UK: Current Trends In Construction Dispute Resolution

Last Updated: 21 November 2006
Article by Simon Konsta

Arbitration, the darling of the ’90s, subsequently lost favour. Is it now making a comeback with the "100 day" arbitration procedure, or the availability of experienced construction judges as arbitrators? The court back-log used to deter many, but the Civil Procedure Rules have undoubtedly streamlined the litigation process. The Technology and Construction Court has more capacity than ever. Is this winning back combatants, or do the ever higher court fees deter? Will the new runners, adjudication, mediation and Dispute Boards ("DBs") continue to attract?

We consider the different methods of resolving construction disputes, and the implications for those concerned and their insurers.

Litigation

Traditionally, construction disputes were always litigated, the favoured forum being the Official Referees’ court, renamed the Technology and Construction Court ("TCC") in 1998. Over the last 10 years, however, the number of claims issued has fallen from over 1,700 in 1995 to around 390 in 2004.

This reduction can, in part, be attributed to the Court’s own successes in introducing the Civil Procedure Rules in 1999, which implemented a pre-action protocol process. This requires an early exchange of information, and meetings between the parties, to encourage the resolution of the dispute without recourse to proceedings. Another factor, however, may be the current cost of litigation. To issue proceedings for a claim exceeding £300,000 now costs £1,700. This is 20 times what it was in the early 1980s. Pressure from the Government for the courts to be self-funding will only lead to an increase in litigation costs. The Department for Constitutional Affairs is currently seeking consultation on a proposal to charge litigants on an hourly basis for the court and judges’ time.

Although the current capacity in the TCC allows parties to bring a case on for trial more quickly than ever before, the likely reality is that the courts will be left with the high value, multi-party and complex disputes going forward. These are the cases that remain difficult to settle and for which alternative dispute resolution is more problematic.

Arbitration

The general impression is that the number of arbitrations has fallen by around one third over the last 10 years. Institute of Civil Engineers ("ICE") arbitrations have fallen steadily from 21 in 2000 to only three in 2005. RIBA arbitrations have declined from 53 in 2000 to 32 in 2005.

This move away from arbitration is reflected in the JCT 2005 suite of contracts. The default position under the JCT 1998 wording (applicable unless the parties contract otherwise) was that the parties would be obliged to arbitrate rather than initiate court proceedings. That position has been reversed in the 2005 JCT. Disputes will now be litigated through court proceedings unless the parties expressly state otherwise. Around 80 per cent of construction contracts in the UK are based on the JCT standard form contract and so this shift is likely either to reflect or bring about changes in industry practice.

In 2004, the Society of Construction Arbitrators launched a new "100 day" arbitration procedure, designed to offer a mid-way ground between adjudication and litigation, with the benefits of a binding decision, the protection of the Arbitration Act 1996 and an arbitrator empowered to award costs. It remains to be seen how popular it will become. The most likely cause for a resurgence in arbitration could be the confidential nature of the proceedings. In October 2006, the court rules were amended to allow access to statements of case (i.e. pleadings) by non-parties (although this is currently subject to an application for judicial review of the change). For disputes with commercial sensitivities, this could be a factor.

Adjudication

Adjudication has been, and remains, a popular means of resolving disputes between parties to construction contracts. The Chartered Institute for Arbitrators ("CIArb") has continued to report a fairly steady uptake of their construction adjudication services (DRS-CIArb). The number of adjudications in which ICE has been involved has fluctuated between around 100 in 2000 and 85 in 2005. RIBA reports figures ranging from 250-300 over the last six years, with a slight drop over the last two years.

In our view, adjudication will continue to dominate. The right to use this procedure is implied into construction contracts pursuant to the Housing Grants Construction and Regeneration Act 1996. It offers claimants the opportunity of achieving resolution of a dispute within 28 days on an economic basis. It allows for awards (on a range of matters) to be obtained while a project is ongoing. Multiplex, the Australian construction company adjudicated seven separate disputes with the Wembley stadium developer during July and August 2006.

Whilst adjudication was never intended by Parliament as a mechanism for dealing with complex disputes, it is (perhaps wrongly) being used for this purpose. CIB v Birse (2004) confirmed that substantial claims, including those against construction professionals, can be dealt with through the adjudication process, provided the adjudicator is able to reach a fair decision within the time allowed by the parties. From an insurer’s perspective, the possibility of an enforceable decision being obtained against a construction professional within such a short time period reinforces the need for the policy wording to contain adequate notice provisions for Adjudication Notices.

Dispute Boards

This mechanism involves the appointment of an impartial panel (combining lawyers and engineers) at the outset of a project, who then visit the site around three or four times a year to deal with any disputes that may be brewing. Decisions made are temporarily binding (subject to challenge by court or arbitration proceedings).

