Construction adjudication; the need for a legal landscape
by Chandana Jayalath
Adjudicators in many sectors have, by custom or duty, sought to
settle claims by exercising an inquisitorial role. Inquisitorial means
to get to the truth of the matter through extensive investigation and
examination of all evidence.
In 1993, Sir Michael Anthony Latham, a retired British Conservative
Member of Parliament, was commissioned to lead an investigation on
concerns expressed in the United Kingdom's construction industry about
the significant expenses and unreasonable delays in resolving
construction claims, and about the shortcomings of dispute resolution
methods.
Latham's inquiry ultimately led to the publication, in July of 1994,
of a joint government and industry report, 'Constructing the Team'
(which came to be known as the 'Latham Report'). One of the major
recommendations of the Report was that 'adjudication' should be the
standard form of dispute resolution, which later became the driving
force for legislative reforms in many other jurisdictions.
Function of adjudicator
Adjudicators establish the procedure to be applied in deciding a
dispute and decide upon the adjudicator's own jurisdiction, and the
scope of any dispute referred to it.
They take the initiative and ascertain the facts and matters needed
for a decision, to a great extent, on their own specialist knowledge.
Adjudicators open up, review and revise any opinion, instruction,
determination, certificate or valuation of the engineer related to the
dispute and decide provisional relief such as interim or conservatory
measures.
According to the ICTAD (Institution for Construction Training and
Development) conditions of contract, now CIDA (Construction Industry
Development Authority), the adjudicator shall be a single person
appointed by agreement between the parties. If parties are unable to
reach agreement within 14 days of such request of agreement, the
adjudicator shall be appointed by CIDA.
Either party may initiate the reference of the dispute to the
adjudicator by giving seven days' notice to the other party. Then the
adjudicator shall give his determination about the dispute within 28
days - or such other period agreed to by the parties - of receipt of
such notification of a dispute.
Pool of construction adjudicators
CIDA has been a nominating agency to nominate adjudicators as stated
in the series of Standard Bidding Documents (which spell out the
conditions of contract via a series of rights and obligations). These
nominations were known to be ad-hoc, baseless, or dubious.
More particularly in a context where adjudicators are not trained in
any professional entities in Sri Lanka, it became imperative, in the
public interest, to keep a close eye on what is happening under the
label of adjudication.
Under the circumstances, the then CTAD set up a pool of construction
adjudicators and introduced guidelines. These guidelines delineate, in a
generic fashion, the professional and ethical responsibilities of
members of dispute adjudication boards.
Given the wide variety of settings in which dispute boards are called
upon to adjudicate, it is recognized that not all provisions in the
guidelines will prove to be appropriate at all times.
However, these guidelines will serve as a model which can be adapted
to fit the particular mandate. I was the principal author of these
guidelines. The first draft was reviewed by a panel of eminent
professionals in the dispute resolution - Prof. Mrs. Chitra Weddikkara,
Dr. Edie de Zylva and Eng. G.H. Lawerensz.
The Steering Committee for ICTAD Publications recommended the use of
these guidelines and considered it a 'living' aid that would be amended
periodically.
The setting up of the pool of adjudicators and the introduction of
the adjudicator guideline (when a statute to govern the practice of
adjudication does not exist) is a significant landmark in the history of
construction adjudication in Sri Lanka.
Pay now argue later
What was needed by the adjudication process was a quick, enforceable
interim decision which lasted until practical completion when, if not
acceptable, it would be the subject matter of arbitration or litigation.
It came under the rubric, '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. With regard
to enforceability, a time-frame is given in the SBD series as a cut off
silent period to constitute finality.
However, this is arguable with regard to binding finality due to the
lack of a statute in Sri Lanka for adjudication. In the UK, the issue of
enforceability of the adjudicator's decision was confirmed, shortly
after the promulgation of the Construction Act, in Macob Civil
Engineering Ltd. v. Morrison Construction Ltd., a 1999 decision of the
Technology and Construction Court (High Court of Justice, Queen's Bench
Division).
In that case, Justice Dyson held that "(c)rucially, (Parliament) has
made it clear that decisions of adjudicators are binding and are to be
complied with until the dispute is finally resolved."
CIDA Act
The CIDA Act in Sri Lanka has in a couple of provisions, introduced a
way of settling disputes in the form of a hierarchical gauntlet.
Accordingly, if the parties so desire any dispute relating to a contract
for construction works, if it is not provided for in the contract, may
be settled through conciliation or mediation.
However, there is 'ha-ho' among industry personnel on the lack of
care, misconduct and competency of the conciliators, whether in-house or
external.
Among the allegations against them are the failure to attend to an
agreed time frame and incompetence, causing the parties to walk off at
will. Complaints also include incorrect advice, failure to prevent the
parties making an unfair or unworkable agreement or failing to disclose
to a party that they were threatened with harm in circumstances where it
would be reasonable to expect disclosure.
