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Consequences of Losing an Adjudication.

Posted on 11/06/2017 · Posted in Adjudication

Adjudication is a form of alternative dispute resolution introduced in the UK in 1996 by the Housing Grants, Construction and Regeneration Act (the Construction Act) as a compulsory method for resolving disputes in the construction industry, such as cases involving cost recovery, delay and disruption. Considering that the lifeblood of the construction industry is cash flow it is clear why adjudication has become the default dispute resolution method in the UK.

Adjudication is often preferred to the formal litigation route as it is a quick and relatively inexpensive process in comparison. A primary objective of adjudication as a route to dispute resolution is to provide a fast working solution to an issue so that parties can quickly resume or continue to work under their contract, with the process typically taking place over a 28 day period from the selection of the adjudicator to the final decision.

As a result of these cost and time efficiencies, adjudication is a popular choice for disputing parties, but what about the party who loses the adjudication?

An adjudicator’s decision will be final and binding until such time as the decision is overturned by a judge or arbitrator following a trial, but in the vast majority of cases the parties will accept the adjudicator’s decision and move on. Courts are also keen to uphold the adjudication process to ensure that it remains an effective and efficient way of resolving disputes in the construction industry, so will generally uphold a decision that an adjudicator makes. There are only very limited circumstances in which a party may avoid paying up (if this is the adjudicator’s decision) and that’s when either the adjudicator is shown to have no jurisdiction i.e. if there is no contract in writing between the parties, or if the adjudicator is shown to be biased and as a result there is a breach of natural justice.

An adjudicator may be shown to act outside jurisdiction if for example:

  1. There is no dispute between the parties;
  2. The adjudicator was not properly appointed;
  3. The contract is not a construction contract;
  4. No decision was reached within the statutory time limit of 28 days (if not extended with the agreement of the parties)

Breaches of natural justice may include:

  1. Procedural irregularity;
  2. Failing to act impartially, or;
  3. The existence of bias or apparent bias

Adjudicator bias has been shown to occur when an adjudicator speaks exclusively with either party and does not disclose the details of the correspondence with the other party. An adjudicator may also be accused of bias for accepting late evidence from either party. Due to the rarity that an adjudicator acts outside of jurisdiction, challenging adjudicators for breaching natural justice seems to be the most likely instance that a decision is repealed.

When anger rises, think of the consequences.”
Confucius

The most likely consequence for the losing party of an adjudication is that they must pay the sum instructed by the adjudicator, even if they feel the decision is a wrong one. Because a decision is usually made within 28 days from the start of the adjudication process, the losing party may be liable for considerable sums of money over a very short timescale that can have significant – sometimes even fatal – consequences for their business. Even if the losing party does attempt to beat the odds and have the adjudicator’s decision overturned or not enforced by going to court, the cost of enforcement is usually comparatively low when compared to the financial implications of a full trial.

A losing party may also not only take a large financial hit, but a reputational one too, and for large construction contracts where there may be more than one adjudication between the same disputing parties, it may muddy the waters for future adjudication hearings in terms of what can and cannot be raised.

It is fairly unusual for parties to attempt to take a second bite of the cherry and refer disputes to court. However, below are some points of guidance to follow should a losing party wish to challenge the adjudicator’s decision:

  1. If a losing party makes a payment pursuant with an adjudicator’s decision, it is within their right to issue court proceedings to seek a final determination of the adjudicator’s decision and repayment within six years from the date on which you made the payment.
  2. For tactical reasons, a losing party should consider holding off on their claim for a repayment until after the underlying limitation for the dispute has expired (the 28 day period) to ensure that any counterclaim that could be raised is automatically barred.
  3. A common means of challenging an adjudicator’s decision is proving that they did not carry out their investigation within the twenty-eight day period.
  4. Due to the fact that the Technology and Construction Court (TCC) in the UK has proved to be reluctant to challenge an adjudicator’s decision, except in very narrow circumstances. It would be wise for those working in the construction industry when drafting a contract to enter under a seal, this will extend the limitation period for an underlying dispute to twelve years and thus bide time should a dispute arise.

Expert Evidence is a professional firm concentrating on the four main areas of dispute resolution; acting as expert witnesses in financial litigation, mediation, arbitration and adjudication. The firm has a civil, criminal and international practice and has advised in many recent cases. Areas of specialisation include banking, lending, regulation, investment, and tax.

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Disclaimer – Please confirm any of the above views with your solicitor. Expert Evidence takes no responsibility or provides any guarantee that the views above are correct for your particular case or jurisdiction.