It is becoming increasingly common to use adjudication – rather than litigation – as a way of resolving disputes in professional negligence claims.

Usually, parties use adjudication during a construction project or shortly afterwards, so as to resolve contractual disputes quickly. The advantage is that a decision can be reached in 28 days so that delay and costs are kept to a minimum. However, the downside is that the justice provided via adjudication is rough and ready as the timescale does not allow for detailed consideration of the issues, making it a generally unsuitable forum for resolving professional negligence claims.

Statutory framework

The right to refer a dispute to adjudication arises from section 108 of the Housing Grants, Construction and Regeneration Act 1996.

The Act says that, for adjudication to be possible, a dispute must exist between the contracting parties: there must be some disagreement between them or some question which one party has either ignored or rejected. Only one dispute at a time can be referred to adjudication and the dispute must be of a contractual nature. It is important to note that section 108 includes the phrase “any difference” so that if there is a difference of opinion which needs to be resolved, this can be referred to adjudication. Under the Act, the parties to a construction contract have a right to adjudicate at any time. That right cannot be excluded by the contractual terms.

Some types of contract are specifically excluded from the definition of a construction contract, including contracts for supply only, contracts for extracting natural gas, oil and minerals, and contracts relating to work on process plant and on work which is purely artistic. The Act does not apply to contracts made with residential occupiers or to contracts concerning the financing of works.

To be the subject of adjudication, the contract between the parties must be “in writing” (which has a wide definition and will, for example, include an exchange of letters setting out the agreement). The contract may specify that particular adjudication rules apply, such as those of the TeSCA (Technology and Construction Solicitors’ Association) or of the CIC (Construction Industry Council). If no particular rules are specified or if the contract is silent in respect of adjudication, the Act provides a scheme setting out the procedure that will apply. This scheme takes precedence over any contractual provisions or rules which conflict with the Act.

Procedure

Although the procedure varies according to the particular rules applying, all adjudications start with a notice of adjudication. After the appointment of the adjudicator, the notice is followed by a fuller referral notice (setting out the claim, similar to particulars of claim). A reply is served by the responding party, usually within 14 days, though it may be quicker.

An adjudicator has a wide discretion to conduct the adjudication as they see fit. For example, they may decide that a meeting of the parties is required, that a site visit is necessary or that further documents or statements should be provided by both parties. But many adjudications will be conducted by way of a paper exercise only.

A decision (or award) must be made within 28 days of the referral notice. This timescale can be extended by agreement but does not usually go beyond 42 days. Depending on the particular adjudication rules that apply, the adjudicator may or may not give written reasons for the decision.

The decision will be binding on the parties but can be challenged, on limited grounds, in subsequent legal proceedings or arbitration (if the contract provides for it or if the parties agree to arbitrate). If a party fails to comply with an adjudicator’s award, an application is made to court for summary judgment to enforce it.

Here are two aspects in respect of costs: the adjudicator’s fee and the costs of the parties in dealing with the dispute. Under the scheme, the adjudicator will decide who pays their fee, as part of the decision. However, this is a joint and several liability. As for the parties’ legal costs, this will, again, depend on the rules and contractual provisions that apply. Under the Act’s scheme, the adjudicator does not have power to award costs. The usual position is that each party will bear their own costs – though this can be varied by the parties’ agreement.

Recourse to the courts

The courts are reluctant to overturn decisions reached in adjudications unless the adjudicator has acted outside their jurisdiction or breached the rules of natural justice.

Examples of challenges:

  • when the adjudicator has decided something they were not asked to decide in the original notice;
  • when a contract is an excluded contract;
  • when the adjudicator has been appointed incorrectly; and
  • when a dispute did not actually exist.

To challenge an adjudicator’s decision on the basis of breach of the rules of natural justice, it is necessary to establish that the adjudicator has not acted with procedural fairness in the conduct of the adjudication.

