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Different methods of dispute resolution in construction disputes
The construction industry is regarded as one of the most conflict and dispute ridden industries, which has resulted in it being one of the most claim orientated sectors. Traditionally, parties would enter into litigation, often a costly and long winded means of resolving a dispute. Over the years, various methods of alternative dispute resolution (ADR) have been introduced into the construction industry as a means to avoid lengthy and expensive litigation.
The possible ADR processes available to construction disputes are: mediation; adjudication; arbitration; expert determination and court proceedings. Each possible method will be considered in turn. It is common (and advisable) for a construction contract to specify one or more methods of dispute resolution.
Adjudication is a process in which a neutral third party will give a decision on a dispute. The Housing Grants, Construction and Regeneration Act 1996 (the Construction Act) states that parties to a construction contract may refer their disputes to an adjudicator. Adjudication has become known as a ‘pay first, argue later’ way for parties to resolve their disputes.
A successful party to adjudication can apply to the Technology and Construction Court to enforce an adjudicator’s decision. The decision of the adjudicator will be binding, unless or until it is revised in arbitration or litigation.
Benefits of Adjudication
- The adjudicator is a neutral person who is not involved in the day to day running of the construction contract.
- Adjudication is a quick process, which is designed to ensure that cash flow is maintained during the construction process.
- Although it is still possible to go to the Court, in most cases the decision of the adjudicator decides the dispute.
- Adjudication is less expensive than court proceedings.
Disadvantages of adjudication
- The dispute needs to have been aired between the parties before adjudication can be commenced.
- The adjudicator’s powers are limited.
- Court proceedings are still required to enforce the adjudicator’s decision if the “losing” party does not pay.
Expert determination is often used to resolve issues or disputes of a specialist nature, such as construction, and is one of the most informal systems of dispute resolution. Expert determination is often used when there is a valuation dispute. If an expert is to be used to determine the dispute, the parties will agree this by contract and will agree that the expert determination will be binding.
Benefits of Expert Determination
- It is an economic way of finally resolving valuation disputes.
- It is less expensive and a quicker and a less formal method of dispute resolution.
Disadvantages of Expert Determination
- The use of experts is much less tied to legal processes and therefore it is more difficult to challenge the decision of an expert.
- An expert’s report cannot generally be enforced without further court or arbitration proceedings.
Whilst there are many methods of ADR, court proceedings are still one of the most common forms of resolving disputes within the construction industry. The Technology and Construction Court (TCC) is a specialist court which deals with technology and construction disputes and is governed not only by the Civil Procedure Rules but also by the Technology and Construction Court Guide. A specialist TCC judge will deal with cases in the TCC.
Advantages of Litigation
- The claim process will be managed by a judge throughout.
- Complex issues can be dealt with.
- The parties will obtain a binding and enforceable decision.
Disadvantages of Litigation
- Only claims which are over the value of £250,000 can be dealt with at the TCC. Any claims below this sum will be dealt with at the County Court.
- It is often a slow process.
- It is likely to be the most expensive way of resolving a dispute.
- The proceedings will be in public and are therefore not confidential, except in certain very limited circumstances.
Mediation is commonly used within the construction industry to resolve disputes. The Technology and Construction Court Guide provides guidance on the conduct of litigation within the construction industry and states that the court should encourage parties to use alternative dispute resolution (ADR), which in most cases, will be mediation. The Pre-Action Protocol for Construction and Engineering Disputes requires parties in dispute to meet, at least once before litigation commences, to discuss whether some form of ADR, such as mediation, would be a more appropriate means to resolve the dispute.
Benefits of Mediation
- The mediator will be an independent person, who will not make a decision, judge or advise, but will facilitate discussions between the parties, with the aim of resolving the dispute. Mediators are generally highly experienced in the area of the dispute, and may even by TCC judges.
- It can help maintain a business relationship.
- It is relatively quick, with mediations usually lasting 1-2 days.
- It is usually considerably less costly than litigation.
- Everything that happens in a mediation is confidential.
- A mediator will encourage the parties to find a solution to the dispute which will suit both the parties’ needs.
Disadvantages of Mediation
- In some cases there may be a concern that, during mediation, parties may disclose an important aspect of their argument or commercial position, which (despite the confidential nature of mediation) could benefit the other party if the matter went to trial.
- If the parties do not come to an agreement, the dispute will remain unresolved and the cost of mediation will have been wasted.
Arbitration is another alternative to litigation and is a process in which the parties will agree to refer the dispute to a third party, the arbitrator. Disputes are resolved on the basis of material facts, documents and relevant principles of law. Arbitrations in the UK are governed by the Arbitration Act 1996 which ensures that arbitrations are fair, cost-effective and rapid, as well as ensuring that the law is followed wherever possible and the language used is friendly and accessible. Arbitration is often used in the context of international construction disputes, but can equally be used for pure domestic disputes.
Benefits of Arbitration
- Like mediation, arbitration is a confidential process.
- Parties can agree on an arbitrator who has relevant experience in the matter.
- Compared to court proceedings, it is a relatively quick process.
- It is highly flexible compared to court proceedings.
Disadvantages of Arbitration
- It is the parties’ responsibility to bear the costs of both the arbitrator and the venue where the arbitration is to take place.
- There are limited powers of compulsion or sanction available to the arbitrator if one party fails to comply with the directions set by the arbitrator.
- There are limited appeal rights available during arbitration.
- Costs can be similar to litigation at court.
It can be seen that there are a number of methods of resolving disputes in the construction sector. It is important for both employers and contractors to understand their options, and to ensure that contracts which they enter into contain appropriate dispute resolution clauses.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice. If you require any further information about the issues raised in this article please contact the author or call 0207 404 0606 and ask to speak to your usual Goodman Derrick contact.