Construction disputes - three points for parties to keep in mind

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    The recent Technology and Construction Court decision in RWE Npower Plc and Alstom Power Limited [2009] EWHC B40 highlights three significant issues which anyone considering or facing a dispute must bear in mind.

    This case is important because it considers the exchange of correspondence written on a "without prejudice" basis before the commencement of legal proceedings. These letters are usually exchanged between parties when they are trying to explore a solution, negotiate a compromise or settle a dispute without resorting to costly litigation or other proceedings. Statements made 'without prejudice' for the purpose of settling a dispute cannot be given in evidence without the consent of both parties.

    Here, the Court maintained one party's right to rely on such correspondence to prove that the parties were in disagreement and that therefore a dispute had "crystallised", which could then be referred to adjudication. The Court found that the privilege extended to the contents of the correspondence, but not to the fact that discussions had taken place and the parties had not reached agreement. Architects, contractors and developers alike must beware that if the parties negotiate on a "without prejudice" basis and fail to agree, the dispute may nonetheless be referred to adjudication.

    The second point considered in this case, relates to the application of the Scheme for Construction Contracts (England and Wales) Regulation 1998. The Scheme applies to all construction contracts in England, Wales or Scotland, but can also be imported by the parties into any contract. The Scheme provides that a party cannot refer a dispute to adjudication under more than one contract, unless the other party agrees.

    The Court had to consider whether the Adjudicator had the power to determine a dispute under one contract, where the sums claimed to be owed related to another contract (without the other party's consent). This issue is relevant when a dispute spreads to work under more than one contract. The Court found that the Notice of Adjudication gave the Adjudicator the power to decide what was due under the contract, and the fact that some of these sums were due under another contract did not affect this right.

    The case finally considered the situation when a party refers a dispute to adjudication, is successful and is awarded certain sums and then, the other party seeks to rely on a contractual provision to set off (or deduct) certain sums against the Adjudicator's decision. The Court maintained the supremacy of the Scheme over freely negotiated contractual provisions, and found that a party could not set-off against an Adjudicator's decision. Without drafting particular strong wording to that effect, those that believe they can rely on their contracts to avoid paying sums awarded by an Adjudicator will find that they cannot do so.

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