Edition

IN THIS EDITION OF THE MDA REPORT:

Adjudication: cost-effective and fast

Not only is adjudication a relatively
inexpensive procedure, as Vaughan Hattingh notes, its resolution can be implemented immediately. In this article we overview the evolution and application of a dispute resolution process designed to meet the need (particularly in the context of construction projects) for a rapid, relatively inexpensive procedure that is designed to (albeit not necessarily finally) decide disputes in real time and furnish a resolution that can be implemented immediately - adjudication!
In the United Kingdom contractually regulated process of adjudication dates back to at least the 1970s. In response to a wide spread problem of contractors not making proper and timeous payment to subcontractors, the industry itself introduced provision regulating a contractual adjudication procedure for some limited purposes into certain building subcontracts.
In the report entitled “Constructing the Team” (published in July 1994) Sir Michael Latham reported his findings and recommendations following his investigation into the state of the United Kingdom Construction Industry. Latham recommended, among other things, that “…a system of adjudication should be introduced within all standard forms of contract (except if comparable arrangements already existed for mediation or conciliation) and that should be underpinned
by legislation…..”.
Latham’s recommendation particularly regarding adjudication was adopted in the United Kingdom through legislative intervention under, inter alia, section 108 (1) of the Housing Grant, Construction and Regeneration Act 1996 (the HGCRA) which provides: “A party to construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with the section. For this purpose “disputes” includes any difference.” Nicholas Gould observes that “..following the Latham Report, the HGRCA was introduced in 1996 with the aim of resolving disputes quickly, unlocking cashflow and allowing the project to continue efficiently with certainty of payment..” The effect is quite simply that parties to a written construction contract in the United Kingdom are obliged under the HGCRA) to submit disputes to adjudication. Furthermore, the Woolf reforms introduced into the United Kingdom judicial system in the late 1990s made adjudication a mandatory step to litigation in certain instances. Similar statutory procedures have been introduced in Australia and New Zealand through similarly worded legislation. At present, the South African construction environment is not regulated by similar legislation. Referral of disputes to
adjudication is not (by application of such legislation) mandatory in South Africa.
Initiatives have been implemented by the Construction Industry Development Board (the CIDB) to introduce adjudication as an alternative method for resolving disputes into the broader South African construction environment.

A speedy mechanism
The general nature of adjudication was summarised by Justice Dyason (as he then was) in the landmark British case of >Macob Civil Engineering Limited vs Morris Construction Limited [1999] BLR 93,TCC, at page 97: “…The intention of Parliament in enacting the Act was plain. It was to introduce as speedy mechanism for settling disputes in construction contracts on a provisional interim bases and requiring the decision of the adjudicators to be enforced pending the final determination of disputes by arbitration, litigation or agreement: see Section 108(3) of the act and paragraph 23(2) of part 1 of the Scheme.”
The practical aims of Adjudication (as an Alternative Dispute Resolution process) are quite simple. A dispute, which may affect the relationships between the parties, is quickly resolved (in real time relative to execution of the project) in such a manner that the parties are forced to put it behind them and get on with the contract or with remainder of the relationship (if either still exist). The adjudication process is contractual in nature and often inquisitorial and investigative. It occurs within a very short and defined time scale under a curtailed procedure, the nature of which is primarily decided by the adjudicator.
In the House of Lords debate on the legislation Lord Ackner said of the statutory adjudication process: What I have always understood to be required by the adjudication was a quick enforceable, interim decision which lasted until practical completion when, if not acceptable, it would be the subject of arbitration or litigation. That was a highly satisfactory process. It came under the rubric of ‘pay now argue later’ which was a sensible way of dealing expeditiously and relatively inexpensively with disputes which might hold up the completion of important contracts. There are in the South African context, therefore, three fundamental characteristics of adjudication:

• In the absence of a regulatory framework (similar to that created through the HGCRA) in South Africa the process is contractual in nature;
• the procedure to be followed is for the Adjudicator to decide in each case – it may be inquisitorial, adversarial, investigatory or a mixture of all three – above all it is speedy; and
• although binding on the parties, the Adjudicator’s decision is provisional, ie, it can be challenged through litigation or arbitration. In Practice Guideline Number 3: Adjudication (March 2004: Edition 1 of CIDB document 1011) the CIDB has detailed a set of principles, which underpin the adjudication process.
In addition to providing (at least in relation to public sector construction contracts) that “… adjudication shall be applied to all categories of construction contracts, (viz., engineering and construction works, services and supplies) at both prime and subcontract level, and be a mandatory requirement for the settlement of disputes before the completion of the contract...” the CIDB implies (in relation to private sector construction contracts) that provision should be made within each contractual framework for dispute resolution by adjudication as a matter of best practice in construction contracts.

Rough and ready
In several of the early cases dealing with enforcement of adjudicator’s awards the court has taken the view that, although injustice might result in adjudication, because Parliament had intended that there be a quick but rough and >ready system for dispute resolution and because the decision was binding only until subsequent agreement or other resolution, then the court should take a robust approach when deciding whether to uphold an adjudicator’s decision.” In Carillion Construction Ltd v Devonport Royal Dockyard [2005] EWHC 778 (TCC) at paragraph 80 HH Judge Jackson clarified four basic principles that a Court should apply in deciding any application for the enforcement (or challenge) of an adjudicator’s decision under English law as follows:
• The adjudication procedure does not involve the final determination of anybody’s rights (unless all parties so wish).
• The Court of Appeal has repeatedly emphasized that adjudicator’s decisions must be enforced, even if they result from errors of procedure, fact or law: see Bouygues, C&B Scene and Levolux.
• Where an adjudicator has acted in excess of his jurisdiction or in serious breach of the rules of natural justice, the court will not enforce his decision: see Discain, Balfour Beatty and Pegram Shopfitters.
• Judges must be astute to examine technical defences with a degree of skepticism consonant with the policy of the 1996 Act. Errors of law, fact or procedure by an adjudicator must be examined critically.
On an application of these four principles Justice Jackson found that the fact that the adjudicator's approach to the assessment of the target cost might have embodied certain errors of fact and law was, on its own, not an excess of jurisdiction or a serious breach of the rules of natural justice.
The evidence showed that the Adjudicator had not simply carried out a judgment of Solomon, but had reviewed the material put forward by both