Robert Fenwick Elliott

Presenting Prolongation Claims in Adjudication Robert Fenwick Elliott

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Presenting Prolongation Claims in Adjudication

Robert Fenwick Elliott[1]

Contents

What is Adjudication? 1

Where is it found? 3

The Burden of Proof 3

Default Provisions 3

Ambush and Reverse Ambush 4

The Place of Delay Claims in Adjudication 4

Attack 4

Delay Claims as Progress Claims 5

Damages 6

Defence 6

Set-Off 6

A Place for the Analysis 7

The Payment Claim 7

The Payment Schedule 8

The Adjudication Application Submissions 8

The Adjudication Response 8

Further Submissions 9

The Decision 9

The Shoehorn 10

Complete Models are Too Big 10

Overview Analysis 11

Pinch Point Analysis 11

The Use of Experts 11

Who is the Advocate? 11

Electronic Presentation 12

The Proof of the Pudding 12

What is Adjudication?

Adjudication is a rapid form of dispute resolution that has since the 1990s been developed for the construction industry. Its precise form varies from jurisdiction to jurisdiction, but its general features are as follows:

· Parties to a construction contract have a right to have their disputes adjudicated, which right cannot be removed by contract

· The adjudicator is not necessarily a lawyer and is typically a construction professional

· The process takes just a few weeks

· The process is one of “pay now, argue later”: the loser has to write a cheque but retains the right to have the dispute litigated or arbitrated in full in due course.

In Australia, the trend has been for adjudication to be rather more restricted in scope than in the UK model. Thus there are the following differences between the English and the New South Wales[2] systems[3]:

England and Wales / New South Wales
Which parties may initiate and adjudication? / Any[4] / Only payees[5]
What disputes may be adjudicated? / Any[6] including damages claims / Only claims to a progress payment under the contract[7]
What is the basic period within which the adjudicator must reach his decision? / 28 days from referral[8] / 10 business days after the adjudicator accepts the adjudication[9]
Can that period be extended? / Yes, by 14 days with the consent of the referring party[10], or any period with the consent of both parties after the dispute has arisen[11] / Yes, if both parties agree[12]
Can the parties agree on the identity of their adjudicator? / Yes[13] / No[14]
Are the parties allowed legal representation at hearings? / Yes[15] / No[16]

In all these places, there have been some focus on the dilemma of subcontractors who have traditionally had difficulty getting their progress payments made promptly to them, and particularly in Australia there could be the feeling that the “Aussie battler” is what the legislation is all about. In the UK model, there is a broader approach, on the basis that the time and cost in all construction disputes has been too great, and there have been many very large disputes referred to adjudication. There is some evidence that adjudication in Australia is beginning to move in the UK direction, with a number of adjudications now launched for tens of millions of dollars.

Where is it found?

Adjudication in its modern form originated in the UK, but has spread rapidly around other commonwealth jurisdictions, including Australia:

Date of Legislation / Jurisdiction
1996 / England & Wales
Scotland
1999 / Northern Ireland
New South Wales
2002 / Victoria
New Zealand
2004 / Queensland
Western Australia
Northern Territory
Singapore

The Burden of Proof

Adjudication is intended to be – and is – a much faster process than litigation or arbitration, and there is obviously not time for the adjudicator to apply the same rigorous burdens of proof as apply in litigation and arbitration, particularly in a large or complex case. Time after time, in different jurisdictions, courts have sanctioned the use by adjudicators of broad brush approaches.

Default Provisions

It is a feature of the Australian system that the payee under a construction contract who is or who claims to be[17] entitled to a progress payment may serve a payment claim on his employer[18]. If the employer then fails to serve a payment schedule in response in time, the payee can adjudicate or, simpler, apply to the court for recovery, in which case the employer is entitled to raise no set-off or defence[19].

Ambush and Reverse Ambush

It has been a concern of commentators that adjudication should not become an instrument of ambush, whereby contractors spend a long time preparing complex claims against their employers before springing their trap, such that employers have inadequate time to prepare their response.

In practice, ambush has been less of a problem than feared, partly because adjudicators have taken a fairly robust approach to their powers to guillotine submissions, and partly because they have tended to make clear to claimants that they cannot expect a sympathetic hearing of their complex claims unless they agree to a sufficient extension of the timetable to allow adequate time for the respondents.

In the UK, there have however been some instances of reverse ambush, where employers have sought adjudication of contractors’ claims before those contractors have had time to fully develop them. There is no evidence of reverse ambush in Australia, where employers are not entitled to initiate adjudications.

The Place of Delay Claims in Adjudication

Delay claims can feature in adjudication as the whole or part of the claimant’s claim, or as the whole or part of a defence. These are considered in turn.

Attack

Many standard forms and custom-made construction contract contain provision to the effect that, if the contractor is delayed by reasons which are not his fault, or which are his employer’s fault, then he is entitled to time-based compensation under the contract, sometimes called “delay damages”[20]. Occasionally, these entitlements are liquidated, but more often they are not, in which case these sums due as payments under the contract are typically calculated in much the same way as damages are calculated for breach of contract; either way, their calculation usually involves answering the question: “How much reimbursable time is the contractor entitled to?” and hence some sort of critical path analysis. These provisions are the corollary of the typical liquidated damages provisions, whereby contractors are required to compensate the employer where it is the contractor’s fault that the delay has occurred. It is convenient here to note that all of the provisions involve payments pursuant to express provisions of the contract – and not damages for breach of contract – even if the expression “damages” is used.

