ARTICLES

 

WHERE NEXT FOR CONSTRUCTION ARBITRATION AFTER FIVE YEARS OF STATUTORY ADJUDICATION?

Robin Orme MA MPhil RIBA FCIArb

 

The popularity of adjudication is shown by the number of appointments made by the nominating bodies, particularly RICS and RIBA. This is confirmed by anecdotal evidence: parties like the strict time limits, which result in a quick decision and reduced costs. Arbitration by contrast is seen within the domestic arena as slow, cumbersome and expensive, and the number of institutional appointments has decreased markedly.

But the picture for adjudication is not all positive. Losing parties feel cheated if they do not have time to answer the case against them effectively; there is often inadequate opportunity to defend complex issues, particularly where expert evidence is relevant; and the inability to deal concurrently with a counterclaim may lead to injustice. Additionally, as John Uff has pointed out, the real measure of the success of adjudication would not only be its popularity with users, but also whether it offers value-for-money by overall improvement of the economics of construction.1

Parties on the receiving end of a diligently-prepared, complex referral notice feel ambushed, but there are ways in which they can respond to redress the balance, in part at least. If there are other disputes or a counterclaim, they can start their own adjudication on the separate (but almost always related) issues, generally with the same adjudicator unless different expertise is required. Alternatively, they can refer the dispute to arbitration or litigation for a final decision, and this can include all current disputes between the parties. There is no bar to starting this before or during an adjudication.2

However, responding parties may be put off this course by the perceived time and cost of arbitration (and litigation). This need not be so, and we have all heard of arbitrations being concluded in less than the twenty-eight days of adjudication. But that depends on the co-operation of the parties and the robustness of the arbitrator.

The situation would, however, be transformed if an arbitration scheme were available with rules designed to achieve a decision within the timescale of adjudication (often more than twenty-eight days in practice), whilst being flexible enough to deal with complex disputes and with claim and counterclaim. Paul Darling QC has put forward such a scheme.3 The essential features of his '100-day Arbitration' are:

- Statements of Case (with accompanying documents, statements, experts reports, etc) by the Claimant within seven days and by the Respondent within twenty-eight.

- The Arbitrator must decide within a further seven days whether to make a provisional award under Section 39 of the Arbitration Act 1996. Such an award would be enforceable without appeal or other judicial review.

- Using normal Section 34 (2) powers, the Arbitrator decides at the same time the procedure for the remainder of the Arbitration, entirely within his discretion save that there must be limited disclosure and that the parties have a right to a one-day hearing to be shared equally between them.

- The Arbitrator must produce his final award within one hundred days (and his remuneration is dependent on achieving this).

- The Arbitrator retains all the normal powers available under the Act. These would include the powers to award costs (with a default cap unless the parties agree or the Arbitrator directs otherwise) and to order security for his own and party costs. These are both important features not available in adjudication.

Will such a scheme offer an effective alternative to adjudication? It will, if arbitrators take the initiative in the robust manner allowed for in the Arbitration Act. They will have to accept appointments and issue directions quickly if the initial timetable is to compete effectively with adjudication - referring parties will always see the advantage of quick money. They will have to exercise skilful judgement in deciding whether to issue provisional awards and in what form (sufficient reasons will be required for the parties to understand how decisions are arrived at). Adherence to timetables will be vital at all stages (not something which parties to arbitration are noted for). The success of such a scheme will also depend on its inclusion in CIMAR as a flexible option rather than a prescriptive set of rules (which currently hamper as often as they promote efficient construction arbitration).

With five years’ experience of adjudication now behind us, it is possible to see what its benefits and limitations are: speedy and economical, but often rough justice, with the procedural scales weighted in favour of the referring party. Arbitration can now move forward to offer a real alternative, potentially attractive to both sides in adjudication because of its ability to resolve disputes finally and with more effective safeguards.

Robin Orme

 

1 John Uff: Arbitration with the benefit of the Construction Act, Society of Construction Law, November 2002.

2 Herschel Engineering v Breen Property (2000).

3 Paul Darling: What is the future for arbitration in the light of adjudication? TeCBAR Review, March 2002.

 

Jane Ryland MA Cantab. MCIArb

LIABILITY OF ARBITRATORS AND ADJUDICATORS

Jane Ryland MA Cantab. MCIArb is a solicitor and adjudicator and head of construction at Kent law firm Cripps Harries Hall.  She is actively involved in arbitration and adjudication.

 

Section 29 of the Arbitration Act 1996 provides arbitrators with statutory immunity from prosecution for acts or omissions whilst carrying out their function. A dissatisfied party cannot therefore allege failure on the part of the arbitrator and bring proceedings against him (or her).

