Adjudication is the newest form of alternative dispute resolution (ADR) available to defendants and insurers faced with professional negligence claims. It is designed to produce a reasoned decision more quickly and cheaply than through litigation. DWF recently became one of the first law firms to use the pilot scheme, successfully defending a professional negligence claim against a firm of accountants on behalf of an insurer client.
How the pilot scheme works in practice
The professional negligence adjudication pilot scheme is voluntary and the parties must agree in writing to its use. Therefore, there should be no risk of being unprepared or "ambushed" by an adjudication over a holiday period.
The pilot scheme has a panel of five adjudicators, who are all barristers specialising in professional negligence claims. Several of the adjudicators have a construction background, which means they already have experience of acting as an adjudicator and can bring that experience of the process to the pilot scheme.
The Adjudicator must provide their reasoned decision within 56 days of their appointment. In many cases, the Adjudicator will direct that the parties should exchange concise written submissions accompanied by any evidence relied on within, say, two or three weeks. Alternatively, the Adjudicator may direct that one party should serve their submissions and evidence followed by a response from the other party two weeks later. In either case, there may be a further short period of one or two weeks to exchange submissions and evidence in response, before the Adjudicator uses the final two weeks to prepare the decision.
Benefits of the scheme
The time taken to reach a decision is obviously a key benefit. Compare the 56-day deadline with the time taken to get to trial of well over 12 months in most professional negligence claims and one can see where there will be considerable cost savings over the lifecycle of a claim.
The adjudication process is not litigation compressed into two months. Given the time constraints, the process is flexible and there may be a more relaxed approached to witness and expert evidence. There is no process for formal disclosure as part of the adjudication. Although the adjudicator has the right to "call for production of documents", in reality there is unlikely to be time. The parties will therefore only disclose those documents they rely on, similarly to the approach taken in arbitration. In many professional negligence cases, the insured will have provided their file to the claimant in any event. There are cost benefits to this approach, as well as the obvious risks, which need to be assessed on a case-by-case basis.
Although the parties will almost certainly need to prepare witness statements, these can be reused if the litigation continues (or has already reached that stage). One of the greatest time-saving and cost-saving features is that the adjudication will usually be decided on the papers. This is also a risk because it means the adjudicator will find it more difficult to assess the credibility of the witnesses.
What it could mean for the insurance industry
This is a new scheme and time will tell whether it will be adopted more widely. There will obviously be cases that are not suitable, however our experience suggests the scheme will be a useful tool for defendants and their insurers.
In many claims, parties settle because there are risks in contesting the claim and the costs of trial will be substantial. Given the significantly lower costs (both incurred and risk of adverse costs) it is arguable that insurers (and claimants) will have more incentive to argue marginal cases to a reasoned decision. For insurers, this helps support their own clients, the insured, and for all parties the scheme should result in a cost saving overall.
The fact that the adjudication is usually "temporarily binding" means it should be seen as a form of ADR, not as an alternative to trial (although it can be used as such). There may be cases where it is a useful alternative to mediation, particularly where the parties have fundamentally different views on a matter of principle.
The question is whether claimants will agree to adjudication. Any party is at risk of an adverse costs order if they unreasonably refuse ADR, such as adjudication. A refusal to adjudicate may be a good indicator of the claimant’s conviction in its own case. Likewise, insurers should consider the message a refusal to engage in adjudication may send to the other side.
Our experience of the scheme
DWF and its insurer client recently used the scheme to successfully defend a counterclaim against an insured firm of accountants. The accountants had issued a fee claim and were met with a counterclaim alleging professional negligence in the conduct of a tax enquiry. The counterclaim appeared spurious, but a strike-out application was unlikely to succeed. The accountants' fee claim meant that offers of settlement where any payment was made on behalf of the accountants would have been particularly unpalatable.
Prior to the case management conference (CMC), costs budgets were filed and the parties had each incurred approximately £10,000 and were estimated to incur a further £35,000 to a trial in 11 months' time. The total claim was less than £50,000 and so costs were likely to be disproportionate. Accordingly, we suggested the adjudication scheme and the proceedings were stayed generally prior to the CMC.
The default position is that the Adjudicator's decision will be "temporarily binding", meaning that it can be enforced in the court if payment is not made within 21 days, but will cease to be binding if a court or tribunal reaches another decision. Mindful of the potential costs of continuing to litigate, the parties agreed that the adjudicator's decision would be finally binding.
The adjudicator rejected the counterclaim and awarded the accountants their fee claim in full. The adjudicator determined that the counterclaimant should pay his fees as well as the accountants' costs of the litigation and the adjudication, to be assessed by the court if not agreed. Our costs of the adjudication were less than £10,000, one third of the costs to trial.
For more information please contact Malcolm Rogers, Senior Associate on 0 113 204 1846