Statutory adjudication, domestic arbitration and litigation in the UK's construction sector
A comparative analysis of frequency of adjudication, arbitration and litigation in the UK.
The process of statutory adjudication was not formally introduced in the United Kingdom until the enactment of the Housing Grants Construction and Regeneration Act 1996 (HGCRA) but its origin can be trailed back to the Simon Report 1944, Banwell Report 1964 and the decision made by the Court of Appeal (Civil Division) in Dawnays Ltd v FG Minter Ltd (197) 2 All ER 1389 but out of all these the most influential one would be the report by Sir Michael Latham published in 1994 (Uff, 2013).
The problems in the construction sector were prevalent for decades but the recession of 1991 really made it worse, and the government finally decided to intervene by pulling its best foot forward through the Latham Report.
While mentioning the aim of the Latham Report, Sir Tony Baldry stated: 'To identify the reforms to reduce conflict and litigation and to encourage productivity and competitiveness' (House of Common Debates, 1993). The Latham Report can easily be identified as the turning point in the industry, (Beatham et al, 2004). It consisted of twelve chapters and addressed a range of issues; hindrances in the successful delivery of the project; client and the execution team relationship; post completion responsibility but the most important ones were:
- Declaring ‘pay when paid’ provisions unfair and unjust.
- Discussing the unjust usage of the arbitration and litigation provisions by the payer to delay the resolution of the dispute and gain an undue commercial advantage.
- Suggesting the introduction of adjudication.
Since its introduction, adjudication has emerged as the most popular method of dispute resolution within the UK construction industry, arguably due to its expedited and cost-effective nature. The dominance of adjudication in construction disputes is confirmed by Lord Justice Coulson’s comment in John Doyle Construction Ltd v Erith Contractors Ltd (2020) EWHC 2451 (TCC), stating that adjudication is not an alternative to anything; for most construction disputes, it is the only game in town. Equally, Justice O’ Farrell OBE confirms this dominance in the 2023 King’s College London Construction Adjudication Report (the KCL report), stating that adjudication has outstripped the number of claims issued in the TCC and the commercial court combined, and is comfortably exceeding referrals to arbitration.
It is a conventional wisdom across the dispute resolution professionals of the UK construction sector that adjudication has surpassed arbitration, and litigation in terms of number. A considerable amount of literature has been published dealing with topics like factors behind popularity of adjudication, introduction of adjudication in other countries, commercial arbitrations in the UK, but the authors could not find any study that deals with the comparative analysis of the numbers of these three dispute resolution methods that is arbitration, adjudication and litigation especially in the context of the UK construction sector.
Given that we have commemorated the 25th anniversaries of both the HGCRA and the Arbitration Act 1996 not too long ago, a stock-taking of the use of adjudication, domestic arbitration, and litigation in the construction sector seemed appropriate to the authors. In this article, the authors, after briefly explaining their methodology and the differences of adjudication to arbitration and litigation, compare the frequency of recourse to these dispute resolution mechanisms and discuss the factors contributing to the higher use of adjudication than of domestic arbitration and litigation.
A literature review summarised within the article was undertaken to identify the frequencies of adjudication, arbitration, and litigation. To the authors’ knowledge, unlike the KCL reports there is not a study that provides comprehensive yearly data on domestic construction arbitration cases across all arbitrator appointing bodies in the UK or a study that gives total number of construction cases referred across all courts in the UK, so a research gap existed.
Due to the temporary binding nature of adjudication, it might be considered that comparing adjudication to arbitration and litigation is like comparing apples with oranges.The authors contacted few arbitrator appointing bodies for statistics, but the requests have been met with silence. To fill the research gap and to further strengthen the findings of the literature review a qualitative analysis was carried out to study how adjudication has impacted the numbers of domestic arbitration, and litigation in the UK construction sector.
The data was collected using five semi-structured interviews of professionals with the UK construction dispute resolution experience. Each interview was then separately studied for thematic analysis based on cognitive mapping, central and domain analysis through Banxia Decision Explorer software.
