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Archive for November, 2009

ADJUDICATION IN THE CONSTRUCTION INDUSTRY

November 26th, 2009

by Harvey J. Kirsh

A snapshot of the British construction industry in the early 1990s disclosed a myriad of problems relating to the significant expenses and unreasonable delays required to resolve complex construction claims, and about the shortcomings of the then existing dispute resolution methods. In 1993, Sir Michael Anthony Latham, a retired British Member of Parliament, was commissioned to lead an investigation into these issues, and his inquiry ultimately lead to the publication, in July of 1994, of a joint government and industry report, “Constructing the Team” (which came to be known as the “Latham Report”).

The Latham Report’s identification and critical evaluation of the inefficiencies in the processes and procedures in the construction industry set the agenda for reform. One of the major recommendations of the Report was that “Adjudication” should be the standard form of dispute resolution. This became the driving force for legislative reform which followed, in the form of the Housing Grants, Construction and Regeneration Act 1996 (known as the “Construction Act”), which received Royal Assent on July 24, 1996.

As Sir Michael Latham wrote:

“The coming into force of the Construction Act on May 1, 1998, nearly two years after in received Royal Assent, was a seminal event for the construction process throughout Britain. One of the most significant parts of the Act was the statutory right of adjudication, intended to provide speedy and relatively inexpensive settlements of construction disputes throughout an industry which had been plagued by them.”

What Is Adjudication ?

“Adjudication”, as an alternative to litigation, is essentially an abbreviated, statutory process of dispute resolution by which a party to a construction contract has the right to have a dispute decided, in a speedy, streamlined, expeditious, and cost-effective manner, by a neutral and impartial adjudicator, while preserving the disputants’ rights of due process and appeal.

How Does Adjudication Work ?

Section 108 of the Construction Act provides that a party to a construction contract has the statutory right to give notice at any time of his intention to refer a “dispute” to adjudication. “Dispute” is broadly defined to include “any difference”. An impartial adjudicator is then appointed by both parties, and the dispute is referred to him/her within 7 days of such notice. Once the adjudicator receives the referral notice, he/she will set the procedure for the adjudication; will take the initiative in reviewing the facts and the applicable law; and may seek advice from others, with the consent of the parties. The adjudicator is then required to reach a decision within 28 days of the referral (subject to a possible time extension on the agreement of both parties). Significantly, once the decision has been rendered, the parties must comply with it. According to the legislation, the construction contract is to provide that the decision of the adjudicator is binding until the dispute is finally determined either by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration), or by agreement. The construction contract is also to provide that the adjudicator is immune from liability, provided that he/she has acted in good faith.

How Is The Adjudicator’s Decision Enforced?

As indicated above, the adjudicator’s decision is provisionally binding on the parties, unless and until it is challenged and finally resolved by arbitration, litigation or agreement. Until that time, and subject to a possible defence by the unsuccessful party that the adjudicator exceeded his/her jurisdiction, the adjudicator’s decision may be enforced by the court. The issue of enforceability of the adjudicator’s decision was confirmed, shortly after the promulgation of the Construction Act, in a decision of the Technology and Construction Court (High Court of Justice, Queen’s Bench Division), which held that “(c)rucially, [Parliament] has made it clear that decisions of adjudicators are binding and are to be complied with until the dispute is finally resolved”.

Adjudication Outside The United Kingdom

Versions of the U.K. statutory scheme of adjudication have already been adopted in other Commonwealth countries such as Singapore, New Zealand and Australia, and there is also considerable interest in the process in China to deal with the resolution of construction disputes.

Similarly, John Hinchey and Troy Harris, in their text, “International Construction Arbitration Handbook”, concluded that:

“ . . . the English experiences with Adjudication, both good and bad, will undoubtedly be drawn upon by other countries, particularly the United States, in deciding whether or what aspects of Statutory Adjudication can or could be transplanted, either into domestic contracts or legislation.”

If this expedited process for the resolution of construction disputes lives up to its expectations, it may only be a matter of time before the adjudication model is adopted for use in Canadian construction contracts.

Harvey J. Kirsh is a Senior Partner and Co-Chair of the Construction and Infrastructure Group of Osler, Hoskin & Harcourt LLP and a neutral at ADR Chambers. In addition to counsel work, his practice also includes mediation, arbitration and other ADR services, both as Chair of the Construction, Engineering and Infrastructure Group of ADR Chambers and as a member of the Global Engineering and Construction Group of “JAMS” (Judicial Arbitration and Mediation Services), the largest private provider of alternative dispute resolution services in the United States.

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