A Statutory Right to Adjudication
There is a statutory right to Adjudicate commercial construction contracts.
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S.108 (2) (a) HGCR Act 1996: "The contract shall enable a party to give notice at any time of his intention to refer a dispute to adjudication". |
Irrespective of whether contracts are in writing or are verbal, there is an absolute right to Adjudicate in commercial cases. If there are contract conditions demanding Mediation, meetings, Court, or Arbitration to be explored first, these types of clauses are void.
The Adjudicators decision is legally binding on the parties and unless otherwise agreed to a later time, is made within 28 days of the adjudication referral.
All commercial construction contracts must comply with the Construction Act, which primarily focuses on Payment Rights and Adjudication Rights. The contract Adjudication clause must comply or it will be void, if it is void, deleted or non-existent the Statutory "Scheme" applies. The Scheme referred to in this Adjudication guide is part of the Construction Act Legislation and provides implied contract terms for governing the Adjudication.
Commercial Construction Adjudication
On 1st May 1998, the Housing, Grants, Construction and Regeneration Act 1996 (Part II), (The Construction Act) came into force and changed the UK construction industry forever. Adjudication became a statutory right, as defined by the HGCR Act 1996, for parties to contracts operating in the construction industry, to Adjudicate their issues. The HGCR Act 1996 was then updated and amended by the Local, Democracy, Economic Development and Construction Act 2009 (Part 8) (The New Construction Act), which came into force for all contracts formed on or after 1st October 2011. (See our Guide on Construction Acts.)
The Scheme for Construction Contracts (England and Wales) Regulations 1998, came into force on 1st May 1998; and the amended Scheme, the Scheme for Construction Contracts (England and Wales) Regulations 1998 (Amendment) (England) Regulations 2011, came into force on 1st October 2011. Contracts after 1st October 2011 in Wales and Northern Ireland are subject to a slightly different amended Scheme.
Many standard forms of construction contract such as the JCT Contract suites incorporate the Scheme as the rules for Adjudication, thus making things simple avoiding bespoke rules that may prove to be void as such may not be Construction Act compliant. In such an instance the Scheme would apply so applying it as the default clears all doubts in procedure.
The construction industry, due to its complex nature, has always suffered major problems with disputes including deliberate non-payment and slow payment, resulting in a high rate of bankruptcies as traditional legal processes such as Court and Arbitration proceedings are commonly slow, complex, difficult, costly and thus often impractical to use.
The speed of judgement of any dispute by Adjudication is normally around 35 days it can be thus a practical and relatively inexpensive option.
Adjudication is a contractual process which provides an interim "quick fix" solution to disagreements between two contracting parties. It involves the appointment of an Adjudicator, and the resulting Adjudicator's decision is binding between the parties.
The Adjudicator makes an assessment of the facts and rules, then makes a decision that cannot be argued with and must be immediately complied with. The aggrieved party can only appeal by taking the matter to Court or Arbitration.
Most Adjudications relate to payment disputes, the decision will reflect whether or not an immediate transfer of assets should take place between the parties.
By default, the construction Adjudication process is officially an interim measure as fresh Court or Arbitration proceedings can follow or be run at the same time, however, in practical terms such proceedings rarely occur and it normally means the end of the dispute between parties.
The construction Adjudication process is straightforward, however, for any party involved it is necessary to carefully operate within the Adjudication procedural rules that exist; research and identify the law and prudently execute arguments to persuade the Adjudicator to favour your case. If this is not done, the case may easily be lost, resulting in payment liability to the other party and having to pay the costs of the Adjudicator.
Payment of an Adjudicator's award usually must be made forthwith, failure to comply with such an award will allow the winning party to swiftly enforce the award in Court by applying for summary judgement in the High Court (TCC).
If you have a construction contract and are served with a Notice of Adjudication, the time constraints are seriously short. You need to act immediately and get advice. It is not recommended that you attempt to tackle the Adjudication process alone. Arbicon are specialists in the conduct of Construction Adjudication and Construction Legal Matters. Get in touch to discuss your dispute.
