Rule nothing out

Although the Construction Act makes it clear that a construction contract includes an agreement on "architectural, design or surveying work", there has been little guidance from the courts on how disputes regarding members of the professional team should be dealt with in adjudication. Also, there is a common belief that damages cannot be awarded in adjudication. As a consequence, claims have rarely been made against professionals in adjudication.

So the decision of a Scottish judge, Lady Paton, in Diamond vs PJW Enterprises Ltd (27 June 2002) is a pointed reminder that the scope of statutory adjudication is wider than construction professionals (and their insurers) may care for.

PJW appointed Gillies Ramsay Diamond, a firm of surveyors, to act as contract administrator for a standard building contract with PJW's contractor. But when disputes arose, PJW terminated Diamond's appointment. In March 2001, PJW referred its disputes with Diamond to adjudication, claiming that the surveyor had been in breach of an implied term that it would "exercise the degree of skill and care to be expected of an ordinarily competent surveyor". In particular, it was claimed that Diamond had failed to issue proper instructions and had granted extensions of time without regard to the terms of the contract.

Diamond argued before the adjudicator that what had been referred to adjudication was not a dispute under the contract, but a claim for professional negligence in tort – in other words, a damages claim – and as such was not covered by the act. The adjudicator rejected this view and made an award of £29,119 in favour of PJW.

Despite the relatively modest value of the adjudicator's award, Diamond sought a review of the decision in the Court of Session. Diamond argued that the quasi–judicial nature of the contract administrator's function excluded its appointment from section 104.2(a) of the act. It also argued that it was not possible for an adjudicator to make an award of damages.

Lady Paton found that Diamond's appointment as contract administrator was indeed a "construction contract". However, she also addressed the concerns raised by Diamond about the appropriateness of an adjudicator deciding allegations of professional negligence. Although, on one view it was "startling" that an adjudicator could rule within 28 days on the "important and often difficult and delicate" question of whether a fellow professional was negligent, Lady Paton was firmly of the view that the act allowed such decisions to be made.

With regard to damages, Lady Paton considered that the references in the act and accompanying scheme to a "dispute arising under the contract" were broad enough to allow an adjudicator to make awards of damages that arise by virtue of a breach of a construction contract. This conclusion is supported by English decisions in cases such as Bouygues vs Dahl Jensen.

To an extent, the decision says nothing that is not apparent from a plain reading of the act.

But it is a fact that there have been few reported decisions relating to professional negligence claims advanced in adjudication.

Why is this?

First, there may be a belief on the part of claimants that adjudication is not the best way to deal with complicated professional negligence claims. Further, notwithstanding the wording of the act, there may have been an apprehension that adjudicators would have been reluctant to decide questions of professional negligence in adjudication.

The first of these concerns remains a valid one, at least with regard to large-scale and highly complicated disputes. However, adjudicators and claimants can take strength from the resounding confirmation that damages for professional negligence can be sought in adjudication.

It remains to be seen whether there will be a move towards referring more professional negligence claims to adjudication. But the advantages for claimants are clear. The adjudicator may not demand the level of expert evidence required by a court, the process is quick, it is cheap compared with litigation and if the claimant is successful, it will generate an immediate right to payment.