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Madam Deputy Speaker: With this, it will be convenient to discuss the following: New clause 24--Liability of adjudicator (No. 2)--
'Neither the adjudicator nor any employee or agent of the adjudicator should be liable for anything done or omitted in the discharge or purported discharge of their function as adjudicator or employee or agent of the adjudicator, unless the act or omission is in bad faith.'.
Government amendments Nos. 88 and 90.
Mr. Raynsford:
We now reach part II of the Bill, which deals with proposals for changes in the contractual arrangements in the construction industry. Hon. Members will be aware of the background to the proposed legislation and the important study carried out by Sir Michael Latham into the construction industry, resulting in the report entitled "Constructing the Team", which was published some two years ago.
The report, which has been widely welcomed, set a series of objectives to tackle problems and to lay the foundations for a more successful, less confrontational industry in the future. We all owe a great debt of gratitude to Sir Michael for his work, both on the report and on the follow-up. On behalf of the Opposition, I pay tribute to him for the way in which he addressed key issues and sought to lay the foundations for a better future for an industry which is extremely important to our national life but which has gone through some hard times in recent years.
One of the most crucial of Sir Michael's recommendations was a new approach to dispute resolution, and in particular to the role of adjudication as a means of providing a fast track for tackling disputes that might otherwise threaten to halt work on a construction contract. We all know--from our constituency experience and from knowledge of the industry--that, all too often, such disputes have been ruinously damaging to the industry, in terms of the financial implications, its credibility and morale. We have to find a way to ensure a better future for it and a better way forward without the parties rushing into court at the first opportunity. The concept of fast-track adjudication as a means of providing a quicker and better route to dispute resolution at an early stage of proceedings is therefore widely welcomed by the entire industry.
The Latham recommendations have in theory been endorsed by the Government, but the process of putting them into effect has been somewhat tortuous. When the
Bill was presented in another place, it was accompanied by a draft scheme that aroused widespread concern in the industry, because it was based on arbitration procedures rather than adjudication. As a result of the outcry that greeted the scheme, and as a result of the efforts of many noble Lords, the Government agreed to withdraw it and think again. However, uncertainty has remained about whether the Government would move forward in the right way with a proper scheme that allowed adjudication to be put on the statute book.
Considerable progress was made in Committee. A series of amendments were made to ensure that the definitions were clarified and procedures sharpened, and to try to give effect to Sir Michael's recommendations as expeditiously as possible. In many respects we succeeded: the Bill is improving. That is not to say that there is no scope for further improvement, but it is much better than it was when it was introduced in another place. There is, however, one important unresolved issue, relating to the immunity to be enjoyed by the adjudicator.
If adjudication is to work, it is essential for the adjudicator to enjoy immunity from litigation. Otherwise, he will not be able to act quickly and expeditiously, but will be constantly looking over his shoulder, worrying about the prospect of a writ being issued by one of the parties who is aggrieved by the way in which he is proceeding. If we want swift adjudication, the adjudicator must have immunity. That is accepted as a principle: the Government recognise it. As originally presented, the Bill provided for immunity as part of the contract between the contracting parties--the contract that would be the subject of adjudication. There is a problem, however.
The problem is that immunity given only by contract is binding only on the contracting parties. That is fine in terms of the two parties whose dispute is being resolved, but it does not extend to other parties who may also be involved. As the industry has pointed out, there is still scope for problems, because other parties will be unhappy at the outcome--or even the procedure--of adjudication, and will seek to challenge it. If that possibility exists, and the adjudicator feels nervous about the prospect of being sued, the whole process may be jeopardised. It might well be impossible to get an adjudicator to serve in the first place, and, even if one is appointed, he will inevitably be inhibited by worries about the possibility of litigation.
