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Are you prepared for Adjudication?

Adjudication is becoming increasingly common for as a means of resolving disputes within the construction sector. Nathan Penny-Larter and Michael Pease, who recently successfully defended a multi-million pound Adjudication, establishing that the Defendant architect had not breached its duty to the employer when the refurbishment of a Grade I Listed Building cost more than was expected at the outset, consider the respective merits of the Adjudication process within the context of a professional negligence claim.

Summary

In our experience adjudication is becoming more commonplace as Claimants who are entitled to adjudicate under the terms of their appointment of a professional consultant consider it more attractive than litigation. Chief amongst the reasons for this are the lack of adverse costs consequences, and the absence of issue fees. In addition, the short timetable set down for adjudication means that it is "rough justice" with less time available to pore over the issues meaning that even Claimants with weak cases might succeed in making some sort of recovery.

Therefore, whilst it is arguable as to whether Adjudication is a fair process when dealing with issues of professional negligence, more and more Claimants are travelling down that route due to the perceived benefits.

The usual timetable

  1. Notice of Intention to Adjudicate served, say 1 October;
  2. By no later than 8 October the Referral Notice is to be served;
  3. By no later than 15 October, the Response is served (although often the parties agree to extend the time, sometimes by as much as a week);
  4. The Adjudicator may then provide for further pleadings, a Reply and a Rejoinder, to be served;
  5. By 5 November, the Adjudicator delivers his Decision.

The party which loses will usually need to pay the Adjudicator's costs of the entire process, but otherwise there are no costs consequences (unless the parties agree during the adjudication to confer jurisdiction to award costs on the Adjudicator).

Adjudications in professional negligence disputes

The process of Adjudication is, by its nature, "rough and ready". Often, the Notice of Intention to Adjudicate, the first stage in the process, is received "out of the blue" albeit the dispute is required to have crystallised before that stage. This means that pre-action correspondence setting out the dispute and denying liability are likely to have been exchanged. It is often the case that Defendants only receive vital information, such as evidence relating to quantum, with the Referral Notice, which can be a frustrating and some might say unfair process for Defendants and their Insurers to endure.

This is particularly the case when dealing with allegations of professional negligence where, because of the reputational damage that a finding of negligence can bring about, there is the risk of a breach of natural justice if, for example, the professional does not have sufficient time to consider the allegations and respond accordingly. One might be able to employ these arguments to obtain a significant (in the context of the adjudication process) extension of time. Indeed, this was an argument we advanced during a recent adjudication, which involved allegations of professional negligence brought against a firm of architects  as lead designer for a refurbishment project on a Grade I listed building. The Claimant had only provided voluminous documentation in support of a very substantial quantum claim at the point when the Referral Notice was served.

The courts will not enforce an Adjudicator's Decision which it considers was reached in breach of the rules of natural justice. By casting doubt on the Claimant's ability to enforce any Decision, therefore, and relying upon relevant case law in support of that argument, we were able to agree a 56-day Adjudication rather than the usual 28 day timetable.

How to prepare for Adjudication

The sudden nature of Adjudication means that there is often very little which can be done from the perspective of the Insurer and the Broker to prepare for it. Brokers can, however, stress to their construction professional Insureds, who might become embroiled in Adjudication, to keep their files in a good order, easily accessible at short notice, and to keep attendance notes of conversations. One of the reasons why the Adjudication in which DWF were recently involved was easy to navigate (and ultimately successfully defended) was the quality of the architect's contemporaneous attendance notes and the state of the files, which were in exemplary condition.

The main priority when dealing with Adjudications is to get a good team of people together. The solicitors one instructs are likely to be working on the Adjudication effectively full-time throughout the process and it is possible that they will need to be assisted by relevant experts and counsel. A great deal of work will need to be undertaken in a very short space of time (even if a significant extension can be negotigated) and the costs of defending are likely to be high (with usually no prospect of recovery, even if successful).

As soon as Adjudication appears likely it is important to consider the team required to defend the proceedings (which might include Counsel and appropriate experts) and to involve them at the earliest stage, possibly even before the Referral Notice is received. The more time the team have with the papers, the better the quality of the defence one can construct. It is also important that the Insured client understands that he or she will be required for conferences and meetings and to be proofed for witness statements and therefore their input is crucial. This is where the broker may need to step in, although in practice where one's reputation is being questioned, professional clients often need little persuading to work as hard as possible on the defence.

What do you need to know about Adjudications and why are they becoming more prevalent?

Adjudications are quick, and so rarely allow Defendants the time to consider the issues in detail. The process is effectively preparation for trial in 28 days, or longer if one is able to obtain an extension (perhaps by arguing that there will be, or is likely to be a breach of natural justice), and therefore the costs are high, with usually no prospect of recovering them from the Claimant.

The other point is that Adjudication is not necessarily the end of the line. Even if one successfully defends Adjudication proceedings the Claimant might still choose to litigate (or arbitrate if the appointment contains an arbitration agreement) and, if other parties might be targeted by an unsuccessful Claimant afterwards, it is possible they might join the Insured into any subsequent litigation. It is also open to the Defendant who loses to challenge the Adjudicator's Decision in the Courts (or by way of arbitration).

One possible reason why Adjudications are becoming more common is the fact that fewer and fewer consultants' appointments contain net contribution clauses. This means that, in times where a number of contractors and consultants are going out of business (and into liquidation or administration), Claimants are likely to recover more from professional consultants who are perceived to have deeper pockets by virtue of their professional indemnity insurance policies and who are unable to rely on those clauses to cap their own liability. Adjudication therefore provides an avenue by which Claimants can obtain funds/damages more quickly than they would through the courts, with the added benefit of there being little or no costs risk.

DWF have a great deal of experience in dealing with Adjudications. Nathan Penny-Larter and Michael Pease in the Manchester office have recently successfully defended a multi-million pound Adjudication, establishing that the Defendant architect had not breached its duty to the employer when the refurbishment of a Grade I Listed Building cost more than was expected at the outset. The claim involved complex arguments on scope of duty and causation and was an object lesson in the benefit of having well-organised files and good, contemporaneous attendance notes and correspondence.

Contact

For more information please contact Nathan Penny-Larter (Senior Associate) Nathan.Penny-Larter@dwf.law or Michael Pease (Director) Michael.Pease@dwf.law

 

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This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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