Different types of Commercial Construction Adjudication and the criteria for Using AdjudicationThere are two types of Adjudication, the type depends on what is in the contract: (1) Contractual Adjudication If you have a contract with Adjudication clauses, for example JCT standard forms usually have these, the parties are bound to follow the rules and procedures as laid down in your contract, this is known as a Contractual Adjudication. Where any clauses or rules do not exist the statutory provisions as noted in (2) below apply. (2) Statutory Adjudication If you have no Adjudication clauses in your contract, you have the right to a statutory Adjudication and you, the parties, are bound by the rules and procedures of the Construction Acts and the Scheme as defined above. There are however criteria that must be met to qualify for a Statutory Adjudication. For example, pursuant to the HGCR Act 1996 In a "construction contract" (section 104) carrying out "construction operations", (section 105) which do not involve a "residential occupier" (section 106). Having met these criteria a right to Adjudication arises if there is a "dispute" that can be referred to Adjudication "at any time" (Section 108). If your contract was formed prior to 1st October 2011, then the contract must be a "contract in writing" (section 107). This section was repealed in the New Construction Act. As you might expect the definitions of "construction contract", "construction operations", "residential occupier", "contract in writing" and "dispute" have now been well tested in enforcement hearings, thus there are now established legal precedents for these terms. It is therefore essential to ensure that you fall within these qualifications, otherwise the Adjudication will not get past "first base". The New Construction Act (LDEDC 2009) for all contracts entered into after 1st October 2011, repealed section 107 of the HGCR Act 1996, so that there is no impediment to the right to Adjudicate under statute if a contract is verbal, written or both. The new Act also outlawed any cost clauses, for example one that makes one of the parties (normally the payee party) liable for all Adjudicator fees and legal costs whatever the outcome! Such clauses are void. |
Frequently Asked Questions
I haven't agreed to Adjudication in my contract, am I exempt from or can I exclude an Adjudication?
No, if you meet the criteria of the Construction Act and there is a commercial contract you have the right over all dispute resolution processes in a contract to Adjudicate. The statute overrides any express or implied provisions to exclude Adjudication and allows Adjudication "at any time".
If you have been forced into an Adjudication and the Construction Act applies, you must comply otherwise it is likely to go against you.
What does Adjudication cost? If I win will my costs be recoverable?
Adjudication is a contractual process, thus it is possible to agree the procedure as to costs of the Adjudication. However, under the New Construction Act any agreement in the contract as to party costs prior to the execution of the contract are void, thus in contracts after 1st October 2011, costs can only be agreed after the contract has been agreed and started. Prior to the New Act there is common law in place that deals with pre-contract cost agreements, which is not dealt with here.
There is also and not in all cases the possibility of Cost recovery under the Late Payment Act which we deal with below.
The costs that arise in an Adjudication typically are; (1) The Adjudicators fees and expenses; (2) The Party Representative(s) fees and expenses; (3) The Adjudicator Nominating Body appointment fee.
(1) The Adjudicator's fees and expenses
The Adjudicator will normally at the outset advise the parties of rates, normally an hourly rate plus disbursements. At the end of the Adjudication the parties will be advised of the total fee and who has to pay it. The apportionment of the fee is totally at the Adjudicator's discretion. The "loser" normally pays the Adjudicator's fees and expenses, but that is not set in stone. The Adjudicator may make each party liable for a portion of the fees. The Adjudicator may order the Referring party to pay his fees in any event, which the Referring party then has to recover from the Respondent if the Respondent is liable for the Adjudicator's fees.
The cost will depend on the complexity of the case, currently hourly rates are generally between £210 and £350 per hour plus VAT and disbursements.
In the Statutes, "the Scheme" states (part l, section 25) that:
"The adjudicator shall be entitled to the payment… of fees and expenses… The parties shall be jointly and severally liable for any sum which remains outstanding following the making of any determination on how payment shall be apportioned".
Joint and several liability for the Adjudicator's fees should also be importantly noted. If the "loser" is ordered to pay all or part of the fees then fails to pay the Adjudicator; the Adjudicator can recover all from the "winner" leaving the "winner" to sue the "loser" for them as part of the Decision.
