Adjudication
Harry King, Junior Associate, Quigg Golden
UNDER section 108 of the Housing Grants, Construction and Regeneration Act 1996, parties to a construction contract have the right to refer a dispute to adjudication ‘at any time’. Since the act came into force, adjudication has become one of the most popular forms of dispute resolution – almost a go-to for any dispute that can’t be resolved without a binding decision from an outside authority.
But what does the right to adjudicate ‘at any time’ mean, and perhaps more pressingly, when is adjudication the right option for a party to a construction dispute? This article will explain when you can adjudicate and give some guidance on how adjudication is best used.
When can you adjudicate?
While many contracts include escalation mechanisms that may seek to delay or supplant the right to adjudicate at any time, section 108 of the act will usually trump contractual terms, having been interpreted plainly and literally by the courts on a number of occasions.
While many contracts include escalation mechanisms that may seek to delay or supplant the right to adjudicate at any time, section 108 of the act will usually trump contractual terms, having been interpreted plainly and literally by the courts on a number of occasions. The courts do prefer upholding agreed contractual terms, including mechanisms for alternative dispute resolution (ADR). In Ohpen Operations UK Ltd v Invesco Fund Managers Ltd (2019) EWHC 2246 (TCC) the contract in question stipulated that the matter should be referred to litigation if mediation was unsuccessful. Ohpen issued proceedings without first arranging a mediation.
As a result, the court stayed the proceedings and upheld the clause requiring mediation. However, this case did not concern a construction contract, nor did it concern adjudication. It does however illustrate the general desire of the courts to uphold agreed upon ADR provisions.
Despite this, the courts have made clear that the statutory right to adjudicate at any time takes precedence over agreed clauses on dispute resolution. In R.G. Carter Ltd v Edmund Nuttall Ltd (2000) BLR 359, the Technology and Construction Court (TCC) held that a clause requiring mediation prior to adjudication did not trump section 108 of the act. A separate clause providing that a ‘difference’ between the parties only became a ‘dispute’ capable of reference to adjudication after mediation had been attempted was found to similarly be an attempt to postpone the right granted by the act to refer a dispute to adjudication at any time.
The court in Herschel Engineering Ltd v Breen Property Limited (2000) EWHC Technology 178 also confirmed that the right to adjudicate at any time under the act includes referring a dispute that is already the subject of pending court proceedings to adjudication. The decision in Connex South Eastern Ltd v MJ Building Services Group plc (2005) EWCA Civ 193 also confirmed that adjudication remains available even after the contract in question has been discharged.
Bresco Electrical Services Ltd (in liquidation) v Michael J Lonsdale (Electrical) Ltd (2020) UKSC 2019/0036 and John Doyle Construction Ltd v Erith Contractors Ltd (2021) EWCA Civ 1452 further confirmed the extent of the right to adjudicate at any time by demonstrating that it is possible for an insolvent party to issue an adjudication.
Accordingly, once a dispute has crystallised, the act provides that a party to a construction contract may refer to adjudication at any time, and contractual dispute resolution clauses are unlikely to remove this right.
When should you adjudicate?
To some in the industry, adjudication can be a dirty word, describing a process to be feared and avoided. Concerns include the amount of time an adjudication might eat up, worries over reputational and relationship damage and what returns might be achieved in exchange for the risk and expense involved. The vast range of potential matters that can be referred to adjudication prevent a one-size- fits-all answer to when it should be used, but the following points will always apply.
A comprehensive risk assessment carried out by a legal professional is the best antidote to these worries. By digging into the relevant contractual clauses, options, strengths and weaknesses of the applicable arguments to construct a case, you can mitigate the risks of launching an adjudication. Likewise, if an adjudication is issued against you, an honest review of the matter by a solicitor can reveal the scope of risk.
As part of this review, you should weigh up the potential for the other party to bring counterclaims, as well as the costs of adjudication and the effect of launching an action upon your commercial relationship.
In short, the time to adjudicate is when you have properly managed the risks and are confident in your arguments and supporting evidence. On the one hand, a solicitor will be vital in assessing this, constructing arguments, citing case law, statute and more, but on the other you must be able to provide them with the required information to enable them to carry out a proper risk assessment ahead of launching the action. Generally, the side with the best evidence wins – so your preparation for any potential adjudication begins with record keeping and project management.
Why should you adjudicate?
To perhaps answer the most important question last, adjudication offers a method of recovering sums and/or settling contractual disputes, usually at a lower cost and over a shorter time period than other forms of dispute resolution. While the aim of the adjudicator issuing a decision within 28 days from the date of referral isn’t always met, 60% of respondents to the 2023 King’s College London adjudication report reported that adjudications tend to last between 29 and 42 days1. This remains a much shorter timeframe than litigation – the referring party must agree to extend the adjudication from 28 days to 42, and both parties (and the adjudicator) must agree to extend an adjudication beyond this timeframe.
To some in the industry, adjudication can be a dirty word, describing a process to be feared and avoided.Similarly, the Kings College report revealed that the median total cost of an adjudication between May 2022 – April 2023 fell between £20,001 and £30,000. While not insignificant, these fees are greatly eclipsed by litigation costs on construction issues, which often sail past the £100,000 mark and potentially into the millions.
Adjudication also has the advantage of being relatively discreet. Adjudicator’s decisions are not published, unlike judgment in litigation, and so parties who are concerned about reputational damage may breathe a little easier.
While an adjudicator’s decision is only interim binding, meaning it can be superseded by a court decision, the vast majority of adjudicator’s decisions settle the matter, with 42% of Kings College survey respondents stating that from 2022-2023, not one of the adjudication disputes they were involved in was later referred to litigation or arbitration. Enforcements of adjudicator’s decisions have a high track record of success – only 0.22% of adjudicator’s decisions have been defeated at enforcement stage since 20112 .
In the case of payment notice adjudications, based upon a party failing to make payment of a certified amount, adjudications tend to be faster and more straightforward. Where more technical expertise is required in substantive adjudications assessing disputes over defects, delay, or similarly complex matters, it is possible (and advisable) to seek the services of an adjudicator with a relevant background, such as a quantity surveyor.
61% of adjudicators who responded to the 2022-2023 Kings College survey had a background as quantity surveyors, with engineers, claims consultants and private practice solicitors each accounting for 16% of respondents’ backgrounds (note that many adjudicators will be dual-quali fied between these backgrounds)3. This allows adjudication to act as a useful tool in payment notice adjudications, but also means it can be used to obtain a decision in more complex circumstances.
Summary
To conclude, a party to a construction contract may refer a dispute to adjudication at any time once that dispute has crystallised. Before doing so, it is best to carry out a comprehensive risk assessment under the advice of a solicitor to determine the strength of your arguments and any potential risks. When properly utilised, adjudication can offer resolution to a dispute that is faster and cheaper than litigation.
Harry King, Junior Associate, Quigg Golden
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1 Professor Renato Nazzini & Aleksander Kalisz, 2023 Construction Adjudication in the United Kingdom: Tracing Trends and Guiding Reform (Centre of Construction Law & Dispute Resolution, King’s College London. In collaboration with The Adjudication Society, 2023)
2 Ibid, p.46
3 Ibid, p.75