Out-Law Guide 4 min. read
01 Dec 2018, 3:38 pm
Adjudication is a procedure for resolving disputes without resorting to lengthy and expensive court procedure. For the purposes of this guide, adjudication is a reference to the procedure introduced in the UK in 1996 by the Housing Grants, Construction and Regeneration Act (Construction Act).
Originally the intention of the Construction Act was that the adjudication process would be fairly informal. However, it has developed into a formal process with parties serving detailed submissions, witness statements and often even expert reports.
The adjudication process begins when the party referring the dispute to adjudication gives written notice of its intention to do so. The Scheme for Construction Contracts, the statutory scheme for adjudication introduced by the Construction Act, says that this Notice of Adjudication should briefly set out:
The Notice of Adjudication is the first formal step in the adjudication procedure. Save for the minimum information set out above, there is no particular requirement as to the form of the document.
Following service of the Notice of Adjudication, the next step is to appoint an adjudicator. The appointment of an adjudicator must be secured within seven days from service of the Notice of Adjudication. The parties can agree on an individual to act as the adjudicator or, if agreement cannot be reached, the party who referred the dispute to adjudication may make an application to an Adjudicator Nominating Body (ANB). This is usually done by completing a form and paying the required fee. On receipt of a request to nominate an adjudicator, the ANB should communicate their selection to the party who referred the dispute to adjudication within five days of the request. In the event that an ANB fails to do this the whole process must begin again.
The referral notice must be served within seven days of service of the Notice of Adjudication. This is the document that sets out in detail the case of the party who is referring the dispute to adjudication. and the referring party's case in detail. It should be accompanied by documentation in support of the claim together with expert reports, if any, and witness statements. It is important to ensure that the referring party is in a position to serve this notice: there have been instances in which the ANB has appointed an adjudicator only 24 hours before the expiry of the seven-day period, leaving the referring party with only one day to issue the referral notice to the adjudicator. A copy of the referral notice should be sent to the responding party at the same time.
The Construction Act sets out a tight timetable: the adjudicator's decision must be made within 28 days of service of the referral notice. Any submissions made after the referral notice - for example, the responding party's response - must therefore be served within that 28-day period. This tight timescale is designed to enable parties to obtain quick and cost-effective results, which are binding unless and until reviewed in litigation or arbitration. This 28 day timescale may be extended with the consent of the adjudicator.
This is essentially responding party's defence to the referring party's claim. The Construction Act does not specifically demand that the responding party issues any response, or indeed further submissions after the referral notice - the need for such submissions is a matter for the adjudicator. Invariably, however, the adjudicator will require the responding party to serve a response, typically within seven days of the referral notice. Requests for this to be extended to 14 days are usually agreed.
The adjudicator is required to reach his decision within 28 days of service of the referral notice. This period can be extended by a further 14 days if the referring party agrees, or can be further extended if both parties agree.
The decision is final and binding, providing it is not challenged by subsequent arbitration or litigation. Even if the parties intend to pursue court or arbitration proceedings, they must in the meantime comply with the adjudicator's decision. In the majority of disputes, the parties will accept the adjudicator's decision, but if they choose to pursue subsequent proceedings the dispute will be heard afresh - not as an 'appeal' of the adjudicator's findings. It should be noted that once an adjudicator has made a decision on a particular issue, that same issue cannot be referred to a 'second' adjudicator.
Originally, the Construction Act made no mention of how costs should be dealt with. However, changes to the Construction Act introduced by the Local Democracy, Economic Development and Construction Act 2009 which came into force on 1 October 2011 provide that any contractual provision which attempts to allocate the costs of an adjudication between the parties will be invalid, unless it is made after the adjudicator is appointed. This applies to agreements both as to the allocation of the adjudicator's fees and expenses and agreements as to who is to bear the parties' own costs.
This provision seeks to prevent parties agreeing contractual terms which place all the costs risk on one party.
The parties will be jointly and severally liable to pay the adjudicator a reasonable amount in respect of fees for work reasonably undertaken and expenses reasonably incurred by him. This means that both parties can be pursued for these fees, or that either party may be pursued for the whole amount. The adjudicator may decide himself what sum is reasonable but, if there is any dispute, an application can be made to the court for determination. This provision applies only to adjudications which contain the required adjudication provisions set out in the Construction Act, not to adjudications which rely on the provisions of the Scheme for Construction Contracts.
The Local Democracy, Economic Development and Construction Act 2009 provides that:
The Act does not address what will happen if a contract provision allocates liability for both the parties' costs and the adjudicator's fees and expenses. It is arguable that in such a situation the whole clause will be ineffective.
The adjudicator can only deal with interest on sums awarded if the contract contains a provision dealing with interest, or alternatively, if the parties agree.