(2) The Party Representative Fees and Expenses
This is the cost of employing a professional specialist such as Arbicon to deal with your Adjudication and act on your behalf.
The Scheme is silent on the issue of party costs, thus Adjudicators normally hold that unless there is a valid agreement between the parties on how the Adjudicator should deal with party costs he is unable to deal with them. In such an instance no award will be made and the cost of the party representative is treated on an each side pays its own costs basis.
Where no cost award can be made, it has been our experience that the value of interest awarded can cover the cost of our fees.
If the contract includes a provision for Debt Recovery Costs pursuant to the Late Payment of Commercial Debts (Interest) Act 1998 and the Late Payment of Commercial Debts Regulations 2013 or terms that reflect these statues, there maybe a case for recovery of costs and interest for Late Payment. These Statues apply where there is no provision in the contract for interest for late payment or the interest rate is deemed to be inadequate. The 2013 regulations have introduced a "reasonable costs" entitlement for pursuing a debt that is paid late. The Act allows recovery of simple interest of 8% over the Base Rate.
If there is a provision in the contract for interest, all JCT forms include 5% simple interest as an example, this is deemed to include debt recovery costs and the Late Payment Acts will not apply. Our article on Adjudication costs explains more.
TIP
If you are a Payee, make sure there is no provision at all or incorporate the Late Payment Act. If you are a Payer make sure you include a provision such as the JCT one.
(3) The Adjudicator Nominating Body Appointment Fee
The right to Adjudicate allows unilateral commencement of proceedings by either party. The contract Adjudication clause may either name an Adjudicator or an Adjudicator Nominating Body (ANB), who either party may engage in the commencement process of Adjudication. If you do not have a named Adjudicator in your contract and you cannot agree on the appointment of the Adjudicator, then you can ask the named ANB to appoint an Adjudicator for you. There is a fee for doing this depending on who the ANB is normally around £300 to £500 plus VAT. However, if there is no named ANB, you may choose any ANB to make the appointment which can be free.
Any ANB costs are considered as a party cost (as in (2) above) and not an Adjudicator cost, thus in the absence of an agreement to deal with it, the Adjudicator will not make an award for its recovery.
TIP:
The simple answer is to delete all named Adjudicators and nominating bodies in the contract. The "Scheme" will apply and a Free ANB can then be used such as CEDR.
How do I start Adjudication?
Adjudication can be started "at any time" according to section 108 (2)(a) of the HGCR Act 1996, thus having established that you qualify for the Adjudication process, you can start immediately and we would recommend that you get in touch with us to discuss your dispute.
Whether we are to act as Adjudicator or Adjudication Advocates (your representatives), it is important that you speak to us first so that you make the appropriate decision and preparation.
Appoint Arbicon as Adjudicator
If you wish us to Act as Adjudicator or one of our Adjudicators is named in your contract, please get in touch.
Appoint Arbicon as Adjudication Advocates
If you wish us to fight your case, essential preparation is required first. We will guide you, by preparing your case by identifying the scope of the dispute, analysis of the contractual rights, conducting an investigation into the law and assessing the quantum. A narrative and evidence is collated which is then argued to a desired successful conclusion. Arbicon provide an initial consultation, this is on the condition that you supply us with the contract and all other relevant documents so that your case can be properly evaluated into a proposal. We will tell you if you have a case or not. Our team works together on each case, so that law and remedies to issues are cross checked and no stone is left unturned. We will then build the case to "Adjudication Standard". This is important as if you pursue a claim without the evidence you will fail. Do not assume the Adjudicator will help you or read your mind, if your points are not clear or set out properly with evidence, you risk failure. Nearly all Adjudications prosecuted or defended by Arbicon have been successful, this is due to a methodical approach, experience from many years of practice handling hundreds of cases. Read our case studies.
Once the subject matter of the claim is identified and valued, it is important to identify if the other party has been served with all the details of the claim. Any missing detail should be served prior to the issue of proceedings so that it is possible for a "dispute" to exist or crystallise.
If the claim is then subsequently denied or ignored after a reasonable deadline has expired, you have your "dispute" and you are ready to proceed to the starting line of the Adjudication.
