Arbitration and adjudication: A tale of two acts

There are well over 1,000 construction adjudications per year in the UK. While the number has fluctuated since the Construction Act 1996 came into force the process is generally regarded as a success. So much so, there is a growing list of jurisdictions with statutory adjudication.

Adjudication offers relatively inexpensive and speedy dispute resolution, with parties usually accepting its temporarily binding result as final. I say “relatively” as a comparison with arbitration, which many commentators say adjudication has helped make a thing of the past in the UK construction industry.

However, a different way of looking at it is that adjudication is a form of arbitration. This is because adjudication is virtually indistinguishable from fast-track arbitration. As a matter of principle there are very few differences between the two processes that parties cannot contract out of or into (for example, they can agree to an arbitration with a temporarily binding award).

In practice adjudication has ended up far from the lawyer-free process envisaged by some of the parliamentarians who enacted it. In fact, it often looks and feels like arbitration. This is partly because, while statutory adjudication was new, those who worked with it and shaped it were not.

In practice adjudication has ended up far from the lawyer-free process envisaged by some of the parliamentarians who enacted it. In fact, it often looks and feels like arbitration

Why does this matter? It goes to the heart of how the process has developed and will continue to develop.

There are some who regard adjudication as unique. But there are others who see arbitration as providing rules and practices, developed over centuries, which are worth emulating. That is not to say that the process called “adjudication” is entirely new, while arbitration is not. One can debate whether the Judgment of Solomon was more akin to an adjudicator’s decision or an arbitrator’s award. More relevantly, contractual adjudication processes were used before the Construction Act and continue to be used.

The push away from and pull towards arbitration law is apparent in lots of the court judgments on adjudication. One problem has been that this has happened on the same issues with the result that some authorities follow contradictory principles. An early example of this was case law suggesting that it took longer to crystallize a dispute for an adjudicator to have jurisdiction over, than it did for an arbitrator. The arbitral approach won through.

The pulling, when it happens, is clearer to see. In some areas arbitration law has been explicitly copied. These include when an adjudicator has jurisdiction and when he doesn’t but the parties still submit to his jurisdiction. The case law on the separate status of an adjudication agreement (such that it, say, survives the underlying contract’s termination) copies arbitration. So does that on an adjudicator’s right to be paid by a party who does not contract with him but adjudicates under protest.

The starkest example of statutory adjudication’s adoption of arbitration law is the courts’ acceptance that the rules of natural justice govern the process. Initially many thought they did not apply. Now the full range of challenges available for arbitral awards for what is termed “serious irregularity” is, in essence, available for adjudicators’ decision. These include the adjudicator exceeding his powers, failing to conduct the process as per the agreed procedure, failing to deal with all the issues put, uncertainty as to an award’s effect, failing to comply with requirements as to an award’s form, and fraud.

The courts have even adopted the requirement that a serious irregularity must cause “substantial injustice”, which was introduced into arbitration law, across the board, when statutory adjudication was enacted. The rationale for this (in particular for breaches of the rules of natural justice) remains questionable.

One irony in statutory adjudication’s development is that it was first presented to parliament as fast-track arbitration with a final and binding result. Concern was expressed, including by the lead architect of what became the Arbitration Act 1996, which went through parliament at the same time as the Construction Act. Lord Justice Saville (as he then was) wrote to the government with his suggestions for addressing the “muddle” between adjudication and arbitration. Shortly afterwards (including after a much-quoted intervention from another leading jurist, Lord Ackner) significant changes were made to the solitary clause covering adjudication (now section 108) to distinguish it from arbitration.

There are now many hundreds of judgments covering the gaps in and supplementing the statutory adjudication regime. We are left with a complicated area of law for the uninitiated, with many traps for the unwary. Aside from the push-pull of arbitration law, we may have reached a point where arbitration was before the Arbitration Act sought to codify much of the relevant case law. That is, an Adjudication Act may be called for. If there is to be one, for some, the Arbitration Act would provide a decent starting point.

Rupert Choat is a barrister, arbitrator and mediator at Atkin Chambers