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Construction adjudication; the need for a legal landscape

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.

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