The method of resolving disputes by Adjudication is not novel although the Housing, Grants, Construction and Regeneration Act placed the right to adjudicate construction related disputes on a statutory footing. Matthew Dillon has been involved in Construction Adjudication since the year 2000 when he commenced employment as an in-house solicitor for Jarvis plc.
Adjudication enables clients to secure an enforceable judgment within a matter of weeks and the courts will only decline summary judgment in limited circumstances. Although the successful party within an Adjudication usually recovers the costs of the Adjudicator, he will not, unless the other side consents, be entitled to recover the costs of representation. It is therefore vital that costs remain proportionate to the sums at stake.
Since setting up MJD in July 2010, Matthew Dillon has acted for Referring Parties and Respondents on countless adjudications varying from straight forward “smash and grab” adjudications to complex lost profit and final account claims following repudiatory breaches of contract.
It is perhaps a testament to our expertise that we very rarely see unexpected outcomes in our adjudication work. Very rarely are the decisions we secure challenged in the High Court (Technology and Construction Division) and in fact MJD has never had a decision not enforced. Quite frankly getting adjudication wrong can be expensive and although wayward adjudicator’s cannot be entirely eliminated, securing a decision that is not enforceable is, in our opinion, a failure.
For a Further explanation on adjudication, please see the FAQ’s below
1 What is Adjudication?
Adjudication is a fast and relatively cheap way of resolving disputes in the construction industry, whereby an impartial third party decides the issue between the parties. The decision reached by the adjudicator is usually binding on the parties until such time as the decision is overturned by a judge or arbitrator following a trial. In the vast majority of cases the parties just accept the decision of an adjudicator and move on.
2 When can I go to adjudication?
Under the Housing Grants, Construction and Regeneration Act 1996 (as amended by The Local Democracy, Economic Development and Construction Act 2009 (commonly referred to as the Construction Act), a party has the right to refer a dispute arising under a construction contract to adjudication at any time. However, the dispute must have ‘crystallised’, meaning a dispute must exist prior to commencing an adjudication – if there is no ‘dispute’ the adjudicator will not have the requisite jurisdiction to decide the issue.
In the past the issue of ‘crystalisation’ was quite complex but the courts have adopted a pragmatic approach and the threshold to cross for there to be a dispute is not high. However, before embarking on adjudication it is important to ensure that the other side have had sufficient time to respond to the issue or through their conduct a dispute can be inferred – the premature issuance of an adjudication with the intent of ambushing your opponent is likely to backfire and should be avoided.
3 How fast is Adjudication?
The answer is very fast. The first document to be prepared is the Notice of Adjudication which sets out in brief the particulars of the dispute. Notwithstanding the brevity of the document, it is arguably one of the most important documents as it sets out the jurisdiction of the adjudicator – get it wrong and there will be consequences.
Following service of the Notice of Adjudication the next step is to get the adjudicator appointed within 7 days of the date of the Notice of Adjudication. Also within 7 days the Referral Notice has to be served on the other side and filed with the adjudicator; the Referral Notice essentially comprises the case and evidence which will form the backbone of the case to be considered by the Adjudicator. Due to time constraints the Referral Notice needs to be prepared and ready to go prior to the Notice of Adjudication being issued. Indeed, experienced advisors will not even prepare the Notice of Adjudication until after the Referral Notice has been completed.
The intent of parliament was that the dispute would be resolved within 28 days of the date of the Referral Notice – i.e a binding decision is received within 28 days. This is frequently extended to 42 days with the consent of the party who has commenced the adjudication and can be longer if all parties agree.
Anybody who has issued court proceedings will know to have a decision in 28 or 42 days is extraordinarily fast. If you want to issue legal proceedings on a construction contract expect to be wrapped up in the Pre-Action Protocol for Construction and Engineering Disputes for at least two or three months and then, unless you are able to issue in the High Court, your case will be swallowed by the County Court Claims Centre for about three months before even getting to the stage when directions are issued.
