The adjudication process is the primary, rapid dispute resolution mechanism in the UK construction industry, mandated by the Housing Grants, Construction and Regeneration Act 1996 (the “Act”). Designed to ensure cash flow and prevent disputes from halting projects, adjudication delivers an interim binding decision within weeks.
This article provides a comprehensive guide to successfully navigating the adjudication process, detailing the necessary legal conditions, the procedural requirements of the Act and the Scheme for Construction Contracts, and the steps required for valid referral, decision, and enforcement in the Technology and Construction Court (TCC).
1. The conditions to refer to adjudication
Under section 108 of the Act, a party to a construction contract (a) has the right to refer a dispute arising under the contract (b) for adjudication, at any time (c).
(a) A construction contract
It must be a construction contract as defined in section 104(1) of the Act, as “carrying out of construction operations”, which itself is defined by section 105 of the Act.
For example, contracts in which an employer is a “residential occupier” or contracts for “non-construction operations” listed in section 105(2) are not construction contracts.
However, even if it fell within the exceptions, the contract might still contain adjudication clauses, and so adjudication would be available.
(b) A dispute
The referring party can only refer a single dispute per adjudication. If there is more than one dispute, a different adjudication procedure must be started for each dispute.
In addition, the dispute must be under the contract. The meaning of “under” is wide, including “arising under”, “arising out of”, and interpreted as disputes in connection with the contract.
Finally, the dispute must have crystallised, which means that:
- A claim has been made, in writing, to the intended respondent, setting out in clear terms the redress sought and the legal and factual basis for the claim.
- The claim has not been admitted either by express rejection, discussions between the parties, or inferred from the respondent’s prevarication or silence.
- The period that must elapse for a dispute to be inferred from silence depends on the facts of the case and contractual structure. It must be reasonable. For example, a short period might be enough if the gist of the claim is well known or it is a claim for payment with notice issued, but a longer period might be required if the claim is notified to solicitors, to give them time to consider the claim.
(c) At any time
The notice of adjudication can be served before the works have been completed, or long afterwards, and while arbitration or court proceedings are ongoing.
This is limited to if a final certificate has become conclusive or if the adjudication relates to the value of an interim or final payment, unless the notified sum has been paid. Indeed, a party may only start a true value adjudication if it has paid the notified sum.
Any precondition to referring a dispute to adjudication will fall foul of the requirement in section 108 of the Act that a dispute can be referred to adjudication "at any time", and will be unenforceable, including a requirement to refer to mediation or a notice of dissatisfaction be issued first.
2. The contract and adjudication procedures
A construction contract must include, in writing, an adjudication procedure that complies with section 108 of the Act. It should include provisions to:
- enable a party to give notice at any time of its intention to refer a dispute to adjudication.
- provide a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within 7 days of such notice.
- require the adjudicator to reach a decision within 28 days of referral or such longer period as is agreed by the parties after the dispute has been referred.
- allow the adjudicator to extend the period of 28 days by up to 14 days, with the consent of the party by whom the dispute was referred.
- impose a duty on the adjudicator to act impartially.
- enable the adjudicator to take the initiative in ascertaining the facts and the law.
- provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration, or by agreement.
- provide that the adjudicator is not liable for anything done or omitted in the discharge or purported discharge of his functions as adjudicator unless the act or omission is in bad faith.
- any employee or agent of the adjudicator is similarly protected from liability.
If the contract does not include in writing (or misstates) the required adjudication provisions in section 108 of the Act, the provisions of Part 1 of the Scheme for Construction Contracts 1998 (the “Scheme”) take effect as implied terms in place of any express terms of the contract.
The parties have a wide choice of procedural rules to apply to a construction contract. In practice, most either expressly adopt the Scheme by using a JCT standard form contract or do nothing, in which case the Scheme is implied. The parties can also draft their own bespoke adjudication procedural rules, provided they comply with section 108 of the Act.
There are some differences between the various adjudication procedures. Once a procedure is selected, parties must comply with that procedure to avoid a jurisdictional challenge to the adjudicator’s decision.
Examples of adjudication procedures include the default adjudication procedure from Part I of the Scheme for Construction Contracts 1998, the Construction Industry Council’s (CIC) model, the Institution of Civil Engineers (ICE), the Institution of Chemical Engineers (IChemE), the Technology and Construction Solicitors Association (TeCSA), the Technology and Construction Bar Association (TECBAR), low value adjudication schemes, ICE adjudication procedure for payment disputes, UNCITRAL model clause on adjudication, or contractual adjudication.
3. The notice of adjudication
The notice of adjudication informs the other party that a dispute is being referred to adjudication, defines the scope of the dispute that the adjudicator has jurisdiction to decide, and starts the adjudication process.
