Construction in Court and the Dispute Revolution: Referral of low value disputes to adjudication

Following the landmark decision in Churchill, Marcus Cato FCIArb and Ken Salmon MCIArb delve into what could come next for adjudication. Could ‘Court-annexed Adjudication’ be a way forward?

The dispute landscape has changed dramatically with the Court of Appeal decision in James Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416 (Churchill) which has opened the gates for a more integrated approach to alternative dispute resolution (ADR). It was decided in the Churchill judgment that courts have the power to order parties to engage in ADR, provided the power is exercised in a way that does not impair “the very essence of the claimant’s right to proceed to a judicial hearing, and is proportionate to achieving the legitimate aim of settling the dispute fairly, quickly and at reasonable cost” .

It’s clear that when domestic disputes (between homeowner and builder or architect) in construction occur, they can be extremely painful and damaging. For many domestic clients, building works will represent the single biggest investment they will make beyond the purchase of a property. Many domestic projects may be more suited to adjudication because of their technical content, recurring themes and value. All parties tend to suffer greatly from a construction-based dispute whether it be the lack of amenity from unfinished or defective works, or the impact on cashflow or reputation. 

Churchill – More than mediation

 The invitation to embrace ADR into the UK judicial process is clear. Plus, the benefits of utilising adjudication, arbitration and expert witnesses for construction-based disputes has provenance, with their potential to offer speed, cost-effectiveness and better, more appropriate technical evaluation.

It no longer seems radical that the courts should consider releasing low or lower value construction disputes (involving consumers as well as businesses) to a non-statutory form of interim binding or final and binding adjudication.

Before the Churchill judgment, the judgment of His Honour Judge Stephen Davies in The Sky’s the Limit Transformations Limited v Dr Mirza [2022] EWHC 29 (TCC) is well worth considering. It raised the topical subjects of mediation, joint expert witnesses, compulsory ADR, and cost and time of the dispute being completely disproportionate to the value of the disputed sums. Succinctly put, His Honour Judge Davies stated “In my view concrete steps to address the challenge of finding a time and cost effective means of fairly resolving domestic property renovation building contract disputes are required.” He then suggested the following expedient actions could be undertaken, which we paraphrase here:-

1. Disclosure limited to pertinent documents.
2. Single joint expert in respect of liability and valuation.
3. A stay for mediation upon receipt of report and, whilst mediation would not be compulsory, in the event that mediation was rejected an order for early neutral evaluation (ENE) before another Technology and Construction Court (TCC) judge be considered.
4. Trial should not be more than one day in length with limited witness time.

Interestingly, whilst mediation was mentioned as a probable route to resolution, no mention was made of the potential benefits of adjudication.

In the Churchill judgment, no firm criteria is set down to decide what form of ADR might be ordered. In fact, what was said was, “judges are well qualified to decide whether a particular process is or is not likely or appropriate for the purpose of achieving the important objective of bringing about a fair, speedy and cost-effective solution to the dispute and the proceedings, in accordance with the overriding objective.”

In principle, it appears that both cases fully support the power of a court to direct what we will term “Court-annexed Adjudication” (CaA) where directions might be made with the following points in mind:

• Despite the residential occupier exception in the Housing Grants, Construction and Regeneration Act 1996 (HGCRA) (respecting consumer rights), adjudication can be adopted by agreement.
• Within the judicial framework, adjudication won’t be mandatory but be court directed, as an optional right of the parties, whilst reserving the final decision to the court thus retaining the right to a fair trial under the Human Rights Act.
• It may become necessary or desirable to convert the normal binding but interim outcome into a final one either by order or prior or (more likely) subsequent agreement.
• The court is persuaded that the use of adjudication, including low-cost adjudication procedures, is a fair, speedy cost effective and suitable means of resolving the dispute or any issue.
• The owner occupier exclusion in the HGCRA 1996 in respect of domestic building disputes.

Process

Let us assume that the court already has (and if not, is given) the power in its discretion to direct the parties to another process. We suggest that notwithstanding the preference made in the judgment in Churchill for ENE, the court is entitled to direct the manner in which the dispute or an issue should be resolved under the direction and supervision of the court. We see no reason why that manner should not include an expedited process called ‘Court-annexed Adjudication’ (CaA).  

Powers

The court already has extensive case management powers set out in Part 3 of the Civil Procedure Rules 1996 (CPR). We suggest the scope of the Part is wide enough to allow the court to direct that an issue be referred to adjudication with an adjudicator selected by agreement. If there is no agreement, an adjudicator could be appointed by the court or by an appropriate Adjudication Nominating Body (such as Ciarb, RICS, RIBA or TeCSA) in the same way that the court can refer the case (or an issue) to another judge for ENE.

Unlike a stay to mediation, this power could be exercised without the consent of the parties. If there is any doubt, then the rules committee could be asked to consider an amendment to the court’s CPR case management powers.

Given the existence of the power, then subject to hearing the parties, and usually following the service of a defence and or counterclaim, the court would be entitled to direct the manner in which the dispute (or issue) was to be resolved and if appropriate to refer the dispute or the issue to CaA where either the parties agreed, or the following criteria were met:

• The nature of the dispute/issue wasnot such as to require a judge to decide it being by its nature suitable for determination by a construction professional (e.g. valuation disputes/issues, quality of work/materials, extension of time/extended preliminaries).
• value below a certain threshold (exceeded by consent).
• There is unlikely to be need of (extensive) oral evidence (but preserving the option for oral evidence to be given where necessary or desirable).
• There was no need of expert evidence, or the expert evidence could be given via joint experts report or written evidence only, bearing in mind the expertise of the adjudicator themselves.
• The likely cost to the parties if the matter was to be determined by trial in court would be disproportionately high in relation to the sums in dispute and in respect of low value adjudication could be subject to a cap.