29(1) An arbitrator is not liable for anything done or omitted in the discharge or purported discharge of his functions as arbitrator unless the act or omission is shown to have been in bad faith.

(2) Subsection (1) applies to an employee or agent of an arbitrator as it applies to the arbitrator himself.

Section 108(4) of the Housing Grants, Construction and Regeneration Act 1996 ("the Construction Act") mirrors the Arbitration Act wording.

108(4) The contract shall also provide that the adjudicator is not liable for anything done or omitted in the discharge or purported discharge of his functions as adjudicator unless the act or omission is in bad faith, and that any employee or agent of the adjudicator is similarly protected from liability.

Contractual immunity

The significant difference between the two forms of protection is contained in the opening words of section 108 "The contract shall… provide…". The Construction Act does not confer direct statutory protection on the adjudicator. It is the precise wording of the contract which provides the level of immunity. If the contract does not comply with s108 then the provisions of the statutory Scheme for Construction Contracts will apply. Paragraph 26 of the Scheme repeats s108 of the Construction Act exactly.

Other sets of adjudication rules which might be referred to in the contract are those such as the JCT Rules, ICE Rules and TeCSA Rules.

Negligence

The JCT and ICE immunity provisions are similar to the Scheme. However, the TeCSA and CIC rules go further. They say that the adjudicator is not liable for anything in the discharge of his functions as adjudicator (whether in negligence or otherwise).

If the inclusion of the words "whether in negligence or otherwise" carries any weight then this casts real doubt on the protection that the Scheme and rules such as the JCT or ICE give to adjudicators.

The reason that TeCSA and the CIC have included the additional wording is that a contractual exclusion of liability (as opposed to statutory immunity) is only effective in excluding liability for negligence if the intention to exclude negligence is made clear. This is the legal position following Gillespie Bros. & Co. Ltd v Roy Bowles Transport Ltd (1972).

For an adjudicator to successfully defend a negligence claim he would have to show that it was the intention of the parties when entering into their contract that his liability for negligence should be excluded. An adjudicator could include in his own terms and conditions a provision that the immunity includes claims for negligence. This would however be dependent upon the thorny issue of whether a separate contract exists between the adjudicator and the parties. It is often the case that the contract crystallises when the adjudicator accepts the nomination, and that his own terms and conditions are too late to form part of the arrangement.

Nevertheless, except for a possible negligence action against an adjudicator, an arbitrator and adjudicator enjoy immunity from suit. This also means that a party cannot defend a claim by an arbitrator/adjudicator for payment of his fees on the basis that he allegedly did a bad job. The fees themselves can only be challenged on grounds of reasonableness.

Bad faith

The exception to both s29 of the Arbitration Act and s108 of the Construction Act is where the arbitrator/adjudicator acted in "bad faith". In the context of the tort of misfeasance in public office, or, as it is sometimes called, deliberate abuse of power, the term "bad faith" has a restricted meaning. A moral element is an essential ingredient. Lack of good faith connotes either (a) malice in the sense of personal spite or a desire to injure for improper reasons or (b) knowledge of absence of power to make the decision in question. An allegation of bad faith is only to be made where there exists prima facie evidence justifying the allegation. If there is no reasonable evidence or grounds to support the allegation, the statement of claim making such an allegation will be struck out as an abuse of process.

Third parties

It is possible that an adjudicator who makes a decision that a building is structurally safe where the building subsequently collapses injuring a third party might be liable in negligence to that person. The statutory Scheme does not make provision for this situation. Some rules such as the ICE rules require the parties to indemnify the adjudicator against claims from third parties. Others such as the CIC rules state that no duty of care is owed to third parties, but there has yet to be a court case to decide whether such a duty of care exists.

Professional indemnity insurance

Given the uncertainties surrounding potential liability of adjudicators it is important that sufficient PI insurance cover is maintained.

Resignation

I should quickly mention the position if an arbitrator or adjudicator resigns without completing his duties. Section 29(3) of the Arbitration Act states that sections 29(1) and (2) do not affect any liability of an arbitrator by reason of his resigning. Under s25 of the Act unless the consequences have been pre-agreed, an arbitrator may apply to the court to grant him relief from liability incurred by reason of his resignation. There is no similar wording in the Construction Act; but an adjudicator, subject to the applicable rules, may find himself unable to recover any fees or expenses if he has failed to make a decision.

Conclusion

The key difference between the protection given to arbitrators and adjudicators is the greater immunity provided to arbitrators by reason of the