Of the 25 years since the introduction of adjudication, 20 have followed the Court of Appeal drawing attention to the tension between adjudication and insolvency in Bouygues (UK) Ltd v Dahl-Jensen (UK) Ltd.
The most recent major decision dealing with insolvency and adjudication is John Doyle Contractors Ltd v Erith Contractors Ltd. In their blog post, Edward Shaw and Hadley Dickson provided a summary of the Court of Appeal’s decision and considered its potential implications, in particular for liquidators and funders deciding whether to adjudicate certain claims.
Mark has previously written about how insolvency-adjudication cases have shown the continued significance of the rules of maintenance and champerty, and the effect of common third party funding driving forward the Bresco, Meadowside and Astec series of cases. In this blog post, we will be looking at the conspicuous success of adjudication as a process, which was lauded by the Supreme Court in Bresco and the Court of Appeal in John Doyle (among others), and how this might be expanded into dispute resolution more generally.
The only game in town
Parties to any dispute essentially have three options. They must ultimately either:
- Leave their dispute unresolved.
- Agree a negotiated resolution.
- Have an outcome imposed upon them by a third party.
One important factor in deciding which of these destinations is reached is the ease with which the parties can achieve an imposed outcome. In the context of litigation, the parties’ assessment of how realistic and (un)appealing it is for the matter to reach trial forms a major part of the leverage in negotiations. If litigation is not a viable prospect, then claims can either be ignored or settled at a level that does not reflect their underlying merit.
For the purposes of this post, we will be concentrating on three key elements of adjudication that distinguish it out from litigation, arbitration and other forms of ADR:
- It is a compulsory form of dispute resolution involving the assessment by an independent and often expert third party at any time in a dispute.
- That third party makes a speedy decision that binds the parties unless and until overturned by litigation or arbitration.
- That decision is enforceable through summary judgment via a specialist court enforcement scheme.
When a party decides to adjudicate, they have chosen not to rely, in the first instance at least, on court or arbitration proceedings. Instead, they are taking an additional step to secure a decision that will potentially shift the parties’ starting positions when their dispute comes to be finally resolved. In John Doyle, Coulson LJ commented how:
“… speaking personally, I rather cavil at the suggestion that construction adjudication is somehow ‘just a part of ADR’. In my view, that damns it with faint praise. In reality, it is the only system of compulsory dispute resolution of which I am aware which requires a decision by a specialist professional within 28 days, backed up by a specialist court enforcement scheme which (subject to jurisdiction and natural justice issues only) provides a judgment within weeks thereafter. It is not an alternative to anything; for most construction disputes, it is the only game in town.”
For many types of construction disputes, adjudication is simply the perfect “fit”. For parties seeking to protect their cash flow during ongoing projects, adjudication will rarely have any serious competition. In other cases, particularly where the parties’ final entitlements need to be determined, the decision should be more balanced. Insolvency-adjudications provide an obvious example of this, where the disputes are often “very stale” (Coulson LJ in John Doyle). Therefore, the choice of adjudication may follow from the effectiveness of adjudication, the downside of litigation or arbitration, or a combination of both.
Elements of the game
There is no perfect system for dispute resolution. Every perceived strength of adjudication comes with a corresponding trade-off with litigation and arbitration. As Lord Briggs commented in Bresco, “speed and economy come at an inevitable price in terms of reliability”. Costs neutrality reduces the downside of losing, and the upside of winning. Having specialist professionals available to take a case on, immediately, and to produce a decision in a very short space of time, and then have that decision enforced, requires more resources than are available within the current court system.
In Bresco, the Supreme Court made it clear that companies in liquidation are entitled to commence and pursue adjudications. However, the effect of the Court of Appeal’s decision in John Doyle is that it will be very difficult for insolvency adjudications to be summarily enforced in all but a very limited range of circumstances. Insolvency-adjudications therefore provide a practical demonstration of the relative value of the different elements of adjudication. As Lord Briggs set out in Bresco:
“In the context of construction disputes adjudication has, as was always intended, become a mainstream method of ADR, leading to the speedy, cost effective and final resolution of most of the many disputes that are referred to adjudication. Dispute resolution is therefore an end in its own right, even where summary enforcement may be inappropriate or for some reason unavailable.”
Lord Briggs also endorsed the observations of Adam Constable QC in Meadowside that adjudication decisions are often treated as binding, or form the basis for a negotiated settlement. In turn, this is good for the administration of justice because it reduces the burden on public resources by resolving disputes that would otherwise end up in the TCC.
However, it is important to remember that a party’s decision about how to respond to an adjudicator’s decision is made in the context where the alternative is for them to proceed with either litigation or arbitration. If this is not a viable or worthwhile option to pursue, then the parties will not seek to overturn enforced adjudicators’ decisions, even if they regard them as real miscarriages of justice. Conversely, a party is unlikely to comply with an adjudicator’s decision where the failure to do so is without consequence.