In the UK, disputes about the level of a contractor’s entitlement to time-based compensation are certainly adjudicable – all disputes under a construction contract are adjudicable – in Australia, the question usually revolves around whether the claim can be characterised as a progress claim.

Delay Claims as Progress Claims

Despite some earlier doubts, it is now[21] clear form the New South Wales Court of Appeal decision in Coordinated Construction Co. Pty. Ltd. v. J.M. Hargreaves (NSW) Pty. Ltd. & Ors[22] that a contractor’s entitlement to time-based compensation under a contract is generally within the scope of a progress payment and thus recoverable by adjudication, regardless of whether the entitlement is called “delay damages”[23]. The word “generally” here does not qualify the time-entitlement aspect, but rather the quantification that goes with any time awarded; it is arguable that whilst both on-site and off-site overheads are recoverable as progress payments, compensation for less of profit by way of Hudson Formula or Eichleay Formula[24] calculation may perhaps be outside the scope of the Act[25].

Although a detailed discussion of the point is outside the scope of this paper, it is worth noting that, even if a particular claim is not on a proper analysis within the scope of the Act, then an adjudicator’s decision on it may yet be enforceable pursuant to the principles set out in Brodyn Pty. Ltd. v. Davenport[26].

Damages

If a contractor is delayed by an employer, he may well be entitled to claim damages for breach of contract at common law. Such claims are adjudicable in the UK but not in Australia.

Defence

If a claimant makes a progress claim that includes time-based compensation, it is of course open to his employer to respond with a different analysis of who has caused the delay in question, and any such analysis is likely to require consideration by any adjudicator appointed to consider the issue. More importantly, the employer may have a delay-based set-off to any claim made by his contractor.

Set-Off

Under the Australian system, the contractor is entitled to serve a payment claim setting out what progress claim he makes – that claim might or might not include a delay element. The employer is then entitled to serve a payment schedule setting out how much he proposes to pay, and

(3) If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent’s reasons for withholding payment.[27]

If the payment schedule is for less than the payment claim, there is an adjudicable dispute. Although the Acts are less than explicit, it seems that the function of the adjudicator is to determine what payment is (or was) in fact due. The adjudicator is limited in the material that he is allowed to take into account, but that material includes the employer’s payment schedule; he must consider inter alia

(d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule[28].

One reason that entitles a contracting party to withhold payment is a set-off at common law – that is to say a cross claim that arises under the same contract either by way of a sum due under the terms of that contract or a claim for damages at common law. Thus, if the employer has a delay claim against his contractor, he is entitled to advance that claim in a payment schedule, and it will - if sound – operate by way of defence in adjudication, in whole or in part.

A Place for the Analysis

In traditional litigation or arbitration, the parties’ delay analyses may not emerge until exchange of expert’s reports. Adjudication is very different.

The Payment Claim

If a claimant wants to claim delay costs in adjudication, he must do so in his payment claim. Section 13(2) of the NSW Act does not in terms require the claimant to include his delay analysis, or even to identify how much time he is claiming to be compensated for, but merely how much he is claiming for what work:

(2) A payment claim:

(a) must identify the construction work (or related goods and services) to which the progress payment relates, and

(b) must indicate the amount of the progress payment that the claimant claims to be due (the claimed amount), and

In practice, however, it is difficult to see how a claimant can credibly sustain a delay claim in adjudication unless he has, in his payment claim, included at least an outline of the claim, including a calculation of what sums he is claiming in respect of what period or periods. Further, if the claimant does not supply enough detail in his payment claim, the adjudicator may be prohibited from looking at later submissions[29].

The Payment Schedule

In NSW[30], if the employer wants to oppose a claim by reference to his own delay claim, he must certainly refer to it in his payment schedule. The Act merely requires him to give “reasons”, but a payment schedule that says just:

“I am paying you only $y instead of the $x you claim because I have a delay claim against you”

is, again, unlikely to be credible.

The Adjudication Application Submissions

When the claimant launches his application, the application

(h) may contain such submissions relevant to the application as the claimant chooses to include[31].

Is this an opportunity to include a delay analysis? It probably is, and if the payment claim has not included a delay analysis, it is likely to be the claimant’s last chance.

The Adjudication Response

Section 20(2) of the NSW Act provides that

(2) The adjudication response:

(a) …

(b) …

(2A) The respondent may lodge an adjudication response only if the respondent has provided a payment schedule to the claimant within the time specified in section 14 (4) or 17 (2) (b).

(2B) The respondent cannot include in the adjudication response any reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant.

Provided that the payment schedule has at least set the scene, this is an opportunity to put forward the respondent’s delay analysis, whether that be by way of a counter to the claimant’s delay analysis, or by way of support for the respondent’s time-based set-off.

In Victoria, there are no restrictions in the terms of subsections 2A or 2B. Does that mean that the respondent can delay any mention of his time-based set-off until his adjudication response? Not safely, no, not least because the claimant might simply enforce his claim a debt under section 16(2)(a) of the Victorian Act without going to adjudication at all. But if the claimant has chosen the adjudication route, then a Victorian respondent can, it seems, raise a time-based or indeed any other set-off at this stage regardless of whether he has referred to it in his payment schedule.