Credit: gearstd

‘[Adjudication] is not an alternative to anything; for most construction disputes, it is the only game in town.’ ^[1]

M Saleh Jaberi
ESK, Tehran
Jaberi@esklawfirm.com

Liam Hendry
Archor, Colchester
liam.hendry@archor.co.uk

Introduction

According to the Global Construction 2030 forecast, construction output is predicted to increase by 85 per cent to reach $15.5tn by the year 2030. The report also forecasts an average global construction growth rate of 3.9 per cent per year until 2030, which is projected to exceed the global GDP growth rate by over one percentage point.^[2] At the same time, the construction industry has become increasingly globalised in the modern era. Throughout history, there has never been a time when so many construction companies from diverse backgrounds and regions have ventured outside of their domestic markets to undertake work in foreign countries.^[3] Clear examples of such projects are the Panama Canal and the Suez Canal, which were both constructed by foreign contractors.

Despite the best efforts and intentions, construction projects frequently encounter disputes. These disputes have the potential to disrupt the projects’ progress, impact stakeholder relationships, affect the client’s budgets, and erode the contractors’ profit.^[4] The potential for lengthy trials and vast legal expenses in construction and engineering disputes is notorious,^[5] which makes disputing parties look for alternative methods – the most popular of which is arbitration.

International construction disputes account for a growing proportion of the cases arbitrated in international commercial arbitration. These disputes represent between 14 to 20 per cent of all the cases referred to the International Chamber of Commerce (ICC) annually.^[6] As the yearly volume of international construction projects continues to rise, arbitration will remain a significant method for resolving construction-related disputes. However, institutional arbitration is becoming less viable as the primary dispute resolution method in international construction due to the industry’s unique characteristics. Construction disputes involve extensive documentation and technical issues requiring specialised expertise, as well as the need for a quick resolution to avoid additional time-related costs. While arbitration remains the ultimate dispute resolution method in international construction contracts, it can no longer serve as the primary approach. Institutional arbitration has become overly formalised, time consuming and lacking in the technical skills required to effectively resolve construction disputes. Additionally, the expenses associated with institutional arbitration are often higher compared to litigation. Thus, the international construction industry has developed an innovative primary dispute resolution mechanism called the Dispute Adjudication Board (DAB). The DAB is a panel of technical experts who are intricately familiar with the specific construction project and its contract, and they adjudicate quasi-binding disputes arising from the contract.

In the 1990s, the United Kingdom enacted legislation that was subsequently followed by similar laws in countries such as Australia, Ireland, Malaysia, New Zealand and Singapore. These legislations created ‘statutory adjudication’ that significantly reformed the freedom of contracting parties to mutually agree upon their respective rights and obligations in relation to a construction project, with the aim of operating as a fast-track form of dispute resolution that gives parties to a construction contract a quick and provisionally binding decision as to their rights and obligations.^[7]

While there are similarities between statutory adjudication and arbitration, there are also several key differences. The primary distinction is that the decision made by an adjudicator has a provisional or temporary nature, whereas the decision of an arbitrator is final, subject only to a limited scope of appeal rights. However, it is well established that the grounds for resisting enforcement of an adjudication decision are also limited. A party must either persuade the court that: (1) the adjudicator had no jurisdiction to determine the dispute; or (2) the adjudicator has materially breached the rules of natural justice.^[8] A party may also issue proceedings under Part 8 of the Civil Procedure Rules (CPR) to effectively overturn an adjudicator’s decision.^[9]

Another key difference is enforceability in the international realm. The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, commonly known as the New York Convention 1958, requires courts of contracting states to give effect to private agreements to arbitrate, recognise and enforce arbitration awards made in other contracting states. A large number of jurisdictions have adhered to the New York Convention, paving the way for enforcing an arbitration award in almost any country.^[10] However, an adjudication decision lacks this international enforceability feature and, for example, it is not clear how an adjudication decision issued in the UK or Australia may be enforced in the United States or other countries.

With the expansion of adjudication in the construction industry, a need for international recognition and enforcement of adjudication decisions is growing. This article discusses the available frameworks for the international enforcement of statutory adjudication decisions.

