UK: Adjudication: Its Effect On Other Forms Of Dispute Resolution* (the UK experience)

Last Updated: 20 September 2005

Article by Dr. Robert Gaitskell, Q.C PhD(KCL), BSc(Eng.) CEng, FIEE, FIMechE, FCIArb.

Introduction

Dispute resolution in the UK has never been more exciting, The recent advent of ajudication has totally transformed the landscape. It has had a profound effect on all other forms of dealing with construction disputes.

About 10% of the UK’s gross national product is accounted for by construction activity, and this figure is probably a fair reflection of the high level of construction activity worldwide. So, what is happening in the arcane world of construction dispute resolution?

When I was called to the Bar twenty-seven years ago "alternative dispute resolution" did not exist, and even the phrase "dispute resolution" was rarely used. The only forms of dispute resolution regularly employed were Court litigation and arbitration. On isolated occasions there might be an expert determination. All three of these procedures (litigation, arbitration and expert determination) are, of course, final determinations subject only, in certain cases, to appeals in confined circumstances.

However, in the last ten years a whole range of new dispute resolution procedures has become available, particularly in the construction industry (which is my primary concern). These new procedures are, generally, not finally determinative in the way that litigation or arbitration or expert determination is. The new procedures are, in effect, preliminary processes which the parties can use, if they so choose, in order to avoid a subsequent final determination by a court, arbitrator or expert. Further, these new procedures have been welcomed and adopted widely, both in the UK and abroad, because they offer to parties thepossibility of controlling and reducing the particular hazards associated with the final determination procedures, namely:

  1. cost;
  2. time; and
  3. uncertainty of outcome.

Thus, the rapid adoption of the new procedures has been entirely market driven. Even where, ostensibly, a procedure, such as statutory adjudication, has been imposed by the legislature, the introduction of that procedure was perceived by Parliament as meeting a widespread market need.

This article focuses on the effects adjudication has had in the UK upon the existing forms of dispute resolution. It does this by taking an overview of the various forms of dispute resolution now available, notes the trends which have emerged in the last decade (partly as a result of the 1996 Construction Act), gives a snapshot of the present position, and hazards some guesses as to the future. In order to determine the effect of adjudication upon other procedures it is necessary, in each case, to identify the other influences impacting upon that particular dispute resolution procedure.

Although I will be primarily concerned with the jurisdiction of England and Wales, I will, occasionally, take account of theinternational position as well. The seven types of dispute resolution which I will consider naturally divide themselves into two categories:

[A] Final Determination Procedures

(i) Court litigation;

(ii) Arbitration;

(iii) Expert Determination.

[B] Preliminary Determination Procedures

(iv) Mediation;

(v) Early Neutral Valuation (ENE);

(vi) Adjudication; and

(vii) Dispute Boards/Panels.

Each of the above is dealt with seriatim below.

[A] Final Determination Procedures

Re (i): Court Litigation

For the purposes of construction disputes, "court litigation" means trials in what was known as the Official Referee’s Court and is now (since 1998) known as the Technology and Construction Court (TCC). A quarter of a century ago I began practising in the ORs Corridor1. At that point, at the end of the 1970s, these Courts were experiencing a very rapid expansion in their workload as litigant Plaintiffs realised how widely they could cast their net when bringing proceedings, not only in contract but also in tort, in reliance upon the doctrine in cases such as Anns v Merton London Borough Council [1978] AC 728 (HL). This meant, in practice, that most disputes were multi-party affairs with substantial numbers of counsel and solicitors. The consequence was lengthy and very expensive trials with each witness cross-examined several times. This resulted in the recruitment of additional Official Referees. Notwithstanding the increase in the number of judges, the substantial number of lengthy trials meant that each judge had a very full list, so that, generally, when a case was set down for a hearing the date given by the court would be eighteen months or two years ahead, marked "second" or "third" or even "fourth fixture". This meant that the court was counting on one or more cases that had already been booked into the time slot settling so that the subsequent case could be heard.

The position today, in the TCC, is markedly different from the situation I have just described. A case set down today can be given a trial date as soon as the parties are ready for it, often in a matter of months. The old procedure of second, third and fourth fixtures is long gone. The TCC judges’ lists are no longer full and the judges are available to act as arbitrators if the parties so choose. At the end of May 2005 the very popular HHJ Humphrey Lloyd QC retired as a TCC Judge, in order to resume his illustrious career as an international arbitrator. I understand he will not be replaced. Further, the recently published leaflet on the TCC Court draws attention to the fact that a TCC judge can be appointed as an arbitrator, and it states: "The fees are highly competitive".

