And there's an end to it

Adjudication is quick but it is not final. So how about fast track arbitration? Well, unless you have done your homework, that might not be final either, warns Daniel Atkinson.

THOUGH time is always short in the construction industry, the same cannot be said of the legal mechanisms for resolving disputes. It is common for a dispute to take longer to resolve than a structure took to build.

But dispute resolution in the construction industry has been shaken up by adjudication, which has shown what can be achieved in a tight timescale.

Even the most complex disputes can be resolved in adjudication. Lawyers complain about the short timescales but the process has generally been welcomed by the construction industry and few adjudication decisions are challenged or taken on to arbitration or litigation. The strict training adjudicators receive from institutions such as the ICE ensures a high standard of adjudication and fair, reliable, decisions.

The drawback of adjudication is that it is not final. Although Section 108(3) of the 1996 Construction Act does allow the parties to agree to accept the decision of the adjudicator as finally determining the dispute, this has not been tested in court.

There will be little problem if the parties agree after a decision is made. Indeed many standard forms of contract give the parties only a short period after the decision to take the matter further; if they do not, then the decision becomes final and binding.

But the Act does not appear to prevent the parties agreeing (once the dispute has arisen and before adjudication has commenced) that the decision will be final. Indeed if a party commenced dispute resolution by adjudication on the basis of such an agreement, instead of by arbitration or litigation, there should be no reason why the courts should not recognise and enforce such an agreement. The key question is whether the courts will classify the resulting dispute resolution process as arbitration or adjudication.

If the parties are willing to agree the nature of dispute resolution process before it commences, they can always agree to fasttrack arbitration and decide for themselves the rules that apply. The recent introduction of the "100 day" arbitration is a move in the right direction, although 100 days reflects a timid approach and a lost opportunity.

Even if the parties choose arbitration they may not achieve a final decision. This was demonstrated by the unusual case of Ronly Holdings v JSC Zestafoni, which was an appeal against the decision of an arbitrator acting under the Arbitration Act 1996.

The arbitrator had ordered Zestafoni to pay Ronly the sum of US$10 million. Ronly said that US$16 million was due and that the arbitrator had wrongly given Zestafoni credit of the shortfall. One of the Appeal Court judges, Judge Gross, described the history of the case as "Alice in Wonderland" The agreement between the parties was complicated but was essentially a production agreement that required Ronly to supply electricity and raw materials and Zestafoni to produce and supply alloys to Ronly. There were various other supply arrangements, involving agents of the parties for cash advances in respect of shipments and sup-ply of alloys.

At the start of the arbitration, Ronly claimed US$16 million under the production agreement between the parties and gave credit to Zestafoni of US$6 million under the supply agreements. Zestafoni denied that the arbitrator had jurisdiction to decide matters outside the production agreement, which gave rise to the arbitration, so the claim rose from US$10 million to US$16 million.

Ronly gave up its attempt to resolve the entire position between itself, Zestafoni and the agents as set out in its original claim.

Ronly amended its claim extensively, deleting all references to arrangements other than the production agreement.

Ronly obtained the arbitrator's permission to amend its claim and Zestafoni raised no objections. But later Zestafoni argued that in making a monetary award, the arbitrator should not overlook the sum of US$6 million, which Ronly had been prepared to allow as a credit.

The arbitrator considered that, as Ronly had admitted that the credit of US$6 million was due, it was open to him, in the interests of justice, to make a distinction between the position under the production agreement and the amount he might direct to be paid. He decided that he could not make a binding determination in relation to the shortfall of US$6 million but that he could take the sum into account in deciding the total to be paid. He decided that the sum due was US$16 million but only ordered payment of US$10 million and left the parties to resolve outstanding differences.

Mr Justice Gross held that the arbitrator had not decide all the issues referred to him. He had decided the sums outstanding under the agreement but had taken it upon himself to withhold payment of the shortfall amount pending resolution of this matter.

Accordingly the award was unsustainable. The matter of the credit shortfall was no longer before the arbitrator once the amendments had been made to the original claim. Ronly could have the offending part of the award set aside and those parts of the award resubmitted to the arbitrator for reconsideration.

This case shows that if the dispute resolution process is to be final, then the issues must be clearly identified, a procedure that suits their timetable agreed, an experienced arbitrator or adjudicator chosen and the tribunal assisted in reaching a fair decision.

Key points

Adjudication is not final, although the 1996 Construction Act does allow the parties to agree to accept the decision of the adjudicator as finally determining the dispute

If the parties wish to make sure that their chosen method of dispute resolution is final, they can agree to fast-track arbitration and decide for themselves the rules that apply

If you want to ensure that a dispute resolution process is final, clearly identify the issues, agree a procedure that suits the timetable and choose an experienced arbitrator or adjudicator.