ADJUDICATION INTRODUCTION
interim binding decisions by
-THE UK EXPERIENCE Adjudication as a means of dispute
resolution is casting an ever-
Andrew Kelly* increasing shadow overthe
Solicitor Australian construction industry. At
Phillips Fox Lawyers present, security of payment
Brisbane legislation [including recourse to
fast track adjudication of payment
claims) has been introduced in New
South Wales 1 and Victorian 2 draft
security of payment bill in similar
terms is soon to be introduced
before the parliament of Western
Australia. 3 ln addition, there have
been two recent significant
developments:
.In July 2002, the Queensland
Building Services Authority [QBSA)
released a papertitled 'Preliminary
drafting instructions for a Building
and Construction Industry
Payments Bill 2003 . proposing new
legislation to regulate the building
industry in Queensland including
the introduction of an adjudication
mechanism. 4
.In March 2003, the central piece
of financial reform recommended
by the Cole Royal Commission is
the introduction of Commonwealth
security of payment legislation
including a rapid adjudication
process. 5
The statutory right to adjudication is
not however new. In the later part of
the 1990s, the legal landscape of
the construction industry in the
United Kingdom was forever
changed with the enactment of the
adjudication provisions in the
Housing Grants, Construction and
Regeneration Act 7996 6 (simplified
by all in the construction industry to
the 'Construction Acf). Forthe
better part of 3 years, I worked in
London for the largest construction
law practice in the United Kingdom
and was involved first hand with the
adjudication process under the
Construction Act.
THE CONSTRUCTION ACT
The Construction Act was intended
to introduce a speedy method of
dispute resolution aimed at
42 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #90 MAY/JUNE 2003
producing fast, inexpensive and
independent third party
adjudicators. The goal of the Act
was to precipitate the early
resolution of disputes to avoid
protracted arbitration or litigation
and to provide a swift and cheap
mechanism for pursuing payment.
The salient features of the
Construction Act are:
• Parties to a construction contract
are given a statutory right to refer
to adjudication any disputes which
may arise under that contract. The
application of the Act is not limited
to payment disputes and the parties
are effectively entitled to refer any
dispute to adjudication including
extension of time and delay and
disruption claims:
• The adjudicator's decision is
binding until the dispute is finally
settled by arbitration or litigation as
appropriate, or by agreement. The
Construction Act did not abolish the
arbitration, or litigation of
construction disputes. It introduced
an intervening provisional stage in
the dispute resolution process.
.If a contract falls within the
province of the Construction Act,7 it
must provide for a number of
mandatory adjudication provisions.
If it fails to do so, a statutory
adjudication scheme will apply to
the dispute. The mandatory
adjudication provisions include the
following:
• the right of any party to the
contract to give notice at any
time of its intention to refer a
dispute to adjudication;
• a timetable with the object of
securing the appointment of
the adjudicator and referral of
a dispute to an adjudicator
within 7 days of notice of the
dispute;
• requirements on the
adjudicator to act impartially,
to reach a decision within 28
days of the referral of the
dispute, or 42 days by
 agreement with the referring
party, or longer as agreed by
the parties after the dispute
has been referred. The
adjudicator has the powerto
take the initiative in
ascertaining the facts and law;
• No liability on the
adjudicator in the discharge or
purported discharge of his
functions as adjudicator unless
he acts in bad faith.
.It is open to parties to a contract
to specifically name an adjudicator
or an adjudicator nominating body.
The scheme implies that if the
parties cannot agree on an
adjudicator or the one named in the
contract is not available, the
referring party shall request an
adjudicator nominating body [e.g.
the Construction Industry Council)
to select a person to act as
adjudicator
OBSERVATIONS-HAS
ADJUDICATION WORKED?
Set out below are my personal
observations about the Construction
Act and the tactics and strategies
used by parties.
.In the first year of its operation,
there appeared to be relatively few
disputes referred to adjudication. 8
Parties were slowto accept and
adopt the adjudication process but
in 1999 and following, there was a
substantial increase in the number
of disputes referred to
adjudication. 9
• The adjudication process was
more inquisitorial than adversarial.
It usually did not allow the time or
opportunity for a hearing or expert
analysis orthe taking of evidence.
In my experience, adjudications
were based primarily on written
submissions and it was not unusual
for an adjudicatorto ask specific
questions following receipt of
written submissions.
• The majority of disputes I was
involved in related to the failure to
comply with payment provisions
although there were also a number Although it is difficult to
of disputes concerning extension of gauge, I would estimate that
time and delay and disruption
the adjudication process
claims. It was uncommon for an
adjudication to consider issues
would typically cost less
relating to whetherworks were than 15% of the cost of
defective. litigation or arbitration.
.The majority of disputes referred
to adjudication were between main
contractors and subcontractors
ratherthan principals and main
contractors. At least 70% of the
disputes I was involved in were
between main contractors and
subcontractors.
• My adjudication experience
ind icated that the cost of
adjudication was significantly less
than arbitration or litigation.
Although it is difficult to gauge,
I would estimate that the
adjudication process would typically
cost less tha n 15% of the cost of
litigation or arbitration.
.A large numberof adjudications,
particularly in the early stages of
the Construction Act, involved
preliminary challenges to the
adjudicator's jurisdiction. This
included such threshold issues as to
whetherthe contract was indeed a
construction contract under the
Construction Act orwhetherthe
contract was entered into after 1
May 1998. For example, I was
involved in a challenge to an
adjudicator's jurisdiction where
letters of intent were issued priorto
1 May 1998 and work commenced
on site prior to 1 May 1998 but the
contract was not formally executed
until after 1 May 1998.
.A frequent occurrence was
parties attempting to take
advantage of the compressed
timeframe and ambush their