Converting an adjudication decision to an arbitration award

Adjudication is described as a ‘pay now, argue later’^[11] mechanism that seeks to maintain cash flow during construction projects by providing a cost-effective and speedy means of determining disputes on a binding, but not final basis. Article 108 of the UK Housing Grants, Construction and Regeneration Act 1996 states:

‘The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement.’

In Joint Contracts Tribunal (JCT) and New Engineering Contract (NEC) standard forms, and in many bespoke construction contracts, a provision that requires parties to submit their dispute to arbitration following an adjudication determination is very common.^[12] This provides an opportunity for the winning party to convert the adjudication decision into an arbitration award to enjoy its international enforceability through the New York Convention. However, this solution faces two main issues. First, arbitration is a dispute resolution method and the arbitrators have to follow a specific procedure to issue an award. Article 5 of the New York Convention states that recognition and enforcement of the award may be refused if ‘the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or was otherwise unable to present his case’. These time-consuming procedural requirements undermine the fast-track nature of adjudication and adversely impact the cash flow of contractors.

Second, seeking conversion of an adjudication decision into an arbitration award allows the unsuccessful party the opportunity to raise arguments on the underlying merits of the dispute that oblige arbitrators to review all claims and documents to issue an award.^[13] This also prolongs the enforcement process, which is inconsistent with the purpose of adjudication in providing a cost-effective and efficient way to resolve construction disputes.

Converting an adjudication decision to a court judgment

Following the issuance of an adjudication decision and if the losing party does not comply with it voluntarily, the next step is to pursue enforcement of the decision in the fast-track procedure in the UK Technology and Construction Court (TCC). After the claim documents are filed, a TCC judge will typically address the application within three business days. The judge will then provide instructions regarding the filing of the acknowledgment of service, any additional evidence that may be required, and the date for the enforcement hearing. This hearing is usually scheduled for the first available court date after 28 days from the date of the order.^[14] The court will generally not interfere with the adjudicator’s decision unless specific circumstances can be proven, ie, that the adjudicator did not have jurisdiction or there has been a material breach of the rules of natural justice.^[15] Enforcing an adjudicator’s decision means that it will be converted into a court order.

Once the court judgment has been issued, some international conventions and treaties help the enforcement of the judgment in other countries. Prior to the UK’s departure from the European Union, such enforcement in relation to other EU countries could be done by the Brussels Recast Regulation.^[16] These regulations no longer apply as of 1 January 2021 and have been replaced by legislation giving effect to the Hague Convention on Choice of Court Agreements 2005 (the ‘Hague Convention’). The UK has also requested to accede to the Lugano Convention, which is very similar to the Brussels Recast Regulation, but its accession has yet to be agreed by the EU. In the meantime, the Hague Convention rules will apply to cross-border disputes involving EU countries and certain other jurisdictions including the US. On 12 January 2024, the UK signed the 2019 Hague Judgments Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters (‘The Judgments Convention’). The Judgments Convention will differ from but complement the 2005 Hague Convention on Choice of Court Agreements. There are also bilateral treaties for the enforcement of judgments such as the ‘1994 Reciprocal Recognition and Enforcement of Judgments in Civil and Commercial Matters Treaty’ between the UK and Australia which provides for the mutual recognition of civil and commercial judgments involving the payment of money, except judgments concerning taxes or other charges, or orders requiring the payment of maintenance.

The UK courts maintain the speedy nature of adjudication by issuing a summary judgment; when an adjudication decision is converted to a judgment, it can be enforced in several other countries based on international conventions and treaties. However, the contracting parties of these conventions are far fewer than the New York Convention,^[17] and the enforcement procedure seems to be more complicated than enforcing an arbitration award.^[18]

UNCITRAL’s work on adjudication

In February 2022, the United Nations Commission on International Trade Law (UNCITRAL) Secretariat held that:

‘In jurisdictions without statutory adjudication, adjudication remains available on a contractual basis. In these jurisdictions, the main issue is the lack of a framework regarding the enforceability of decisions by adjudicators.’^[19]

The Secretariat then formulated a set of questions to be addressed through its work. First, it explored whether a harmonised legal framework to enable the international application of adjudication would be desirable and viable. Secondly, it inquired about how adjudication decisions could be enforced while still allowing for potential challenges.

