UK: Resolving UK Construction Disputes

Last Updated: 23 February 2016
Article by Akin Akinbode, Gurbinder Grewal, Alastair Young and Esther McDermott

Our construction disputes briefing highlights litigation, arbitration and ADR developments and is aimed at in-house lawyers in the construction industry.

Dispute resolution news round-up: construction focus

Litigation

  • Lord Justice Briggs has issued an interim report on his urgent review of the structure of the courts and has asked for written comments by the end of February. (Click here to see the press release.) The judge's terms of reference include:
    • the delegation of routine judicial functions to "delegated judicial officers";
    • the creation of an online court which [should] reduce the workload of the County Court and might make a merger of the County and High Courts a possibility; and
    • how to deal with the Court of Appeal's onerous workload.
  • Lord Justice Jackson has recommended the introduction of fixed costs in civil claims valued below £250,000 (seehis notes from the Insolvency Practitioners Association Annual Lecture, 28 January 2016). He has proposed establishing four bands (£25,000 to £50,000, £50,001 to £100,000, £100,001 to £175,000 and £175,001 to £250,000) to which fixed costs would apply for specific work stages, for example, pre action, disclosure etc. (See page 13 of the lecture notes.) He has also recommended rules that would allow an uplift on these fixed costs in certain circumstances – such as the work being done in London. A government consultation on the proposals is likely to be the next step.
  • Costs budgeting by default: a High Court decision in Sharp (and others) v. Blank and others [2015] EWHC 2685 (Ch) has indicated that the costs management process will apply by default to cases where the sum claimed in the claim form is less than £10 million or there is no statement in the claim form that the sum claimed is £10 million or more. Parties in large claims over £10 million who do not want costs budgeting to apply by default should therefore state specifically the value of the claim on their claim form.
  • A new electronic working pilot scheme under Practice Direction 51O came into force on 16 November 2015 and will operate for one year in the Technology and Construction Court (TCC), the Chancery Division, the Commercial Court, the Mercantile Court and the Admiralty Court in the Rolls Building, London. The scheme, which uses the HMCTS Courts Electronic Filing (CE-File) software, replaces the pilot that ran in the TCC under Practice Direction 51J until 15 November 2015. It enables parties to issue claims and file documents electronically as well as pay court fees online.
  • As part of the debate on the draft Investigatory Powers Bill 2015, the Law Society and the Bar Council have jointly called for legal professional privilege to be statutorily protected, stating that "it is the mark of a democratic society that citizens can consult a legal adviser in absolute confidence that the information they exchange will not be disclosed without the client's authority". A summary of the issues can be found in The Law Society's press release (which contains a link to the joint Bar Council/Law Society position paper "Investigatory Powers and Legal Professional Privilege").

Alternative dispute resolution (ADR)

  • Adjudication: the Technology and Construction Solicitors' Association (TeCSA) has published a useful flyer which summarises the benefits of the TeCSA Adjudication Service. Click here to read more or visit www.tecsa.org.uk.
  • Mediation consultation: the European Commission has conducted a public consultation on the application of Directive 2008/52/EC (the Mediation Directive) on certain aspects of mediation in civil and commercial matters. More information on the consultation, which closed on 11 December 2015, can be found here.
  • Survey into the impact of ADR on business: the Department for Business, Innovation and Skills (BIS) has commissioned an independent research project into the system for resolving consumer disputes. BIS want to evaluate the impact of the court system and ADR on consumer welfare and business practices. If you have used ADR in the last 12 months and are willing to take part in a 10-minute confidential phone interview, you can complete the form at:https://www.snapsurveys.com/wh/s.asp?k=144792812432 Source: CEDR: BIS study on ADR and the Court system.