An indication of the changing workload can be found in the statistics for new proceedings issued in the TCC over the last ten years. These are:2

1995

-

1,778

1996

-

1,500

1997

-

721

1998

-

615

1999

-

297

2000

-

488

2001

-

483

2002

-

502

2003

-

474

2004

-

390

Thus, the figure for last year (390 new cases), compared to the 1995 figure (1,778) shows that the number of new proceedings has dropped to 22% of what it was ten years ago. However, these bald statistics are not, in fact, as bad as they sound. Many of the 1,778 actions commenced in 1995 would never have come near to trial. A decade ago it was common for writs to be issued simply as part of the negotiation process. All that changed with the introduction of the Woolf Reforms, embodied in the 1998 Civil Procedure Rules (CPR), which came into force on 26th April 1999. One of the consequences of the CPR is that throughout the court system (not only in the TCC) litigants must go through a number of procedures, for example: fulfilling the requirements of protocols involving alerting the other party to the nature of one’s case, prior to commencing proceedings. Firstly, this weeds out those disputes that, a decade ago, would have been associated with a writ that was never seriously intended to result in a trial. Secondly, because parties must nowadays incur substantial costs before they are in a position to commence proceedings, there is more pressure to seek to negotiate a compromise without commencing proceedings at all.

The result of the CPR is that right across the court system the number of new proceedings commencing has substantially dropped. For example, within 2 years of the reforms taking effect civil litigation overall was down by 37%. In the first 18 months the number of new civil claims issued fell from 220,000 to 175,0003. County Court work had been expected to rise because the CPR increased the County Court jurisdiction to £15,000. However, work there has dropped by 26%4 In the Chancery Division the number of new actions dropped from about 18,000 in 1990 to about 7,500 in 2001, a drop to 42% of the former level.5

Various costs issues have also made the civil courts less attractive, notwithstanding that CPR introduced summary assessment of costs after shorter hearings to simplify the costs question. Costs problems include:

  1. Conditional (no win, no fee) arrangements, introduced in 1995 as a new means of funding litigation, provide for a success fee. However, disputes over the recovery of the winner’s lawyer’s success fee and any "after-the-event" insurance premiums, has spawned satellite litigation6.
  2. From January to April 2005 increased court costs have been applied, so that users of the courts contribute more to the real cost to the state of providing the system. Compared with 24 years ago, the court fees for bringing a claim in excess of £300,000 have jumped by 4,150%. From January this year it has cost £1,700 simply to register a claim of more than £300,000. There are also setting down fees and trial fees7. Hourly rates for judges were introduced in April this year8.

Turning back to the TCC figures, it is clear that many of the serious disputes which would have gone to trial a decade ago are still going to trial today. Complex cases, involving a plethora of issues of fact and law, with very big sums at stake, are notoriously difficult to settle and many of these are still reaching the Courts. Another feature of the current TCC figure is that many of the matters now occupying court time are concerned with enforcement of adjudication decisions. However, the huge multi-party trials which characterised the early 1980s, as referred to above, are long gone, largely as a result of restrictions on tortious litigation, as exemplified, by the House of Lords decision in Murphy v Brentwood D.C. [1991] AC 398 which overruled Anns v Merton L.B. (supra).

In the construction field I have seen indications of a resurgent confidence in TCC litigation. Some parties have deleted arbitration clauses within existing standard forms and inserted court litigation as the stipulated means of dispute resolution. Further, the 2003 JCT Major Projects standard form has, unlike other JCT contracts, litigation stipulated, instead of arbitration, and the form also refers to mediation and adjudication.

On 3rd October 2005 the new ‘Guide to the TCC’ takes effect. The most far-reaching reform introduced is the classification of cases into those suitable for trial by a High Court Judge (where the case is marked ‘HCJ’), and those suitable for a Senior Circuit Judge (marked ‘SCJ’). Guidance is also given about the pre-action protocols. The changes are said to be a recognition of the importance to the UK’s economy of the construction and IT sectors, and the complex and arduous disputes arising within them. The reforms are no doubt also, to some degree, a tacit recognition that the nature of construction litigation is changing in the manner already described.

Broadly, therefore, litigation generally (i.e. not limited to construction litigation) has been affected by the introduction of

  1. the CPR (which came into force on 26th April 1999); and
  2. Mediation (which was introduced from the USA about 15 years ago).

In addition, the TCC courts have been affected by the runaway success of adjudication (see below) and by the reduction in tortious claims.

An indication of the impact of mediation on the court system as a whole can be seen by considering its effect on Appeal Court business. In the year 2000-2001 558 appeals arising from the Queen’s Bench Division were set down for a hearing. In 2003-2004 only 359 such appeals were set down, a drop to 64% of the figure three years earlier. That drop in the number of appeals set down, presumably, simply reflects the drop in Queen’s Bench business as already referred to. However, of the cases set down in this past year, 63 were referred to the Court of Appeal’s new mediation scheme, in the period between 1st April 2003 and 31st July 2004. Of those cases 38 were actually mediated and, of those, 23 were settled, giving a 60% success rate for cases actually subjected to mediation. In addition, quite apart from cases mediated at the appeal stage, many cases set down before first instance judges went to mediation and were compromised either because the parties initiated it or because the court actively encouraged them to seek mediation.9

In summary:

  1. Primarily because of the CPR and mediation, there has been a substantial reduction in court litigation, in recent years, affecting most of the principal divisions of the court system. Since mediation is increasing, this reduction will continue. Some areas of court work have not been affected. For example bankruptcy petitions have not reduced.
  2. As regards construction litigation in the TCC, the additional effect of adjudication means that the number of trials is likely to continue to fall in the foreseeable future. This will impact not only on the size and nature of the TCC Court system, both in London and in the provinces, but also on the mix of work undertaken by the lawyers (both counsel and solicitors) servicing those courts.

