Many of our readers will be familiar with the adjudication process. However for those not familiar, this article summarises the process, detailing its advantages and disadvantages.
What is it?
Adjudication is a form of dispute resolution available under all relevant construction contracts, where the dispute is determined by an independent and impartial adjudicator.
The right to statutory adjudication was introduced by the Housing Grants, Construction and Regeneration Act 1996, which was amended in October 2011 by the Local Democracy, Economic Development and Construction Act 2009 (“the Construction Act”). Sometimes the right to adjudicate is set out expressly in the contract but if not, it will be implied into the contract as a matter of law by the Construction Act, provided it is a contract for ”construction operations” as defined in that act.
There are some exceptions as to which contracts are subject to the Construction Act right to adjudicate. For example, it does not include construction contracts with home owners for works to their principal, private dwelling.
The adjudication process starts with a brief Notice of Adjudication from the ‘referring party’ (the claimant in the process). This sets out brief details of the nature of the dispute and the remedy sought, and certain other details including the proposed adjudicator. After service of that notice, the referring party applies for the person named in the contract to act as adjudicator or, if no one is named, applies to one of the nominating bodies to nominate an adjudicator.
Within 7 days of the service of the Notice of Adjudication, the referring party must serve its Referral Notice. This sets out the details of its case, and includes the documents on which it wants to rely. The responding party will have the opportunity to serve its response (defence) to the claim, and sometimes there are further submissions by both parties.
The adjudicator has to reach his decision within 28 days of provision of the referral document. That period can only be extended by the agreement of the referring party, who can extend it by 14 days. Any further extension requires the agreement of both parties.
A key aspect of adjudication is that the adjudicator’s decision is binding and enforceable unless and until the dispute is resolved by litigation/arbitration or by agreement of the parties. Adjudicator’s decisions are enforced by way of an expedited application to the court when proceedings are issued.
The courts have made clear that they will enforce an adjudicator’s decision even if it is plainly wrong, whether in fact or law. The “remedy” for the aggrieved party faced with this situation is to have the dispute decided afresh via litigation or arbitration proceedings. In the meantime the adjudicator’s decision is enforceable and must be complied with.
The obvious advantage of the adjudication process over say litigation or arbitration is speed.
Getting a decision within 28 days of service of the referral document is very quick compared to litigation. Court proceedings can sometimes take a year to get to trial.
Although the adjudication process was initially introduced to assist cash flow, it is now used in a wide range of construction disputes, not just limited to claims for money.
A further advantage of adjudication is that, regardless of the outcome, both parties must bear their own costs. So for the referring party the costs’ risk is very different to that in litigation or arbitration. Although the referring party has to bear its own costs, those costs are over a shorter period than would be the case with litigation. In addition, the referring party does not run the risk of having to pay the other party’s costs in the event that its claim is unsuccessful.
The speed of the process can be both an advantage and a disadvantage - meaning that the process is inherently “rough and ready”.
Unlike litigation, there is insufficient time in the adjudication process for the very detailed and careful examination of the facts and issues, an inherent aspect of the very short timescales of the process.
There is also very often no meeting with the adjudicator, with the matter being decided on paper. Unlike litigation, witnesses are rarely cross-examined.
As noted above, these drawbacks in the adjudication process have been recognised by the Courts, which have made it clear that they will nevertheless enforce an adjudicator’s decision even if it is plainly wrong whether on the facts or the law.
Although originally intended for relatively small scale disputes over cash flow, adjudication is now being used for very substantial multi-million pound disputes, with a potentially more risky outcome. This is the inevitable trade-off with the speed of the process.
The only grounds on which the courts will refuse to enforce an adjudicator’s decision is where the adjudicator lacked the required jurisdiction to make his decision, or if there has been a breach of the rules of natural justice. For example, for the adjudicator’s jurisdiction, the dispute must have “crystallised” before the adjudication begins.
The nature of the adjudication process is that it is often very intense so sufficient management time needs to be set aside for the process.