Arbitration

  • Revised CIArb Guidelines: the Chartered Institute of Arbitrators (CIArb) has resolved to review its 18 Guidelines published in 2011, which set out best practice on how to deal with procedural issues in arbitration. The first three guides to be republished dealt with jurisdictional challenges, applications for interim measures applications and applications for security for costs.
  • The CIArb in association with the Adjudication Society has also published revised guidance on the jurisdiction of the UK adjudicator. Effective from 1 January 2016, the amendments are reasonably minor but do include at paragraph 2.1 clarification that "the adjudicator's review of his or her jurisdiction needs to be proportional and based on the information available as at the time of the adjudication notice. A distinction has been made between the initial conflict check that an adjudicator should carry out and the checklist of jurisdictional hurdles that an adjudicator should keep under review during the adjudication." (See the Adjudication Society website.)
  • The London Centenary Principles 2015: as part of its 2015 centenary year, the CIArb also published its "London Centenary Principles 2015", which are necessary for an effective, efficient and "safe" seat for the conduct of international arbitration. The main aim of the principles is to identify the ideal characteristics that "make a particular place an appropriate and effective arena in which to conduct international arbitration".
  • New CIArb Business Arbitration Scheme(BAS) introduced: under the new BAS, a sole arbitrator can be appointed to deal with small to medium-sized claims of between £5,000 and £100,000. The arbitrator's final award, which must be given within 90 days of the arbitrator's appointment, will be final and binding. A fixed fee of £1,250 plus VAT is payable to cover administration costs and the arbitrator's fees. There will also be a limit on the amount of recoverable legal costs. Click here to read more.
  • New ICC report on arbitration costs: a report has been published by the International Chamber of Commerce (ICC) on decisions on costs in international arbitration. The report considers the allocation of costs by arbitrators and how to encourage efficient and cost-effective procedural conduct. Click here to access the report.
  • ICC to give reasons: in a step designed to enhance transparency and clarity, the ICC International Court of Arbitration announced that it will now give reasons for some of its administrative decisions under the ICC Rules of Arbitration (where parties agree) including those relating to: arbitrator challenges; the decision to start new proceedings and to replace an arbitrator on the court's own initiative; consolidation of proceedings; and prima facie decisions on jurisdiction (see the ICC notice). Parties need to request reasons and should be aware that there will be a consequent increase in the administrative fees charged.
  • New RICS Construction and Engineering Arbitration Service: a new arbitration service has been launched by the Royal Institution of Chartered Surveyors (RICS) to deal with construction and engineering disputes. On offer is a fast-track arbitration service for disputes under £100,000 with a six-month turnaround and a select arbitration service with a 12-month turnaround for the arbitration award, which has been designed as a "viable alternative" to proceedings in the TCC. Click here for more information.

For more information on any of the above, please contact any of the team listed on the right.

Shorter and flexible trials for some construction disputes – and why we need them

The new pilot schemes

Two new schemes were introduced into the Rolls Building courts last autumn under Practice Direction 51N, which will enable some disputes to be handled in a slimmed down, speedier and more cost-effective manner. Both the Shorter Trials Scheme (STS) and the Flexible Trials Scheme (FTS) will operate as pilot schemes in the Rolls Building courts, including the Technology and Construction Court (TCC), until 30 September 2017.

In brief:

  • The STS shortens the usual litigation timetable to enable the trial to take place within eight months of the case management conference (CMC). It will not be appropriate for some cases including public procurement cases and those that involve multiple parties, extensive disclosure or witness/expert evidence.

The STS can be proposed or agreed in the pre-action stages or during the proceedings. The pre-action protocols will not apply and nor will the cost budgeting regime unless the parties agree to it.The CMC will take place approximately 12 weeks after the acknowledgement of service of the claim form is due and the case will be allocated a designated judge at that time. The duty of disclosure is less onerous: the parties must disclose documents on which they intend to rely at the same time as serving their page-limited claim form and defence although the other party can request more documents if necessary. Evidence will also be limited. Shortcuts to speed up the process are available for use in relation to pre-action procedure, applications, costs management and appeals.

The trial should last no longer than four days and there will be a summary assessment of costs if the parties are not able to reach agreement. Judgment is given within six weeks of the trial or final written submissions.

  • The FTS hands control over the procedure to the parties, who can agree on what is appropriate for their particular dispute. Parties must agree to use the FTS before the CMC and must then tell the court. The court cannot transfer any proceedings to the FTS without the parties' agreement.

A limited, default procedure is available (see Practice Direction 51N, paragraph 3.9) and can be adapted by the parties before the CMC. The court will give directions for the conduct of the proceedings in accordance with the flexible trial procedure and any variations agreed by the parties although the court will retain discretion to give alternative orders where there is good reason.

So why do we need these new pilot schemes in the TCC?

Construction dispute resolution: the current landscape

Construction disputes are both labour and time intensive: being a party to a claim in the Technology and Construction Court (TCC) can be an expensive business – especially when you factor in the onerous requirements of modern litigation including extensive cost budgeting obligations.

