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Adjudication in construction contracts: a guide to adjudication in continental Europe

  • United Kingdom
  • Europe
  • Construction and engineering - International

15-01-2016

Litigation of any kind incurs unwanted costs and delays, caused in part by parties appealing the courts’ decisions.  In the context of construction litigation there is also the risk of the contractor becoming insolvent as a result of the prolonged stagnation of cashflow. It is therefore often beneficial for the parties to agree upon adjudication as a speedy method of alternative dispute resolution (“ADR”). Other common forms of ADR include: arbitration, conciliation and mediation.  

Construction contracts in Europe are usually based on the Civil Code provisions for construction work, with additional General Terms and Conditions. These provide only rudimentary legal regulations for adjudication proceedings, which are in essence summary procedures, decided by a pre-determined adjudicator. This is in contrast to the law in England where adjudication is a compulsory form of dispute resolution for any construction contract.

The following article will give an overview of the various contractual arrangements and statutory provisions in Continental Europe that can be used to refer a dispute to adjudication, as well as the country specific considerations. 

Austria 

In Austria ÖNORM B 2110 is the primary form of General Terms and Conditions used as the basis for construction contracts. ÖNORM B 2110 allows parties to refer a dispute to an arbitration tribunal  and appoint an arbitrator. In addition, construction agreements often contain provisions for dispute resolution similar to those found in the standard term contracts drafted by adjudication boards, such as FIDIC contracts. This is especially common in contracts with an international element.  

Belgium 

Adjudication and Arbitration proceedings are included in the Belgian Judicial Code (Articles 1676 – 1722) and parties can either choose a mechanism for referral to adjudication within their construction contracts , or, where the contract does not contain such a stipulation, the parties can mutually agree to appoint an adjudicator who they deem competent, after a dispute arises. Despite the increase in numbers of disputes solved by way of adjudication proceedings, the majority of the cases still lead to a judicial hearing in the civil courts. The decision of the adjudication board will be binding, but in order for it to be enforceable, it must first be recognised by a civil court. An appeal before another adjudication board is only possible if it has been stipulated within the adjudication agreement. Unless otherwise agreed, the deadline for an appeal is one month from the notification of the decision of the adjudication board. The decision can only be appealed for specific of reasons which are set out in the Judicial Code, for example, a decision made outside of the limits of the adjudication agreement.

France 

In France, adjudication proceedings may be used and chosen by the parties as a method of dispute resolution with regards to construction contracts (for instance, for sale before completion transaction (“vente en l’état futur d’achèvement”), where the parties do not agree on the completion of the building). The parties may incorporate terms into the contract which stipulate that when a dispute arises they must appoint an expert who will determine the dispute. and a list of agreed experts can be included in the agreement. If the parties accept the expert’s decision, it will be binding on them. However, if no resolution is reached, the parties can initiate court proceedings.

Germany 

In Germany there is no statutory law concerning adjudication, therefore dispute resolution through adjudication only applies to construction contracts if it is contractually agreed between the parties. Adjudication proceedings are fairly uncommon, in part because the adjudicator is appointed by contract rather than judicially, and as a result parties often distrust the adjudicators impartiality. Parties appreciate the predictability of litigation before the state courts, in which the Federal Supreme Court of Justice case law will always be considered within a decision. However, precedents are not binding, and although litigation may appear to be predictable, a contractual agreement also provides some certainty. Further, the specific expertise of the respective judge in construction matters is not guaranteed.  

Public employers and insurers of construction companies and/or architects and engineers hesitate to use adjudication as a method of dispute resolution. Public sector employers are only allowed to agree to adjudicate after obtaining the consent of the superior authority/ministry. A legislative proposal regarding adjudication was rejected with the argument that it was unconstitutional, even though adjudication does not exclude a subsequent lawsuit. 