Each study has some limitations that has the potential to influence its outcomes and aims. For this article due to lack of publicly available data, and authors not receiving positive response regarding their requests for statistics from arbitrator appointing bodies one of the significant limitations is the authors’ reliability on extrapolation of numbers derived from only one source that is London Court of International Arbitration (LCIA) annual casework reports (LCIA reports) for arbitrations, and Technology and Construction Court’s annual reports (TCC reports) for litigation to compare numbers of adjudication with domestic arbitration and litigation.
The other prominent limitation is the word count associated with this article. It is recommended that any further studies carried out in relation to this topic should try to gather more comprehensive data through freedom of information requests, to courts, and by using other means to gather data from arbitrator appointing bodies.
Binding nature: Not comparing apples and oranges
Adjudication is a construction-specific dispute resolution process in which an adjudicator generally decides within a strict timeframe of 28 or 42 days. In contrast, arbitration and litigation are not constrained by specific time limits, often resulting in longer proceedings than adjudication. A key difference between adjudication, arbitration and litigation lies in the binding nature of their outcomes.
Various reports and studies on adjudications suggest that there are between 2,000 and 3,000 cases annually.
Adjudication produces a decision that is only temporarily binding, meaning it can be challenged or revisited in subsequent legal actions such as arbitration or litigation. Conversely, arbitration, and litigation result in a permanently binding decision.
Due to the temporary binding nature of adjudication, it might be considered that comparing adjudication to arbitration and litigation is like comparing apples with oranges, but that is not the case because recent studies show that adjudication should also be considered permanently binding de facto. The KCL report highlights that a vast majority of adjudication decisions are not further referred to arbitration or litigation. The report states that around 42% of the respondents to the survey stated that not even a single adjudication decision was referred to arbitration or litigation for enforcement.
Meanwhile, a further 21% of respondents indicated that fewer than 5% of the cases were referred to arbitration or litigation.
Various reports and studies on adjudications suggest that there are between 2,000 and 3,000 cases annually. Approximately 2,000 of these involve adjudicators appointed by an adjudicator nominating body (ANB). While the UK has about twenty ANBs, only a few of them handle a significant number of nominations, (Gibbs, 2023). The KCL report confirms that since 1998 around 39,681 cases have been referred to adjudication through ANBs.
To compare adjudication to domestic arbitration the authors refer to LCIA reports. The LCIA reports are used as opposed to reports of any other arbitrator appointing bodies because firstly the LCIA reports are easily accessible and secondly LCIA could be considered the market leader for arbitration appointments in the UK. Table 1 shows the number of construction-related referrals received by LCIA in the last five years that is 2019 to 2023.
Further, when we consider the figure of 14.8% to find out how many of these arbitrations were domestic, involving the UK parties, the extrapolated figure comes out to be around three referrals a year.
The second element to consider is how many of these referrals were from parties based in the UK because the LCIA gets referrals from across the globe, so analysing the percentage of the UK-based parties in these reports appeared to be a reliable way to extrapolate the number of domestic arbitrations in the UK. Table 2 provides an answer to this.
The yearly average of 5.6% of Table 1 above equates to around 22 construction-related referrals received by LCIA every year for arbitration. Further, when we consider the figure of 14.8% to find out how many of these arbitrations were domestic, involving the UK parties, the extrapolated figure comes out to be around three referrals a year.
Since adjudication has been introduced there has been just over 2,000 cases for enforcement to courts, (Gibbs, 2023). There are statistics available for TCC and for High Court up to some extent, but there have been adjudication enforcement and construction cases in the county courts and small courts too and its these statistics that are difficult to find because of not being reported.
The authors also rely on the TCC reports to compare the number of litigations with arbitrations and adjudications. According to the last 18 reports around 14,043 cases have been referred to TCC since 2005. This number is not limited to construction and adjudication enforcement cases only but also contains cases from other streams like professional negligence, insurance, IT and dilapidations which means it is higher than the actual number, but it could be taken as a basis to compare the number of adjudications to litigations. Table 3 provides a summary of these reports prepared by the authors.
