Should I Adjudicate my Dispute?
What is Adjudication?
Adjudication is mechnaism by which disputes between two parties to a construction contract are resolved on a binding, but potentially interim, basis. The parties present their cases to an independent third party - called the Adjudicator - who renders a decision within a prescribed period of time, often 28 days. Although the decision is binding, it may later be reviewed in arbitration or litigation. This makes adjudication particularly appealing in scenarios where a quick resolution is essential to maintain progress on construction projects.
Deciding whether or not adjudication is right for you requries an understanding of its pros and cons, and an assessment of those pros and cons against the circumstances of your dispute.
Advantages of Adjudication
There are several advantages to adjudicating (as opposed to litigating or, where available, arbitrating) a dispute. Some of the most common are as follows:
Expediency
Adjudication provides for rapid resolution of a dispute. Statutory adjudicator generally requires a decision within 28 days, subject to extensions agreed upon by the parties. This efficiency is critical in construction projects where a delay in resolving a disput could delay the entire project (and possibly exacerbate costs).
Cost-Effectiveness
The process of adjudication is far more streamlined, and ‘summary’ in nature than litigation or arbitration. This reduces preparation time and associated legal, expert, and administration costs. Parties typically bear their own legal expenses, eliminating the risk of being required to pay the other side’s costs if they lose.
Continuity
Adjudication can enable parties to resolve disputes whilst a project is ongoing. The resolution of payment disputes, for example, can ensure contractors or subcontractors have sufficient funds to proceed with work.
Enforceability
Adjudicators' decisions are enforceable in the courts, which ensures interim compliance even though the decision is subject to later review. A decision cannot simply be ignored.
Flexibility
Adjudication procedure is much simpler than the Civil Procedure Rules, leaving more flexibility for the process to be tailored to the dispute. Furthermore, disputes can be referred to adjudiction at any time (see point 3 above). This flexibility ensures parties can address issues, in an appropriate way, as they arise rather than accumulating grievances for later resolution.
Confidentiality
Proceedings are private, protecting sensitive commercial information from public disclosure.
Disadvantages of Adjudication
On the other side fo the coin, there are several disadvantages to adjudicating (as opposed to litigating or, where available, arbitrating) a dispute. Some of the most common are as follows:
Interim Nature
Whilst the decisions are binding, they are not final. Either party may subsequently initiate arbitration or litigation to challenge the decision, leading to potential duplication of costs.
Limited Scope for Complex Disputes
The tight timelines and limited scope of adjudication may make it unsuitable for disputes involving intricate factual or legal issues.
Costs in Proportion to Dispute
For lower-value disputes, the costs of engaging legal representation and adjudicators may be disproportionately high, particularly when compared to informal settlement methods. That said, it is unlikely adjudication costs will be as high as litigation costs. However, there is the opportunity to recover litigation costs if you win, which is not something available in adjudication.
Potential for Inconsistent Quality
As adjudicators come from varied professional backgrounds, the quality and depth of reasoning in their decisions may vary, impacting how reliable and consistent the reasoning and decision might be when compared with Judges.
Challenges in Multi-Party Scenarios
Adjudication is typically designed for bilateral disputes (i.e. only two parties involved). Involving multiple parties or addressing interconnected contracts can complicate the process and may not be possible.
Risk of Unfair Strategic Use
Parties may exploit adjudication tactically, such as overwhelming the opposing side with evidence in tight timelines, potentially skewing the outcome.
Deciding Whether to Adjudicate
When deciding whether adjudication is suitable for your dispute, the following factors are worth considering:
Nature of the Dispute
evaluate whether the dispute’s subject matter and complexity align with the adjudication process's rapid resolution framework.
Value of the Dispute
consider whether the value of the dispute justifies the cost of negotiation or commercial settlement. Consider also whether you can afford to spend the money needed for the adjudication without having any prospect of recovering that spend from the other side if you win.
Urgency
decide whether a quick determination is necessary or desireable, for example to maintain project momentum or resolve pressing payment issues.
Potential for Crystallization
be sure that the dispute is clearly defined, or "crystallized." Preemptive referrals without a well-defined disagreement may result in procedural challenges.
Contractual Framework
verify whether the contract provides for adjudication or whether statutory rights, such as those under the Housing Grants, Construction and Regeneration Act 1996, apply.
Conclusion
Adjudication presents a compelling mechanism for resolving construction disputes, balancing speed, cost-efficiency, and enforceability. However, its interim nature, potential cost implications, and unsuitability for complex issues necessitate careful consideration. Parties should assess their specific circumstances, the nature of the dispute, and the broader project dynamics before pursuing adjudication. When strategically employed, adjudication can serve as a powerful tool to safeguard project continuity while preserving rights for more detailed dispute resolution if necessary.
If you wish to speak to an spcialist lawyer for help deciding whether adjudication is right for you, contact Hamshaw today.