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Arbitration and adjudication: key differences and when to choose which process

Author: Nicola Sharp  22 February 2024
3 min read

Adjudication is an expedited method of dispute resolution. It is typically used for straightforward disputes in the construction industry, but other industries have their own bespoke adjudication processes too (rail, for example).

Arbitration is a formal process of dispute resolution, available in any industry, so long as the parties have an enforceable arbitration agreement. The process is lengthier and more suitable for complex disputes.

Time spent in dispute

One of the starkest differences between the two processes is the time the parties spend in dispute.

Adjudication is often referred to as a ‘quick and dirty’ method of resolving a dispute. Parties should receive a binding decision within 28 days of submission of the claim.

Arbitration is a much lengthier process. It can take months or even years from start to finish.

Finality of the decision

A vulnerability of the adjudication process is that the decision can be challenged by subsequent arbitration or litigation. If one party disagrees with the outcome of adjudication, the parties may find themselves in an arbitration or litigation procedure anyway.

In practice, the parties often accept the adjudicator’s decision. But if they don’t, then the main benefit of reduced speed and cost of finding a resolution is undermined.

An arbitration award, on the other hand, is final and binding. It is possible to appeal the decision of the arbitrator, but only on very limited grounds. The appellant must have reason to appeal on the grounds of (i) a point of law or (ii) serious procedural irregularity or (iii) a challenge to the tribunal’s substantive jurisdiction to decide the case.

The courts are reticent to intervene in arbitral proceedings to protect the powers and process of arbitration. So successful appeals are fairly rare.

Process

An adjudication is usually decided on paper, with no oral evidence given. The process is flexible, but usually consists of:

  1. Serving the notice of adjudication.
  2. Appointing an adjudicator.
  3. Serving the referral notice, which sets out the referring party’s case. This will include expert reports and witness statements if necessary.
  4. Responding party serves its defence (if it chooses to do so).
  5. Adjudicator makes his decision and informs the parties.

All of this is supposed to happen within 28 days, to achieve a quick resolution. However, it is becoming more common to see the adjudication process spiral into something that looks more like an arbitration process. Adjudications now often include lengthy submissions, technical evidence, expert opinions, and site inspections.

Arbitration is more akin to a litigation process. The process will include appointing one, two or three arbitrators to the tribunal. Each party serves statements of case. The evidential stage includes a disclosure process, witness statements and expert reports (usually).

Arbitration culminates in a hearing, at which both sides present their cases to the arbitrator and have a chance to cross-examine witnesses and experts. Following the hearing, the tribunal writes their award, issuing the binding decision to the parties.

Cost considerations

If the adjudication process is followed as it is intended, and the parties accept the decision, then it is a cheaper method of resolving a dispute than arbitration. The costs will include the party’s own legal costs, and their share of the adjudicator’s fee.

Arbitration will involve additional legal costs to deal with the length and complexity of the dispute. Then there are arbitrators’ fees to consider. While the fees are usually split equally between both parties, fees can quickly rack up if there are three arbitrators appointed to the tribunal.

It is worth bearing in mind though that if a disgruntled party seeks arbitration or litigation to overturn the adjudicator’s decision, then costs can exceed those of an arbitration.

Deciding between adjudication and arbitration

The contract may dictate whether a dispute must be referred to arbitration or adjudication. If both options are available, then the decision comes down to the nature of the dispute.

Adjudication is suitable for straightforward disputes, which need a quick resolution to resolve cashflow issues. Disputes around extensions of time or non-payment in the construction industry are typically referred to adjudication.

If a dispute is complex in its facts or in law, it is probably not suitable for the expedited dispute resolution of adjudication. Arbitration is a better forum for (i) complex disputes around delay or disruption (ii) matters of contractual interpretation, or (iii) professional negligence, by way of example.

Nicola Sharp C 09983

Nicola Sharp

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nicola.sharp@rahmanravelli.co.uk
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Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.

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