Re (ii) Arbitration

Domestic English arbitration is, of course, subject to the impact of adjudication and mediation just as the courts are (see above). Consequently, there has been a substantial reduction in construction arbitrations in the course of the last decade. The Royal Institution of Chartered Surveyors (RICS) reported a 10% reduction in arbitrations with which it was concerned in 200110. Although figures are harder to obtain, because of the diversity of the arbitrator nominating bodies, there is a general impression amongst practising arbitrators in the construction field that the decrease in arbitrations, comparing numbers today with those of ten years ago, is something in excess of one-third11.

So far as international arbitration is concerned, although adjudication is being adopted by a number of other countries (e.g. Singapore, New Zealand, Australia, Hong Kong etc), and notwithstanding that mediation is available worldwide, the international arbitrator appointing bodies have seen, at worst, only slight dips in the number of disputes handled. For example, in the five years leading up to 2002 the London Court of International Arbitration (LCIA) received between 52 and 87 referrals, with about 71 in 2001. In the LCIA’s biennial monitoring period 2003/4 a total of 191 cases were filed, a 23% increase on the previous period12.

So far as the International Chamber of Commerce Court of International Arbitration (ICC) is concerned, the number of annual referrals in recent years has remained in the order of about 580.

As regards the number of new arbitrations commencing with the ICC, the statistics are as follows:

1997

:

4552 new requests for arbitration

2001

:

540 (similar 2000)

2003

:

58013

2003

:

600 approx

2004

:

570 (ICC UK Annual Report 2004)

Of course, only a percentage of the above disputes concerned construction/ engineering subject matter.

There are, of course, a number of other significant international arbitration bodies worldwide, including, for example, the China International Economic and Trade Arbitration Commission (CIETAC) whose volume of business exceeds that of the ICC, although it is confined to Chinese disputes. Besides using supervisory bodies such as those already mentioned, international parties can, of course, arrange their own arbitrations, whether by using the UNCITRAL procedure or otherwise. It is noteworthy that a number of arbitrations have already been generated by the reconstruction of Iraq. There are also currently about 60 ICSID arbitrations.

In summary, UK domestic construction arbitration has suffered the impact of adjudication and mediation just as court litigation has. Since both adjudications and mediations are growing, the reduction is likely to increase. By contrast, international arbitration (including construction disputes) appears to be maintaining its position.

Re (iii): Expert Determination

As referred to above, expert determination has generally been little used and statistics are extremely difficult to obtain. Commonsense would indicate that there must have been some reduction in the number of expert determinations as a result of the influence of adjudication and mediation, but perhaps not as great as the effect upon litigation and arbitration. Since the numbers of disputes dealt with by this procedure are so small, it is unnecessary to spend any significant time upon it.

Expert determination is a procedure available to parties who have written it into their contract or subsequently decided to use it. They engage a third party, with expertise in the particular subject-matter in issue, to give a determination upon that specific issue.

  1. It is generally used for a single issue, or a handful of associated issues, and rarely for more complex disputes.
  2. Whereas arbitrators are subject to a certain degree of control by the court pursuant to the Arbitration Act 1996, experts are subject to little court control, since their decisions are not open to appeal.
  3. An expert may be liable for negligence in performing his functions, whereas an arbitrator is generally immune from an action for negligence.
  4. An arbitrator must observe the rules of natural justice and conduct the procedure with fairness. An expert can, if he chooses, adopt an inquisitorial procedure, and is not obliged to refer the results of his enquiries to the parties before making his determination14. By contrast, of course, an arbitrator may only take the initiative in circumstances where he has the parties’ agreement to do so, and he must refer to the parties the results of his enquiries before making his award.

My own experience is that, partly as a result of other new procedures becoming available, parties are more aware nowadays of the expert determination process and, therefore, are tending to make more use of it, albeit that the level of usage is still very modest. In summary, therefore, although the uptake of this process has presumably been dampened by the effects of adjudication and mediation, because parties are becoming more innovative in the face of the rapid expansion of the range of dispute resolution procedures available, overall the number of expert determinations has increased slightly in the course of the past decade. However, the number of such determinations is so small as not to have any significant effect upon trends overall.

[B] Preliminary Determination Procedures

Re (iv): Mediation

Mediation is a loosely used term which can be applied to either "facilitative" mediation or "evaluative" mediation (more commonly called ‘conciliation’ in the UK). In this paper I will use mediation to refer to the facilitative approach espoused by CEDR Solve, the pre-eminent mediation provider. In my experience evaluative mediations rarely succeed in securing a compromise by mediation. This is for the very good reason that where both parties are aware that, if no mediated deal is achieved, the mediator will turn himself into a evaluative tribunal and state publicly that one party’s case is stronger than the other, then neither party will be frank with the mediator during the course of the private caucuses in the mediation. This will virtually guarantee that no mediated deal is achieved. By contrast, if both parties are aware that the mediator will never be anything other than a facilitator, they are encouraged to reveal to the mediator, during the course of the process, the concerns which they have about the weaknesses within their case. This enables the mediator to guide both parties towards a mutually satisfactory compromise. Where parties positively want an evaluative process I generally recommend that they proceed straight to an early neutral evaluation (ENE) (see below). If they want a mediation, with an evaluative decision as a fallback position, then I suggest that they split the procedure and have a mediation before one person, and, if no deal is achieved, an ENE in front of a different person. Since a facilitative mediation has about a 70-80% chance of success, an ENE is rarely required.