The TCC case of GSK Project Management Limited v. QPR Holdings Limited [2015] EWHC 2274 (TCC) perfectly summed up the dilemma of how to keep costs proportionate to the claim, a problem which faces most parties currently involved in construction disputes. The GSK case involved a dispute over a final account of £805,000 and a related counterclaim for defective works. The parties agreed to a four-day trial and budgeted accordingly: the claimant's estimate of costs was £825,000 to trial and the defendant's were £456,000. However, the court found these budgets disproportionate and only allowed the claimant a budget of £425,000, which in effect meant a budget of £115,000 after taking into account costs of £310,000 already incurred. This decision is not unusual and followed other examples of cases where the TCC limited the costs parties could recover through the cost budgeting regime.

Practitioners and seasoned veterans of construction dispute resolution are all too aware that the costs of resolving a construction dispute of £500,000 are, broadly speaking, the same as those involved in resolving a dispute of £3 million. The only difference is that the costs incurred in the latter case might appear proportionate while in the former they will seem entirely disproportionate.

These costs issues have led to the polarisation of dispute resolution practice in the construction and engineering industry. TCC litigation is considered a last resort for parties with substantial (multi-million pound) disputes. Such claims are often complicated (such as professional negligence) and can only be considered against an opponent which is financially able to meet any judgment and order for costs. In almost every other case, adjudication is the preferred method of dispute resolution and, thanks to the TCC's rigorous approach to adjudication enforcement, litigation subsequent to the adjudication decision is relatively rare.

"Diet litigation": why we need shorter and more flexible trials

Today, parties in domestic disputes are left with a stark choice: embark on a full blown piece of TCC litigation with all its time and cost implications or accept the "rough justice" (but welcome cost predictability) of an adjudication.

For quite a while now there has been a real need in the dispute resolution market for an option which "bridges the gap" between current methods of litigation and adjudication. This is why the recently introduced Shorter Trials and Flexible Trials Pilot Schemes are potentially significant. They offer a form of "diet litigation" and raise the hope of a faster and cheaper forum of dispute resolution with the added benefit of the TCC's high-quality decision-making prowess.

Will the pilots deliver more trials that are flexible and shorter?

In theory, the schemes have all the ingredients necessary to encourage their widespread use quite apart from their obvious cost and time benefits. Numerous cases require little witness and expert evidence and, for such cases, the simplified procedures now on offer will be attractive to parties who value a decision by judges with extensive experience of technical disputes.

The potential to avoid costs management in the Shorter Trials Scheme is also an appealing benefit as is the simplification of the disclosure process. Disclosure is the most time-consuming and cost-intensive stage of modern TCC litigation: anything designed to limit its burden in appropriate cases and reduce costs is to be welcomed.

However, it is easy to foresee some problems which might affect the take-up of the pilot schemes – particularly in the early months while everyone becomes accustomed to the new processes. For example, the parties must determine early on whether their dispute is straightforward enough to be covered by the schemes. That assessment is not always easily or quickly made. A defendant in particular might bebombarded with information by the claimant with very little time available for its review (the so called "claimant ambush"). The authors of the Shorter and Flexible Trial Procedure Guide (the Guide) recognised this problem and tried to restrict it with a costs order warning:

"... the court is alive to the risk that a well-prepared claimant may attempt to use the scheme to 'ambush' a defendant during the pre-CMC period. The court may sanction such behaviour in costs if a claimant has acted in an oppressive or unfairly prejudicial manner." (See paragraph 7 of the Guide.)

While neither scheme is compulsory, it is to be hoped that the judiciary in this post-Jackson world will "encourage" parties to initiate or consent to one or other of the processes where appropriate. Let us also hope that, should the schemes prove popular, the courts will have capacity to list the hearings and trials in the required timescales.

The schemes have the potential to provide a halfway house between the "rough justice" offered by adjudication and the time and cost intensive rigour of TCC litigation. The schemes may not be perfect or suitable for all cases but then that is the purpose of a "pilot". Only with use and practice will the benefits and disadvantages be discovered so that these schemes can be refined to provide dispute resolution options that meet the needs of the courts' consumers.

In the meantime, the new pilot schemes are useful tools every practitioner should have on their menu when advising parties on how to achieve cost-effective and timely dispute resolution.

To discuss the procedure and operation of the pilots, contact Gurbinder Grewal.

Continued court support for mediation: ignore ADR opportunities at your peril

The courts have continued to show their support for alternative dispute resolution (ADR) in a series of recent decisions. Parties involved in or about to embark on litigation should keep in mind that the courts will penalise those who unreasonably refuse to engage in ADR to resolve their dispute. Those who remain unconvinced of the benefits of procedures such as mediation need look no further than the decision in Gresport Finance Ltd v. Battaglia [2015] EWHC 2709 (Ch).

