12 Nov 2021
Mandatory adjudication for disputes arising out of construction contracts was introduced in 1996 by statute , (‘The Act’). The Act was backed by regulations in the Scheme which contained adjudication (and payment) provisions that would be incorporated into construction contracts that did not comply with the Act. There rapidly built up a body of case law ironing out the issues that arose from the legislation, or in the adjudication process and subsequent enforcement proceedings and, occasionally, due to the conduct of the adjudicator.
Most of the industry’s institutions quickly became registered as adjudicator nominating bodies (ANBs) and assembled panels of experienced industry professionals (initially recruited from the ranks of arbitrators) to provide the required adjudicators.
In the construction sector adjudication was intended to provide the means by which the right to payment, often described as “the lifeblood of the construction industry”, would be maintained. The Scheme was the hammer to enforce due payment. Initially the Scheme did not cover contracts other than those in writing as it was thought adjudicators would find it difficult to deal with oral agreements in the time available and (usually) without the benefit of seeing and hearing witnesses. In 2009 the Act was amended to extend its scope to all contracts, not just those made or evidenced in writing.
Over time the process has become used to dealing with all manner of disputes: the existence of a contract; its terms; the meaning of terms; claims for extension of time, loss and expense, disputes over termination and repudiation and damages for breach. Some eminent practitioners (and judges) said adjudication was never intended or was unsuitable to deal with large complex claims, claims involving professional negligence, or allegations of fraud. In practice, adjudicators have arguably become adept at dealing with every kind of dispute thrown at them often including large volumes of documents, expert reports and witness statements.
The process has become accepted as the Alternative Dispute Resolution (ADR) mechanism of choice. It has received judicial approval at the highest level (see the judgment of Lord Briggs in Bresco ). In short it works.
The benefits of construction adjudication
At paragraphs 19-26 of his judgment Lord Briggs lists the benefits of adjudication. These are:
The original hope that parties would act in person and dispense with legal or professional assistance has proved to be the exception not the rule. Still, in small or medium value disputes, parties can and will act for themselves to avoid irrecoverable expense. Big corporate parties with deep pockets and participants in large project disputes will engage all the professional assistance they think they need.
Some adjudication schemes like the SC&L Adjudication Scheme (below) provide for the possibility of costs recovery. Without suggesting this is desirable, it is an option. Contractual evolution of the rules in the construction sector.
Since the Act came into force, various standard forms of construction contract have adopted bespoke compliant terms alongside which they (and construction’s professional bodies) introduced their own adjudication rules (complying with the Act but self-contained) in place of the Scheme’s basic provisions. It is therefore possible for an adjudication to be conducted under such rules, the Act merely adding the underlying legislative policy objectives.
Thus it follows that the process can work without a statutory framework if there is sufficient call and usage, a workable set of rules, a body of suitable adjudicators, and an available court enforcement process.
If there is no statutory requirement of a right to adjudicate, the adoption of the process is purely voluntary rather than “semi-compulsory” to use Lord Brigg’s language. It will require the authors of standard or common forms of contract and the parties who use them or those who advise users, to require and mandate the inclusion of adjudication as one of the forms of dispute resolution. Once the benefits are understood, misgivings and doubts should subside and based on the construction experience, vanish.
Alongside the use of statutory adjudication, such provisions have voluntarily been included in construction contracts not subject to the Act, because of the utility of the process. And the courts have enforced awards applying the same law and practice as has been developed for construction contracts subject to the Act. This is no surprise. Summary judgment is available when there is no realistic defence so it is the proper and appropriate process to enforce a binding award. Moreover it is usual to provide in the contract that (a) the parties will abide by the award pending any final determination and (b) that a binding award is to be enforceable in court by summary judgment and any expedited procedure that is available. Experience and reported cases on the enforcement of contractual adjudication awards show that the expedited procedure has been used without demur and the contractual award treated like one made under the Act.
