Adjudication is a quick form of dispute resolution for the construction and engineering sector. Adjudication was introduced by the government pursuant to the Housing Grants Construction & Regeneration Act 1996 (“the Construction Act”) with the aim of encouraging cash flow in the construction industry and, in particular, to prevent large contractors from making subcontractors bust in order to avoid paying them.
Parties to a construction and/or engineering contract in England, Scotland and Wales have a statutory right to refer a dispute to adjudication. There are a number of exceptions to this. For example, adjudication cannot be used to resolve disputes involving a residential occupier, unless the residential occupier agrees. Further, a number of specific types of work and contracts are excluded from the adjudication regime. For example, the nuclear sector.
Previously, a dispute could only be adjudicated if there was a written contract or a contract evidenced in writing. This was changed in October 2011 and now a dispute can be adjudicated where the contract is oral. Adjudication involves the appointment of an independent third party, the adjudicator, to make a determination of the dispute. Generally that determination is made on the basis of written arguments submitted by the parties. Sometimes, the adjudicator will hold an all parties meeting and/or a site meeting. This is usually the case with more complicated disputes or when the parties rely upon expert and/or witness evidence.
The parties can name an individual to act as the adjudicator in the contract. Usually, the Referring Party (claimant) will apply to an adjudication nominating body (“ANB”) to nominate an individual to act as the adjudicator. Several industry bodies act as ANBs. For example, RIBA, RICS and TeCSA. The adjudicator can be a lawyer or a construction professional such as a quantity surveyor or an architect. The parties can indicate whether they would prefer a lawyer or a consultant. If the dispute is legal then a lawyer can be beneficial. If the dispute involves quantum then a quantity surveyor may be more appropriate.
Once an adjudicator has been appointed, the procedure resulting in the determination can be as short as 28 days. Sometimes, the duration is extended but rarely lasts longer than 6 weeks.
The decision of the adjudicator is binding upon the parties pending any final resolution by the courts. There are limited grounds of appeal. For example, if the adjudicator has breached natural justice. If a party is unhappy with the decision they can commence court proceedings to have the dispute decided by a judge. This rarely happens as the decision of the adjudicator is indicative of how the courts may ultimately decide the dispute. Thus, generally parties comply with the adjudicator’s decision resulting in quick recovery.
If the losing party does not pay then the successful party can apply to the Technology & Construction Court for a judgment to enforce the decision. The court aims to hold a hearing within 28 days to facilitate quick recovery. Once judgment is obtained then the judgment can be enforced using the normal enforcement methods such as appointing bailiffs or winding up the company.
The main advantage of adjudication is speed. The disadvantage is that due to the short timescales involved the resulting decision can be perceived as rough justice by the Responding Party; particularly if the case is complex involving numerous documents.
A further disadvantage is the cost. When adjudication was introduced the intention was that the procedure would be cheaper than going to court. However, unlike a judge, the adjudicator does not have the power to award costs. In a complex adjudication the legal cost can be high and this cannot be recovered. Both parties bear their own costs. The adjudicator does have the power to award his fees. However, the total risk of cost exposure for the parties is lower as the losing party does not have to pay the other party’s costs.