Why do mediations work? In my experience there are a number of reasons:

  1. At a mediation everyone who matters (including, particularly the decision makers for all parties), will be present.
  2. (ii) By "reality testing" a mediator will encourage each party to face up to the difficulties in its own case. Since the mediator is an independent third party the parties involved in the dispute are much more willing to listen carefully to his concerns about the weaknesses in their position than if the same points are made by the opposition.
  3. The process is entirely confidential, and is "without prejudice" so that nothing said or admitted in the mediation is admissible in evidence in any court or arbitration or other proceedings.

The CEDR website lists various advantages that mediation holds over litigation and arbitration, including the following:

  1. Over 70% of cases referred to CEDR result in settlements on the day or soon afterwards
  2. A mediation can generally be set up within a few weeks, and most last for only one day, with the result that costs are minimal compared to arbitration or litigation.
  3. The parties retain complete control over the process and the outcome and have a choice as to whether or not to settle the dispute or take it on to litigation or arbitration.
  4. Mediation need not delay litigation or arbitration since it can take place contemporaneously.
  5. A successful mediation is likely to result in the maintenance of business relationships, whereas litigation or arbitration, in which one party must inevitably lose, is unlikely to do this
  6. The mediation process enables a much wider variety of settlement options to be brought into consideration, e.g. apologies or the promise of future business, which litigation or arbitration, by their very nature, exclude.

Mediation was first introduced to the UK about 15 years ago. A Steering Committee was set up, involving barristers, solicitors and businessmen who were interested in investigating this new American procedure which promised to get compromises at a fraction of the cost and time which litigation and arbitration involved. CEDR grew out of that Steering Committee and is now responsible for appointing and overseeing mediations throughout the UK, as well as in Europe. The statistics for CEDR’s mediations over the last few years are instructive:

1998/9: 257 mediations, of which 28% (i.e. 72) were construction/ engineering/property.

1999/2000: 462 cases, of which 17% (i.e. 78) were construction/ engineering/property.15

2000/2001: 467 cases, of which 14% (i.e. 65) were construction.16

2001/2002: 338 cases, of which 12% (i.e. 47) were construction

2002/2003: 516 cases, of which 9% (i.e. 46) were construction and engineering.

2003: 631 cases, of which 9% (i.e. 57) were construction.

2004: 693 cases, of which 6% (i.e. 42) were construction.

What is apparent from the above is the broadly rising usage of mediation overall but, so far as CEDR’s statistics are concerned, a reduction in the percentage represented by construction disputes. This could be because of one or both of the following factors:

  1. Adjudication will have reduced the number of disputes going to mediation, and adjudication only affects construction disputes as opposed to other forms of mediation.
  2. A significant number of construction mediations are now being dealt with by bodies and individuals quite apart from CEDR. Thus, if 28% (CEDR’s figure for 1998, prior to any significant other providers appearing) represents the real extent of construction mediation in the overall mediation market, then the 9% currently experienced only represents about one third of the total. This means that whereas CEDR are handling 42 mediations in the construction field currently, there are in fact at least 126 construction mediations being dealt with. CEDR’s overall success rate is at least 70%. If that success rate applies to all mediator providers, then of the 126 estimated construction mediations occurring per year, about 88 are settling. No doubt some of these would have settled by negotiation if there had been no mediation process available. Also, mediation is such a cheap and quick process that, if mediation were not available, the parties would not have litigated or arbitrated a number of these matters in any event. However, it must be the case that a significant number of those 88 cases would have otherwise proceeded to litigation or arbitration.

The growth in mediation is fuelled by its obvious attractions of cheapness and speed. The Lord Chancellor has pledged to use ADR for government disputes and only to go to court as a last resort17. Parties are also anxious that if they refuse to mediate without good reason they may be penalised in costs even if they win (Halsey v Milton Keynes18)

In conclusion: mediation is growing steadily, so that for the foreseeable future it will continue to reduce the number of court and arbitration cases.

Re (v) Early Neutral Evaluation (ENE)

The CEDR Solve website contains a useful definition of ENE, which makes plain that it is a preliminary assessment of the issues in dispute, designed to serve as a basis for further negotiations or avoid unnecessary stages in litigation/arbitration. An independent person is appointed by the parties and he or she expresses an opinion on the merits of the issues raised. The opinion is non-binding but gives the parties an unbiased evaluation of their relative strengths, and guidance as to the likely outcome if the matter proceeds to court or arbitration.

