May 1 1998 saw one of the major changes in the construction industry over the last 20 years, the implementation of the Housing Grants, Construction and Regeneration Act 1996. As well as many other fundamental changes, the Act incorporated into all construction contracts (which term include professional contracts in the construction industry) the right to refer disputes to Adjudication.
A new dispute resolution procedure, adjudication is a statutory scheme imposing on disputes a "fast track" 42-day timetable from beginning to end. Adjudication decision have no appeal and remain 'binding' until later arbitration or Court proceedings. Standard construction contracts provide that later proceedings cannot be commenced until after completion of the project.
Many doubted whether legal and practical difficulties would make adjudication a genuine option for the construction industry. Two years on, and with the RICS having appointed over 1,000 adjudicators to hear disputes, the key issues that concerned the construction industry over the implementation of adjudication can be divided into:
Surprisingly, although the Housing Grants Act introduced the new scheme for adjudication which stated that the decision produced was binding, it produced no clear system for enforcing the awards should a losing party not voluntarily pay. Not being judges or arbitrators, the usual enforcement mechanisms were not available to adjudicators. It was left to the Courts to enforce adjudication awards. The industry had to see whether the courts would enforce adjudicators' decisions in later summary judgment proceedings, where one party applies to the court for an early judgment of a court claim on the basis that there is no defence to the claim. The argument was that an adjudicators binding decision having been made, meant that there could be no further arguments.
The first case Macob v Morrison 1999 decided that adjudicators award would be enforced by the court who would have regard to the purposes of the act when enforcing them. It was said in that case "the intention of Parliament was plain – it was to introduce a speedy mechanism for settling disputes on a provisional interim basis - crucially it is made clear that decision of adjudicators are binding and to be complied with".
The case, heard nine months after the implementation of the Housing Grants Act 1996, opened the doors for adjudication as a valid dispute resolution. Although, if a losing party did not pay, the winning party would still have to issue court proceedings, the fact of the adjudicators award meant that the short summary judgement' procedure was available and that adjudicators award would be enforced quickly without enquiry into the underlying case.
This decision however, has lead to further questions. If the courts will enforce awards, without enquiry into the merits of the original decision, what happens if one party genuinely believes the decision was wrong and doesn't wish to pay an award he believes later arbitration will overturn. Of the 20 cases that has come before the court on the question of enforcement, three have involved parties who have become insolvent, so if they were wrongly paid, it is unlikely that the money can be recouped later.
The cases where, notwithstanding an adjudicators award, it is asserted that the losing party shouldn't have to pay, can be set out under the two headings:
In Bouygues v Dahl-Jensen, the adjudicator made a bad decision. His error was arithmetical and lead to one party being award £200,000 when, if the error were corrected, the other party should have been awarded £141,000. The error was obvious and acknowledged by the parties. The winning party applied for summary judgment. You might think the court would not enforce an obviously mistaken award, you would be mistaken. The court gave summary judgment stating, in a somewhat blase manner "it is inherent in the scheme that injustices will occur, because from time to time, adjudicators will make mistakes". The effect of this case is to provide guidance that, notwithstanding an adjudicators decision is obviously wrong, then it will be upheld. Parties, when adjudicating, must take this into account, especially if one party might not exist by the time the matter is arbitrated.
Adjudicator lacked jurisdiction
The majority of cases, where the parties have sought to defend summary proceedings, have been based on the adjudicator not being empowered to decide the issue. The cases are based on a variety of premises:
Delicate subject of money
The Housing Grants Act 1996 made no provision to award legal costs in adjudication, other than the adjudicators own costs. It was therefore left to the parties to specifically decide costs should be awarded or for the court to decide whether an adjudicator had an "inherent power" to award costs. Two views have emerged, in Cothliff v Allen Build it was held that the adjudicator had the inherent power to award costs, while in Northern Developments v J&J Nichol, it was held that in the absence of a power under the Act there was no right for the adjudicator to award other than his own costs. It is submitted that the second case is better authority.
Would professional disputes would benefit from adjudication? On the positive side, it produces a now, enforceable decision in a short time. That minimises legal costs that can be incurred and the disruption to the underlying business of the insured. With many professional indemnity claims started as counterclaims for fees, the quick adjudication procedure may resolve some more quickly. With many pi claims involving only one or two issues, the limited timetable may prevent such claims escalating. But, the timetable will produce injustice. Unless there is a doubt about the right of the adjudicator to make a decision, it is likely the courts will enforce an incorrect and unjust award. Later arbitration may not recoup monies if the other party is insolvent.
Neutrally, legal costs cannot be awarded without specific agreement between the parties. Insurers may find that not being able to recover costs in PI claims would defer parties using adjudication. With full blown court proceedings which do award costs, the alternative, this may not be a good thing.