And rough justice for all

Recommendation 26 of The 1994 Latham Report was that adjudication should become the standard method of dispute resolution in the construction industry. Sir Michael Latham concluded that the contract administration procedures for resolving disputes set out in the standard forms had broken down. The contract administrator was no longer seen to be acting impartially. The construction industry’s preferred method of dispute resolution, arbitration, had become, in the words of Lord Donaldson, “no more and no less than litigation in the private sector”. What was needed was a cheap, prompt and efficient way to sort out arguments, and preferably one that would preserve goodwill.

  Six years later, Latham’s recommendation has become reality, so it is probably fair to try to judge the performance of adjudication against his own criteria. Is it quick, cheap and efficient, and does it preserve goodwill?

Cost

Adjudication is substantially cheaper than litigation or arbitration. Costs are largely a function of time. The longer the procedure takes, the greater the cost. As adjudication procedure is confined by the Construction Act to a maximum period of 49 days (taking into account seven days to make an appointment and the maximum extension of time), there is a limit to the amount of costs the parties can incur.

There has been some confusion as to whether an adjudicator can award costs. In John Cothliffe Ltd vs Allen Build (North West), the judge held that even in the absence of agreement between the parties, an adjudicator had power to make a costs award. This decision was surprising, as there is no provision in the act (or the Scheme for Construction Contracts) for an adjudicator to have any jurisdiction as to costs unless such power is conferred upon him in the contract or by subsequent agreement between the parties. It is arguable, however, that conferring a costs power would discourage “vexatious” adjudication by allowing an adjudicator to punish those who pursue unsuccessful claims or defences. This uncertainty as to costs was resolved in Northern Developments (Cumbria) vs J&J Nichol, which held that an adjudicator has no implied power to award costs, other than his fee, unless the parties expressly agree.

The inability to recover costs has two effects. It is a disincentive to adjudicate low value disputes and it favours parties with deep pockets. In that sense, adjudication has not levelled the playing field as Latham may have intended.

Speed and efficiency

The Construction Act imposes a strict timetable that requires the adjudicator to reach a decision within 28 days of referral with a maximum extension of time of a further 14 days. This time limit caused much consternation among lawyers when the act came into force because it was felt that the quality of decisions would suffer. The Technology and Construction Solicitors Association’s adjudication rules contain a “let out” for adjudicators that allows them to decline to make a decision if they feel there is insufficient evidence or information.

The courts have made it clear that they will not intervene even when an adjudicator’s decision results in patent injustice

  Although adjudication is not an expressly confidential process, most cases are unreported, so only anecdotal evidence of the quality of decisions is available. That evidence suggests that there is a lot of rough justice out there. To make matters worse, the courts have consistently made it clear that they will not intervene even where an adjudicator’s decision results in patent injustice. The court’s approach in Outwing Construction Ltd vs H Randall & Son Ltd (1999 64 Con LR 59) was to accelerate the normal timetables for enforcing an adjudicator’s decision and award enforcement costs. In A&D Maintenance and Construction vs Pagehurst Construction Services, the judge seemed to suggest that the only circumstances where adjudication decisions would not be enforced would be where the adjudicator’s jurisdiction could be successfully challenged.

Indeed, in Bouygues (UK) vs Dahl-Jensen (2000 BLR 49), it was confirmed that the courts would enforce an adjudicator’s decision even if it was plainly wrong. In Bouygues there was an arithmetical error in the adjudicator’s calculation of the award, in that he failed to take into account the release of retention money (to which the successful claimant was not entitled). The court nevertheless enforced his decision because he had the jurisdiction to make it.

In short, the courts appear to be implementing the intention of Latham and parliament to provide a “quick and dirty” method of dispute resolution.

Maintaining goodwill

Creating a dispute resolution method that allowed the parties to preserve goodwill was perhaps a tall order. Latham’s intention was to prevent projects from collapsing into litigation by allowing the parties to get a decision on claims and other points of disagreement during the course of construction. That way, cash could continue to flow down the subcontract chain and work could proceed. The paying party’s right to set-off against amounts awarded by an adjudicator has necessarily been curtailed. If a defendant raises a defence of set-off in the adjudication proceedings, then the adjudicator must consider whether it is legitimate. The perception was, however, that it might be more advantageous for a defendant to raise a set-off in any subsequent enforcement proceedings. The position was clarified in VHE Construction vs RBSTB Trust Company, where it was held that a counterclaim or set-off raised after the date of referral to adjudication would not prevent enforcement of an adjudicator’s decision in its entirety.

As to whether adjudication allows goodwill to be maintained, again, only anecdotal evidence is available. This suggests that calling in a third party to resolve a dispute is usually interpreted by both sides as something of a declaration of war. Even after the decision has been delivered, relationships can never be quite the same again.