The UK and U.S. construction industry, with its typically high value or complex disputes and the need for urgent resolution of those disputes, has led the way in developing and implementing new forms of ADR. This tradition continues.
May 1998 heralded the arrival of an untested form of ADR exclusive to the UK construction industry - Adjudication. Several years on, the majority of construction and engineering disputes are resolved through Adjudication, a process that is growing in worldwide popularity. Is it the UK's turn to export to the U.S. its comparatively new and increasingly highly regarded alternative form of ADR?
For those involved with construction projects in the UK and the disputes that invariably arise, Adjudication is available as a contractual (or, by default statutory) right. Experience and knowledge of the procedures, and resultant tactics and strategies to be deployed, is a distinct advantage.
Both in the UK and the U.S. litigation and arbitration have for some time been regarded as being unsuitable for the resolution of construction disputes where 'time is money' and there is a need for quick resolution of disputes, especially for sub-contractors and construction specialists where cash flow is paramount and profit margins often tight. A UK government sponsored review of the needs and requirements of the UK construction industry led to the adoption of Adjudication on 1 May 1998 as part of the Housing Grants, Construction and Regeneration Act 1996 ("the Act").
Adjudication - Provisions Of The Act
The Act applies to all commercial construction operations, to include not just contracts for works but also design, surveying and architectural services in relation to construction operations. Whilst parties to a contract may always agree as a term of contract to resolve disputes by Adjudication, the Act excludes from the definition of construction operations:
All UK standard form construction contracts contain Adjudication provisions.
The need for a written contract
For the Act to apply, the contract governing the construction operation in question must be in writing, whether by formal contract, exchange of letters or otherwise evidenced in writing, for example, minutes of a meeting. Recent court judgements, given in deciding whether decisions of Adjudicators should be enforced, make clear that it is not sufficient for only certain of the agreed contract terms, for example those relied upon in pursuing a dispute through Adjudication, to be in writing. Rather, all agreed contract terms should be recorded in writing, although this does not of itself disallow contracts that include terms of contract implied in a particular contract by reason of statute or industry practice.
To illustrate, Adjudicators cannot consider disputes concerning alleged additional or varied works instructed orally and not in writing, notwithstanding that all other contract terms are in writing.
The need for a dispute
The Act provides an absolute right for a 'dispute' to be referred to Adjudication at 'any time.' This right exists, regardless of what the contract between the parties says, and allows an Adjudication to be commenced during contract works or after those works have been completed or following termination of a contract.
There has been much judicial debate about what constitutes a dispute; should it be found that no dispute has crystallised, there is then no right to refer the underlying issues to Adjudication. The courts have ruled that:
A typical Adjudication procedure is as follows:
Unavailability as and when a dispute arises, and
Lack of professional expertise or experience relevant to the particular type of dispute.
Binding Nature Of The Adjudicators' Decision
The Adjudicator's decision is binding unless and until the dispute is finally determined by court or arbitration proceedings (depending upon the contract terms) or by agreement. It is possible to have the same issues decided by the Adjudicator referred to the court or arbitration for final determination, but only after the initial Adjudicator's decision has been honoured, for example, with monies awarded paid in full.
If an Adjudicator's decision is not honoured, it can be enforced by the Claimant issuing court proceedings that are fast tracked through to a hearing at which the Claimant seeks summary judgement for the sum awarded by the Adjudicator, plus accrued interest and costs. The courts will enforce Adjudicator's decisions even if those decisions are shown to be wrong in fact or law. There are few decisions that are successfully challenged, with the Respondent in essence having to establish either:
One Size Fits All?
One criticism of Adjudication and a further area of challenge to Adjudicator decisions has ironically been that the process is ill suited or too quick for some categories of large (both in terms of quantum claimed and documentary evidence) or complex disputes, for example professional negligence claims typically requiring expert report and analysis. It is typically argued:
As there is nothing in the Act limiting Adjudications to certain types or size of claim, the courts have been asked to consider whether, in such large or complex cases, the process is fair and by continuing the Adjudication, Adjudicators thereby commit breaches of natural justice.
By way of illustration, in a recent case, the court was asked to consider whether the case was too complex for Adjudication. The claim was for £12m ($22m) and amounted to 52 files of documentation. The Adjudication process allowed for six experts' meetings and resulted in a 139 page decision. Throughout the process the Adjudicator asked for and was granted by both parties extensions of time for his decision. The process nevertheless only lasted 21/2 months from start to finish.
The judge found that the relevant question was not whether the dispute was too complicated to refer to Adjudication but whether the Adjudicator was able to reach a fair decision within the time allowed by the parties. In this case he found that 21/2 months was sufficient time and so granted judgement as requested by the Claimant.
The process of Adjudication presents both threats and opportunities, depending upon parties' readiness and commercial awareness of procedures and strategies and tactics that can and perhaps ought to be deployed in any given situation. More often than not, Adjudication on certain discreet issues can be deployed as part of ongoing negotiation between the parties in a wider context.
For U.S. businesses who operate in the UK construction market, whether as procurer of building works or as contractor or design team consultant, there is a huge advantage in understanding those threats and opportunities and so helping to maximise returns and ensure as successful a project as possible, and avoiding long running and costly litigation or arbitration.
Formulating a comprehensive contract strategy, the clear documentation of all contract terms, understanding when and how to proceed with Adjudication claims, and how the defence of those claims should be conducted to include laying the necessary groundwork for, if appropriate, subsequently resisting enforcement of decisions, should together give the best hope of success in the UK construction market and of minimising risks of and exposure to damaging and expensive disputes.
David Rintoul is a Partner in the London office of Clarkslegal LLP. Clarkslegal LLP is also a member of TAGLaw, a worldwide legal network of independent law firms. The TAGLaw network has 134 firms in 80 countries and 120 jurisdictions. Visit the website of Clarkslegal LLP at www.clarkslegal.com.