In an industry that is not agreed on every aspect of the legislation, there is almost complete unanimity on the issue of immunity for the adjudicator. The Association of Consulting Engineers writes:
In Committee, we tabled an amendment to remove contractual immunity, which was carried. Unfortunately, a parallel amendment to institute statutory immunity was not. The purpose of new clause 2 is to remedy that defect. The new clause establishes a statutory immunity applying to adjudicators, preventing them from being sued by any party. It is modelled on procedures that apply equally to arbitrators. I see no possible objection to the existence of statutory immunity; indeed, I can envisage many problems for the industry without it. This is a commonsense new clause, which gives effect to the recommendations of the Latham report. It has the backing of the industry, and would make the adjudication system work in principle. I strongly commend it to the House.
The Minister for Construction, Planning and Energy Efficiency (Mr. Robert B. Jones):
Our debate on part II began with some scene-setting by the hon. Member for Greenwich (Mr. Raynsford). I do not dissent from the scene that he set, but I wish to colour it in a little on the basis of my experience of working in the construction industry before I came to the House.
The curse of that industry, which makes it not only controversial but less competitive than it might otherwise be, is a tendency to spend a good deal of time arguing, and to spend more time on litigation than on research and development. That is what these measures aim to put right, in so far as it can be put right. Not all the Latham process consists of legislation; much of it has been addressed to the industry, and we expect the industry to play its part in reforming itself in order to deliver a much better service in future.
Let me associate myself with the tribute paid by the hon. Member for Greenwich to Sir Michael Latham, which is wholly appropriate. When this process is over, he may have not only helped to reform the industry in which he, too, spent a good deal of time, but added to the English language: I have no doubt that such words as "Lathamisation" will eventually appear in the dictionary.
It appears from what the hon. Member for Greenwich has said--and, indeed, from what is said outside the House--that an adjudicator should enjoy immunity in regard to actions taken, or not taken, during adjudication
proceedings, as long as he has performed his duties in good faith. That almost goes without saying. The dispute is about the extent of that immunity. We believe that, as adjudication is a contractual process, the adjudicator's immunity should be restricted to the contract in question, and that any protection from actions taken by third parties should be a matter for contracting parties.
We have been over this ground at some length in Committee, and I do not wish to detain the House for longer than necessary. However, I shall briefly state the reasons why I cannot accept new clause 2 or new clause 24--which would give the adjudicator statutory immunity--and why I support amendment No. 88, which would require him to be given immunity under the contract. Amendment No. 90 is consequential on that.
"The Government do not seem to understand the problem. If the immunity is contractual, it only binds the parties to the adjudication. However, others--third parties--may say in law that they relied on the adjudicator's decision. If an adjudication takes place between a main contractor and a client, it is certainly possible that consultants (the architect or engineer administering the contract) or sub-contractors, for example, will rely on that decision, or will allege that they have. On the basis of reliance"--
the association then cites the case of Hadley Bryne v. Heller--
"a third party can sue in tort. It is not known what the courts would make of such claims, but there is no question that adjudicators should not be vulnerable to the possibility of claims being made against them in this way."
8 Jul 1996 : Column 80
The Construction Industry Council reinforces the point, writing:
"It is pleasing that the Government has recognised that the adjudicator requires immunity. Having recognised this need, it is idiosyncratic that the immunity is then limited. As stated earlier, third parties will be affected by adjudicator's decisions. The adjudicator cannot be protected from the actions of a third party by a contractual immunity."
In its list of key priorities for amendments on Report, the Institution of Civil Engineers stresses the need for a
"statutory immunity for adjudicators and employees or agents, save for acts of bad faith".
The Association of Consultant Architects writes that it has
"seen the final version of the amendments dated 2nd July which in general seem satisfactory apart from the fact that the Adjudicator will only have immunity under contract and not statutory immunity.
There we have it: clear, unanimous evidence from the industry that statutory immunity is required. Contractual immunity is not sufficient.
The ACA believe that this will affect his ability to make a rapid and effective decision knowing that he could be sued by third parties who are affected by that decision."
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