Adjudication – is it time for it to be included in all commercial contracts?

Other industry sectors have started to consider adjudication. The professional negligence adjudication scheme is one example that was inspired by the success of the construction adjudication process.  It was first devised as a pilot scheme in 2015 but there was little engagement at that stage. The scheme was relaunched in 2016. As take up was still slow, in 2018 the Professional Negligence Pre-Action Protocol was amended to require the claimant to confirm whether they wish to refer the dispute to adjudication and to give reasons for not wanting to do so. In June 2019, the present version of the scheme was launched.

With the courts facing a backlog of cases, adjudication may be at least part of the answer to resolving disputes.  Although it is a statutory requirement for construction contracts, there is nothing to stop parties in any other industry contractually agreeing to an adjudication process.

Adjudication was introduced into all construction contracts as a result of the Housing Grants Construction and Regeneration Act (“the Act”).  Any dispute arising under a construction contract is caught by the Act and can be referred to adjudication at any time.

Adjudication is intended to be a quick, rough and ready way of resolving disputes.  From start to finish it can take as little as 35 days, although it often takes longer, but rarely does it take anywhere near the sort of time it takes to get a court judgment or arbitrator’s decision. 

Adjudication Procedure

Each construction contract has to include an Act compliant adjudication procedure. If it does not then the Scheme for Construction Contracts (England and Wales) Regulations (as amended) applies.

The procedure involves:

1. Service of a Notice of Adjudication.  This is served by the party bringing the adjudication, known as the Referring Party.  The other party is known as the Responding Party.  The Notice not a long document but it is important as it sets out the scope of the matters being referred to adjudication.
2. Applying to the nominating body stated in the contract, or if none is stated to any authorised nominating body. This is done at the same time as the Notice of Adjudication is served. Usually an adjudicator is appointed within 7 days.
3. Service of the Referral Notice. Within 7 days of the service of the Notice of Adjudication, the Referring Party serves on both the adjudicator and the Responding Party its Referral Notice, which sets out the claim in detail with supporting documents which can include witness statements.
4. Timetable. The adjudicator then sets the timetable for the rest of the adjudication. Bearing in mind the adjudicator has to reach a decision within 28 days of receipt of the Referral (unless extended), time is tight.  Usually the Responding Party will be granted 7-10 days to serve a Response.  The Referring Party is then usually given a matter of a few days to serve any Reply.  It is not uncommon for there to be a Rejoinder and a Surrejoinder, which are often no more than letters, served within a day or so of each other.
4. There is no formal disclosure.  The parties provide with the documents that they serve the document that they want to provide.
4. Meeting or site visit. Sometimes, the adjudicator asks for a meeting or a site visit, but not always. This remote form of working has fitted well with the restrictions placed by the COVID-19 pandemic.

Costs

There is usually no order for costs in adjudication. Each party pays their own costs whatever the outcome. Although the adjudicator can decide that one party pays the adjudicator’s fees and expenses, both parties remain jointly and severally liable until they are paid.

Temporary binding nature of adjudication

The decision of an adjudicator is temporarily binding until overturned by a court or arbitrator (depending on what the contract says is the final dispute forum).  This means that if an adjudicator decides that Party A should pay Party B £100, Party A has to pay that sum and then if it wants to recover the £100, it has to issue court or arbitration proceedings.  In reality, unless an adjudicator has made an obvious error and unless the amount involved is considerable, the adjudicator’s decision is often effectively the last word.

Enforcement of an adjudicator’s award

In the event that a party does not pay a sum of money that has been ordered to be paid, then the Technology and Construction Court has developed a procedure for summary judgment. This includes allowing an application for summary judgment to be made, prior to an acknowledgment of service being filed and abridging time for service of an acknowledgment of service. The court will usually hear the summary judgment application within a month to 6 weeks of the issue of proceedings and will normally grant judgment even if the adjudicator has clearly made an error. The only bases on which it might consider not granting judgement are a) if the adjudicator lacked jurisdiction; or b) if there has been a breach of natural justice.   The court has always been robust in its support for adjudication, increasingly so in recent months.

There is often an issue with the enforcement of any judgment. The court has set out the situations where it will be prepared to consider a stay of execution.  The situations are limited – they include insolvent liquidation but evidence suggesting that the financial position of a trading party receiving payment is such that it would be unable to repay is often not enough.

Comment

So, will adjudication catch on in other sectors?  It is, inevitably because of its speed, rough and ready justice, but it does get the dispute dealt with relatively cheaply and enable parties to get on with their business relationship without the matter hanging over them for months or years. As things gets going again after lockdown, adjudication looks like an increasingly attractive option for all sectors of the economy, not just construction.