Keep calm and adjudicate on!

“Your Courage, Your Cheerfulness, Your Resolution; Will Bring Us Victory” – Ministry of Information, 1939

The phrase “unprecedented times” seems to crop up in almost every recent article and news report and there is no doubt that it is a true statement.  It is therefore rather nice that some things are reassuringly the same.  This is true of my recent experience of advising on a number of adjudications, in this period of lock-down.

This is a good thing.   The statutory right to adjudicate under the Construction Act came about following Latham’s review[1] of what was widely accepted as a grim and dysfunctional sector.  The industry has come a long way since then, but cash flow remains paramount to its success, and never more so than in these difficult times.

This is why “business as usual” for adjudication is a good thing, as it is often the most expeditious and cost-effective way of pursing a claim, if payment is not forthcoming.  As such, it is likely that more parties will look to this process, as a way of maintaining cash flow.

Right from the outset, nominating bodies made it clear that even working remotely, they were able to comply with the strict timetable for the appointment of an adjudicator.  In my recent experience, there was no discernible change in the process, with RICS confirming the application for an adjudicator and the subsequent nomination, within the usual timeframes.

Similarly, the only change I have seen to the actual process was an acknowledgement that submissions and supporting documents could only be sent in soft copy (using Workshare or similar), with no requirement for hard copy bundles.  There was also recognition by one adjudicator that the logistics of working from home, may mean that slightly more time is required and he gave the other side fairly short shrift (rightly so), when arguing against a modest extension of time for service of a response. 

There is, however, no doubt that these “unprecedented times” do magnify what have always been risks of the process.  A good example is the liability for payment of the adjudicator’s fees.  While generally a decision will often provide that the loser is responsible for payment, the parties remain “jointly and severally” liable.  If the losing party refuses to, or simply does not have the funds to make payment, this can have the unpalatable consequence that the adjudicator looks to the successful party.  Like all businesses, the adjudicator will be keen to secure payment as quickly as possible.

In a recent dispute, despite our client successfully defending the whole of a claim, it was obliged to make payment of the adjudicator’s fee, with little prospect of recovering it from the unsuccessful referring party.  Thankfully, the amount was modest in the context of the claim avoided, however parties considering referring a dispute to adjudication, should be alive to this.

Similarly, there is an increased risk of a losing party simply being unable to satisfy an award, or either party becoming insolvent during or prior to enforcement.

In relation to the former, while the court will continue to robustly enforce adjudicator’s decisions (with COVID-19 no excuse, see our recent blog on the Millchris Developments v Waters decision), if the losing party refuses to immediately comply, this extends the period before cash is actually in the bank.  However, again the Technology and Construction Court has been proactive and has recently published standard directions for adjudication enforcement hearings, which accommodates remote hearings.

As to insolvency, much will depend on the form of insolvency, but this can have significant consequences for actual recovery of the sums awarded in an adjudication.  This is because an adjudicator’s decision is only temporarily binding, pending final determination by litigation or arbitration, but a losing party must pay now, argue later.  However, the opportunity to “appeal” the decision by the losing party is entirely lost, if having paid, the other party becomes insolvent in the future.  

If the party seeking enforcement is in liquidation, then this is a ground for either refusing summary judgement or to stay execution.   A stay is where the Court accepts that the adjudicator’s decision is valid and enforceable, but postpones that enforcement i.e. the actual payment, for a period of time.  The situation is not quite so straightforward if the successful party is subject to a Creditor’s Voluntary Arrangement, but this will be a material consideration of the court when considering whether to grant a stay.

But what if the party seeking to enforce the decision, is not technically insolvent but is impecunious, or in other words, likely not good for the money in the future?  As a matter of principle, the court is generally extremely reluctant to resist enforcement, as to do so undermines the very purpose of what adjudication is for, to facilitate cash flow.  However, there is a balance between protecting against any potential injustice and giving effect to the intention of the Construction Act.  To date, the balance has very much been in favour of the latter, with the court’s discretion to grant a stay only being exercised in exceptional circumstances.  However, as we keep being told, these are exceptional times and as such, we can perhaps expect to see some interesting challenges going forward to resist enforcement.

That all being said, adjudication remains an extremely effective way of pursuing a claim and as above, both adjudicators and the courts, are very much open for business as usual.