When the above-extrapolated figure of three arbitration referrals per year is compared to the number of adjudication referrals which, as per Justice O’Farrell’s statement in the KCL report, averaged around 2,000 per annum in the last five years, it shows that the number of adjudications happening in the UK’s construction sector is much higher as compared to domestic arbitration. The same trend of dominance of adjudication continues when the number of adjudications in the last 18 years of nearly 29,000 (40,000 in the last 25 years) is compared with the number of litigation cases in TCC which is 14,043 (all-inclusive figure).
Rashda Rana (2009) in her paper suggested two major contributing factors towards adjudication dominating arbitration and litigation, when it comes to numbers.
There are two major contributing factors towards adjudication dominating arbitration and litigation, when it comes to numbers.
Firstly, time is of the essence, meaning that adjudication provides a swift and cost-effective resolution of disputes as a dispute is resolved within 28 or 42 days. In contrast, arbitration and litigation are not constrained by specific time limits, often resulting in longer proceedings.
Secondly, adjudication is a statutory right, meaning adjudication is not dependent on its incorporation into a contract between the parties, thus providing parties with an easily accessible option for resolving disputes. This statutory nature has helped adjudication to prevent disruptions to cash flow in situations where the parties lack a proper contract, for example, when in the UK a contractor commenced construction works based on a letter of intent that does not contain a proper dispute resolution mechanism.
In this case, arbitration would not be an option for lack of an arbitration clause. In the words of Rashda Rana herself: “The hijacking of the quick, cheap and efficient banner by adjudication has been systematic and relentless”. Salmon and Cato (2023) mention another interesting reason that has led arbitration to become a second choice for construction disputes even compared to litigation.
They are of the view that the advent of the Civil Procedure Rules 1998 (CPR) and TCC have resulted in domestic arbitration further falling out of favour because it involves judges who are experts in construction law and TCC judges are considered more well versed and better qualified than most arbitrators. Also, the CPR allows ease of access to justice.
Table 4 provides a summary of the ideas and themes discussed in each interview of the qualitative analysis. Figure 1 provides the themes identified in the qualitative analysis. The qualitative analysis corroborates the findings of the literature review, indicating that adjudication has not only impacted but also surpassed arbitration, and litigation in terms of frequency of use. It further confirms that the primary factors contributing to the predominance of adjudication over arbitration and litigation are its expedited process, cost-effectiveness and statutory nature.
The comparative analysis of frequencies in this article evidences the success of adjudication, and based on that it might be safe to say that adjudication in the UK’s construction sector is not an alternative to arbitration, and litigation, but rather arbitration and litigation are alternatives to adjudication. Further, the success of adjudication as an alternative dispute resolution process in the UK’s construction sector can be gauged by the fact that, since its introduction, it has been adopted by various other countries around the globe, particularly the commonwealth countries.
Table 5 enlists some of the countries that adopted adjudication through relevant legislations. These developments, especially the reasons behind why parties prefer adjudication over arbitration or litigation (besides the former being statutory), could also be used to consider introducing specific arbitration or litigation rules tailored toward domestic construction disputes to meet the parties’ needs and increase the competition between the dispute resolution mechanisms.
References
Beatham, S., Anumba, C., Thorpe, T. and Hedges, I., 2004. KPIs: a critical appraisal of their use in construction. Benchmarking: an international journal.
Gibbs, S., 2023. A UK roundup of adjudication. Construction Law Review 2023-2024 by Chartered Institution of Civil Engineering Surveys, p23.
Rana, R., 2009. Is adjudication killing arbitration? Arbitration: The International Journal of Arbitration, Mediation and Dispute Management, 75(2).
Salmon, K., Cato, M., 2023. Construction Disputes: The case for adjudication, Construction UK Magazine. Uff, J., 2013. Construction law (pp. 548-548 ). London: Sweet & Maxwell