How can construction disputes be resolved in weeks rather than years? In this week’s podcast, Jaco Hamman unpacks the benefits of adjudication, comparing it with litigation and arbitration and explaining why it can save businesses both time and money while keeping projects and cash flow moving.
Transcript
[0:07][Eon] It's time again for Legal Talk with Hahn & Hahn Attorneys here on eRadio, and last Friday, the poll on LinkedIn asked the question, "If a construction payment dispute hit your project tomorrow, what would you reach for first?" The majority said, that was 57%, my lawyer, 0% said arbitration, and 43% said adjudication. So, we're joined by Jaco Hamman from Hahn & Hahn Attorneys today to actually find out what is adjudication. Jaco, welcome back.
[0:42][Jaco] Hi, Eon. Thank you very much, much appreciated. So, just before we get to that, Eon, if we can deal with the poll and the responses. So, normally, I would agree with 57% of your listeners that said that what would you reach for first, which their response was my lawyer. So, normally, I would fully agree that is the very first thing that you do, except in adjudication. So, hopefully, when a client has adjudication prior to they being a construction payment dispute, their lawyer had educated them enough, so that the first thing that they reach for is already adjudication without having to call their lawyer. And that is the basis of adjudication. So, keeping that now in mind. So, adjudication is what we call a contractual dispute resolution process, which, of course, is now very big words, but all it means is that in your contract, the parties provide for, they choose adjudication as a first point of departure. So, you've now got a payment dispute, a contractual dispute, and then ideally, before you run to lawyer, you first follow the adjudication process. Now, either party can refer it to an adjudicator. Now, this adjudicator is normally an independent and a suitably qualified professional, which the parties agreed upon in the contract. Now, unlike litigation, going to court, or arbitration, your adjudication isn't designed to deliver a final, unappealable answer. It is designed specifically to give the parties a quick and binding decision, so the project can keep moving. The adjudicator's decision will be binding, and it has to be complied with immediately, even if one party later wants to challenge it through arbitration or litigation.
[2:58][Eon] Okay. Well, Jaco, it sounds appealing on paper, but practically, why does it end up faster and cheaper?
[3:06][Jaco] Okay. So, a few reasons. The first one is your timelines are very strict and a lot shorter. So, most of your contracts require a decision within 28 days of referral and sometimes even less. Now, compare that to litigation going to court, or which can be years before you even get to trial. The second is the process is far less formal. So, you don't get your normal pleadings exchange, and there's no lengthy discovery process, and typically also no oral hearing, unless, of course, you're adjudicator decides one is needed. But often, it's dealt with on paper. Your submissions, your supporting documents, and that sort of thing is all on paper. And then, thirdly, because the decision maker is usually a construction professional rather than a generalist, generalist judge. So, you're not spending time and money educating the judge there on the bench. It's normally you'll have it as an engineer or quantity surveyor or an architect, that sort of thing. So, they already understand the process. Now, the nett effect thereof is that a dispute that might cost hundreds of thousands of rands and take two to three years in court can often be resolved in adjudication within a month or so, and then, of course, at a fraction of the cost.
[4:41][Eon] Okay. And Jaco, when is adjudication the right tool, and when isn't it?
[4:47][Jaco] So, it's best suited for disputes that needs to be resolved while the project is still running. Payment disputes. Let me give you an example. You are the contractor, the client, in other words, the employer, they're not paying an invoice. And in terms of the contract, they must pay the end of the month. Now, the project isn't finalized yet, and you want that employer to pay you so long so that the project can proceed, then you go to adjudication. You say to the adjudicator, I've done X, Y, and Z, the employer doesn't want to pay me. You put on paper, you say, here, I've submitted my payment certificate for argument's sake. It shows that I've built up to the fourth level of bricks of the house, and no reason has been given for me not paying. And then the client, the employer, has to give reasons why he's not paying. And the reasons can't then be something that is only at the end, that sort of thing, because that's not the purpose of adjudication. The purpose of adjudication is to, while the project is still running, sort out those payment disputes or extension of time claim. You can then later go on and fight the bigger fight, and that is when normally your arbitration will come in. And that's why it's less suited for your highly complex disputes that's got large and multi-layered claims. It's also worth remembering that adjudication is only available if it is provided for in your contract. So, if you don't have a clause in your contract that says that matters must first be referred to adjudication, then you don't have that right. Remember, because adjudication is a voluntary process between the parties. The parties need to agree to go to adjudication. So, if the parties in their contract, in their JDCC contract which we spoke about in the past, or the other type of construction contract, agrees to adjudication, then you can go to adjudication.
[6:52][Eon] Okay. And any final advice for someone dealing with a lie of dispute right now?
[6:58][Jaco] Don't sit on it. The strength of adjudication is speed, and that only works if you act quickly once a dispute crystallizes. Gather your documents, understand your notice periods that's in your contract, and get the necessary advice early if you haven't done so already. A well-run adjudication can resolve a dispute in weeks rather than years. Remember, the principle on adjudication is, as it is normally set out in your construction contract, is as follow. Let me say, me as the contractor, I take you, Eon, as the employer, to an adjudication tribunal, and now I've formalized my statement of claim for adjudication. If I win, you have to pay me. Then you can still take me on arbitration, but that doesn't suspend your payment obligation. Now, if you then pay me the R100 000, for argument's sake, because the adjudicator said Jaco is right, then you must pay me. If the arbitration later finds that Jaco was wrong, then I have to repay. But the whole process for adjudication is so that the project doesn't stand still. Plus, there's the next thing. People often, as a defense, just try to push people around and cause delays, that sort of thing. But if you've now already had to pay the R100 000, for argument's sake, then you're going to think twice on whether you want to go to arbitration or not, and hence why it is so effective.
[8:34][Eon] Interesting. Jaco, thank you so much for joining us today and for sharing that with us.
[8:39][Jaco] Thank you, Eon. Always nice talking to you.
[8:41][Eon] Likewise. That was Jaco Hamman from Hahn & Hahn Attorneys for this week's Legal Talk.