Jordan ... solving disputes.
Adjudication is future of dispute resolution
01 March 2015
STUART JORDAN* discusses adjudication as a preferred method of dispute resolution and hopes the Gulf region accepts the culture for quick and efficient arbitration.
The future is adjudication. Its benefits are being seen in more regions globally, and governments everywhere are enacting legislation for a mandatory right of adjudication in construction disputes.
Well, not quite everywhere.
In the Gulf region, we have not seen much take up of adjudication as is provided for in standard Fidic (Fédération Internationale des Ingénieurs-Conseils, French for International Federation of Consulting Engineers) contracts nor enactment of the statutory version.
There are good reasons for this. First is the laborious multi-tiered Fidic dispute resolution process. Secondly there are problems with enforceability of adjudication awards (or decisions): there have been some recent court judgements which cast doubt on enforceability, although these are also specifically about the Fidic provisions.
A more general problem is that, in the Gulf region, we are constantly talking about the difficulties of enforcing arbitration awards in local courts, and I have to admit that adjudication does not avoid those problems.
All that said, adjudication has major advantages over other disputes processes. Those advantages deserve consideration by parties entering into any construction contract.
Adjudication is the examination of a dispute, leading to a binding, but not final, decision on it. Of course, it can be used in any commercial context but it has been developed mostly in construction. This is no surprise because construction disputes are often very complicated and, therefore, costly and time-consuming to resolve.
Adjudication is a direct response to this problem: it does not attempt to be an alternative to arbitration or litigation, which are intended to produce final and binding decisions. Instead, adjudication provides an interim-binding decision which is enforceable pending final resolution in arbitration or litigation or by settlement. In order to be useful, adjudication needs to be:
• Relatively quick;
• Relatively cheap; and
• Good enough.
You will have noticed that none of these ‘golden rules’ is absolute. Clearly, the third one must be set in a balance with the other two. ‘Good enough’ means a process allowing a decision to be reached, which the parties, at least, consider to be a credible interim outcome, if not the one they ultimately think they can get. That means allowing enough time to examine the dispute and enough process for it to be presented. It also means appointing an adjudicator with sufficient experience and skills to do the job. It will, therefore, take a certain amount of time and cost.
The whole point of adjudication is to get to the most likely correct result (or near to it) before the parties embark on their final dispute resolution. In other words, to get the right amount of money (more or less) into the right pocket before the pain begins. In practice, the adjudicator’s decision will often avoid the arbitration or litigation entirely. So long as it is a credible decision, it will be a sharp spur to the parties to settle; a reality check to one or both of them.
Adjudication is, therefore, more than ‘quick and dirty’ arbitration. It can free the parties from the attrition of their dispute so long as it meets the above ‘golden rules’. In my view, the main problem with using it in the Gulf region is that it is encountered almost exclusively in the form of the Fidic Dispute Adjudication Board (DAB) procedure which goes nowhere near meeting those rules.
The Fidic experience
All of the Fidic long-form main construction contracts include a DAB within the disputes provisions in Clause 20. The provisions are almost the same in each form and the main problems exist in all of them. In my view, the whole disputes process is far too long and laborious to follow, and still it is not clearly drafted. (See Gulf Construction November 2014 for details on disputes boards).
If a party wants to have its dispute adjudicated, it takes a long time even to get to the start line. To begin with, anything such as claims for additional time or money need first to be determined by (in the Red Book) the engineer, who has six weeks to respond to any claim. After that – and if a DAB has already been set up – the dispute can be referred to the DAB which then has another 12 weeks to give a decision. This decision is binding on the parties and will become final also if neither party gives a notice of dissatisfaction. Fidic provides for arbitration as the final disputes process. Note that this is the quicker version as provided in the Red Book. The Yellow and Silver Books provide for the DAB to be set up on an ad hoc basis once a dispute has arisen.
All of this is far too long and, as with everything in construction, time is money. Given long periods to make their cases and respond to each other’s, the parties and their advisers will fill that time expensively. It becomes more like a full arbitration.
Additionally, court decisions have highlighted problems with enforcing Fidic DAB decisions. These problems came to light a few years ago and there has been a lot of discussion about whether those decisions are correct. But since Fidic itself has now acknowledged the problem, we have to take it that this is real and not localised.
Briefly, in CRW Joint Operation versus PT Perusahaan Negara TBK (2011) SGCA 33, the Court of Appeal of Singapore upheld the High Court’s refusal to enforce
summarily a DAB decision which was “binding” but not “final and binding” as a notice of dissatisfaction had been given. This was surprising at the time and much criticised. It has been followed up now by a new Singapore High Court decision between the same parties [ref (2014) SGHC 146] concerning the same DAB decision referred to court a second time. Here, the court partially allowed summary enforcement of a DAB decision, essentially on the basis that this enforcement was expressly applied for as an interim measure and not a final decision. That decision has, however, been appealed and we’ll have to see whether the Court of Appeal of Singapore sees anything different in this from its first ruling.
What seems to be clear from the meticulous analysis in those cases of Fidic Clause 20, is that it is ambiguous in important areas. Such is the fuss that Fidic has issued both guidance and suggested amendments to deal with the problem. The amendments are:
• An express provision on enforceability of merely binding decisions without other steps needed; and,
• Allowing a sum awarded by a DAB to be included in subsequent interim payment applications.
These are already features of the Fidic Conditions for Design Build and Operate (Gold Book). The guidance is a positive, pragmatic step by Fidic. It is also, of course, a tacit admission that projects on the unamended Clause 20 are going to have trouble with enforceability of DAB decisions.
International experience
Many countries now have some form of statutory adjudication imposed into construction contracts (that is, mandatory contract provisions) and others are planning to bring it in.
In all of them, the strong common intention is to make available an interim disputes process which is of practical use – in terms of the above ‘golden rules’ – and has teeth, being enforceable summarily.
Some have followed the UK’s Construction Act in allowing any dispute to be referred and others allow only payment issues. The UK experience is that payment (whether in valuation, delay and disruption claims, withholding for alleged defects or whatever) is pretty much the subject of most referrals anyway.
Statutory adjudication has been hugely successful in the UK and the more recent feedback from other countries is also good. It is interesting to see that it gets criticism both for being too “rough and ready” (it allows only four weeks from referral to decision) and too much like arbitration! This is maybe a good sign that it is doing something right. Adjudication may be triggered by either party at any time. Contract provisions attempting to delay this by requiring some examination of the dispute as a precondition to referral, have been ruled unlawful.
I have seen no signs of a similar statutory system in Middle East countries (and I admit there are obvious enforcement issues in the region) but contracts can include provisions for a short, low-cost route to a binding interim decision. I hope this becomes part of the fabric here as it is in other places. The benefits are plain to see.
*Stuart Jordan is partner and co-head construction for the international law firm King & Wood Mallesons (KWM). Based largely in Dubai, UAE, he specialises in engineering and construction matters, cross border, both front end and disputes.
The firm recently entered into an exclusive association with the Law Office of Majed Almarshad to open an office in Riyadh, marking the first time that a global law firm headquartered in Asia has established a permanent presence in Saudi Arabia.