From 12–16 February 2024, WGII (Working Group II) convened at the United Nations headquarters for its 79th session. In keeping with the previous sessions, the inaugural meeting of 2024 also allocated time for adjudication. WGII is currently working on a proposal made during its 68th session, where delegates recommended concentrating on ‘facilitating the use of adjudication in the context of long-term projects, in particular construction projects’.^[20] WGII thus focused on adjudication as a mechanism to accelerate proceedings and to provide provisional enforcement of decisions, which would be subject to review by the same tribunal or another arbitral tribunal.^[21]

At the 76th session, the Secretariat came up with a model clause in the form of an Expedited Arbitration. It explained that:

‘Recognizing the importance of dispute resolution mechanisms that are particularly suitable for long-term contracts, the Model Clause on Adjudication enables parties involved in long-term contracts to incorporate a dispute resolution process that ensures prompt decisions on disputes arising from infrastructure or similarly complex projects. While the idea derives from adjudication as used in construction cases, the aim of the Model Clause is to provide for adjudication for all types of long-term and complex contracts. The clause foresees a mechanism to enforce the decision by the adjudicator through a highly expedited arbitration using the Model Clause on Highly Expedited Arbitration.’^[22]

Article 1(5) of the UNCITRAL Arbitration Rules incorporates the Expedited Rules, which are presented as an appendix to the UNCITRAL Arbitration Rules. The phrase ‘where the parties so agree’ in that paragraph emphasises the need for the parties’ express consent for the Expedited Rules to apply to the arbitration. Expedited arbitration is a streamlined and simplified procedure with a shortened timeframe, which makes it possible for the parties to reach a final resolution of the dispute in a cost- and time-effective manner. However, WGII’s approach has not been immune from criticism.

Working Group II’s decision to use model clauses instead of model legislation appears to have missed the chance to establish a comprehensive and harmonised legal framework for statutory adjudication. The common law experience demonstrates that the success of statutory adjudication largely stems from its integration with the court system, which guarantees the enforceability of the adjudicator’s rulings. Drafting a model law of adjudication could have been an ideal opportunity to set an international standard, thereby promoting uniformity across different legal jurisdictions. Furthermore, even if expedited arbitration appears to be one of the best solutions to reproduce adjudication in a cross-border context, this option entails a risk as the legal nature and enforceability of an award rendered under expedited arbitration is still subject to debate.^[23]

Conclusion

A fast and relatively inexpensive means of dispute resolution, adjudication can help resolve interim payment disputes and keep projects moving. In the UK, 25 years after its incorporation in the 1996 Construction Act, the UK Supreme Court has endorsed adjudication of construction disputes as ‘a conspicuously successful addition to the range of dispute resolution mechanisms available for use in what used to be an overly adversarial, litigious environment’.^[24] As more contractors get involved in international construction projects, the enforceability of adjudication decisions in other countries remains an issue. Two major solutions can be proposed, namely converting an adjudication decision to an arbitration award or converting it to a court judgment.

While applying for an arbitration award after receiving an adjudication decision can help the winning party to benefit from the New York Convention and enforce the award in a foreign country, the time-consuming arbitration procedure and the obligation of the arbitration tribunal to hear all the claims regarding the merit of the case would undermine the fast-track nature of adjudication. On the other hand, turning an adjudication decision into a court judgment seems to be a better solution because the UK courts maintain the speedy nature of the award and the judgment can be enforced by means of related international conventions; though the coverage of these conventions is not as wide as New York Convention on enforcement of arbitral awards.

UNCITRAL’s WGII has also recognised the necessity of enforcing adjudication decisions and attempted to design a framework for a fast-track process to deal with this issue. However, the WGII’s focus has been on the creation of a new expedited model of arbitration, rather than paving the way for enforcing statutory adjudication decisions.