The VOB/B (the construction contract procedures part B) are usually applied as General Terms and Conditions in construction contracts. The parties may agree to a form of dispute resolution of their choice in accordance with § 18 III VOB/B. When § 18 III VOB/B was introduced as a ”saving clause“ in 2006, the intension was to provide some relief for state courts. The provision does not stipulate a specific type of dispute resolution method; it has to be agreed contractually between the respective parties.  A Dispute Resolution Agreement in the sense of § 18 III VOB/B can either be reached at the time of the contract completion or after the materialisation of a dispute.

Alternatively the parties can agree upon the application of adjudication in accordance with SL Bau (dispute resolution rules for construction matters). This is most commonly agreed when parties choose ADR. SL-Bau only applies to written agreements.  The forms of ADR available under SL-Bau are: adjudication, mediation, conciliation and arbitration.

An adjudication procedure can be agreed in accordance with § 22 SL Bau. The proceedings are initiated by written request and the adjudicator must give a decision within two weeks from the date of consideration. It is a precondition of any decision that there is a “high-probability” that the respective claim actually exists. A final binding enforcement occurs six months after overall acceptance of the decision.

Italy 

In Italy there is an important distinction between private and public sector construction contracts. In private construction contracts the parties are at liberty to include any ADR clause in the contract of their choosing. Alternatively they can agree to commit to an ADR agreement (for arbitration, mediation, or any other ADR) at a later time, in order to settle a specific dispute. With regard to public construction contracts, the matter is specifically regulated by Sections 239, 240 and 241 of the Code of Public Contracts. If the value of an intended settlement exceeds €100,000, such settlement agreements must first be approved by an authorised individual of the public entity involved, or by its most senior public officer . Similar limits in value also apply for amicable agreements. Public contracts may also include an arbitration clause, provided that the existence of such clause has been expressly agreed, otherwise such clauses are null and void.

A private contractor may refute the ADR clause, even if formally valid. Such ADR proceedings are substantially governed by the Italian Code of Civil Procedure, except for specific rules set forth by Section 241 of the Code of Public Contracts. ADR is not commonly used in Italy. In general the parties will settle a dispute by way of a settlement agreement (“transazione”) pursuant to the general provisions set forth by the  Italian Civil Code for settlement agreements, or by amicable agreements (“accordo bonario”). An ADR agreement can be reached without any restrictions within private construction contracts, but public construction contracts must take into consideration the regulations set out in the Code of Public Contracts.

Netherlands 

Adjudication proceedings are becoming more common in the Netherlands, in particular with large-scale infrastructural projects. The Dutch government has issued a standard DBFM contract under which a dispute board tribunal is appointed on an ad hoc basis after a dispute has arisen. The most commonly adopted dispute adjudication mechanism provides that a dispute board is only set up after a dispute has arisen. The default mechanism provides that a dispute board consists of three persons ( two appointed separately by each party and one appointed jointly as chairperson). The claimant must submit a statement within four weeks of the appointment of the dispute board, and the respondent must submit a defence within four weeks after that. The dispute board will then either request a hearing or allow additional written submissions. Following the final procedural step, the dispute board is to provide a binding advice within four weeks.  Dispute boards often provide a decision in the form of a binding advice. A binding advice under Dutch law can be regarded as a settlement agreement. If a party does not accept the binding advice they have the option to bring open court proceedings before the Dutch courts or, if selected, an arbitration institute, within a period of four weeks of the advice. Until a court makes a contrary decision to the binding advice, the parties must adhere by that advice. 

Latvia 

Adjudication procedures are not regulated by statute in Latvia, but parties can agree within the construction contract to use an adjudicator (an independent expert). Either party is entitled to refer a dispute arising under the contract in accordance with the provisions of the contract. Such terms are usually included in big construction contracts and/or where FIDIC contract are used (in which adjudication provisions are already provided), in which it is necessary to provide an interim solution to a dispute in order to maintain cash flow through the supply chain.

