Just how cost effective is adjudication? Mark Clinton reports

Above: Mark Clinton is a partner with Irwin Mitchell

In July 2016 the judge in Ground Developments Ltd v FCC Construccion SA concluded his judgment saying: ‘Finally, excluding VAT, the parties collectively have spent a total sum by way of costs in these proceedings in excess of £55,000, arguing about the enforceability of a sum of about £207,000 that is potentially repayable in any event, because of the temporarily binding nature of adjudication. That is over one quarter of the sum the subject of the Decision. It cannot pass without comment that this is contrary to the purpose of Parliament when it imposed this alternative, and temporary, process of dispute resolution upon parties who enter into construction contracts.’

When statutory adjudication was first proposed, there were some who predicted that the process would be ‘hijacked by the lawyers’.  That was a rather emotive and unfair way of putting it, but there was a sensible point beneath it.  It was inevitable that lawyers and other professionals would be enlisted to present cases and that a new body of law would grow up around the practice of adjudication and the enforcement of decisions which were not honoured.  That was all the more so given that there is no limit to the value or nature of disputes that may be adjudicated, as long as they arise under the contract (the meaning of which phrase has itself been subject to argument in court) and the contract is a construction contract (as defined in the Act) or is a contract that expressly provides for adjudication.  There has been a steady stream of cases going through the courts since statutory adjudication first started in 1998.

In August, another case came before the court.  The decision in that case, Paice and Springall v Mathew J Harding is the latest in series between the same parties in respect of the same project which involved the construction of two houses.  There have been five adjudications, three trips to the High Court and one outing to the Court of Appeal, not to mention disciplinary proceedings in respect of an adjudicator.

The fourth adjudication, which was the subject of a failed injunction application, resulted in an decision that Harding should pay Springall and Paice a little in excess of £325,000.  When the amount awarded was not paid, enforcement proceedings were started.  The failed because the court upheld a defence of apparent bias on the part of the adjudicator (the first adjudicator).  A disciplinary process in respect of the first adjudicator followed.

The claim in the fourth adjudication was then put in the fifth adjudication before a second adjudicator.  He found that the sum due to Paice and Springall was slightly less at £296,000 odd.  That award was also not paid and so it was that the parties found themselves back in court in August.   

It is not that common for a court to uphold a claim of apparent bias but in this case, Mr Harding claimed that he had the extraordinary misfortune of apparent bias in respect of two adjudicators.  In the case of the second adjudicator, it was alleged that apparent bias existed because he had given a general reference for the first adjudicator in connection with the disciplinary proceedings.  The court would have none of it.  They reminded us that a claim of apparent bias does not involve an allegation that the adjudicator was actually biased.  What has to be established is that a fair minded observer would conclude that there was a real possibility that the tribunal was biased.   The task set for the second adjudicator was to decide the dispute.  He was not called upon to review what the first adjudicator had done nor to have a view upon it.  Whatever the second adjudicator might have thought of the first adjudicator could not therefore impact on the second adjudicator’s decision and the challenge therefore failed.

That was not the end of the matter because Harding also said the decision in the fifth adjudication was out of time.  That point turned on a rather convoluted argument about whether Harding had agreed to extend the time for the decision.  The court found that he had.

Finally, there was an argument that the adjudicator had gone beyond his jurisdiction.  Here Harding was on firmer ground.  The adjudicator had dealt with an item of claim that arose (if at all) under a separate agreement and was not subject to the adjudication provision in the building contract.   It was therefore outside his jurisdiction.  Here, the court reminded us that there are cases where the item which is subject to a successful jurisdiction challenge can be isolated (severed, as lawyers say) and the remainder of the decision can be enforced.

The amounts changing hands in this epic saga were at times a bit larger than those in the Ground Developments case and one can only guess the amount spent on legal and adjudicator’s fees.

It would perhaps be unfair to use hindsight to apply to the Springall case, the judge’s words in the Ground Developments case.  Those words do however highlight the need to keep an eye on the big picture when fighting the individual battles in serial adjudications.  They also remind us that adjudication is a useful part of the range of dispute resolution processes available but it is by no means the only one and may not always be the right one for a given dispute.

About the author:  Mark Clinton is a partner with Irwin Mitchell