The “other” adjudication: Why property lawyers need to know about construction adjudication

In a property context, when we talk about adjudication, we normally mean the Land Registry adjudication procedure for resolving disputes about registered land.

However there is another procedure, also called adjudication, that is mandatory for “construction contracts” as defined by the Housing Grants Construction and Regeneration Act 1996 (“the 1996 Act”). Section 108 of the 1996 Act requires that every construction contract must contain an adjudication procedure compliant with the Act. If the contract does not have compliant adjudication provisions, the Act will imply a statutory Scheme. You cannot contract out of the right to adjudicate.

Why is this important?

The reason why this form of adjudication should be on the radar of every property lawyer is simple: the definition of “construction contract” under the 1996 Act is very broad. In addition to the construction of buildings, the 1996 Act encompasses contracts for:

“alteration, repair, maintenance… of buildings”
“installation… of heating, lighting air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection or security or communications systems”
“painting or decorating the internal or external surfaces of any building”
 “landscaping”

It also includes professional advice in relation to these sorts of works and includes, for example:

“advice on… interior or exterior decoration or on the laying out of landscape”.

The impact on clients is obvious; wherever there is a contract for the maintenance or improvement of buildings, it is likely that the 1996 Act will imply the adjudication procedure.

So what is construction adjudication?

Describing adjudication briefly is challenging (books have been written on the subject). For the purpose of this article, it suffices to say that adjudication is an interim, fast-track dispute resolution process. When a dispute arises between parties to a construction contract, either party has the right to refer that dispute to an independent third party for determination. It has been described as “arbitration lite” but that is not an adequate description.

Key features of construction adjudication:

• the procedure is usually paper-based but the adjudicator can call for site visits, meetings and can hear evidence;
• the adjudicator must decide issues in accordance with the law but is normally not a qualified lawyer; it is commonplace for construction professionals to be appointed for their technical expertise;
• an adjudicator must render his decision within 28 days of the dispute being referred to him;
• the adjudicator has no power to extend the time for his decision without the agreement of the parties;
• once a decision has been made, it is binding on the parties and may be enforced by expedited summary judgment procedures in the Technology and Construction Court (“TCC”);
• there is no appeal from an adjudicator’s decision;
• decisions are enforceable even if there are manifest errors of fact and law;
• the only real grounds for challenging a decision are that the adjudicator lacked jurisdiction to determine the dispute or that he has acted in breach of the rules of natural justice (insofar as they can apply to a 28 day summary procedure);
• importantly, the decision has only ‘temporary finality’ and binds the parties only until such time as the dispute is finally determined, either by litigation, arbitration or agreement;
• there is no real limit to the size or complexity of a dispute that can be referred to adjudication.

It is apparent from that description that parties can expect little more than “rough and ready” justice in adjudication and that the potential for injustice is great. However, The TCC has staunchly defended adjudication and has said:

“The intention of Parliament in enacting the [1996 Act] was plain. It was to introduce a speedy mechanism for settling disputes in construction contracts on a provisional interim basis, and requiring the decisions of adjudicators to be enforced pending the final determination… The timetable for adjudications is very tight… many would say unreasonably tight, and likely to result in injustice. Parliament must be taken to have been aware of this.” (see Macob v Morrison [1999] BLR 93)

The enforcement of decisions that contain manifest errors has been upheld on several occasions in the Court of Appeal and is referred to in the TCC as “the doctrine of unreviewable error”. The Court’s usual approach is that any perceived injustice is:

“… inherent in the exceptional summary procedure provided by the 1996 Act… in any event, unfairness in a specific case cannot be determinative of the true construction or effect of the scheme in general” (see Bouygues v Dahl Jensen [2000] BLR 522)
“the need to have the ‘right’ answer has been subordinated to the need to have the answer quickly” (Carillion v Devonport Royal Dockyard (2005) 104 Con LR 1).

Contracts in writing

Until this year the 1996 Act did not apply to construction contracts unless they were “in writing” or “evidenced in writing”. The TCC and Court of Appeal took a hard-line stance to that requirement and held that every term of the contract had to be evidenced in writing before the Act would bite.

However, the Local Democracy, Economic Development and Construction Act 2009 has done away with the “in writing” requirement and adjudication will now apply even to oral and part-oral contracts.

The residential occupier exception

The key exception from the 1996 Act is that it does not apply to contracts made with “residential occupiers”, in other words it does not apply if you are having works done to your own home. However, it will apply to commercial clients, property developers and clients with buy-to-let properties.

Be prepared

The construction industry has embraced adjudication and, since 1996, tens of thousands of cases have been adjudicated. Adjudication has also become a significant area of law and practice and has generated over 500 reported cases. The upshot is that construction companies are usually familiar with adjudication and their rights whereas property clients rarely are. This can lead to an obvious tactical advantage for the contractor. It is important that as litigators we keep on top of this procedure, learn how to respond to it and appreciate its tactical significance as a litigation tool.