It is interesting to note that in the White Book19 Early Neutral Evaluation is dealt with, alongside mediation, as being an alternative dispute resolution procedure specifically recognised by the courts. However, whereas mediation is a procedure which the courts will, if appropriate, encourage by adjourning a case so that a third party may undertake the mediation, ENE is a procedure which the court itself will undertake where appropriate. Thus, paragraph 2A-101: G2.1 states:

"In appropriate cases and with the agreement of all parties the court will provide a without-prejudice, non-binding, Early Neutral Evaluation ("ENE") of a dispute or of particular issues."

As made clear in the relevant paragraph of the White Book, the procedure is that the judge who conducts the ENE will, having given his evaluation, take no further part in the case, so that if the production of the evaluation does not result in a settlement, the matter will then continue in front of a different judge "unless the parties agree otherwise".

In my experience the ENE procedure is not commonly used for construction disputes, whether as part of the court system, or in ad hoc arrangements before a non-court tribunal. Nevertheless, the fact that it is a procedure now recognised in the White Book does mean that the number of such evaluations taking place is likely to increase steadily, and many of the matters dealt with in this way are likely to settle after the production of the evaluation, so that a dispute which might otherwise have proceeded to arbitration or trial will now disappear.

One of the reasons why there has not been a significant take-up of ENE as a procedure for construction disputes is, I suspect, because it is in many ways similar to adjudication, and parties in the construction industry are now so familiar with the adjudication procedure that they feel more comfortable taking that route rather than embarking on an ENE. Accordingly, I would expect any growth in ENE to come in respect of commercial disputes (where adjudication is not available), particularly since the White Book deals with ENE as part of the section on ‘The Admiralty & Commercial Courts’ procedure.

Re (7): Adjudication

Although certain construction standard form contracts, particularly building sub-contracts, have long had provisions allowing adjudication of various types, nowadays the term "adjudication" in the construction field generally refers to the procedures set out in Part 2 of The Housing Grants, Construction & Regeneration Act 1996 ("The Construction Act"). Section 108 thereof allows the parties to a "Construction Contract" (which is a defined term) to refer a dispute to adjudication "at any time". The Courts have been vigilant to give this phrase its full weight. See, for example, John Mowlem v.Hydra-Tight20. The Courts have also strenuously rejected attempts to rob adjudicators’ awards of their temporary finality, and have broadly insisted that, save where there was no jurisdiction, or the rules of natural justice have been breached, the decision must ordinarily be complied with, even if wrong, unless and until it is overturned in court or arbitration.21

Although the parties may (Section 108(3)) choose to accept the adjudicator’s decision as finally determining the dispute, in practice it is unusual for any formal agreement to this effect to be made. Nevertheless, anecdotal evidence indicates that the vast majority of adjudication decisions are not taken on to arbitration or litigation, and are effectively accepted by the losing parties. Figures given anecdotally are that there have been about 15,000 adjudications thus far, the vast bulk being dealt with by members of the RICS. Of this enormous number only about 300 have reached the courts, and of these about 200 reported decisions have resulted. It is believed that well over 80% of adjudication decisions are simply accepted, with the losing party content that it has had a fair chance to put its case to an independent tribunal. Crucial components in the final acceptance of a decision are that:

  1. The parties have confidence in the adjudicator appointed;
  2. The parties have an adequate opportunity to present their case (for example, in complex final account cases the respondent must be given sufficient time to deal with the voluminous material in the referral document),

The indications are that adjudication is one of the principal factors accounting for the significant reduction in litigation and arbitration in the construction field in recent years, as discussed above. It is also worth noting that the attractions of adjudication are likely to increase, since the Department of Trade and Industry has recently (March 2005) produced its consultation paper on proposed revisions to the 1996 Construction Act.

Chapter III of their document deals with Adjudication Proposals, and page 5 states that their purpose is:

"Reducing the disincentives to referring disputes to adjudication where it is suitable. The review has suggested these might include avoidance or frustration of the process or outcome, unnecessary legal challenge or unpredictable or excessive costs".

Five particular items are then listed:

  1. Preventing the use of "trustee stakeholder accounts" to suspend an adjudicator’s award pending litigation, other than where the recipient is involved in insolvency proceedings.
  2. Providing the adjudicator with the power to rule on certain aspects of his own jurisdiction, and providing a right to payment in cases where the adjudicator stands down due to lack of jurisdiction.
  3. Providing the adjudicator with the right to overturn "final and conclusive" decisions where these are of substance to interim payments only.
  4. Extending the adjudicator’s immunity under the Construction Act to claims by third parties.
  5. Applying provisions on adjudicator independence from the Scheme for Construction Contracts to all adjudications in Section 108 of the Construction Act.

At this point it is worth contrasting UK statutory adjudication with arbitration in its various forms. Adjudication is effectively a filtering process. If either party is dissatisfied with the quick and relatively cheap procedure it can insist on taking the dispute to an arbitration, which will be finally determinative. Thus, the principal difference between adjudication and arbitration is that the former is not determinative if either party wishes to proceed to court or arbitration. Any form of arbitration, whether a full-blown hearing, or a 100 day procedure or even a documents-only arrangement, is different in kind from adjudication because of this. Further, adjudication is invariably a faster (and, often, much cheaper) procedure than arbitration, even the 100 day arbitration scheme. This is because the 28 day statutory adjudication period embraces the whole procedure from start to finish, whereas for a 100 day arbitration the 100 days does not even commence until the pleadings are complete.

