Practical Law

Back in 2014, Matt blogged about the issue of whether adjudication is cost-effective for low value disputes. This was following the Court of Appeal’s judgment in Walker Construction (UK) Ltd v Quayside Homes Ltd where, following a low value adjudication over an outstanding payment of £23,400, the parties took the matter to trial and the defendant’s costs alone were an eye-watering £345,800.

This was a very extreme example, but there is no doubt that adjudication costs can be prohibitive for some lower value disputes. There are a variety of reasons for this. Some blame adjudicators spending too much time and not keeping enough control of the process, and others blame the increasing involvement of party representatives, whether lawyers or claims consultants, making the process more complicated than was originally intended. There is no doubt that these are both factors, and some adjudicators need to learn how to keep their fees proportionate when dealing with lower value disputes.

As for the involvement of lawyers and claims consultants, I don’t think that it should be considered a negative as, speaking from an adjudicator’s perspective, they can add great value regardless of the size of the dispute. Furthermore, it has led to a wealth of adjudication jurisprudence which, in turn, has helped to ensure that adjudicators comply with the rules of natural justice (subject to the time constraints), and proceed to reach decisions that are within their jurisdiction and are enforceable. In hindsight, given the wide scope of disputes that can be referred under the Construction Act 1996, the significant involvement of lawyers and claims consultants was always inevitable.

The low value adjudication schemes available

Anyway, I digress, because I want to talk about two schemes that are aimed at addressing the issue of adjudication costs in low value disputes (LVDs). The first has been introduced by TeCSA and is currently undergoing a six month pilot, and the second has been proposed by the Construction Industry Council (CIC) (the consultation has recently closed for comments on this scheme). Both organisations should be applauded for taking the initiative with these schemes.

Although both schemes are for LVDs, there are some significant differences between them, for example:

• As the name suggests, the proposed CIC LVD Model Adjudication Procedure (CIC LVD MAP) is a separate set of adjudication rules whereas the TeCSA LVD adjudication service simply applies when TeCSA makes an appropriate appointment.
• The CIC LVD MAP is aimed at all low value disputes, whereas the TeCSA LVD adjudication service is only aimed at disputes over liquidated sums, albeit that could obviously include claims for interim or final payments, damages, and so on.
• There is a considerable difference as to what the respective organisations consider constitutes a LVD. TeCSA consider that disputes up to £100,000 are low value, whereas CIC considers that £50,000 is an appropriate limit (albeit it makes clear that the LVD MAP can be used for disputes of a higher value).
• Both schemes seek to reduce the costs for the parties by limiting the fees adjudicators can charge, but there is a considerable difference as to the fees that can be charged. For example, for disputes in a range between £25,001 and £50,000 adjudicators can charge a fixed fee of £6,000 under the CIC LVD MAP, whereas under the TeCSA LVD fees are capped at £3,500.

Details of the TeCSA LVD adjudication service and the proposed CIC LVD MAP are available online, and I’ll let you peruse them at your leisure. I’ll concentrate on what I consider some of the possible advantages of each scheme to be.

Possible advantages of the TeCSA LVD adjudication service

The key selling point of the TeCSA LVD adjudication service is that it only seeks to limit the fees the adjudicator can charge. It is therefore unnecessary to get the responding party to agree to use the LVD service, making it more difficult for them to derail the process. The referring party simply applies to TeCSA for the appointment of an adjudicator under the LVD service, and the underlying adjudication rules (such as the Scheme for Construction Contracts 1998 or the TeCSA rules) are irrelevant provided they are Construction Act 1996 compliant.

This is to be contrasted with the proposed CIC LVD MAP, which requires the parties to have either agreed in their contracts to refer LVDs under this procedure, or to reach such an agreement after the dispute has arisen.

Under the TeCSA LVD adjudication service the capped fees includes all expenses. Therefore, the parties are fully aware of their maximum exposure at the outset. Under the CIC LVD MAP further fees can be charged if there is a site meeting and/or site inspection, albeit these are fixed amounts (£1,000 for each) so the parties will still be able to determine their maximum exposure at the outset.

A further advantage of the TeCSA LVD adjudication service will be gained if the TeCSA Rules apply as well, namely that the adjudicator will have jurisdiction to decide their own jurisdiction, thereby reducing the temptation for the responding party to make spurious jurisdictional challenges.

Possible advantages of the proposed CIC LVD MAP

The proposed CIC LVD MAP includes a boilerplate LVD adjudication clause for parties to include in their contracts, and it will be interesting to see whether this is adopted in any of the standard forms of contract. Whether or not it is, unless parties to existing construction contracts agree to adopt this procedure, it may be some time before we see any adjudications under it.

