Adjudication is an alternative form of dispute resolution (“ADR”), and is the default dispute resolution process within the construction industry.
The entitlement to adjudicate arises in all ‘construction contracts’ as defined by legislation, whether or not the written contract refers to adjudication. However, it is possible for parties to ‘contract in’ to adjudication, as indeed often happens on domestic contracts when the Minor Works contract is used.
In this article we answer some frequently asked questions about what adjudication is and how it works.
When Can I Start an Adjudication?
Before you start an adjudication, you must establish:
- Whether you have a right to refer the dispute to adjudication. This can be a statutory right under the legislation (the Housing, Grants, Construction etc Act 1996), or a contractual right, if parties to the contact have agreed to refer disputes to adjudication.
- Whether the dispute has crystallised. For a dispute to crystallise, a claim must be made and rejected. The claim should be in writing and should set out the factual basis for the claim.
- That there is no barrier to referring the dispute – for example statements of final account can become final and binding after a specified period of time.
Who is the Adjudicator?
Parties can agree on a specific adjudicator in advance of any dispute, and set this out in their contact. Alternatively, the parties can – and often do – agree a named adjudicator after the dispute has crystallised.
If no person has been named, or if agreement cannot be reached, an adjudicator is nominated by an Adjudicator Nominating Body (ANB) upon receipt of a form completed by the party who refers the dispute to adjudication. The ANB can either be specified in the contract, or if not, any ANB can be approached. The list of ANB’s include RIBA, RICS and the Chartered Institute of Arbiters.
Is the Adjudicator’s Decisions Final?
The decision of the adjudicator is known as being ‘interim-binding’ which means that the decision is binding on parties until/unless the dispute is finally determined by legal proceedings, arbitration or by agreement. More often than not, the adjudication decision is the last word in a dispute, and therefore becomes final in the absence of any further action.
Note that even if an aggrieved party seeks finality by raising a court or arbitration action, it is still binding in the interim. The effect of raising subsequent proceedings does not suspend the effect of the adjudicator’s decision.
Does the ‘Loser’ in an Adjudication have to comply with the decision?
As is said above, the aggrieved party can seek finality by raising court or arbitration proceedings, whilst being bound by the adjudicator’s decision in the meantime. However, in some cases the adjudicator’s decision is itself challenged as being unenforceable. This can only happen in a very limited circumstances, and courts will generally enforce adjudicator’s decisions, even if the adjudicator’s decision might be wrong. Courts realise that it would undermine the adjudication process if it was easy to argue that adjudicator’s decisions are unenforceable.
As a matter of policy, the Courts understand that the proper remedy for an aggrieved party is to seek finality by raising court/arbitration proceedings, whilst complying with the decision in the meantime, rather than argue that the decision is unenforceable. So, provided that the adjudicator had the right to reach the decision, and answered the question put to him/her, the decision will be enforced.
Occasionally, the decision is not enforced. For example, if the wrong ANB nominates the adjudicator (ie, one that is not named in the contract), this will invalidate the decision. Issues can also arise if the adjudicator has not conducted the process in a fair manner.
Who Pays the Adjudicator?
Both parties are liable for the adjudicator’s fees, and the adjudicator can choose to pursue either party. The adjudicator is also able to apportion their fees between the parties as part of the decision – the usual rule being that the loser is liable for the fees, and if there is mixed success, the fees are apportioned 50/50.
This does not however affect the adjudicator’s right to pursue either party in whatever proportion they choose. This can lead to unfair results.
For example, suppose a referring party is successful in an adjudication and the adjudicator decides that the responding party should pay all of the fees. If the responding party refuses to pay the adjudicator, it is likely that the adjudicator will pursue the referring party for the fees. If those fees are then paid, the referring party then has the right to recover the fees from the responding party – but if that party goes bust, the fees will never be recovered.
If you’re considering adjudication, get in touch
Overall, adjudication provides a quick and low-cost alternative to litigation, for parties who need a fast resolution of their dispute. Adjudication has been successfully used as a form of ADR in the construction industry for many years and crucially, allows parties to continue the project whilst a decision is reached.
If you are considering starting an adjudication, please get in touch and we will consider whether your claim is one that our panel firms may be able to pursue on a no win no fee basis.