Summary
- Adjudication is a form of alternative dispute resolution in which an adjudicator makes a temporarily binding decision within 28 days of referral, with the decision remaining binding unless a party commences formal legal proceedings to obtain a final determination.
- Businesses in the construction industry have a statutory right to adjudication under the Housing Grants, Construction and Regeneration Act 1996 for qualifying written construction contracts, with the Scheme for Construction Contracts (England and Wales) Regulations 1998 applying automatically where the contract lacks compliant adjudication provisions.
- Key advantages of adjudication over litigation include speed (28-day decision timeframe), lower cost, access to an expert decision-maker with industry or legal knowledge, and the strategic advantage for the referring party of controlling the timing and scope of the dispute.
- This article is a guide to adjudication for businesses involved in commercial disputes in England and Wales, explaining what adjudication is, which contracts qualify, and why it is a preferable alternative to litigation particularly for construction industry businesses.
- LegalVision is a commercial law firm that specialises in advising clients on dispute resolution and commercial litigation matters.
Tips for Businesses
Ensure all construction contracts are in writing or evidenced in writing to preserve your statutory right to adjudication under the Housing Grants, Construction and Regeneration Act 1996. If your contract does not include compliant adjudication provisions, be aware that the Scheme for Construction Contracts applies automatically, giving you adjudication rights by default. As the referring party, prepare your case thoroughly before initiating adjudication to take full advantage of your ability to control the timing and scope of the dispute.
Commercial disputes are an unwelcome reality for many businesses, but going to court is rarely the most efficient or cost-effective way to resolve them. Adjudication offers a faster, more affordable alternative, particularly for businesses in the construction industry who have a statutory right to use it. This article explains why you should select adjudication for your commercial dispute, particularly if you are in the construction industry.
What is Adjudication for Commercial Disputes?
Adjudication for commercial disputes is a method of alternative dispute resolution (ADR). There are other forms of ADR for commercial disputes, and these include:
- mediation;
- conciliation; and
- arbitration
When a business like yours chooses adjudication for its commercial disputes, it and the other party ask an adjudicator to resolve the disagreement. The adjudicator will hear your side of the commercial dispute and the other party’s view. They then form a temporarily- binding decision from this. The decision will remain binding unless and until one of the parties commences legal proceedings, the outcome of which will be the final fully binding decision.
Which Contracts Qualify for Adjudication?
Your statutory right to adjudication under the Housing Grants, Construction and Regeneration Act 1996 applies to construction contracts that meet specific criteria.
Firstly, the contract must be in writing or evidenced in writing. This includes contracts confirmed by email or through an exchange of written offers and acceptances.
Secondly, the contract must be for construction operations as defined in the Act, which cover:
- building work;
- alterations;
- repairs;
- decoration;
- installation of systems such as heating, lighting and power; and
- site preparation.
However, there are exclusions to this. These include contracts with residential occupiers where the work is on their dwelling and certain extraction of minerals and oil or gas operations.
If your contract does not include adjudication provisions or they do not comply with the Act’s requirements, the Scheme for Construction Contracts (England and Wales) Regulations 1998 applies automatically. This gives you adjudication rights by default.
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Why Should I Choose Adjudication for My Commercial Dispute?
There are several reasons why your business should choose adjudication for your commercial dispute. We will explore several below.
1. To Avoid Commercial Litigation
It is crucial when you get into a business dispute that you try to resolve it without going to court. Court is the most formal way to solve your commercial disagreement and is likely to be the most costly for your business in terms of the following:
- money;
- resources;
- time; and
- potentially your reputation.
However, whilst you should choose adjudication for your commercial dispute to avoid litigation, it could potentially reach litigation. This is because the decision is only temporarily binding. If the losing party does not accept it, they may move to the litigation process. However, in the construction industry, this rarely happens.
One reason is that the losing party often faces payment of an award to the winning party. If so, they will likely need more funds to start commercial litigation or even for the arbitration process.
2. You Have a Legal Right to
You may choose adjudication if you are in the construction industry because you have a legal right to this recourse when in a commercial dispute. This is your statutory right in the Housing Grants Construction and Regeneration Act 1966, and you can do this at any point in the business dispute.
3. For Speed
Commercial adjudication is a reasonably quick method of ADR compared to others, such as arbitration. This is because the adjudicator has to decide how you proceed within 28 days of the referral for the adjudication process. However, the 28 days could be longer if all parties agree.
4. Expert Decision Maker
A further reason you may choose adjudication to resolve your commercial dispute is because the adjudicator is an expert. This will either be in terms of industry knowledge or legal knowledge.
5. Cost-Effective
Commercial adjudication is a relatively low-cost type of ADR for resolving commercial disputes. This is one reason for choosing the adjudication process to decide on your business disagreement. Adjudication is low-cost because the overall process is faster than commercial litigation, and you cannot recover the costs from the opposing party. However, you should note that it is within the adjudicator’s power to decide which party pays their costs unless an agreement exists.
6. Ahead of the Game
If you choose adjudication for your commercial dispute as the referring party, you may do so to be ahead of the game. This is because the referring party to an arbitration case decides the timing and scope of the commercial dispute.
This means that by the time you choose to take the adjudication process, you may already have been able to prepare your case.
This fact sheet outlines how your business can manage a dispute.
Key Takeaways
If you face a commercial dispute, adjudication is an attractive option. Adjudication is a form of alternative dispute resolution (ADR) for businesses, particularly in the construction industry. An adjudicator will listen to both sides of the discussion and make a temporarily binding decision. There are many reasons you may choose adjudication for your commercial dispute. For example, to avoid costly litigation because adjudication costs are relatively low.
Other reasons are that it is a speedy process, and you have access to an expert decision-maker. If you are in the construction industry, you should choose arbitration for your business dispute, as you have a legal right to do so. Also, choosing arbitration for a commercial dispute places you ahead of the game as you get to dictate timing and scope as the referring party.
If you need help understanding why you should choose adjudication for your commercial dispute, LegalVision provides ongoing legal support for all businesses through our fixed-fee legal membership. Our experienced disputes and litigation solicitors help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What makes adjudication faster than other forms of commercial dispute resolution?
The adjudicator must decide within 28 days of referral. All parties can agree to extend this period if needed.
What happens if the losing party rejects an adjudication decision?
The decision remains temporarily binding. The losing party can commence litigation, though this rarely happens in construction disputes.
What construction operations qualify for statutory adjudication rights?
Qualifying operations include building work, alterations, repairs, decoration, and installation of heating, lighting, and power systems. Contracts with residential occupiers and certain mineral extraction operations are excluded.
What advantage does the referring party gain by initiating adjudication?
The referring party controls the timing and scope of the dispute. This allows them to prepare their case thoroughly before commencing the adjudication process.
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