dispute agree should be within the scope of the adjudication or which are matters under the contract which he considers are necessarily connected with the dispute. In particular, he may:

    (a) open up, revise and review any decision taken or any certificate given by any person referred to in the contract unless the contract states that the decision or certificate is final and conclusive,

     (b) decide that any of the parties to the dispute is liable to make a payment under the contract (whether in sterling or some other currency) and, subject to section 111(4) of the Act, when that payment is due and the final date for payment,

     (c) having regard to any term of the contract relating to the payment of interest decide the circumstances in which, and the rates at which, and the periods for which simple or compound rates of interest shall be paid.

  21. In the absence of any directions by the adjudicator relating to the time for performance of his decision, the parties shall be required to comply with any decision of the adjudicator immediately on delivery of the decision to the parties in accordance with this paragraph.
  22. If requested by one of the parties to the dispute, the adjudicator shall provide reasons for his decision.

    Effects of the decision

  23. (1) In his decision, the adjudicator may, if he thinks fit, order any of the parties to comply peremptorily with his decision or any part of it.

     (2) The decision of the adjudicator shall be binding on the parties, and they shall comply with it until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement between the parties.

  24. Section 42 of the Arbitration Act 1996 shall apply to this Scheme subject to the following modifications:

    (a) in subsection (2) for the word “tribunal” wherever it appears there shall be substituted the word “adjudicator”,

     (b) in subparagraph (b) of subsection (2) for the words “arbitral proceedings” there shall be substituted the word “adjudication”,

    (c) subparagraph (c) of subsection (2) shall be deleted, and

    (d) subsection (3) shall be deleted.

  25. The adjudicator shall be entitled to the payment of such reasonable amount as he may determine by way of fees and expenses reasonably incurred by him. The parties shall be jointly and severally liable for any sum which remains outstanding following the making of any determination on how the payment shall be apportioned.
  26. The adjudicator shall not be liable for anything done or omitted in the discharge or purported discharge of his functions as adjudicator unless the act or omission is in bad faith, and any employee or agent of the adjudicator shall be similarly protected from liability.

 

In effect these 26 clauses define the process of Adjudication and are relatively unambiguous, although this does not translate into Adjudication being a simple and straight forward process. We will return to this subject and look at the 4 stages that the Statutory Instrument defines.

The reality is the process is complex and requires a specialist to be employed in order to obtain the successful outcome sought by a referring party. Ansell Murray Limited have represented as both referring and responding parties and are well placed to provide strategic advice on whether or not Adjudication should be undertaken as well as representation.

Payment Certificate & Payless Notice (Are they important?)

In a typical construction contract that last longer than 45 days in overall duration, in accordance with Section 109 of The Housing Grants, Construction and Regeneration Act [1996] there will be stage payments made.

The parties to the contract are free to agree the amounts of the payment and a mechanism to calculate this and the intervals or circumstances under which they become due. As a fallback position if the contract is silent on this mechanism then the supplementary provisions to the Act contained in The Scheme for Construction Contracts Regulations [1998] As Amended in 2011 will apply.

If we assume that the contract is between an Employer and a Contractor and is using an un-amended Joint Contract Tribunal (JCT) Standard Building Contract.

The Payment Mechanism under this contract will be:

  • An interim Application for Payment (AfP) Date will be determined. e.g. Final Friday of each calendar month, Final Day of Each month, Every Second Friday after the Base Date etc
  • The Due Date for payment is 14 days after agreed date for the submission of the AfP
  • Within 5 days of receipt of the AfP the Contract Administrator is to issue to the Contractor a Payment Certificate stating the sum that the Employers intends to pay to the Contractor
  • Where this sum was less than the sum applied for in the AfP, the Contract Administrator must issue a Payless Notice (Notice of Withholding) where it to set out the grounds for the withholding of sums that have been subject to the AfP. This Payless Notice must be issued no more than 5 days before the Final Date for Payment.
  • In the event no Payless Notice is issued then the Contractor can expect to receive the sum that has been certified in the Payment Certificate on or before the Due Date.
  • In the event payment is not made or the incorrect sum is paid, then the payment can be deemed late and interest and the penalty fee under the Late Payment of Commercial Debt Regulations [2002] As amended may be claimed

If we look briefly what the three main elements of this Payment Mechanism:

Interim Application for Payment

This is a document prepared by the Contractor setting out in such detail as required by the Employers Requirements or as agreed the sum being applied for and any supporting details.

For example if there is an item of equipment whose delivery to site for incorporation into the works is critical to the programme being able to be achieved, a Vesting Agreement may be entered into. Here the Employer will pay for the item of equipment even though it is not on site, but has been completed and is being stored off site. Of course this is the extreme case, whereas generally the interim AfP will be for works completed on a percentage basis and any materials that are on site but have not been incorporated into the works.

Where there is mutual trust and goodwill that exists between the parties this can even take the form where the Contractor and Contractors Representative meet on site on the date of the AfP or just before and effectively agree the sum that will be applied for. This will generally make the Payless Notice unnecessary as the Payment Certificate will be to the sum applied for..

Payment Certificate

Following receipt by the Contract Administrator of the Contractor’s AfP; if this has not been effectively agreed prior to the submission of the AfP; then the application will be assessed and a Payment Certificate issued of the sum that is intended to be paid.

Where the sum being certified is the same as the AfP, then in the event of no deductions being made there will be no further requirement, other than for the Employer to make payment of the sum due by the Final Date for Payment.

Payless Notice

Where the Contractor has made application for a sum and the Contract Administrator does not agree that the sum applied for is due, a Payless Notice will be prepared and issued. There are strict timeframes in the Contract for the issue of this Payless Notice.

The Payless Notice has to specify the amounts that are proposed to be withheld and / or deducted and the grounds attributable to each sum that is being withheld. It follows that each ground has to have a legal basis under the Contract. Where the sum withheld is as a result of progress on site, or lack of it as the case may be this can be quite subjective, unless pre agreed milestones have been agreed by the parties.

 

I suppose the thought now is, “Why write about some mundane, mechanical, well known elements of the contract and payment mechanism?

The reason is that recently at the Technology and Construction Court (TCC) a case has recently concluded where these three processes were not followed as required by the contract. It could be said the entire process should be a case study in how NOT to administer a contract.

In the next post will look at this case at the TCC and its implication for all the parties to a Contract.