Adjudication in other sectors
There are at least three sets of adjudication rules that have been published for use for the resolution of non-construction disputes:
The Professional Negligence Bar Association published its pilot adjudication scheme in 2019. The take up has been disappointing so far. It appears that professional indemnity insurers have yet to be convinced of the utility of adjudication. And there may have been some degree of nervousness over whether the courts would summarily enforce awards of a purely contractual genesis and nature. This reluctance exists despite the recommendation and encouragement of Carr LJ and Fraser J in the introduction to the Pilot Scheme in 2019.
The Society for Computers and Law published its Adjudication Rules in 2019 intended to be available for computer related hardware, software and IT services contracts. There is not yet an indication of significant adoption or use of the rules in the IT sector.
The Centre for Effective Dispute Resolution’s Rules for Commercial Adjudication were introduced in 2015. It is not known what the take up is but the very existence of the Rules is not widely known even amongst the legal community. The Rules mirror the CEDR Rules for Construction Contracts with the necessary contextual changes.
The International Dimension
For those with legal and commercial interests further afield there are Construction Adjudication Schemes in other jurisdictions for example Ireland, USA, Canada, Australia, New Zealand, Hong Kong, South Africa and Tanzania. The extensively used FIDIC international form of contract is a solid proponent of Dispute Adjudication Boards and incorporates this mechanism as a primary method of dispute resolution whereby between one and three adjudicators may be nominated to the dispute resolution board depending on contract value. In South Africa, courts recognise that the parties are obliged to act upon the adjudicator’s decision unless revised in arbitration but mechanisms of enforcement are more tortuous where no summary procedures currently exist. Arbitration is extensively used throughout East Africa as the most common forum for the resolution of disputes and, in the main, adjudication awards are not enforceable in court. A comprehensive acceptance of adjudication in the region would arguably provide access to a more affordable and timely method of dispute resolution which would allow greater flow of cash and earlier resolution of damaging disputes which can only benefit the wheels of commerce. Regional acceptance of adjudication under common rules with cross-border recognition and enforcement would be a significant step forward in a region supporting pan-Africa infrastructure projects and where international supply chains are prevalent.
A New Era
There is every good reason why particular sectors should look to introduce, encourage and develop their own sector specific adjudication scheme / rules. If it is accepted that the benefits of adjudication are transferrable to non-construction contract disputes, there is again good reason to devise an adjudication scheme / rules for commercial contracts where no sector specific rules are needed or exist. To borrow again from construction case law, where such contracts are entered into with ‘consumers’ they would have to satisfy the requirement of the Unfair Contract Terms in Consumer Contracts Regulations 1999. Subject to that, carefully drafted rules, should be effective and fully enforceable. The question remains how to encourage contracting parties to adopt existing and / or future adjudication rules. There is a duty on lawyers asked to draft or advise on contracts to consider and discuss with their clients, amongst many other things, appropriate and effective dispute resolution provisions. Experience and Judicial approval of adjudication surely means that it, and any available rules or scheme, must be discussed and considered.
If further encouragement were needed, consider the front loading of costs in litigation; increases in court fees (starting with an issue fee of up to £10,000); the cost of compliance with pre-action protocols and early disclosure; and costs budgeting. Note the intention to extend the fixed recoverable costs regime to claims up to £100,000. And note the heralded move to ‘compulsory’ mediation. Finally it can hardly be denied that judicial resources are limited and trials no longer face to face. It is high time for a viable alternative to litigation. Whilst arbitration does not suffer the same ills, its delays are hard to control and it can be every bit as expensive. Time for a change? Well at least time for a sensible alternative.
K T Salmon* and Marcus Cato**
MCIArb Solicitor and CMC Accredited mediator Consultant to Slater Heelis Ltd
** BEng(Hons), MSc, DipM, RMaPs, FCIArb, FRSA, MICE, CEng, MD of McComb Partnership Ltd (Rwanda)