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Property Update — February 2014: what is the status of an adjudicator’s decision before court judgment or an award by an arbitrator?
28 February 2014
14 February 2014
You have a claim, perhaps with a value of several hundred pounds, perhaps hundreds of thousands, or even into the millions. Your opponent is intransigent; it will not pay and tells you to do your worst.
What action do you take? Imagine that you serve proceedings on your opponent and within seven days someone is appointed to hear the claim. A decision is made within 28 days. If you win you are able to enforce the decision immediately. What is more, you do not even need to use lawyers.
In the construction industry this is not fantasy. It happens all the time.
Adjudication gains ground in construction
Since Part II of the Housing Grants Construction and Regeneration Act 1996 came into force on 1 May 1998, such adjudication has happened at least 6,000 times.
Compulsory adjudication of practically all construction disputes, which was one of a number of reforms introduced by the act, has transformed the business of bringing claims in the construction industry, has reduced to a trickle the disputes being heard in court or in arbitration, and has put money in the hands of parties to construction contracts, in particular subcontractors, in double-quick time, often preventing insolvency.
It is a quiet, unsung revolution that provides a quick and inexpensive way to resolve claims. The word 'resolve' has been used deliberately, because the process does seem to resolve the vast majority of disputes. It may, though, sound like an interim process - and indeed it can be in that it is open to the parties to take the same dispute to court or arbitration, but in fact very few do so. Even if they do, thanks to the robust support of the judges in the Technology and Construction Court, the decision made by the adjudicator has to be honoured and is enforceable in the interim. If the adjudicator orders payment, then payment must be made and the Technology and Construction Court has dealt firmly and decisively with attempts to get around this.
Can this be considered to be justice? It is clear that you simply cannot do everything that, over the centuries, has come to be considered as necessary to prepare for and argue a case, in just 28 days. However, given the increasing popularity of adjudication, it appears that the parties concerned do not care.
The adjudication process provides a quick and inexpensive decision and allows the opponents to get on with much more productive activities, such as running their businesses.
It seems a decision is all that is wanted by the parties. A 'day in court' does not seem to be vital for parties to feel that the process has worked.
Recent research carried out by the Construction Industry Council (CIC) showed that nearly 60 per cent of adjudications are conducted without any meeting taking place; in other words, the adjudicator reaches their decision on the basis of documents only.
What is more, it appears that many parties do not even want to know why the decision has been made. The research showed that 27 per cent of decisions were given without reasons; and yet in only 4 per cent of adjudications did one of the parties complain about the conduct of the process or the decision.
So how does it work? And more importantly, are there other areas outside the construction industry that would be similarly revolutionised by such a regime?
Compulsory adjudication in practice
Part II of the act defines a construction contract and provides a scheme for adjudication. It requires a dispute arising under any contract that falls within the definition in the act (pretty much everything in which the commercial construction industry becomes involved) to be dealt with by way of adjudication under the rules of the scheme. The parties cannot proceed straight to arbitration or litigation unless they both agree.
The scheme allows the parties to agree their own adjudication rules and to incorporate them in their contract; but if they do, their rules must include the basic requirements of the scheme, or they are invalid. As an alternative, there are a number of scheme-compliant sets of adjudication rules produced by construction bodies that parties can incorporate.
The parties can agree the identity of the adjudicator when making their contract, or can do so after the dispute has arisen. Failing agreement, application can be made to one of the 24 adjudicator-nominating bodies to appoint an adjudicator.
The adjudicator must be appointed and the dispute referred to them within seven days, and they must reach their decision within 28 days of the referral. This period can be extended for as long as necessary if both parties agree, or by a maximum of 14 days if the referring party consents.
The adjudicator's decision is binding and enforceable until the dispute is finally determined by court proceedings, arbitration or agreement between the parties.
Equally, the parties can agree to accept the decision of the adjudicator as finally determining the dispute. Many seem to do just this, either expressly or by default, as the number of cases proceeding to court or arbitration is now a mere trickle compared with pre-adjudication days, as many construction lawyers will attest.
It is a system that works. Most adjudications are completed within the 28-day period. The CIC research has shown that, in 76 per cent of adjudications, the adjudicator committed 40 hours or fewer to the task.
Who else could benefit?
Adjudication has now worked well in practice in the construction industry for more than four and a half years. Has the time not arrived for it to be applied in those other areas where it is sorely needed?
Adjudication is most appropriate in areas where it is important to process claims and get money in the hands of deserving claimants quickly, for example personal injury (PI) claims. Research has shown that it takes 13 months for the simplest PI claim to run from start to finish. Adjudication would provide a much quicker route. Insurance claims would also seem well suited to adjudication. Quick, cheap and no need for lawyers to become involved.
Adjudication has also shown itself to be a useful way of resolving disputes as they arise in long-running construction contracts. The parties get a quick decision and can continue with the project without further distractions. In the commercial world, therefore, adjudication would seem to lend itself to other long-running agreements, such as outsourcing contracts.
Adjudication may be quick and dirty, but the 6,000-plus adjudications seen in the last four and a half years clearly show that it works. Now is the time to release it from the confines of the construction industry and let others experience its benefits. n
Peter Rees is head of the litigation department at Norton Rose and chairman of the Technology and Construction Solicitors Association, an adjudicator-nominating body