opponents by, for example, serving
exhaustive documentation
immediately before public holidays.
In my experience, it was not
uncommon for one of the parties to
submit volumes of documentation
out of all proportion to the amount
in dispute and the complexity of the
issues to be dealt with. In myview,
AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #90 MAY/JUNE 2003 43
Most participants would
acknowledge that the
process was rough and
ready but considered it more
advantageous to obtain an
early, albeit rough decision
rather than a later more
expensive decision, or no
decision at all.
44 AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #90 MAY/JUNE 2003
such tactics were largely
unsuccessful and ineffective.
Differences between the parties
were likely to have been raised in
the course of the project and it was
unlikely that the reference to
adjudication would come as a
complete surprise to a party. It was
also my experience that
adjudicators did not take kindly to
such ambush tactics.
• Often adjudications involved
particularly complex issues
requiring legal analysis to be
assessed and determined. There
were occasions where a technical
adjudicator appointed did not
appear to have the requisite ability
to properly assess complex issues
of law so as to decide the rights and
liabilities of the parties in the time
allowed. A common concern of
clients was doubts over the quality
of adjudicators and their ability to
consider in detail legal issues. A
pattern did however emerge that
adjudicators in such a position
would seek out further independent
legal advice where difficult issues
of law arose.
• Other issues that arose included
whether adjudicators had the power
to award costs, whether
adjudicators had the power to
correct manifest clerical or
arithmetical errors in decisions and
how adjudicator's decisions were to
be enforced following the decision.
• There was a concern that this
abbreviated form of justice would
lead to binding decisions which
were ill considered and unfair. It
was inherent in the rigid timeframe
of the adjudication process that
from time to time mistakes and
injustices would take place.
However, it was my experience that
the majority of participants of
adjudications under the
Construction Act considered it a fair,
fast, reliable and inexpensive form
of interim dispute resolution. Most
participants would acknowledge
that the process was rough and
ready but considered it more
advantageous to obtain an early,
albeit rough decision ratherthan a
later more expensive decision, or
no decision at all. Approximately
80% of the adjudications I was
involved in resulted in the final
determination of the matter and
further disputes following an
adjudicator's decision did not
usually materialise. The
Construction Act in myviewwas
largely successful in achieving its
objective of resolving disputes
quickly and efficiently.
THE ROAD FORWARD IN
AUSTRALIA
There are fundamental differences
between the adjudication provisions
in the Construction Act and the
adjudication provisions in New
South Wales and Victoria and those
proposed for Western Australia and
Queensland. However, the
experience of adjudications in the
United Kingdom will be fruitful in
predicting developments in
Australia. lO It is likely that the
following issues in any adjudication
process will arise:
.Is there a contract, and if so, when
was the contract concluded?
.Is the contract a construction
contract within the meaning of the
relevant legislation?
.Is it possible to restrict the right to
adjudication by contract?
• Can an adjudicator consider his/
herownjurisdiction and howdo
parties challenge an adjudicator's
j urisd iction?
• Will an adjudicator be required to
observe the rules of naturaljustice,
and if so, when will an adjudicator
be deemed to have breached such
rules?
• What will be the effect of a
previous adjudication decision on
another adjudicator?
• Can an adjudicator make an
award for costs?
• Can parties undertake
adjudication proceedings whilst
other proceedings such as
arbitration or litigation are
underway?
• Can an adjudicator correct a
decision after it has been issued?
• On what grounds is it possible to
challenge an adjudicator's decision
in the courts?
• Howwill an adjudicator's decision
be enforced?
In light of the UK experience, the
advent of statutory adjudication in
Australia looks likely to be an
exciting time for both industry
participants and construction law
pra ct itioners.
REFERENCES
* BEcon, LLB (Hons) Phillips Fox
Brisbane.
1. Building and Construction
Industry Security of Payment Act
1999(NSW). Adjudication
provisions are principally found in
Division II-Sections 17-26.
2. Building and Construction
Industry Security of Payment Act
2002 (Vic). Adjudication provisions
are principally found in Division 11-
Sections 18-28.
3. Preliminary drafting
instructions for a Construction
Industry Payments Billwere issued
by the Security of Payment Task
Force forthe Western Australian
Building and Construction Industry
in February 2002.
Payments Bill 2003. Part 3 of the
Bill makes provision for rapid
adjudication
6. This came into force in the
United Kingdom on 1 May 1998.
7. The Construction Act applies
to all construction contracts (other
than with a residential occupier)
which relate to the carrying out of
construction operations. It also
applies to architectural, design or
surveying works or contracts for
advice on building, engineering,
interior or exterior decoration or
landscaping works, insofar as they
relate to construction operations.
The main exclusions are in relation
to supply only contracts, energy
contracts and contracts expressly
excluded by statute.
8. This was due in part to the
Construction Act only applying to
contracts entered into after 1 May
1998.
9. This is borne out by research
conducted by Glasgow Caledonian
University, which indicated that
during the second year after the
Construction Act became binding,
there was a 600% growth in the
number of adjudications reported.
10. For an index of over 100 cases
concerned with the Construction Act
see PeterSheridan and Dominic
Helps, 'Construction Act Review'
(2002) 18 Const LJ 457.

4. Reference should also be

made to the discussion paper titled
'Security of Payment in the Building
and Construction Industry' released
by the QBSA in December 2001.
5. Royal Commission into the
Building and Construction Industry,
TRH Cole RFD QC tabled in
Parliament on 26-27 March 2003.
The security of payment section of
the Royal Commission is found in
Volume 8 Reform-National Issues
Part 2, Section 14-Security of
Payment. Attached to this section is
Appendix 1: The Building and
Construction Industry Security of

AUSTRALIAN CONSTRUCTION LAW NEWSLETTER #90 MAY/JUNE 2003 45