Lithuania 

In Lithuania adjudication is an accepted form of dispute resolution with regard to construction contracts, but are rarely used. If the parties agree to adjudication in order to resolve their dispute, these proceedings will become a mandatory first step for the parties to solve their dispute before they are allowed to submit the dispute to court or arbitration. Various steps and rules of adjudication proceedings may be agreed by the parties. The main steps include initiation, investigation and actions after the decision is issued. The investigation can itself consist of various stages such as the construction site visits by the adjudication board, a request for the parties to provide copies of all documents related to the dispute, hearings, and separate investigations of facts or circumstances or requests for the experts to provide opinions on specific facts or circumstances.

After the decision is issued, and if parties have agreed that the decision is binding, they must submit a notice of dissatisfaction with the decision before the deadline. Even if the parties have agreed that the decision issued by the adjudication board will be binding, the decision is not final and can be referred to arbitration or court for final resolution.

There are also other types of proceedings similar to adjudication, where public authorities are involved on a mandatory basis. They resolve disputes (i.e. ascertain important circumstances and facts) which are related to public 'authorities’ actions (e.g. permission to build) or are deemed to be in the public interest (e.g. inspection after a constructed building has collapsed, etc.).

Romania 

Given that FIDIC contracts are frequently used in major projects in Romania, adjudication proceedings are often used as a method of dispute resolution. However, in non-FIDIC contracts, the parties do not usually refer to such adjudication proceedings. If a dispute arises in relation to a FIDIC contract, the parties usually adhere to the FIDIC regulated procedure for the appointment of the dispute adjudication board (either a three member dispute adjudication board or single member board) and subsequent proceedings. The parties must agree to a specific timetable, the types of evidence that will be submitted (examination, testimonial evidence and technical expertise, site/local research procedure) and arrange adjudication sessions. Subsequent to the examination of the relevant evidence, the dispute adjudication board deliberates and the procedure concludes with a final decision by the board. The adjudicator’s decision is not capable of enforcement, as would be the case with an arbitral award, nor does it have the status of a court judgement. The decision is binding only as a matter of contract between the parties. If one party is disatisfied with the decision, that party must notify the other party. The notification should include the object of the dispute and the reason of the dissatisfaction. No party has the legal right to initiate arbitration proceedings if such notification has not been provided. If a notice of dissatisfaction is submitted, both parties will try to settle the dispute amicably before the commencement of arbitration. Unless the dispute is settled amicably, any disputed decision of the dispute adjudication board will be resolved by international arbitration, unless otherwise agreed by the parties.

Spain 

The construction industry in Spain is regulated under the Construction Technical Code and Civil Code. However these statutes do not regulate or prohibit any type of ADR, which can be freely agreed between the parties. Indeed, there is nothing to prevent the parties from including specific ADR provisions, tailored to their individual circumstances, within the construction contract. Although disputes regarding construction contracts can be solved through mediation and arbitration proceedings, they are most commonly conducted before a Court. ADR is generally used exclusively in relation to large infrastructure construction contracts with international parties (using FIDIC).

Among the different types of arbitration proceedings the most common for construction cases is the “In Equity” arbitration proceedings in which the Arbitrator is a technician who specialises in construction issues. It is not unusual for Professional Associations (e.g. Engineers Bar Association or Architects Bar Association) to have their own specialised Arbitration Courts. Decisions provided through arbitration, or other ADR procedure, can be appealed before the Courts.

Sweden 

Several forms of alternative dispute resolution exist in Sweden, including adjudication. Adjudication is not governed by Swedish law but rather provided for as part of an agreement. Hence, an obligation to submit a dispute to adjudication is similar to any other contractual obligation and the outcome of such a proceeding is subject to what the parties have agreed. Adjudication is rarely used in Sweden, however, examples are found in development projects where parties may have a mutual interest of resolving upcoming issues. Mediation, ad-hoc or institutional, is largely preferred to adjudication in Sweden followed by arbitration or court litigation should the parties fail to reach an equitable solution, as applicable. 

In conclusion, the main features of adjudication procedure across Europe are broadly related, although there is a wide spectrum of individual peculiarities regarding the legal regulations and the incorporation of adjudication provisions in construction contracts. Whether the parties to a construction contract agree to initiate adjudication proceeding depends substantially on the intended binding effect of the decision and the envisaged duration of the proceeding.

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