Another complaint is that the conciliator made unnecessary
interference, applied duress or misled a party in some material way.
In essence, adjudication is a process where a neutral third party
should give a decision, which is binding on the parties in dispute
unless or until revised in some other manner such as arbitration or
litigation.
While it can be seen that adjudication does not necessarily achieve a
final settlement of any dispute because any of the parties has the right
to have the same dispute heard afresh and determined in arbitration if
the contract provides for it.
Empirical evidence to date shows that the majority of adjudication
decisions have been accepted by the parties as the final result.
Adjudicators are allowed to conduct proceedings as he or she sees fit
within a procedural and ethical framework.
The adjudicator has to provide reasons for his decision, unless
otherwise stated. It does not, however, state that reasons should be
part of the decision, but could be provided.
The adjudicator shall adduce evidence or invite technical arguments
from the parties by asking questions either at a hearing or in
correspondence, giving both parties the opportunity to answer.
This is how the inquisitorial role is projected in typical
adjudication.
An Appeals Board has been introduced in the CIDA Act for those who
are not satisfied with the adjudicator's decision. An Appeals Board
consisting of not more than seven members is appointed by the Minister
upon the recommendation of the Authority.
All members of the Appeals Board shall be qualified persons as
specified in this Act with not less than twenty years of experience in
the field of construction.
Any person who is aggrieved by a decision of the Authority may appeal
to the Appeals Board in the manner as shall be prescribed. After the
hearing of an appeal, the Appeals Board shall give its decision within
two months from the date on which such appeal was received by the
Appeals Board and may confirm, vary or reverse the decision appealed
against.
The decision of the Appeals Board and the reasons, therefore, shall
be notified in writing to the appellant and the Authority. Any person
aggrieved by the decision of the Appeals Board in respect of any appeal
may appeal against such decision to the Court of Appeal within thirty
days from the date on which the decision and the reasons were notified
to the appellant.
Statutory adjudication
While every dispute resolution procedure has its current following in
the construction industry, there can be no doubt that statutory
adjudication will be the predominant procedure in time to come, whether
measured in terms of the number of referrals or reported cases.
There can be a few who have not had some contact with the process,
whether directly or through seeing its impact on disputes. Any other
form of dispute resolution must, therefore, match itself against
statutory adjudication in terms of its appeal to the parties.
It is also significant that, whatever may be provided in the contract
between the parties, the right to refer a dispute initially to statutory
adjudication can always trump any other method of dispute resolution,
even when already embarked upon.
Statutory adjudication was created in the United Kingdom by the
Housing Grants, Construction and the Regeneration Act 1996, and came
into force on May 1, 1998. However, in Sri Lanka there is no such
statutory authority for adjudication and the adjudicator's award has no
statutory recognition.
In Sri Lanka, no universities produce adjudicators and there is no
validation scheme even within the judicature. No courts issue
certificates for adjudicators, either. The adjudicator or the DAB has to
act as an impartial expert and not as an arbitrator. It is, therefore,
essential that the adjudicator must only be a person suitably qualified
to interpret technical, commercial and contractual matters.
Meanwhile, a significant drawback of statutory adjudication is the
'one size fits all' approach. It should also be remembered that
adjudication was intended to be cheap yet formal. Despite this,
claimants continue to demand adjudication of disputes which are anything
but informal, and the proceedings often prove to be increasingly costly.
Engineer's role
Many would have experienced the inefficiencies of preparing
adjudication cases in response or in reply under very short time limits
with consequences in costs.
Parliament should not envisage a form of rough justice. It can
foresee a quick and effective determination of problems that have
immediate urgency and threaten to disrupt the smooth performance of the
construction process. Unfortunately standard forms of building contract
have, traditionally, postponed the resolution of disputes until after
practical completion.
There are some matters that, if left alone, will fester to the
disadvantage of all parties. Why then are not the certificates of the
engineer regarded as an appropriate adjudication? After all, that is
what was envisaged in the early part of the 20th century when the
engineer was demonstrated to be a 'quasi arbitrator'. It seems that the
engineer's role has come to be regarded with suspicion, and by some as
the agent of one party - the employer. It may be that engineers have
only themselves to blame by not demonstrating their independence.
To achieve the desired solution legislation provides, first, the
appointment of the adjudicator at any time by the aggrieved party,
second, the avoidance of jurisdictional problems (the adjudicator must
precede once appointed, if necessary against the protests of the
opposing party) and, third, a rigid and short timetable. In theory, a
quick decision permits the parties to get on a do what they first
promised to do - that is to complete the building works and to pay for
them.
The first point gives a right to any one party to start the
adjudication process. The provisions should allow the parties to freely
incorporate adjudication into their contract and thus to set up
adjudication on their own terms. |