Although one of the advantages of adjudication over arbitration or litigation is said to be the much lower costs involved, one study indicates that average fees for adjudicators in construction cases are nearly 5% of the sum claimed.22 Using data submitted to a website, figures for 169 adjudications indicate that the mean average fee is £3,725, which is a 10% increase since a survey 4 years ago by Caledonian University in Glasgow (when the fee represented about 2.5% of the sum in dispute). This same analysis indicates that about half of all adjudications concern sums in dispute of less than £50,000. The Report speculates that the increase in adjudication fees reflects a demand for detailed written reasons in decisions.

It has often been suggested that, notwithstanding that the Act permits the most complex of final account disputes to be referred to adjudication, this process is unsuitable for such complex multi-issue disputes, where many lever arch files will be involved and where the statutory time limits are grossly inadequate. Nevertheless, in the recent case of CIB Properties v Birse Construction23 Judge Toulmin did not conclude that adjudication is an inadequate method for resolving complex disputes. What matters is that the adjudicator is able to reach a fair decision within the time limits imposed by statute or subsequently altered by the parties.

Thus, adjudication is a procedure that, as a statutory mechanism, has only existed since early 1998, and yet now dominates the construction dispute field. It has been so successful that the Government is regularly reviewing how to improve the procedure and thereby encourage even more disputes to be adjudicated rather than to be dealt with in any other way. As more parties become more familiar with adjudication, and as its procedures are streamlined to meet the needs of the market, it is to be expected that the reduction in arbitration and litigation will increase.

It is noteworthy that although the number of court and arbitration cases is down, the number of lawyers, both solicitors and barristers, is rising. This is a sure sign that the legal profession is needed by the marketplace. When I was called to the bar in 1978 there were about 3,000 barristers and 60,000 solicitors. Today the bar numbers over 11,000 and the number of solicitors has doubled. Indeed, throughout that period the bar has increased in size every year without exception24. This applies also to the construction bar. When I joined Keating Chambers in 1979 I was the 13th member. Today we have 42 members, and we continue to grow. This tells us that although the mix of construction dispute work has changed, it continues to grow. In particular, the reduction in court and domestic arbitration cases has been more than compensated for by new work flowing from adjudication and mediation, and by the buoyancy of international work.

Re (vii): Dispute Boards/Panels (DBs)

Dispute Boards (DBs) involve a procedure whereby a panel of 3 engineers/lawyers (sometimes just one) is appointed at the outset of a project. The DB visits site 3 or 4 times a year and deals with any incipient disputes. This generally avoids a dispute crystallising into an arbitration.

With World Bank encouragement, FIDIC has included the DB procedure in its standard form for some time. Recently the ICC has produced a set of DB rules25, as has the ICE.

Contrasting DB and other Procedures

The Dispute Board procedure has certain characteristics which differentiate it from other dispute resolution processes. These are:

  1. The conclusion produced by a Dispute Board will ordinarily be only temporarily binding. Essentially, if one or both parties wish to challenge a Board’s determination, the dispute must be taken to arbitration or court litigation, depending on the contract terms A Board’s determination is not enforceable in the way that an arbitration decision is.
  2. A Dispute Board should be appointed at the commencement of a project and stay in place until its conclusion. By contrast, other procedures, such as arbitration or mediation, are simply invoked once the dispute in question has arisen.
  3. The Board should meet on site about three times a year.
  4. The function of a Board should be to "nip in the bud" problems before they crystallise into disputes and, if a dispute does arise, to deal with it by producing either a "Recommendation" (in the case of a Dispute Review Board – see below) or a "Decision" (in the case of a Dispute Adjudication Board – see below).

There is, of course, a variety of Board "types", but generally, they will exhibit most, if not all, of the above characteristics.

Why DBs Succeed

Experience shows that Dispute Boards are successful, that is, they deal with and finally dispose of virtually all the disputes that come before them. Broadly, it seems that something in the order of 97% of disputes referred to a DB will not go beyond that procedure into arbitration or litigation. Why are DB’s so successful? The following reasons are often put forward:

  1. The Board meets on site at regular intervals, and hears the complaints of all parties concerned at an early stage "Gripes" are dealt with at the outset and never develop into disputes.
  2. The DB gives all parties concerned an opportunity to "have their say" and the catharsis of "getting it off your chest" is the extent of what most parties want. Hence, it is unnecessary to go before a formal tribunal.
  3. An unexpected dynamic develops so that the parties, who work with each other on site every day, see the DB as a group of intruders, against whom the site personnel must "gang up" in order to repel them. Accordingly, when the DB arrives on site for its regular visit, the parties will put on a common front, and hastily compromise whatever incipient disputes there may be, so that they do not have the DB "interfering" in the site’s "private business". This has been put forward as the explanation for why the DB procedure does not act as a "fly-paper" which attracts disputes, and instead only minimises disputes.
  4. Most members are not lawyers! Generally, the "mix" on the Board will be two engineers, and one lawyer. The parties will often see this as a more "user-friendly" entity than the forbidding sight of three lawyers.

