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Adjudication – will it ever be flavour of the month?

Adjudication has been a fixture in professional negligence disputes relating to construction since its introduction as a mandatory element of the pre-action protocol in 1996[1]. Quick decisions, given by experienced professionals, obtained at a relatively low cost, have provided insurers with cost-efficient resolution for a significant number of such claims.

A pilot adjudication scheme extended to cover claims against solicitors up to a value of £100,000 was launched in February 2015.  There was not a large take-up by insurers or Claimant lawyers and a revised scheme, supported by the MoJ in the persons of Mrs Justice Carr and Mr Justice Ramsey, was relaunched in May 2016, but we understand that again there have been very few referrals.

Why has this method of Alternative Dispute Resolution, with obvious potential for costs savings, not found favour? Is the scheme flawed, or has it suffered from a lack of publicity?

The new scheme is relatively simple: it  is suitable for claims against many types of professionals, including lawyers; there is no limit to the value of the claim, though it may be more suited to cases where the costs are disproportionate to the sum at stake; and it is quick - following consent from all parties to submit to adjudication, a referral to the adjudication panel can be made; the panel will then appoint an adjudicator; appropriate case management directions will be given; and at the conclusion of the process, a decision will be given within only 56 days of the adjudicator's appointment[2].

The parties can decide in advance whether they wish the decision to be binding, and also whether and to what extent the adjudicator has power over costs. This opens the door to more creative costs awards, for example, costs can be fixed by agreement or limited to a proportionate amount.

The adjudicator’s own costs are organised into three bands dependent on the complexity of the case, to which the scheme suggests capped costs of £5,000 or £10,000 to all but the most fiendish of cases.

Insurers and claims handlers alike will be familiar with those frustrating low-value cases in which legal costs quickly outstrip the value of the claim, generally due to large divides between the parties' expectations of settlement.  The claims handler knows that the issues have already been well ventilated to no avail, and settling for considerably more than the claim is worth is out of the question (news can travel fast, after all). You realise that it will soon become drawn out and expensive - another addition to the light but consistent drag on the book's bottom line. Could adjudication be the answer? A dispute over a crucial fact which will require extensive cross-examination to reach a decision on breach of duty may not be suitable for adjudication, but even in such cases if the value of the claim is low, and the parties consent, adjudication may still be an appropriate tool.  Those cases where the crucial point is one of law (limitation for example) or involve an interpretation of a document may well be suitable, especially if the answer to the question will determine the case once and for all. 

Senior industry figures we have consulted anticipate a number of obstacles to the system: will it reliably provide the result sought, given the limited time for preparation and also scrutiny of the case by the adjudicator; the potential difficulty of persuading a claimant (and of course his solicitors) to consent to adjudication; and, of course, the fact that it is almost completely untested.

Mitigation of the first issue can achieved by referring to adjudication only those cases on which the insured has a strong defence on the issue in question. The other issues can only be proven once the scheme has been road-tested.

Our view is that the scheme presents an interesting opportunity for forward-thinking claims managers.  Clearly it is not going to be suitable for every case.  But if a carefully selected sample of say ten claims is referred to adjudication and they turn out badly, the new adjudication scheme perhaps can be consigned to history along with its previous incarnations; however, if they produce a significant costs saving, a new market-leading approach to dealing with such claims could be born.  If you would like more information please do contact us.

John Bennett and Will Graham

John has acted for solicitors and barristers, and their insurers, for over 30 years; Chambers & Partners 2015 recommended John for high-value solicitors’ negligence claims.  Will is a solicitor with one year’s PQE and works with John in DWF’s London office.

[1] Housing Grants, Construction and Regeneration Act (Construction Act) 1996

[2] For more information, see the pilot pack entitled "Adjudication Scheme Trial for Professional Negligence Claims", 25 May 2016, produced by the Professional Negligence Bar Association. 

By John Bennett and Will Graham

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.