4 How much does adjudication cost?
The cost of the adjudication will depend upon the size, nature and complexity of the dispute. The following needs to be considered:
The fees and expenses of the adjudicator
We are seeing most adjudicators charging between £240 – £300 plus vat an hour for their appointment. This usually translates into a final fee of between £8,000 – £15,000.There is limited scope to challenge adjudicator’s fees. Perversely the fees can even be due if the adjudicator issues an invalid decision or even just got things totally wrong. The reality is that you have little control over an adjudicators fees because often the Referral Notice is served even before you know what fees the adjudicator is demanding; by carrying on with the adjudication you are accepting his appointment on the terms that he stipulates.It is important to appreciate that whilst the adjudicator will usually order which party is to pay his fees, it is not as simple as the losing party picking up the bill. Whilst some adjudicators will simply direct that the losing party must pay the adjudicators fees, it is not uncommon for adjudicators to apportion their fees between the parties; if a party overstates their claim or raises issues which they have lost, the adjudicator may direct that a winning party picks up part of the bill. Perhaps unfair, but the courts often do the same. The real concern, we believe, however, is this. The parties are joint and severally liable for the adjudicators fees and so therefore regardless of how they are directed to be split, if one party does not pay then the adjudicator will come calling on both party’s doors for his fee – a real problem if one party is tinkering on insolvency. If the Responding Party says that the adjudicator’s decision is invalid he can simply refuse to pay the same, leaving the Referring Party having to go to court to get an order to compel the Responding Party to pay. If the court agrees that the decision is invalid then the Referring Party will be picking up the Adjudicator’s fees notwithstanding the fact he thought he won the case and notwithstanding the adjudicator having issued a worthless decision. It is vital therefore that proper advice is taken at the outset and all of the risks understood.
The cost of the nominating body
A small fee will be paid if you have to ask somebody like the RICS or RIBA to nominate an adjudicator. The fee is usually around £250 – £350 plus vat and you will not get this fee back even if you win the adjudication.
Your professional fees
Generally speaking each party bears their own legal and professional fees unless the parties agree otherwise. The costs of representation in adjudication can be high but will be determined by the issues in stake. As a benchmark, our fees (based on an hourly rate of £225 an hour) for a simple adjudication conducted by an experienced construction lawyer will be in the region £5,000. If the matter proceeds on a fully contested basis then fees in the region of £8,000 – £10,000 on disputes with a value less than £150,000 are common. Claims over £150,000 usually translate into fees between £12,000 – £18,000. We can usually agree to fix costs to provide you with certainty, but need to understand the issues in the case before we do this.
It is worth pointing out that if your contract contains a provision that says a party must pay the other side’s costs or an adjudicator’s costs in any event then such provision is probably invalid as the Construction Act 2009 amendments that came into play in 2011 outlawed such provisions.
Is it viable to adjudicate?
Sometimes it is not. You need to take a view on the likelihood of success, the likely recovery, the costs you are going to incur and the risks that you are going to be exposed to. Often on claims less than £35,000 we believe it is preferable to just litigate. Often we see claims consultants who encourage adjudication as the solution when in fact litigation makes more sense on the basis that costs can be recovered and the risk of the non-paying party picking up the tab for legal costs persuades it to settle. Sometimes parties are willing to risk losing an adjudication but not litigation.
We should add however that the matter is going to become a little more complex with the ridiculous decision to increase the court fees so that a 5% levy has to be paid on whatever is being pursued (recoverable from the other side if you win).The government is hoping to plug the shortfall in the public purse by increasing court fees to a level that is unsustainable for most – the reality of course is that it will dissuade many businesses from using the courts and make adjudication/arbitration the preferred route.
5 How do I nominate an adjudicator?
If your contract nominates a specific adjudicator or nominating body then you must follow the contract otherwise the appointment will be invalid. If no such adjudicator or nominating body is specified then you are free to choose which nominating body to go to and in this situation thought should be given as to the desired professional background of the adjudicator.