It must be in a format complying with the relevant contractual or statutory adjudication procedure. Different adjudication procedures impose different requirements about what to include in the notice.
It must refer to the same single dispute as the dispute that has crystallised and include:
- names and addresses of the parties to the contract
- the issues the adjudicator is to determine, as the adjudicator's jurisdiction will be limited to matters identified in the notice
- a full description of the dispute, including its legal and factual basis
- details of how the dispute has crystallised
- legal basis of the claim and any defence
- nature and amount of the redress being sought
- adjudicator to decide liability for fees and expenses (if the Scheme applies, the adjudicator can determine this)
The wording should not be too wide nor too narrow as to restrict the adjudicator’s decision. Especially for sums claimed, the notice should ask the adjudicator for a decision that the responding party pay the referring party the sum claimed or “such other sum as the adjudicator finds to be due”, to avoid the only two outcomes being the sum claimed or nothing.
Thought should be given to whether to ask the adjudicator to give a reasoned decision, as the rules do not require it, and if a previously undisclosed expert’s report or other documents should be disclosed to the responding party in order to rely on them in the adjudication.
It is important to note that there is no opportunity to rectify an error in the notice or amend it. If the referring party has overlooked something in the notice, they would need to withdraw the notice and start the process again.
Moreover, an adjudicator is limited as to the remedies they can award. For example, they cannot grant an injunction, rectification of the contract, equitable remedies or address claims for negligent misstatement.
Finally, the notice of adjudication should be served in accordance with the applicable adjudication procedure and contractual requirements. If there are none, sections 115 of the Act will apply, and a party should serve a notice at the last known principal residence (individual), business address (trade or business) or registered office (company), by any effective means. The questions about the validity of service are approached on a case-by-case basis.
4. The referral notice and appointment of the adjudicator
Under the Scheme, the referring party must request the appointment of the adjudicator either named in the contract, apply to the adjudicator nominating body (ANB) named in the contract, or apply to any ANB.
The referring party must comply with the applicable appointment requirements of either the Act or the Scheme. If the Scheme applies, the steps to appoint an adjudicator must be taken only after the notice of adjudication. This is different from the Act, which does not require this.
The referring party must serve the referral notice on the adjudicator and the responding party within seven days of the notice of adjudication.
The notice must be in a format complying with the relevant contractual or statutory adjudication procedure.
It must contain all the arguments, documents and other evidence that must be submitted to the adjudicator to persuade him of the merits of the referring party's case.
The adjudicator will then usually write to both parties setting out the terms and conditions on which they are prepared to act (the adjudicator's agreement).
The adjudicator will then have 28 days from the referral of the dispute to reach a decision. This can be extended by the adjudicator by 14 days if the referring party agrees, or the parties can agree to a longer timescale after referral of the dispute.
5. The adjudicator’s decision and limitation periods
The adjudicator’s decision must be completed and communicated on time, they must have followed the rules of natural justice (avoided conflicts of interest, acted fairly and without bias, and did not exceed their jurisdiction), and answered the correct question, even if wrongly.
The decision is interim binding, which is binding until the dispute is finally determined by legal proceedings, arbitration or by the parties’ agreement. Although the parties may agree to accept the decision of the adjudicator as finally determining the dispute.
The unsuccessful paying party benefits from the implied term entitling it to recover any overpayment resulting from the adjudication when the court has determined the dispute. The right for the unsuccessful party to seek a final determination by suing on the implied term arises on payment of the sums the adjudicator awarded against it, which starts the six-year limitation period.
The successful party has then six years to commence proceedings to enforce the adjudicator’s decision, starting from the date when the adjudicator’s decision was published.
Importantly, the court cannot order the unsuccessful party to pay any more than it has already paid under the adjudicator's decision, but it may order the successful party to return some of the payment.
6. Enforcing the adjudicator’s decision
The decision is usually enforced in the Technology and Construction Court. Section 9 of the TCC Guide contains the procedure for the enforcement of the decision.
The successful party can apply to the TCC to enforce the decision by either issuing a claim under CPR7 with an application for summary judgment under CPR 24 or applying for a declaration under CPR 8.
This is a swift procedure, as the TCC aimed to list enforcement proceedings within six to eight weeks.
Conclusion
The adjudication process provides a rapid, interim binding solution to maintain essential project cash flow, but successful referral requires strict adherence to the specific procedural requirements applying to the different adjudication procedures. It is therefore essential to comply with the rules of the chosen procedure to avoid jurisdictional challenges to the adjudicator’s decision.
How To Get In Contact
If you would like advice on construction law or adjudication, please contact our team at info@culbertellis.com or call 0203 987 0222