The defendant, who had previously agreed to mediate but then failed to show up to the mediation, had applied to the court for security for costs1 from the claimant under CPR 25.13(2)(c). We need not go into the details of that application. Of more interest for the purposes of this briefing is the master's view that the defendant's failure to turn up to a mediation – without explaining why – was a "very serious matter" amounting to serious misconduct. As such, the court could consider the defendant's behaviour as one of the factors when exercising its discretion whether to award the defendant security for costs from the claimant.

While the failure to attend was not an abuse of process, the master said "the parties are under a duty to try to resolve their differences by ADR and the failure to attend a mediation meeting, having agreed to do so, is serious misconduct the court is entitled to take into account in an application where that party is asking the court for relief on the ground that it is just to make the order sought".

The failure to attend the mediation without valid explanation, combined with the defendant's other poor conduct including for example ignoring the claim initially, providing misleading evidence and making the security application late, proved fatal to the defendant's application."

Most telling, however, was the master's conclusion (see paragraph 52 of the judgment): "Even absent any other factors, to my mind, the defendant's misconduct in failing to honour his agreement to attend a mediation would be sufficient to entitle the court to dismiss the application."

While it is rare in reality for a party not to turn up to a mediation, the master's decision is another example of how a party's disregard for ADR procedures can affect the way the court will deal with substantive applications during the proceedings.

In another recent example, Reid v. Buckinghamshire Healthcare NHS Trust [2015] EWHC B21, the court was asked to decide on an appropriate costs sanction where the losing party had unreasonably refused to mediate. The master's decision in awarding the winning party its costs on an indemnity basis from the date of the offer to mediate both evidenced his disapproval of the losing party's behaviour and confirmed that sanctions for refusals to mediate can apply to losing parties as well as winning.

Parties should ignore ADR opportunities at their peril – whether a winner or loser, unreasonable refusals to mediate are likely to be penalised.

New CIArb Arbitration Rules 2015

The Chartered Institute of Arbitrators (CIArb) has launched its new CIArb Arbitration Rules 2015 to replace the current CIArb Arbitration Rules 2000. Based on the UNCITRAL Arbitration Rules 2010, they came into force on 1 December 2015.

With the increasingly international appeal of arbitration, the old CIArb rules have been disadvantaged by their focus on the UK domestic market. The CIArb hopes the new rules, with their international application, will help to extend the CIArb's reach and the rules' practice. The new 2015 rules adapt the UNCITRAL rules in key ways to improve efficiency and usability. For example, the rules include:

  • a new set of procedures to govern emergency relief which aims to ensure that an emergency arbitrator can be appointed in less than two working days. Parties will now need to opt out of new provisions on emergency proceedings which will otherwise apply automatically to arbitration agreements made after 1 December 2015;
  • optional clauses to allow parties to tailor the process to their circumstances, including for example a checklist of matters which can be considered at the case management conference (see Appendix II);
  • provision for the parties to apply to the CIArb for a decision on challenges to arbitrator appointments. A new administrative court is being established for this purpose to ensure that such proceedings can be dealt with fairly, efficiently and transparently;
  • provision to empower the tribunal (at the request of a party) to allow third parties to be joined in the arbitration, provided they are a party to the arbitration agreement; and
  • a waiver of the right to appeal the arbitration award.

For more information, please contact Akin Akinbode.

CPD update for in-house lawyers: changes to legal training

The form and style of learning and development for lawyers has changed immensely over the last few years. Most now acknowledge that accumulating an arbitrary number of training hours each year is no longer a guarantee of competence. In addition, a one-size approach for all is not suitable for today's diverse profession.

In recognition of these issues, the SRA announced a new "continuing competence" approach to continuing professional development (CPD) and the rules relating to legal CPD will soon change. The new scheme will not be implemented until 1 November 2016 and, until then, solicitors can choose to stick with the old system of gaining 16 hours of training each year or opt in to the new system. Further advice and assistance is available on the SRA website and, in particular, see the SRA toolkit.

If you would like training for your team on construction law and the commercial issues that face construction businesses, please contact Gurbinder Grewal.

Footnote

1 A defendant can obtain security for its costs from the claimant in litigation proceedings in certain circumstances, including, for example, where the claimant is a company or other body (whether incorporated inside or outside Great Britain) and there is reason to believe that the claimant will be unable to pay the defendant's costs if ordered by the court to do so.

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