UK: The Current Landscape For Construction Disputes

Last Updated: 12 November 2008
Article by Patrick Perry and David Broadmore

Following the Wembley Stadium litigation, in this article we examine the current trends in dispute resolution and consider the options available to construction professionals.

After £22 million in legal fees (including a £1 million photocopying bill!), two rounds of preliminary issues, two trips to the Court of Appeal, and finally a three month trial, Multiplex was awarded £6 million in damages in its dispute with Cleveland Bridge, the steelwork contractor for Wembley Stadium. With Multiplex being awarded only 20 per cent of its costs, as Mr Justice Jackson observed, the result of the litigation is that neither party has gained any significant financial benefit.

Does the Multiplex dispute represent a return to the old days of "trench warfare" litigation for the construction industry, or was it a one off? We examine the trends in dispute resolution below.

Adjudication

Adjudication remains the most popular method of resolving disputes in the construction industry. The adjudication process involves an independent third party (an "adjudicator") making a rapid decision (usually within 28 days) in relation to a dispute between the parties. The process is more informal than court proceedings, often conducted without any oral hearings. It is generally seen as a quick and relatively inexpensive process. The adjudicator's decision is binding subject to the parties' right to refer the decision to arbitration or the courts. Following the glut of appeals to the courts after adjudication was first introduced through the Housing Grants Construction and Regeneration Act (HGCRA) 1997, it is now rare for an adjudicator's decision to be challenged.

The number of adjudications (as reported by the Adjudication Reporting Centre) has generally fluctuated between 1,500 to 2,000 per year. There has been a slight reported decline over the last 12 months. This may reflect the concern we have felt in the industry over the quality of some adjudicators and their decisions and the fact that the process does not end up being as cheap as envisaged. The fact that the successful party generally cannot recover his costs from the loser, can make the process a painful one, which absorbs huge amounts of management time over the short term.

After a lengthy consultation process, the Construction Act 2008 is expected to come into force next year. This is expected to make significant changes to the adjudication process. In particular, it will no longer be a requirement for a contract to be in writing for it to be subject to adjudication. This is likely to lead to an increase in the number of adjudications (particularly on smaller projects where, frequently, written contracts are not entered into). It will also, no doubt, result in significant time and expense being incurred (at the front end) in resolving the precise terms of the contract under dispute.

The proposed new Act will also have an impact on the costs of adjudication. Currently, the HGCRA is silent on who pays the cost of adjudication and adjudicators have no power to make costs orders (unless the parties agree otherwise). As a result, many construction contracts require the referring party to pay all the costs of the adjudication, which discourages parties from using adjudication.

However, under the new Act, parties will not be able to agree who pays the costs of the adjudication until after the adjudicator is appointed. In addition, under the new Act, even if the parties agree on who pays the costs of the adjudication after the mediator is appointed, the adjudicator will have the power to decide the reasonableness of those costs.

Parties to construction contracts and their insurers will need to be ready for these changes. As construction professionals will be aware, the courts have held that claims against construction professionals can be adjudicated, provided the adjudicator is able to reach a fair decision within the time allowed by the parties.

Arbitration

In arbitration, the parties resolve their dispute by referring it to a third party (an "arbitrator") and agreeing to be bound by the arbitrator's decision ("the award"). The arbitrator will be a legal or technical expert, and may even be a judge. The benefits of arbitration are that it is usually final (and with limited rights of appeal) and enforceable by the courts, the proceedings and the award are usually confidential, the parties can elect the procedure for the arbitration, and the parties can decide what qualifications the arbitrator must have and how he or she will be selected.

However, arbitration can still be costly. You have to pay for the services of the arbitrator, which will be far more expensive than any court fees. There will usually still be requirements to exchange documents, submit factual and expert evidence, and have an arbitration hearing. It may be for these reasons that arbitration, like litigation, has fallen in popularity over the last 10 years. Institute of Civil Engineer ("ICE") arbitrations have fallen from 21 in 2000 to only three in 2007, and Royal Institute of British Architect ("RIBA") arbitrations have declined from 53 in 2000 to 18 in 2007.

The decline in popularity of arbitration was reflected in the JCT 2005 suite of contracts, where the default position is now that disputes are to be litigated through court proceedings, rather than arbitrated.

However, we predict a rise in the number of arbitrations over the next few years. In our experience, clients have felt that a streamlined arbitration process, with active case management by the arbitrator, can prove a more effective form of dispute resolution than adjudication. It provides a final solution, where costs can be awarded, and reduces the risks of going through the process all over again through the courts.

Dispute Boards

A Dispute Board is an impartial panel (combining a range of construction professionals from lawyers to engineers), appointed by the parties at the outset of a project. The panel visits the construction site periodically (for example, quarterly) to deal with any actual or potential disputes. Decisions made by the Dispute Board are temporarily binding (subject to challenge by court or arbitration proceedings). The decisions help the parties to resolve issues before they escalate into major disputes. However, decisions of Dispute Boards are not enforceable and their decisions can only assist the parties to avoid major disputes.

The construction contracts for the London Olympics provide the opportunity for parties to refer potential disputes to an Independent Dispute Avoidance Panel ("IDAP"), which is intended to perform a role similar to a Dispute Board. The IDAP is a 10 person panel that will deal with potential disputes, with a view to preventing claims from arising.

Mediation and negotiation

Mediation is the use of an independent third party (a "mediator") to improve dialog between the parties and achieve a resolution without recourse to proceedings. The JCT 2005 wording expressly provides for the possibility of resolution by mediation. Mediation is quick, confidential, and can encompass a variety of settlement options. However, it relies on agreement between the parties, so if the parties cannot resolve their differences, there will be no binding resolution.

King's College London has recently completed a survey designed to reveal the circumstances in which mediation is a real alternative to litigation for construction disputes. The final results will be published towards the end of this year, but the interim results reveal that about one third of claims that were commenced in the Technology and Construction Court ("TCC") but which settled, settled as a result of mediation. However, almost two thirds of those claims settled as a result of conventional negotiation.

Whilst there are a variety of mechanisms available to construction professionals to resolve disputes, the most appropriate method of dispute resolution will depend on the quantum and complexity of the dispute, the number of parties involved, and the terms of the relevant contract. In many circumstances, conventional negotiation may be the best and most effective means of dispute resolution.

Litigation

Traditionally, construction disputes were always litigated, usually in the TCC or its predecessor, the Official Referees' Court. Until recently, the number of claims issued in the TCC continued to decline steadily from 1,778 claims in 1995 to only 364 in 2005. However, the TCC's workload has increased over the last two years, with 392 claims issued in 2006 and 407 last year. The recent appointment of new, highly respected, judges to the TCC, and the ongoing development of the TCC services will, in our view, result in this trend continuing.

Do parties still insist upon having their day in court? Of the 407 claims issued last year, only 38 did not settle before judgment. The Multiplex and Cleveland Bridge dispute therefore remains the exception to the rule.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.