Background To The Drb Procedure

The recent enthusiasm within the UK and international construction and engineering industry for the DB procedure may be viewed as the result of the intersection of three important recent developments. These are:

  1. A concern in the USA construction industry in the 1960s and 1970s about the escalating cost of arbitration and litigation;
  2. A concern in the UK and international civil engineering industries about the role of the ‘Engineer’ as a dispute decision-maker under the contract; and
  3. The emergence within the UK construction Industry of the concept of adjudication and the production of a temporarily-binding decision, to facilitate the prompt payment of sub-contractors.

Each of these three developments will be described briefly below.

1st Development: U.S. Concern about costs

It seems one of the earliest usages of the Dispute Board Procedure was on the Boundary Dam in Washington in the 1960s. The procedure was also used in 1975 on the Eisenhower Tunnel, and the popularity of the procedure grew steadily from that point. By 1981 the procedure was being used internationally, for example the El Cajon Dam in Honduras. Experience indicated that, notwithstanding that DB members had to be paid for their involvement throughout the project, the total costs of the procedure were substantially less than the conventional method of a major project being followed inevitably by a major arbitration. Some practitioners have calculated that a DRB will generally cost in the order of 0.2% of the project costs. Obviously, the bigger the project, the less the cost of the procedure in relative terms. US experience shows DBs are cost effective for medium sized projects upwards.

The successful U.S. experience led, in 1995, to the World Bank making the procedure mandatory for all International Bank for Reconstruction and Development (IBRD) financed projects in excess of US $50 million. That led naturally to the procedure being used, in 1997, by the Asian Development Bank, and also the European Bank for Reconstruction and Development.

The commonly favoured model for Dispute Boards in the USA was and is the Dispute Review Board (DRB), under which "Recommendations" are issued in respect of the particular dispute being dealt with. This is a relatively consensual approach to dispute resolution. Broadly, if neither party formally expresses dissatisfaction with a Recommendation within a stated period of time, the contract provides that the parties are obliged to comply with Recommendation. If either or both parties do express dissatisfaction within the limited time period, then the dispute may go to arbitration or court litigation. Although the parties may choose voluntarily to comply with a Recommendation while awaiting the decision of the arbitrator or court, there is no compulsion to do so.

2nd Development: FIDIC/ICE Usage of DB Procedure

By the 1990s, major civil engineering contractors in the U.K., and internationally, had become critical of the central role played by the Engineer appointed under the FIDIC and ICE standard forms. In January 1995 the World Bank introduced the DB concept into its standard bidding document and made it obligatory for projects of more than US$ 10 million. A 3- person board was stipulated for projects in excess of US$ 50 million.

In 1995 FIDIC introduced a Dispute Board approach into its Orange Book form. In November 1996 FIDIC introduced the procedure into Clause 67 of its 4th edition Red Book. The approach adopted by FIDIC is the Dispute Adjudication Board model, whereby effect must be given forthwith to a Board decision. A firm decision was more attractive than the possible alternative of a recommendation that need not be complied with, i.e. the more consensual Dispute Review Board model. If no ‘notice of dissatisfaction’ is issued within 28 days of the Board’s decision it becomes final and binding. If a notice is issued then the matter may proceed to arbitration, although the parties are obliged to comply with the decision in the meantime. This approach, of an immediately binding decision, has been maintained in subsequent versions of the Red Book and is still to be found in the draft of the forthcoming 2005 Second Edition of its 1999 form, in Clause 20.4 thereof.

In February 2005 the Institution of Civil Engineers (ICE) produced its Dispute Resolution Board Procedure, First edition. The acknowledgements state that the ICE has drawn upon the work of FIDIC. The Introduction describes a DRB as a " ‘job-site’ dispute adjudication or conciliation board". This ICE document offers two procedures, the first for projects not subject to the 1996 Construction Act, and the second for where the Act applies. The principal difference between the procedures is that the procedure governed by the Act caters for a referral to the Board at any time. Clause 4.5 in both forms makes plain that the service of a notice of arbitration or application to the courts is not a reason for failing to give effect to a DB decision. Thus, the ICE procedure adopts a similar approach to the long-established FIDIC arrangement.

3rd Development: U.K. Adjudication

The late payment of subcontractors has long bedevilled the UK construction industry. By the late 1980s adjudication clauses were commonly used in sub-contract forms such as the JCT DOM/1 agreement. It was unclear at that time precisely what status an adjudicator’s decision had, and in November 1989, I represented a sub-contractor in the case of Cameron v John Mowlem 52 BLR 24. We sought summary judgment upon an Adjudicator’s decision. His Honour Judge Fox Andrews, Q.C. gave us judgment for the full amount claimed. However, the Court of Appeal subsequently held that a decision of an adjudicator given under DOM/1 was binding only until the determination by an arbitrator on the disputed claim, and so the adjudicator’s decision was not equivalent to an arbitration award.

