Russell-Cooke has represented both Referring Parties and Responding Parties in numerous adjudications and enforcement proceedings, and acted for the successful Responding Party in the leading case of Meadowside Building Developments Ltd v 12-18 Hill Street Management Co Ltd  EWHC 2651 (TCC).
Adjudication is a form of dispute resolution that is particularly important for the UK construction industry. It is therefore important for parties to construction contracts to understand the process, and the risks and opportunities it presents.
Adjudication involves an independent, and often expert, third party (the Adjudicator) being appointed to reach an impartial decision on a dispute. That decision then binds the parties unless and until the matter in dispute is finally resolved by agreement, or determined by litigation or arbitration.
The Housing Grants, Construction and Regeneration Act 1998 (the Construction Act) provides parties to a wide range of construction contracts with a statutory right for to refer disputes to an adjudicator at any time. In Bresco v Lonsdale  UKSC 25 the Supreme Court confirmed that adjudications can even be pursued by a party in insolvent liquidation.
The definition of “construction contracts” includes contracts for carrying out, or arranging for, works relating to the alteration, repair, maintenance and demolition of buildings and/or which form part of any land, such as walls and infrastructure. It also includes contracts for architectural, design or surveying work and to provide advice on building, engineering, decoration or landscaping. This includes contracts between employers and main contractors, and contracts with sub-contractors.
A number of construction contracts are excluded from the statutory regime. This includes contracts relating to resource extraction, manufacturing and delivering equipment, materials and components and works wholly artistic in nature. Construction contracts with residential occupiers are also excluded. This covers contracts which principally relate to a property one of the parties occupies, or intends to occupy, as their dwelling.
Irrespective of whether the statutory regime applies, contracting parties can expressly agree for adjudication to apply to their contract. The standard forms of construction contract (for example JCT, NEC and FIDIC contracts) set out a contractual regime governing the parties’ right to adjudicate.
The parties must have a dispute that has crystallised. This usually involves one party making a claim that has not been admitted, although this will depend on the facts of the case.
The party who commences the adjudication is called the Referring Party, with the other side called the Responding Party. The process usually involves:
- the Referring Party giving notice of their intention to refer a dispute to adjudication (the Notice);
- the Referring Party, within 7 days of the Notice:
- applying to the appropriate nominating body, such as RICS, TeCSA, ICE, RIBA or TECBAR, to appoint an Adjudicator; and
- serving their referral of the dispute (the Referral Notice);
- the Adjudicator setting a timetable for the conduct of the adjudication, including the time by which the Responding Party must respond to the Referral Notice and for the parties to make further submissions; and
- the Adjudicator reaching a decision within 28 days of the Referral Notice, or such longer period as might be agreed.
Adjudication is a costs neutral process, with each party responsible for their own costs. The parties will generally be jointly and severally liable for the fees and expenses of the Adjudicator, although the Adjudicator will usually direct how this liability should be apportioned as between the parties.
If a party fails to comply with an adjudicator’s decision then the other party can seek to enforce it through a special fast-track enforcement process in the Technology and Construction Court (TCC).
The TCC has developed an expedited process for the enforcement of adjudication decisions. If the Referring Party successfully enforces the adjudication then the TCC will enter Judgment against the Responding Party. The unsuccessful party will usually be required to make a contribution to the successful party’s costs of the proceedings.
The TCC's approach is to uphold adjudicators' decisions without investigating whether the decision is wrong in fact and/or in law. An unsuccessful party may however:
- try and resist enforcement on limited grounds based on the way in which the adjudication was conducted, such as cases where the Adjudicator lacked jurisdiction over the dispute and/or where there has been a breach of the rules of natural justice;
- try and resist enforcement based on the status or financial circumstances of the Referring Party, such as in the leading case of Meadowside Building Developments Ltd v 12-18 Hill Street Management Co Ltd  EWHC 2651 (TCC) in which Russell-Cooke acted for the successful Responding Party; and/or
- seek to have the TCC finally determine the dispute (or elements of it) by seeking declaratory relief on short and self-contained point that can easily be shown to be wrong, such as disputes about the timing or categorisation of formal payment notices.
In most cases however, the unsuccessful party in an adjudication will need to follow the decision and then seek to overturn the outcome, either by having the dispute finally resolved by a court or arbitration or by negotiation.
Compared with litigation and arbitration, adjudications are a quicker, cheaper, more flexible and informal process. They can therefore provide a valuable way of resolving disputes, particularly in the short term.
Where a project is on-going, adjudications produce decisions that the parties have to follow, but which leaves them to finally resolve their dispute at a later date. This helps manage the decision-making and cash flow for the works, and also limits the scope for disputes (particularly about payment) to disrupt the progress of the entire project.
Even where the relevant works has completed, adjudications will lead to an independent person making a decision. Where the Adjudicator has relevant expertise and experience, the parties may accept that the decision is a reasonable attempt to arrive at a fair resolution of the dispute. This can then lead to the adjudication decision forming the basis for the parties agreeing a settlement.
As with any adversarial process there is an inherent risk of being unsuccessful. The time pressures of adjudication, and the range of adjudicators, affects the reliability of decision-making.
The costs neutrality of adjudications can also be an issue. Both parties will incur often substantial time and expense that they will not be able to recover. This therefore gives parties an opportunity to pursue claims, and test and/or develop their positions, in circumstances where they are not at risk of being liable for their opponent’s costs.
Even where a party is successful in an adjudication, there can be risks that the enforcement process will be unsuccessful. In addition, parties need to consider how the adjudication will affect the broader relationship between the parties, as the outcome may expose them to further substantial costs and risks in dealing with the dispute going forwards.
Adjudication provides a means of pursuing substantial claims at very short notice and that will involve considerable time, effort and cost.
Parties to construction contracts must therefore be careful in managing the delivery of their projects, and their relationships with their counterparties. Where disagreements arise, it is important for parties to seek advice at an early stage in order to best advance and/or protect their positions should a dispute arise. This will include considering whether their interests would be served by actively pursuing adjudications as the Referring Party, or whether they instead need to ensure that they are in a position to effectively deal with an adjudication as the Responding Party.
The Russell-Cooke team
Our team has represented both Referring Parties and Responding Parties in numerous adjudications and enforcement proceedings and acted for the successful Responding Party in the leading case of Meadowside Building Developments Ltd v 12-18 Hill Street Management Co Ltd  EWHC 2651 (TCC). If you would like some advice on the process of adjudication or any disputes that might give rise to an adjudication, please contact either Mark Fletcher or Ricky Cella.