A "Notice of Adjudication" is served on the other party. An essential document, which gives only brief details of the Adjudication, naming the parties, the dispute and what exactly the Adjudicator will be asked to decide and it legally gives the Adjudicator the scope of "jurisdiction". The adjudication starts here.
Within seven days of the start, the Adjudicator is appointed and the case in detail is presented or "Referred" to him. On receipt of this detail, known as the "Referral Notice", the Adjudicator's timetable begins, giving 28 days to make the Decision. During this period the Responding Party will make their case and there may be a meeting with the Adjudicator, plus often a flurry of written arguments and further submissions. If necessary, this time may be extended by agreement to accommodate submissions and the making of the Decision.
If you would like a Consultant to call you back to discuss your representing your case, please get in touch.
I don't want the appointed Adjudicator, can someone else be appointed?
If the Adjudicator has been validly appointed in accordance with the contract or the Construction Acts, you will not be able to remove the Adjudicator. However, as stated before, Adjudication is a contractual process, thus it is possible to dispense with the Adjudicator by agreement with the other party, although this is highly unlikely. The only other option is to persuade the Adjudicator to resign. This might be on the basis that they have an interest in one of the parties and cannot deliver a balanced unbiased decision. It is more likely that any resignation request that has any chance of success will come from a jurisdictional challenge on a technical or procedural point not on the person.
What is the Adjudicator's Jurisdiction and is a Jurisdictional Challenge?
The jurisdiction of the Adjudicator is the power or right to decide within the limits of the scope of a dispute referred to the Adjudicator in the Notice of Adjudication.
When Adjudication starts, you can often expect a jurisdictional challenge to be made. This will be a demand that the Adjudicator bring the matter to a close by resigning their position. Typical examples of where an Adjudicator may lack jurisdiction are; where the appointment is invalid due to non-compliance with the contract or the Construction Acts; the contract itself may not comply with the Construction Acts thus Adjudication may not apply; there is no dispute to decide (there are numerous reasons for this); a defective notice or incorrect service of documents; the matter has been adjudicated before; there is a conflict of interest.
A successful jurisdictional challenge can be fatal and expensive for the party seeking enforcement, but such success is only likely to come about by a procedural failure by the Adjudicator. Arbicon have a thorough knowledge of the specialist Adjudication Enforcement Law and experience in Adjudication Practice and Procedure, which is essential when acting as an Advocate, which many law firms do not understand. The management of Jurisdictional challenges is of pursuant importance.
What evidence is there that Adjudication works?
Adjudication is now the accepted established leader of all construction dispute resolution methods in the UK. There are over 500 enforcement cases over the past two decades to test it, where parties have attempted to resist the process and made the rules. Most defences fail, in instances where parties have succeeded in resisting enforcement it has been mainly because of jurisdictional issues. What has arisen from all of these cases is a more powerful process with a set of legal rules. It is a process that requires careful management which Arbicon can guide you through.
We have been able as advocates to obtain money due to Clients that were written off as bad debts from 6 to 12 years ago, obtain retention funds, damages for breaches of contract and payment of sums incorrectly certified. Whilst maintaining relationship politics as appropriate, Arbicon are the answer to reversing cash flow problems and losses sustained in commercial construction contracts. The mere threat of using us in adjudication invokes at least half the disputes we have been appointed on to settle immediately, take a look at our Client testimonials.
Conclusion
Construction Adjudication is the most practical, least expensive and best way for commercial parties to solve disputes quickly compared to Court proceedings. It has developed into the most powerful means to achieve justice in the construction industry. However, professional help is essential to conduct the process and achieve a resolution.
Construction Adjudication is a combination of Law and Quantity Surveying and to execute it properly and successfully it requires specialist skill and knowledge. As well as having to prepare properly for Adjudication, there is a need to appreciate and navigate the established procedures, case precedents and common complications associated.
It is thus essential that when appointing an Adjudicator or when seeking Representation, that professional help available from a firm specialising in Adjudication, who are Qualified Chartered Quantity Surveyors with Expertise in the Practice and Procedure of Adjudication such as Arbicon be consulted.