As a result of continuing concern about the non-payment of sub-contractors, the Government commissioned the Latham Report, which resulted in the 1996 Housing Grants, Construction and Regeneration Act (the 1996 Construction Act). This provided for statutory adjudication and the Technology & Construction Court provided easy enforcement. This has revolutionised the construction industry.

Since the U.K. construction industry is now thoroughly familiar with the adjudication process, and the concept of a temporarily-binding decision, it is able readily to use a Dispute Board procedure, which is, in effect, an arrangement that provides for serial adjudications through the course of a project.

The ICC DB Procedure

Thus, the U.K. construction industry is now fully conversant with the Dispute Adjudication Board (DAB) approach by reason of the 1996 Act, the international construction industry is familiar with the DAB approach as a result of FIDIC and the World Bank adopting it almost ten years ago, and the U.S. construction industry originated and developed the Dispute Review Board (DRB) procedure in the first instance.

Thus it is that the ICC’s DB approach, offers three types of Dispute Board:

  1. The Dispute Review Board (DRB) model involving "Recommendations";
  2. The Dispute Adjudication Board (DAB), model, where "Decisions" are issued; and
  3. the Combined Dispute Board (CDB) model where Recommendations are normally issued, but Decisions may be requested. This is a hybrid procedure drawing upon both the DRB and DAB models.

Overview - DBs

In overview, therefore, the DB procedure has been fashioned by the engineering project marketplace to address its current concerns. The DB procedure amounts to serial adjudication. It may be expected to be increasingly used on projects of any size. The result is likely to be a reduction in arbitration.

Conclusion

Broadly, the number of construction arbitrations and court cases has reduced by about a third in recent years, as a result of the combined effects of the CPR (on court litigation), adjudication and mediation.

Although the effect of the CPR should have stabilised by now, the take up on adjudication and mediation increases steadily, driven by their obvious attractions of relatively low costs and high speed. Consequently, the decline in the number of arbitrations and court cases may be expected to continue.

Since our concern is adjudication, the point that emerges clearly from the UK experience is that the adoption of a statutory adjudication scheme by any jurisdiction is likely to result in significant reductions in most other forms of dispute resolution.

The articles and papers published by Keating Chambers are for the purpose of raising general awareness of issues and stimulating discussion. The contents must not be relied upon or applied in any given situation. There is no substitute for taking appropriate professional advice.

© all rights reserved, the Author. Dr. Gaitskell is a practising Queen’s Counsel in Keating Chambers, London, specialising in engineering disputes. He regularly acts as Arbitrator, Adjudicator, Mediator and DRB Chairman or member. His qualifications are: PhD(KCL), BSc(Eng.) CEng, FIEE, FIMechE, FCIArb, Barrister. He is a former Vice-President of the Institution of Electrical Engineers.

Footnotes

* This lecture is based on a presentation originally given to the UK Society of Construction Arbitrators on 14 May 2005 and, in an updated form, given to the UK Society of Construction Law on 5 July 2005..

1. The term "Corridor" was used because the Official Referees’ Courts were located along a lengthy corridor at the top of a wing within the Royal Courts of Justice. This Corridor was reached by way of an idiosyncratic lift that involved multiple expanding doors.

2. I am grateful to the TCC Court staff for these figures.

3. The Times, Law, 26.6.01, p3.

4. The Times, 22.5.01.

5. J. Ede, It’s good to talk – rather than sue (The Times, 26.11.02, page 7)

6. The Times, Law, 26.2.02, p3.

7. The Times, 7.12.04, p24.

8. The Times, Law, 21.1.05, p5.

9. Appeal Court witnesses fall-off in civil hearings, The Lawyer, 14.2.05, page 4.

10. Construction Law, 2001, 12(8), 1

11. At the Society of Construction Law conference at which this paper was originally presented the view of the attendees was that institutional appointments for construction and engineering arbitrations had fallen by much more than a third, but direct appointments of popular and experienced individual arbitrators were more buoyant.

12. LCIA News, Vol. 10, Issue 1, March 2005, p3.

13. ICC United Kingdom Annual Reports 2001, page 18 and 2003, page 22.

14. At the SCA conference presentation of this paper the attendees were generally of the view that expert determinations were usually conducted in a very similar fashion to an arbitration, notwithstanding the theoretical difference in procedure.

15. CEDR statistics from www.cedr.co.uk.

16. Solicitors’ Journal (2005) 149 (11) page 307.

17. The Times, Law, 3.4.01, p19.

18. (2004) EWCA Civ. 567.

19. Civil Procedure Vol. 2, page 216, paragraph 2A-101.

20. (2000) CILL 1649

21. Macob v Morrison (1999) BLR 93; Bouygues v Dahl-Jensen (2000) ELR 49.

22. Survey by Hammonds & Building Magazine quoted in Construction Law (March 2005) pages 1 and 4.

23. (2004) EWHC 2365 (TCC).

24. Morrison, N., ‘Mosaic of Memories’, Counsel, Feb 2005, p30.

25. The material which follows is based on a lecture given by the Author at an ICC conference on 14.10.04.

The articles and papers published by Keating Chambers are for the purpose of raising general awareness of issues and stimulating discussion. The contents must not be relied upon or applied in any given situation. There is no substitute for taking appropriate professional advice.

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