6 Do I need a written contract to adjudicate?
To comply with the Construction Act, your contract must contain certain adjudication provisions. If your contract does not contain all of these provisions or there is no reference to adjudication at all, you can use the ‘fall back’ adjudication procedure in the Scheme for Construction Contracts.
Prior to the 2011 amendments to the Construction Act, the Scheme was only of application when a construction contract was in writing. There was much case law on the issue of whether the whole contract had to be in writing or just part of it. However the amended Construction Act means that there can now be adjudication on oral contracts. The only “get out” now appears to be where there was no contract at all. Where there is an oral contract then the parties can adjudicate; where there is no contract they cannot.
It is worth thinking about matters further if your contract is with a homeowner. If the homeowner or his advisor produced the contract and it contains an adjudication provision then you should be able to adjudicate. If the Contractor produced the contract then the adjudication provision is probably invalid as it is an unfair term. We are not quite sure why any homeowners would agree to an adjudication provision in their contracts; from our experience it is simply because their architect or contract administrator has used a standard form and has omitted to delete the adjudication provision.
7 Can I adjudicate on more than one dispute at a time?
It is possible to start any number of adjudications to run concurrently. However, you can only refer one dispute in each adjudication so, if you have more than one dispute on a contract, you will either have to get the other party to agree to combine them all in one adjudication or start multiple adjudications.
Often however by phasing the referral in generic terms it does become possible to adjudicate on a wide issue that encompassing several sub-issues – i.e how much money are we entitled to?
8 How will the adjudication progress?
After the Notice of Adjudication has been served and the adjudicator nominated, the Referring Party should then serve their Referral Notice. The adjudicator will then invariably gives directions which will include a direction that the other party serves a Response. It is now quite common for there to be a further exchange of written submissions and indeed the Referring Party may, on occasions, even plan to put the majority of its case in its second submission by responding to the defence advanced by its opponent. There may also be arguments as to whether the adjudicator has been lawfully appointed or whether he is acting outside of his jurisdiction. Some adjudicators will convene a meeting to discuss issues and may allow further submissions thereafter. The adjudicator should then issue his decision in a written judgement.
9 What next?
Adjudication can be rough justice. The majority of adjudicators are relatively good at their job, but mistakes do happen – we have seen shocking decisions from adjudicators, including dual qualified barristers charging £400 per hour! The general approach is to “pay now argue later”, i.e. the decision of the adjudicator should be complied with even if it is incorrect, even on grounds of fact or law. The decision cannot in itself be appealed but it can be overturned by a body of higher authority, e.g. court or arbitration. However, the consequences of the adjudicator’s decision stand for the time being. The vast majority of adjudicator’s decisions are complied with.
If a decision is not complied with then you can enforce it by going to court and applying for ‘summary judgment’. It is the practice of the Courts to generally enforce adjudicators’ decisions, even when they are factually or legally incorrect. There are only limited grounds on which an enforcement of a decision will be resisted, which includes “jurisdictional” arguments and where there has been a breach of “natural justice; the consequence of this are why it is so important to commence the adjudication on the correct footing and to try to ensure the adjudicator does not take any action throughout the adjudication that could render it invalid.
The process of seeking summary judgment should take no more than 28 days including a short hearing of up to half a day (depending on the number of issues raised).
If the court agrees that the decision of the adjudicator should be complied with then the court will order that the losing party comply with the decision by way of summary judgment and also award legal costs. If the decision has been found to be invalid then the court will not enforce the decision; the consequences of this and that the Referring Party is back where he was prior to commencing the adjudication and has a liability for all of the costs of the adjudication, the adjudicator and the court hearing.
It is said that the cost of enforcement are comparatively low when compared to full trial. For large disputes with city law firms or indeed complex delay disputes this is doubtless correct. Although adjudication is often to be preferred to litigation, careful consideration should always be given to the route to be taken – frankly adjudication is not suitable for all clients.