Square pegs in round holes
The success, and consequent pull, of the streamlined TCC enforcement process means that many insolvency-adjudication cases have involved parties seeking to bring themselves within its user-base. However, insolvency adjudications raise complications that mean that they are not well-suited to a streamlined enforcement process that, as the Court of Appeal commented in John Doyle, comes at some cost to other court users.
The focus on enforcement has left the other ways in which adjudications might be made to have consequences being underdeveloped. In John Doyle, the Court of Appeal rejected the submission that the threat of summary enforcement was required to make adjudication work in every case. Such a view wrongly assumes that summary judgment is the only weapon available to a party with an adjudicator’s decision. Coulson LJ went on to suggest how claimants in litigation might benefit from having obtained an unenforced adjudicator’s decision in their favour because this would put the defendant on the “back foot” in subsequent proceedings.
Part of the benefit in obtaining an adjudicator’s decision is that it provides an assessment of the merits of a claim. This assessment can then affect the parties’ decision-making about whether and how they pursue claims. A party will be more inclined to pursue claims further where an independent and expert third party (the adjudicator) has endorsed their merit having reviewed both sides’ arguments, and is likely to take any decision into account when considering their settlement parameters.
However, there is the risk of leaving adjudication as little more than compulsory early neutral evaluation. Although this might of itself have a place, parties must have a real incentive to properly engage with the adjudication process in order for quality decision-making to be achieved.
One way of doing this would be to make more of parties’ contractual obligations to comply with the adjudicator’s decision. This is an issue Lord Mance considered in the context of limitation in Aspect Contracts (Asbestos) Ltd v Higgins Construction plc. However, the breach of contract that arises from non-compliance with an adjudicator’s decision could itself have consequences, in particular when making damages, costs and interest awards.
Another option is for adjudicator’s decisions to affect the litigation process. This is potentially valuable given the importance of cash flow for litigation much like any other large project. In John Doyle, Coulson LJ suggested that adjudication might assist a claimant in demonstrating an entitlement to an interim payment under CPR 25. An obvious alternative is for adjudicator’s decisions to be taken into account on security for costs applications. At the least, the amount of any unenforced adjudicator’s decision may be regarded as a form of security that the defendant already holds. Going further, adjudicator’s decisions could affect whether security is required at all, given that they provide the court with an assessment of the merits of the case without requiring the type of investigations that are generally discouraged.
Learning from the game
The legal system has a difficult balancing exercise to undertake. Litigation cannot be made too attractive because this will encourage unmeritorious claims and impose an excessive burden on society. However, the more difficult litigation is made, the more parties must forego the enforcement of their rights.
Adjudication undoubtedly allows parties to pursue claims that would otherwise be abandoned. This much is clear from the “very stale” claims pursued in insolvency-adjudications. This raises an issue about whether the legal system has struck the correct balance in allowing the claims to otherwise be “missed”, and/or whether features of adjudication should be incorporated into litigation or arbitration to allow such claims to be pursued.
The most obvious barrier to litigation arises from its potentially ruinous costs, which various reforms, schemes and pilots are seeking to address. However, the fundamental point is that reducing costs requires reducing the work necessary to pursue a claim. In this context, adjudication provides a potential model where parties accept the balance between costs and quality of the process and output.
The reduced costs of adjudication are partly a factor of speed. As Lord Briggs recognised in Bresco, “the scope for expenditure on a dispute increases with the time available to argue about it”. However, they also come from efficiencies driven by necessity.
The time constraints in adjudication mean that once the dispute has crystallised and the process has commenced, there is no building cases through the sequence of pleadings, disclosure, witness statements, expert reports and submissions. Instead, the parties front-load elements of the work to produce material for the adjudicator to review. This means that minimal attention is given to procedural issues and/or correspondence between the parties. Instead, their focus is on securing and providing the material they consider the adjudicator needs to reach a decision. Therefore, this provides a means of critiquing litigation, and the procedural steps imposed on parties before the merits of their claim are assessed.
In addition, the success of adjudication as an add-on to litigation or arbitration means that similar approaches should be considered in other areas. The insolvency-adjudication cases show the potential value of adjudication, or some other form of early neutral evaluation sharing some of the elements of adjudication, in allowing parties to secure early assessments of the merits of a claim that have formal consequences. An obvious starting point would be to expand this approach to other types of TCC claims, given that the Society for Computers and Law has already established a contractual adjudication process for technology disputes and the TCC has for years promoted early neutral evaluation.
However, the conspicuous success of adjudication, and its benefits both for parties and the administration of justice, means that its expansion should be considered beyond this.
Nice blog