The adjudication affair

The DTI's proposals for amending payment practices will not have overly excited any one industry sector, as discussed last week (Changing the mechanism, QS News, 24 February). While some of the proposals are to be applauded, its decision to take the middle ground meant no radical steps were taken. What then would happen when the DTI came to consider adjudication?

The process has been warmly embraced by the industry since it was introduced in 1998. For its fans, the good news is that the DTI apparently has no intention of bringing the love affair to an end. On the contrary, it seems to think that more is needed.

Some might be surprised that in an industry with more than its fair share of disputes, the DTI says its overriding aim is to "reduce the disincentives to referring disputes where it is suitable". It is within that context that the following proposals have been made.

Trustee Stakeholder Accounts

Few could argue with the DTI's first proposal, the purpose of which is to remove one of the loopholes from the existing regime; namely the use of trustee stakeholder accounts. Such accounts have been used to delay complying with an adjudicator's decision by requiring sums awarded to be held in a separate account pending final resolution of all disputes. The DTI rightly recognised that these accounts frustrate the whole purpose of adjudication. It proposes that they be prohibited. The DTI agreed that only the courts should have power to grant such a stay of execution and, even then, it should be restricted to a few limited circumstances, such as insolvency of the successful party.

The DTI has proposed that if an adjudicator decides to resign having received a jurisdictional challenge, he will be entitled to his fees

Jurisdiction

When adjudication was first introduced, it soon became clear that the courts would not allow challenges to an adjudicator's decision simply because he had reached the wrong conclusion. Adjudication is intended to be a rough and ready way of resolving disputes and, provided the adjudicator answers the question that he has been asked, a flawed decision is still binding.

Perhaps frustrated with the robust approach taken by the court, the jurisdictional challenge has become the favoured method of resisting enforcement, to the extent that it is difficult to find an adjudication these days that does not include some form of jurisdictional challenge. These challenges can prove costly and create uncertainty - the two evils the Construction Act system was originally intended to avoid. The DTI's response has been mixed but could, when used in practice, be effective.

One way to deal with jurisdictional challenges at an early stage would be to allow the adjudicator himself to make a final ruling. The DTI did not take this route and maintained the current position where the final decision rests with the court. The DTI has, however, proposed that if an adjudicator decides to resign having received a jurisdictional challenge, he will be entitled to his fees. This might encourage an emerging practice among adjudicators to actually resign if they believe they do not have jurisdiction. If this does happen more frequently, then although these challenges will remain, they could at least be dealt with at an early stage before too much time and cost is wasted.

Safe in the knowledge that they face limited cost exposure, there is little to stop an aggrieved party chancing its arm
in adjudication

Costs

One of the biggest factors a party will consider when deciding whether to adjudicate is the costs they are likely to incur. It is interesting that the DTI has decided to leave the current position whereby each party bears its own legal costs, regardless of the decision. The adjudicator will also still have the power to decide who should pay his costs.

This will certainly not discourage the rise in adjudication. Safe in the knowledge that they face limited cost exposure, there is little to stop an aggrieved party chancing its arm in adjudication. You might think this is no bad thing. However, it is for those who find themselves on the receiving end of speculative claims that would never see the light of day in court. Even if a claim is speculative, most will still need to spend time and money preparing a defence.

Final and conclusive clauses

Whether the industry will benefit in the longer term from yet further encouragement of an adversarial approach remains to be seen

The DTI proposes that such clauses shall be unenforceable if they apply to interim decisions that can be revised by subsequent decisions under the contract. The DTI recognised a perceived loophole developing whereby, rather than the "final and conclusive" tag applying only to final accounts, it was being used for a number of other contract decisions (for example some extension of time decisions under the specialist engineering contract).

The DTI makes it clear that it considers adjudication to be a good thing and has tried to remove certain loopholes that have developed. If the DTI's proposals do come into force, there is no reason why the current popularity of adjudication among those pursuing disputes will not continue to grow. Whether the industry will benefit in the longer term from yet further encouragement of an adversarial approach remains to be seen.

Alistair Day is a specialist in construction law at Taylor Wessing. He can be contacted at: a.day@taylorwessing.com