In Primus Build Ltd v Pompey Centre Ltd [2009] EWHC 1487 (TCC), the decision of the adjudicator was challenged on the basis of lack of jurisdiction and breach of natural justice. It was argued that the notice of adjudication was invalid because, while clause 26 of the contract provided that notices “shall be delivered personally” or sent by fax, the notice had, in fact, been sent by post.

The second ground of challenge was that the adjudicator had made an award of loss of profit which he had calculated from the referring party’s accounts and that he had done so using an approach which had not been suggested by either party.

It was decided that “delivered personally” meant actual delivery by an appropriate individual within the referring party to a similarly appropriate individual within the responding party. The method of delivery was irrelevant, provided that the document was actually delivered to the named address for service. That is what had happened and so there was no breach of clause 26. In respect of the use of the referring party’s accounts, the parties were agreed that the accounts were irrelevant and the court held that the adjudicator had exceeded his jurisdiction by making reference to them. In the alternative, the rules of natural justice required the adjudicator to obtain the parties’ submissions before deciding to approach the assessment of the claim in the way he had done.

In Adonis Construction v O’Keefe Soil Remediation [2009] EWHC 2047 (TCC), the referring party had served a notice of adjudication in respect of outstanding fees in connection with remedial works. The responding party contested jurisdiction on the basis that there was no contract in writing within the meaning of the Act. The referring party had sent a draft subcontract order and the official order was to be issued in due course. The draft subcontract order incorporated an adjudication clause but was never signed. The responding party alleged that they had not received the draft order until after commencement of the works.

It was found that the draft order did not amount to an offer and was not capable of acceptance by conduct. The requirement that the attestation page should be signed under seal and returned in seven days was the required mode of acceptance. The adjudicator had acted without jurisdiction and the application for summary judgment was refused.

Pros, cons and bad timing

The case law highlights some of the issues that can be encountered when an adjudication decision has been made and subsequent enforcement is attempted.

When facing a notice of adjudication, it is important to be mindful of procedural and jurisdiction issues at the outset so that challenges can be made quickly. For construction professionals and their insurers, facing adjudication long after a project is completed, the process can be expensive: there is the cost, which may be significant, of preparing a reply and securing witness and expert evidence (if required) in a short timescale. The identity of the adjudicator can also be a cause for concern, particularly when complex legal issues come into play and the nominated adjudicator does not have a legal background. Although adjudication will be seen by some as the quickest way to resolve a dispute, it is not necessarily cheap and there is no guarantee of producing the right result, particularly when such a restrictive timetable exists.

There are some advantages – most notably, speed and the certainty of resolving the dispute. There are also benefits in not being bound by strict evidential rules, which allows flexibility in the presentation of a reply, and the opportunity of controlling costs to some extent.

The timing of a notice can be crucial. Most referring parties will be highly aware of bank holidays and holiday periods generally and it is often the case that adjudications will be commenced shortly before Easter and Christmas because this puts the responding party under considerable time pressure. When the other side has little time to prepare their reply, this can give the referring party a clear advantage!

Key questions

If an adjudication notice is received, some initial questions should be considered:

  • Has the notice been served in accordance with any contractual provisions?
  • Is the contract covered by the Act?
  • Has a dispute arisen?
  • If a dispute does exist, is it a dispute under the contract?
  • Is there a named adjudicator/nominating body in the contract? Has the referring party sent their notice to the correct person/nominating body?
  • If there is a concern that a dispute should be decided by an adjudicator in a particular field, is there scope for agreeing the identity of the adjudicator between the parties?
  • Has the referring party attempted to refer more than one dispute to adjudication?

In the current economic climate, there is a drive to minimise costs and recoup money where possible and this is giving rise to an increasing number of adjudications. Where the financial position of the responding party is precarious, a quick process may lead to recovery, while protracted litigation may not.

This article is a brief summary of the procedural aspects of adjudications and some of the issues that require consideration. It cannot address all the various rules that apply or all the issues that can arise. It is important that anyone faced with a notice of adjudication should obtain early advice on the strategy to be adopted in responding to it and on any challenges that may be appropriate.