Adjudication of Technology and Construction Disputes

The movement toward speedy adjudication of payment disputes in the construction and technology sectors seems to be gaining some momentum this fall, with new programs being launched in Ontario and England.

In England, the Society for Computers and Law (SCL) has launched a new adjudication process for resolution of technology disputes, following several years of study and industry consultation.

SCL was established to educate legal and technology professionals and promote “best practice” for the technology sector in the UK. It identified a need for faster, cheaper resolution of disputes involving long term, high value, and technically complex technology contracts.

Adjudication provides a voluntary mechanism for resolving any kind of technology dispute, including software development, outsourcing, systems integration, IT consultancy, software licensing, blockchain/smart contracts and cloud computing. It is being rolled out by the SCL this fall as part of its “Better Contracts Initiative” which aims to develop best practices and industry standard contracting terms in the technology sector.

Over the past several years SCL engaged in a detailed review of alternative dispute resolution procedures and consultation with industry members. They found:

• a strong preference for binding awards (adjudication or arbitration) over non-binding processes (mediation or conciliation);
• support for quick adjudication, on condition that awards could be challenged;
• a desire for clear deadlines, with some flexibility to extend them in complex disputes;
• a need to identify suitable qualified adjudicators; and
• a need for industry standard contract terms to implement the dispute resolution process.

In Ontario, the Construction Act offers an adjudication option for payment disputes in construction projects as of October 2019. The system is modelled on the construction adjudication process, which has been widely used in the UK for many years. But, unlike the UK, the Ontario process is voluntary. Parties may opt for adjudication as an alternative to arbitration or litigation. Adjudicators are chosen from a registry maintained by ADR Chambers, which was selected as the administering authority under the legislation. The adjudicator must issue a decision within 6 weeks. The decision is binding on the parties, subject to a further determination by arbitration or court, or agreement of the parties. However, there are very limited grounds for judicial review of an adjudicator’s decision, on the basis of adjudicator misconduct or improper process.

Like Ontario, SCL also looked to the UK contraction industry, as a model for its adjudication process. Sometimes described as a “pay first, argue later” mechanism, the experience with construction adjudication in the UK has been that owners and contractors are generally happy with fast “rough and ready” adjudication decisions, when the alternative is expensive litigation and project delays.

Although construction adjudication awards can be challenged through arbitration or litigation, more than 99% of adjudication awards are not challenged. Decisions are often “water under the bridge” by the time a project is completed and legal challenges are rarely successful in court or arbitration.

Like the new Ontario process, the SCL adjudication process is voluntary. However, it is not limited to payment disputes. It can be used for any kind of technology dispute.

SCL adjudication is meant to be fast, largely document-based, and completed within three months.

The adjudicator’s decision is “provisionally binding.” The parties must comply with the decision – for example, to pay a sum of money or to provide specific products or services – but either party may challenge the decision, either in court or to an arbitrator, depending on the terms of their contract. The decision becomes final and binding, if it is not challenged within six months of the award.

The rules expressly require all parties to act in good faith and co-operate through the adjudication process. They also require the adjudicator to conduct the process in a timely and cost-effective manner and avoid unnecessary expense.

SCL is in the process of setting the qualifications for adjudicators and establishing a panel from which parties can choose a suitable adjudicator.

There are two opportunities to appoint an adjudicator: when the contract is signed or when a dispute arises. Appointing an adjudicator in the contract avoids potential delays when a dispute arises and means that the adjudicator is familiar with the parties and the contract. This can help speed the decision-making process. No need to bring a stranger up to speed, when time is a critical factor. On the other hand, an ad hoc appointment when a dispute arises may provide a “fresh pair of eyes” and allow appointment of an adjudicator with particular expertise relating to the issues in dispute. The downside is that there can be delays in choosing an adjudicator – especially if one of the parties doesn’t want to co-operate.

One interesting question is whether an SCL adjudication award would be considered to be an arbitration award under the New York Convention, meaning that the award could be enforced in other jurisdictions (presumably after the 6-month window to challenge it has ended). There was some uncertainty about this at a discussion I attended at a meeting of the International Technology Law Association recently.

Perhaps this is not an issue for the SCL, which developed the process specifically for the domestic technology industry in England, but it could be problematic if similar schemes are adopted for international technology contract disputes.

It will be interesting to see how these two initiatives in Canada and the UK unfold and whether there is significant buy-in from industry participants. Since both are voluntary and depend on agreement of the parties – either in their initial contracts or when disputes arise – it may take some time before we see widespread adoption. But I expect that the speed and cost benefits will encourage many to give it a try.