What is Construction Adjudication – and how did it come about? Without delving too far into the history of Construction Adjudication, Construction, Energy and Projects Partner, Jeremy Williams, and Paralegal Sam O'Callaghan, consider the premise behind its conception – and how it works today.
Early years of Adjudication
In the 80s – early 90s, construction related disputes were notorious for the disproportionate expense of litigation/arbitration and the mind-boggling duration of the cases. It was more common than not for a project to end in a lengthy dispute. A typical end result of disputes was one of the parties – normally the Sub-Contractor – going insolvent.
Cue the introduction of the Housing Grant, Construction and Regeneration Act 1996. Among other things, it made the ‘pay when paid’ mentality of the construction industry at the time unlawful, and introduced Adjudication, a form of dispute resolution that applies to all construction contracts. Adjudication tries to resolve disputes as they arise during a project – improving cash flow and (hopefully) avoiding a lengthy dispute at the end of a project. This all sounds very sensible, however, what was not factored in were the involvement of lawyers…
So, what is Adjudication?
Adjudication is a ‘rough and ready’ form of dispute resolution, which, while full of technical nuances, is fairly straightforward.
Firstly, there must be what is called a ‘crystallised dispute’. This means that a party has made its position clear and that the other side has either disagreed with that position or failed to respond in a reasonable time (which is dependent on the circumstances).
Once a dispute has crystallised, a Notice of Adjudication can be issued and an Adjudicator appointed. The Adjudicator can be anyone from an industry expert to a practising barrister. Often, they are appointed by an Adjudicator Nomination Body (essentially a name pulled out of a hat).
Next, a Referral to Adjudication is issued. This document sets out the claim, with all the relevant evidence. In reality, this could be anything from a 30-page written submission to 60+ lever-arch files of evidence, again depending on the dispute.
Crucially, with a construction contract, you have a right to refer a dispute to Adjudication ‘at any time’. This means that a party does not need to wait for the end of a project before referring a dispute to Adjudication. In fact, as noted above, it was initially envisioned that Adjudication would most commonly be used to resolve issues arising during the works.
There are often several submissions from both parties during the Adjudication process. Normally, this is limited to written submissions only, but it’s possible that a meeting will be held with the Adjudicator and the parties.
The Adjudicator must then reach his/her decision within 28 days of receipt of the Referral to Adjudication (this is subject to some exceptions; notably the parties can agree to extend the date for the decision).
The decision of an Adjudicator is ‘temporarily binding’. This means that the decision is binding unless the court (or Arbitrator if Arbitration applies to the contract) says otherwise – this is known as ‘final determination’.
Enter the lawyers again. Lawyers have created an industry in finding ways to circumvent an Adjudicator’s decision by putting forward arguments – such as the Adjudicator was not entitled to decide a point on the basis of a ‘lack of jurisdiction’ or did not conduct the Adjudication fairly, known as a breach of natural justice. Both of which aim to persuade the court (or Arbitrator) that the decision of the Adjudicator is unenforceable.
However, time and time again the court has returned to the position that the decision of an Adjudicator is temporarily binding, until the substantive issue of the dispute is finally determined.
What (if anything) can be learnt from the Construction industry?
We don’t have to look too far to find other industries adopting an alternative form of dispute resolution. Those who have been unfortunate enough to be involved with an Employment dispute will know that early neutral evaluation from ACAS is almost unavoidable.
Even the courts in England and Wales are pushing parties involved in litigation to attempt mediation first. While not going quite so far as to make it compulsory, the severe cost consequences of not attempting mediation means it is a very brave litigant who does not engage in mediation.
Since the advent of Construction Adjudication, there has been a notable decline in the number of cases that make it to court. In fact, a quick scan through the Technology & Construction Court’s decisions makes it clear that most Construction disputes are referred to Adjudication.
The answer, it seems, is that other industries and other areas of law are moving towards out-of-court dispute resolution practices, like Adjudication.
Our Construction, Energy and Projects team at Capital Law has experience in dealing with complex Construction Adjudications. If you have a dispute and require assistance, please do not hesitate to contact us to discuss how we can assist.