How would it work?

Consideration should be given as to whether in order to protect the parties’ interests, but not to remove choice, that CaA would have to be specifically opted out of. Arguably, in respect of verbal or simple contracts the rigour of professional and technical intervention in the dispute would be welcomed. In respect of written contracts there would be no barrier and it would not be capable of being contracted out of (consumer rights excepted and preserved).

Upon referral by agreement or order, the court would direct:

• The adjudication takes place in accordance with the appropriate specific or adopted Scheme rules following full or low-cost adjudication such as the Construction Industry Council, Low Value Disputes Model Adjudication Procedure (CIC LVD MAP) and transparently determines the basis of fees accordingly.
• That the adjudicator be joined as a party to the court proceedings or otherwise enabled to apply for further directions including enforcement of the obligation to make payment of fees.
• That the dispute to be referred by the court would specify through a direction or order the matters that would be referred to adjudication.
• Whether the decision was to be final and binding or only binding pending final determination (in other words an interim decision) with the former being the norm.
• The period of time for the decision (leaving the adjudicator to decide the timetable). This would normally be four weeks or such other period as the parties might agree or the court direct at referral but subject to the right of the adjudicator to apply for more time if required.
• That each party pay one half of the adjudicator’s fee and expert witness fee (where required) subject to such other order as the court might decide (or adjudicator might make in their decision if empowered).
• That the parties would be bound by and obliged to comply with the decision subject to the usual exceptions (lack of jurisdiction / breach of the rules of natural justice). Also, it would be enforceable as a final or summary judgment on being filed in court (no need for an application for summary judgment) subject to any application to set aside the decision for good reason or to stay execution (on Wimbledon v Vago Principles).

Conduct of the CaA

The adjudication would operate in the same way as statutory adjudication. The statement of case would stand as the Claimant’s Referral to be supplemented within such time as the court or adjudicator directed by any evidence or documents relied on and not already served. The Defendant’s Defence and any Counterclaim would serve as the Response with the defendant being directed to file and serve any evidence and documents relied on not already served, and an entitlement to serve a Reply and Defence to Counterclaim but remaining subject to review and amendment of pleadings with the benefit of any joint expert witnesses’ report.  

The adjudicator would give such further directions as may be required for the conduct of the adjudication (but with liberty to apply to the court in case of doubt or difficulty) and set the (remainder of) timetable. The decision would be given to the parties and lodged in court.

The adjudicator fees and expenses

The adjudicator would have the right to apply on notice to the court for enforcement of the obligation of one or both parties to pay their fees and expenses, removing the need of separate proceedings.

• The advantages would include, Quick determination of low(er) value disputes by an expert in the subject matter of the dispute. Use of joint independent expert evidence only where needed. The ability to utilise a low value adjudication protocol with fixed fees. Time and money savings for the parties. Efficiencies in terms of court time and resources. Avoidance of the need of summary judgment process to enforce the decision. No need for separate proceedings to recover adjudicators’ fees.
• A binding and, if desired or directed, a final decision.

Parties to a construction dispute, who want final determination by an expert in both the process and the field, in accordance with a tried and tested process, would no longer be limited to a choice between litigation and arbitration (or expert determination). Nor would they have invest time and effort in obtaining a temporarily binding adjudication decision followed by the possibility of separate proceedings to enforce an award in court. CaA offers a streamlined process with all the advantages of adjudication and court support, without the drawbacks of temporary effect and the need for separate enforcement proceedings.

Importantly, it also removes certain jurisdictional dangers associated with statutory adjudication, such as referral of the wrong dispute, failure to properly frame the dispute, premature referral before a dispute has crystallised, referral to the wrong adjudicator or procedural mishap in the referral process as these matters will be controlled by the court. Once referred by the court, the dispute is fully identified, and jurisdiction conferred on the adjudicator.

Rule changes

It is anticipated some formal amendments to the CPR may be required to allow and support the processes described but there would be no need of any other statutory intervention nor amendment to the Construction Act. Statutory construction adjudication would be unaffected.

Conclusion

In this article, we have proposed a potential way forward in the form of CaAs. However, the implications of Churchill are yet to be seen. What can be said for certain is that the judgment is a positive step forward for the integration of dispute resolution to the civil justice system.

The authors wish to acknowledge and thank practicing adjudicator, arbitrator, expert determiner and mediator Peter Vinden BSc (Hons) DipICArb FRICS FCIArb FCIOB FInstCES who was kind enough to comment and make suggestions on the procedural aspects of CaA and to encourage the development of the article. The authors are keen to point out that the opinions expressed are purely their own.

About the authors:

Kenneth T. Salmon MCIArb is a qualified solicitor in England, Wales and Eire. He is a Ciarb qualified and CMC accredited Mediator and Chair of Education at Ciarb North West Branch. Kenneth is a construction specialist currently working as a consultant to Slater Heelis Limited. He has extensive experience of all forms of dispute resolution including arbitration, adjudication, expert determination and mediation.

Marcus Cato FCIArb, MICE, CEng is MD of McComb Partnership Ltd in UK and Rwanda and founding Committee Member of the newly formed Ciarb Rwanda Branch. He has over 25 years’ experience in international construction and engineering disputes resolution as a certified commercial mediator and qualified arbitrator. Marcus has over 20 years’ experience in working as a party representative and in managing adjudication disputes for large and small clients in all aspects of construction and process engineering.

Develop your knowledge and skills in construction adjudication through Ciarb’s internationally recognised training courses.

Read more about adjudication and Ciarb’s role as an ANB.