The use of the World Bank’s concept of DBs to resolve disputes is now accepted by the industry and is commonplace, with FIDIC, ICC and ICE including DBs in its standard forms. The UK construction industry was able easily to take on the DB system following their earlier use and acceptance of the adjudication system and the notion of a temporarily binding decision. DBs can include a number of disputes at any one time, and commencement of court or arbitration proceedings will not stay a DB decision. They are proving successful and will likely continue to find favour on large projects.

Mediation

The JCT 2005 wording now expressly provides for the possibility of resolution by mediation. Despite this, the number of construction mediations has fallen. This is contrary to the general trend that reflects a rise in the number of mediations as a whole.

The most recent results from the Centre for Effective Dispute Resolution ("CEDR"), which handles around one third of the overall number of mediations in the UK, reveal that there were 693 mediations in 2004, of which 42 (i.e. six per cent) were in the construction field. In 2003, CEDR was involved in 631 mediations, of which 57 (i.e. nine per cent) related to construction. The most obvious reason for the decline in construction mediations, against the trend, is the availability of the adjudication process.

Running from 1 June 2006, the specialist judges from the TCC are participating in a 14- month pilot of the TCC’s new Court Settlement Process. This is a voluntary process where the judge acts as mediator to try and facilitate a resolution of the dispute. He can, at the request of the parties, also provide his assessment of the merits of the dispute and potential settlement levels. This is akin to the conciliation process which is referred to in the ICE standard wording. Conciliation is a more evaluative form of mediation where, if the parties cannot agree a settlement, the conciliator will make recommendations for the resolution of the dispute. However, the process is voluntary and the conciliator’s recommendations will not be binding in the absence of agreement by the parties.

The Standard Wordings

 

Adjudication1

Arbitration

Litigation

Mediation/Conciliation

Dispute Board

JCT 1998

X

X

X2

 

 

JCT 2005

x

X3

X

X

 

ACE

X

 

 

X

 

RIBA

X

X

 

X

 

ICE4

X

X

 

X

 

FIDIC

 

X

 

 

X

1. Implied into all written construction contracts by s.108 of the Housing Grants, Construction and Regeneration Act 1996.

2. Under JCT 1998, Clause 41B provides that the parties should arbitrate rather than litigate. However, if Clause 41B is deleted, JCT 1998 provides that the parties should determine their dispute by legal proceedings.

3. Under JCT 2005, the default position is that the parties should litigate rather than arbitrate. Article 8 (the arbitration clause) can be incorporated if the parties so choose.

4. Clause 66(2) and (3) allows a further option of disputes being referred to the Employer’s Representative for determination.

 

Pros

Cons

Adjudication

  • Inexpensive and quick
  • Decision can lead to resolution
  • Expert adjudicator
  • Detailed written reasons given
  • Parties can agree it is private/confidential
  • May not be suitable for low value disputes as the adjudicator’s fees could be disproportionate
  • May not be suitable for complex disputes as the timetable may be oppressively fast
  • Adversarial
  • Not suitable for multi-party disputes
  • Award may not create a legal liability triggering an indemnity; this may result in insurance difficulties in the event of insolvency prior to enforcement.
  • Arbitration

    • Flexible procedure, ad hoc arbitration can be agreed
    • Arbitrator’s decision is final (subject to appeal to court)
    • Detailed written reasons given
    • Expert arbitrators available including TCC judges
    • Private/confidential
  • Restricted possibility of appeal
  • Procedure becoming more formalized
  • Adversarial
  • Potentially costly and time-consuming
  • Litigation

    • Court rules limit the possibility for protracted litigation: active case management procedures
    • Detailed consideration of all aspects of the dispute
    • Detailed judgment
    • Wide range of possible remedies
    • Suitable for multi-party disputes
  • Costly
  • Time-consuming
  • Rigid procedural rules
  • Parties will need to have at least considered alternative dispute resolution before coming to trial
  • Adversarial
  • Public
  • Dispute Boards

    • Function is to ‘nip in the bud’ issues before they become disputes
    • Deals with issues before parties become entrenched
    • Allows complaints to be voiced
    • Expert Board members including engineers and lawyers
  • Conclusion is only temporarily binding
  • Not enforceable
  • Requires Board to be in place at commencement of project
  • Scheduled site meetings only about three times a year
  • Mediation/ Conciliation

    • Inexpensive and quick
    • Helps maintain commercial relationship
    • Private/confidential
    • Expert mediator may be a judge of TCC (proposal under ‘Court Settlement Process’)
    • Can encompass wide settlement options e.g. apologies, promise of future business
  • May not be suitable if parties’ positions are too different
  • Relies on parties’ agreement - so no binding decision if parties cannot agree
  • The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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