MACOB - 20 YEARS ON
On the 12th February 1999 history was made when The Honourable Mr Justice Dyson (as he was known then) made the first judgement ever in the United Kingdom concerning enforcement of an adjudicator’s decision arising from the statutory adjudication process introduced by the Housing Grants, Construction and Regeneration Act 1996 ("the Act"). The case will be known by many in the United Kingdom and was Macob Civil Engineering v Morrison Construction Limited [1999] EWHC Technology 254. (75 Con LR 101)
In summary the contractor sought to resist enforcement of an adjudicator’s decision on the basis of a breach of the rules of natural justice, and that it was not yet a valid ‘decision’ as one party refuted its validity. The Court held that an adjudicator’s decision remained a decision notwithstanding that one party challenged its validity and could therefore be enforced. The Court provided that summary judgment would be the normal way to enforce an adjudicator’s decision.
Unusually the claimant Macob sought a mandatory injunction to secure payment but the court declined and gave a declaration that it should be paid the amount awarded to it by the adjudicator Eric Mouzer. The court further confirmed that the usual remedy for failure to pay in accordance with an adjudicator's decision will be to issue proceedings claiming the sum due, followed by an application for summary judgment.
Had a different decision been reached by the judge it is very probable that adjudication may not have taken off as the most common form of dispute resolution in the construction industry in the United Kingdom.
The success of the adjudication and payment provisions within the Act led to the common law countries of Australia, New Zealand, Singapore, Malaysia, Mauritius, Ireland and Canada passing legislation themselves to effect similar change in their own construction industries. Other countries without statutory adjudication but using contractual adjudication include Hong Kong and South Africa.
Had Counsel for the defendant; Mr Stephen Furst QC succeeded in his arguments that enforcement should not be given to a disputed decision of an adjudicator, but that it must be referred to arbitration under the contract; the use of adjudication as a quick , temporary means to resolve disputes and maintain cash flow would have been dashed.
The government has monitored the success of the Act and its attempts at amending it by the Local Democracy, Economic Development and Construction Act 2009 were on the whole an improvement.
I think though that the guidance provided by the numerous court cases over the last twenty years has been a necessary path for the industry to tread to resolve some aspects of the poorly drafted elements of the ACT, Scheme and contracts.
I still think that there are further amendments needed to remove the exemptions created by the Act.
Firstly I would allow disputes about construction activities on the sea (UK territorial waters) to be referred to adjudication. To achieve this s. 105 (1) (a) would need amending and the jurisprudence from the case of Staveley Industries v Odebrect Oil & Gas Services Ltd [2001](TCC) would no longer apply. The Malaysian adjudication scheme has managed to cope with this and I can not see why the United Kingdom wouldn’t benefit from this change. The Malaysian High Court even allowed an adjudicators decision about a floating production storage and offloading (FPSO) vessel to stand in the case of MIR Valve Sdn Bhd v TH Heavy Engineering Berhad & Other Cases (2017 8 CLJ 208. The High Court decided that works done to the ship to convert it into a floating production storage and offloading (FPSO) vessel constituted construction work within the meaning of a construction contract under the Construction Industry Payment and Adjudication Act. Notwithstanding that the vessel could move around, it was no longer a ship in the sense of transporting people or goods from one place to another because the main purpose of the vessel was to serve the gas, oil and petrochemical industry. The court concluded that the vessel, which was being converted for the oil and gas industry, fell neatly within the scope of construction work, which includes any "gas, oil and petrochemical work".
This turns to my second area for amendment , removing some of the exemptions under s.105(2), and in particular the power and process exemptions as they have become known by many:
(a) drilling for, or extraction of, oil or natural gas;
(b) extraction (whether by underground or surface working) of minerals; tunnelling or boring, or construction of underground works, for this purpose;
(c) assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is—
(i) nuclear processing, power generation, or water or effluent treatment, or
(ii) the production, transmission, processing or bulk storage (other than warehousing) of chemicals, pharmaceuticals, oil, gas, steel or food and drink;
These should have never been exempted in the original Act and the learned Lord Justice Coulson has expressed similar views in Severfield (UK) Ltd v Duro Felguera UK Ltd [2015] EWHC 3352 (TCC) at paragraphs 62 and 63:
Parliament was aware of the difficulties that these exceptions would cause, but justified them on the grounds that (i) adjudication was seen as some form of ‘punishment’ for the construction industry from which (ii) the power generation and some other industries should be exempt, because ‘they had managed their affairs reasonably well in the past’.
I consider that both of these underlying assumptions were, and remain, misconceived.
My third and last amendment would be the removal of the residential occupier exemption under s.106 (1). Given the issues that arise regularly in this type of contract I can only see benefits from a quick informal resolution process being implied in to this type of contract. Even for lower value disputes that can arise in this category I would submit that adjudication is a better option than the small claims court.
In conclusion the decision of The Rt. Hon. Lord Dyson in Macob was a fundamentally important step in bringing statutory construction adjudication to the international market, had a different decision been reached it might never have taken off in the United Kingdom or been copied globally.
Sean Gibbs is a director with Hanscomb lntercontinental and is available to sit as an arbitrator, adjudicator, mediator, quantum expert and dispute board member.