Although the TeCSA LVD adjudication service has the benefit of not being a separate set of rules, it is obviously limited to adjudicator appointments made by TeCSA. This is to be contrasted with the proposed CIC LVD MAP, which has the advantage that it can be used by any ANB that has an appropriate panel of adjudicators.

In my view, another advantage of the proposed CIC LVD MAP is that the adjudicator will be able to decide whether the dispute is unsuitable for adjudication under the LVD MAP, and, if the adjudicator concludes that it is unsuitable, they shall resign (that is, an adjudicator can’t simply decide it is unsuitable and proceed on the basis that it is a “standard” construction adjudication). The CIC has helpfully set out a non-exhaustive list of factors the adjudicator may consider as demonstrating that the dispute is unsuitable, including:

• The documents included in the Referral, the Response, or the Reply to the Response exceed more than one A4 lever arch file.
• The dispute is prima facia not suitable for the adjudicator to make a decision on a documents-only basis.
• There is an argument as to whether the parties have consented to use the CIC LVD MAP.
• The terms of the parties’ contract are not easily discernible.
• There are challenges to the adjudicator’s jurisdiction.

I consider that the principle of the adjudicator deciding whether the dispute is unsuitable is sensible, but I would note that some of the examples set out above could result in the adjudicator resigning quite late in the process. For example, if it only becomes clear after submission of the Reply that all of the documents exceed more than one lever arch file then the adjudicator could end up resigning in the final week of the adjudication. Also, it is not clear to me what the adjudicator’s entitlement to payment of their fees and expenses will be if they resign. As it stands, it is arguable that the fixed fee would apply even though the adjudicator hasn’t reached a decision.

In contrast, under the TeCSA LVD adjudication service it is the TeCSA Chair who has discretion to decide that the dispute is unsuitable for adjudication, not the adjudicator. I confess that I do have some concerns with the lack of discretion given to adjudicators under this service, particularly when it comes to a responding party’s defence.

For example, imagine that a sub-contractor commences an adjudication for the release of £45,000 of retention as the final payment. This is a liquidated sum and so, on the face of it, is certainly suitable for the TeCSA LVD adjudication service. However, what if the responding party submits a defence alleging that there are 500 defects valued at £200,000, and that it is entitled to payment of the difference in the adjudication as it is the final balancing payment between the parties?

Although the dispute is clearly no longer suitable for an LVD adjudication, under the TeCSA LVD adjudication service the adjudicator has no right to resign, and they must proceed on the basis of the maximum £3,500 fee. In contrast, under the CIC LVD MAP, the adjudicator would be entitled to resign in these circumstances.

I appreciate that some of you reading this might well be thinking that I would take this position given that I spend so much of my time adjudicating. However, I am not just trying to fight the corner of the adjudicators (I promise!). My concern is that the limit on fees may mean that the parties do not get the same in-depth inquiry they are used to from adjudicators.

The elephant in the room

I’m surprised that I’ve managed to get this far through the blog without mentioning the elephant in the room, namely the costs of the parties’ representatives, which can outweigh those of the adjudicator by a considerable margin, even on LVDs.

This problem is much more difficult to solve because, while an appointing body such as TeCSA can limit the fees the adjudicators are entitled to charge, they clearly can’t limit the costs that the parties can incur in respect of representation, and nor can adjudication rules such as the CIC LVD MAP.

Furthermore, unlike low value arbitration schemes (such as the RICS Fast Track Arbitration Rules), the parties’ recoverable costs cannot be limited because there is no cost recovery in adjudication. Although both TeCSA and CIC have touched on the problem by referring to adjudicators limiting the length of submissions and so on, this is obviously not mandatory due to concerns over breaches of the rules of natural justice.

So, what can be done about the elephant?

Some possible ideas include:

• Rules prohibiting the involvement of party representatives. However, arguably this could just push representatives underground. Also, it could lead to unfairness if one party was represented by experienced in-house counsel and the other by, say, their junior quantity surveyor.
• Organisations such as TeCSA could provide a low-cost assistance service where members undertake to assist what would otherwise be an unrepresented party in at least one low-value adjudication per year for a capped fee similar to that imposed on the adjudicators. This “buddy scheme” could be limited to assisting on some of the more technical aspects of the process, such as jurisdiction and procedure, which in my view is one of the main areas where unrepresented parties become unstuck. I am sure that many party representatives that have earned a good living from the construction industry would view this as “putting something back” into the industry.

In conclusion

Because the issue of party costs still remains, I don’t think that these low-value adjudication schemes will solve the problem of adjudication costs in LVDs entirely. However, they are certainly a considerable step in the right direction.