Commercial Payments Bill - The need to be ready for the rough and tumble of adjudication

The Commercial Payments Bill¹ (CPB) is presently making its way through Parliament. If it is enacted, it will profoundly change the legal landscape for commercial payment disputes.

A key proposal of the CPB is that a small business²  will have the right to pursue a payment dispute with a larger business through adjudication.

While that may not sound revolutionary, in the Construction sector adjudication has been a statutory right for over 20 years and it has had a huge impact on construction disputes.

What is proposed?

While not all the details of the proposed adjudication scheme have been released (it is envisaged that the Small Business Commissioner (SBC) will administer the SBC adjudication scheme which is yet to be published), much can be predicted.

Under the SBC adjudication scheme, a small business will have the right to refer a payment dispute to adjudication at any time. This will be a statutory right that cannot be avoided.

The appointed adjudicator then has a wide discretion to take the initiative in ascertaining the facts and the law to determine the dispute and must determine amounts that the larger business owes, and if sums are owed, when payment is to be made by way of a written decision.

The decision of the adjudicator will be binding unless (and until) the dispute is finally determined by legal proceedings.

Moreover, the adjudicator’s decision will be enforceable in the county court with extremely limited grounds to challenge the decision of an adjudicator (such as the adjudicator exceeding their jurisdiction, was procedurally unfair or to enforce the decision would perpetrate a fraud). What should be noted here, is that the grounds to resist enforcement does not extend to an error of fact or law.

Therefore, it is not possible to resist enforcement simply because the adjudicator got the answer wrong (even if demonstrably and obviously wrong); in that situation the losing party will be required to pay first and then seek to finally determine the matter in further legal proceedings (and at additional cost).

While much of the above will sound novel and unusual, for those of us familiar with construction adjudication it will sound all too familiar. Moreover, it can be forecast to bring a revolution to the commercial sector as it has already done to the construction sector.

What else can be expected for the SBC adjudication scheme and what lessons may be learnt from construction adjudication?

It would be surprising if the SBC adjudication scheme did not follow the now long-established and familiar processes of the adjudication scheme rules for construction contracts³.

So, although one point not yet confirmed for the SBC adjudication scheme is how long the adjudication process is intended to last; we can be confident it will be a quick and summary process. In construction adjudication the process is as speedy as 28 days from referral of the dispute to the appointed adjudicator. A similar timescale can be expected for the SBC scheme.

This is important. The speed of adjudication in construction is its defining feature; it has led many to consider that adjudication is as a result of that speed a ‘rough and ready’ process. It also gives rise to a situation in which the responding party may be ‘ambushed’ and quickly cornered into defending a claim which the other side has had many weeks or months to prepare.

That has given rise to a perceived lack of justice. A perception that is underlined by the inability to challenge a poor ‘rogue’ decision; a losing party has to pay up if ordered to do so and no exceptions are made where the decision is obviously wrong. That is a difficult situation for many adjudication referring parties to come to terms with.

Similarly, while the cost regime of the SBC adjudication scheme has not been outlined, it would again be highly surprising if it were different from the construction adjudication scheme which provides that each party bears its own cost and the adjudicator determines in their decision which party is to pay their fees (which is generally on a loser pays basis).

In construction adjudication the right to refer a dispute at any time applies to any dispute, and it is now well established that there is essentially no practical limit as to what dispute can be referred to adjudication (either by value or complexity).

The proposed SBC adjudication scheme is to deal with a “relevant payment dispute” while that may ostensibly seem quite limited in scope, most disputes are ultimately about payment (e.g. will a payment dispute upon termination be within that scope?).

Interestingly (and unlike in construction adjudication) there are grounds set out in the CPB for the SBC to decline to adjudicate a dispute in limited instances, including where it is “part of a wider dispute and cannot be resolved separately” or if it “involves a point of law that would be better determined by a court of tribunal”⁴. How those limitations will operate in practice remains to be seen. However, the lesson from the construction sector is that adjudicators are not often persuaded they shouldn’t deal with a dispute and further that attempts to limit the applicability of adjudication have not found favour when argued in court on enforcement. It ought then to be expected that those grounds limiting adjudication are only exceptionally made out.