REUTERS | Dinuka Liyanawatte

Do dispute boards and adjudication make unhappy bedfellows?

Dispute boards are not that common on projects in the UK. Insofar as any of us think about it, I’m sure we’d point to the Construction Act 1996 and say it’s because of section 108 and the right for parties to a construction contract to refer a dispute to adjudication at any time. That right affects the way the dispute resolution clause of their contract works and, if the parties have agreed to use a dispute board, they must ensure those provisions comply with the Construction Act 1996, otherwise, they will find the adjudication provisions in Part I of the Scheme for Construction Contracts 1998 will be implied into their contract instead. Then it will be bye bye dispute board.

What do most standard form contracts do?

Because most contracts are construction contracts (as defined), the standard form contracts most commonly used in the UK do not adopt a dispute board. However, it’s a bit different when the contract isn’t a construction contract. Then parties are free to choose from a number of standalone rules or, if they use NEC4, they can opt for Option W3, which may be used with the Engineering and Construction Contract (ECC). If selected, W3 requires a dispute avoidance board (DAB) to be established from the outset of the project.

In response to feedback, in April 2019, NEC followed Option W3 with a practice note that explains how parties can adapt Option W2 to give them the opportunity of using a DAB on a construction contract.

It seems the JCT has also been listening to the market and will be publishing its own dispute adjudication board documentation later this year. According to its website announcement, JCT DAB 2021 (as it will be known), will allow parties to appoint a DAB where they are parties to a construction contract. At this stage, it envisages that parties to its 2016 editions of the Design and Build and Major Project Construction contracts may want to do this, presumably because these are often used on large, longer-term projects where it is more likely that the DAB costs will be proportionate to the nature and size of the project. We’ll have to wait until May to find out the details but we know the rules are based on the Chartered Institute of Arbitrators’ (CIArb) dispute board rules (which advocate setting up a standing dispute board at the outset of a contract) and will include an adjudication mechanism that is Act-complaint.

Resolving potential disputes and acting impartially

The drafting for Option W2 in NEC’s practice note envisages that the DAB is different from the adjudicator, at least that’s how I read the Z clause. But what happens if the parties choose to define “adjudicator” as the DAB, which I’m sure some might want to do since one of the main benefits of using a dispute board is continuity – that its members gain a detailed knowledge and an understanding of the project and so are better equipped to deal with disputes and potential disputes as they arise.

This gives rise to something I’ve been pondering recently. Assuming the DAB is made up of three members, having them involved in without prejudice meetings and/or site visits and then having them determine an adjudication is (potentially) likely to give rise to accusations of bias or, at the very least, a perceived lack of impartiality from a losing party in any enforcement proceedings that follow the adjudication (and there are bound to be enforcement proceedings at some point!).

Those of us involved in adjudication know that adjudicators have to comply with the rules of natural justice and acting impartially is an integral part of that.  We are also familiar with the frequency with which the courts have to deal with allegations that the adjudicator has materially breached the rules of natural justice because of something they did or did not do. It is a statutory duty imposed by section 108(2)(e) and, looking at NEC’s sample Z clause, I can see it is also a contractual duty (and I’m sure the JCT will included something similar in its DAB rules).

Therefore, I think it will be important (perhaps even more important than usual) for the DAB members who are also likely to act as the “adjudicator” under the terms of the DAB to observe the rules of natural justice, particularly when it comes to any “informal advice” or “soundings” they give. Being seen to be fair is just as important as actually being fair to both parties, and so they should ensure those bits of advice and soundings are given to both parties at the same time. This would address any difficulties arising from unilateral discussions, the sort of thing that HHJ Lloyd QC was so critical of all those years ago in Glencot Development & Design Co Ltd v Ben Barrett & Son (Contractors) Ltd, and which HHJ Bowsher QC described as “distasteful” in Discain Project Services Ltd v Opecprime Development Ltd.

And for those that don’t remember those cases:

  • Glencot involved an adjudicator who also acted as a mediator in relation to aspects of the parties’ dispute. When acting as the mediator, the adjudicator spoke to the parties privately, and heard information and was able to form opinions about individuals, something that would not have occurred in his role as the adjudicator. Thus, it was arguable that a real possibility of bias existed. It didn’t matter that the mediation was conducted on a without prejudice basis.
  • Discain concerned an adjudicator who had discussed a central issue in the case with only one party’s representative on the telephone, although the content of those conversations was subsequently communicated to the other party. At the summary judgment hearing, the judge refused to enforce the adjudicator’s decision on the basis that there was a very serious risk of bias, a position he maintained after a substantive trial on the issue: the adjudicator had crossed the line of what might reasonably be perceived as acceptable conduct.

Even if the DAB avoids unilateral discussions, there is still the question of whether it could be suggested that the “adjudicator” has pre-judged the position and adopted a fixed mind set. In that regard, I recall that this matter was given short shrift by Jackson LJ in the Court of Appeal in Lanes Group plc v Galliford Try Infrastructure Ltd (t/a Galliford Try Rail. In that case, the Court Appeal held that the adjudicator’s provisional or draft decision was suitably caveated such that the parties still had the opportunity to address those provisional views. I am sure it is not beyond the skill of the “adjudicator” or DAB to suitably caveat any preliminary or provisional views shared with both parties, but it is something they need to be alert to doing.

Another practical issue to consider is the logistics of how the three person “adjudicator” reaches a decision. Again, this issue is addressed in countless sets of institutional rules, whereby the majority view and/or the view of the Chair prevails. Another possibility is to provide that the “adjudicator” is to be any one of the three DAB members, perhaps either by the agreement of the parties or, failing such agreement, at the discretion of the Chair. Alternatively, the selection could be covered by suitable drafting, for example on a rotational and/or availability basis. Again, not beyond the will of a skilled drafter.

The final challenge may be the requirement for the adjudicator’s decision to be reached in 28 days. Even that might not be without problems. On the one hand, it may well be that this period is actually more suited to an adjudicator who is familiar with the project, especially when faced with a narrow issue. However, that said, even now it is clear from cases like CIB Properties Ltd v Birse Construction Ltd and Dorchester Hotel Ltd v Vivid Interiors Ltd that if the adjudicator doesn’t think it is possible to reach a decision within 28 days (because of the complexity and/or volume of material associated with the matter referred), then the adjudicator should not proceed to reach a decision at all. In practical terms, this appears to mean the time constraints imposed by section 108 are not necessarily sacrosanct and are actually subordinate to the principles of natural justice.

Final thought

We may have to wait until May to see what the JCT has in store for DAB fans here in the UK, but there is plenty of food for thought in trying to marry the right to adjudicate with using a DAB.

One thought on “Do dispute boards and adjudication make unhappy bedfellows?

  1. Thank you for your article. In fact, Med-Arb as proposed by SIAC could be difficult to implement in some juridictions because Arbitrator could have a bias to use what parties told him during mediation.
    Mixing the two is a risky solution.

Leave a Reply

Your email address will not be published. Required fields are marked *

Share this post on: