Resolving construction disputes: Is there another way?


Author: Christian Charles


This article was previously published on Construction News on 31 May 2016.

Many disputes that arise from construction projects are solved in adjudication – but mediation is an option that should not be overlooked.

It is almost inevitable that disputes of some kind will arise during the course of a construction project. These disputes can usually be resolved without the need for formal dispute resolution proceedings.  However, where formal intervention is required, the construction industry is spoilt for choice.

For instance:

  • we have an established adjudication process, governed by the Housing Grants, Construction and Regeneration Act 1996 and strongly supported by the courts;
  • we have a dedicated construction court, the TCC, with experienced judges who have a sound understanding of construction projects; and
  • the arbitration market is also well established, with a large number of specialist arbitrators and practitioners to call upon.

All of this helps to reassure parties that they will get a fair hearing and that their dispute will be resolved by fair and impartial experts.

However, alternative dispute resolution methods (ADR) are also available and should always be considered as part of any dispute resolution strategy.  In this article, we consider whether parties are making the best use of ADR and, in particular, mediation.

Conventional methods

In our experience, adjudication has become the first port of call for the majority of construction related disputes. Adjudication certainly has many advantages over litigation and arbitration, such as the ability to obtain an enforceable decision within four to six weeks, as well as being significantly cheaper overall.

However, despite its advantages, not all disputes are well suited to adjudication. For example:

  • disputes which require significant expert evidence (e.g. professional negligence or complex delay and disruption claims); and
  • final account disputes where the contract provides that the final certificate is conclusive unless challenged within a certain timeframe.

In general, these disputes are difficult to resolve within the typical adjudication timetable. Further, the costs of adjudicating these more “difficult” cases can escalate quickly, with teams of lawyers and experts working 24/7 to build the best case possible.  Given that adjudicators do not usually have the power to award parties their costs, adjudication can start to look less attractive to potential claimants.

Of course, the parties can also have their dispute determined by court or arbitration proceedings. However, these proceedings inevitably involve a significant commitment by the parties, both in terms of cost and management time.  For instance, court proceedings can take 18 months (or longer) to run their full course, and the costs of taking a claim all the way to trial are prohibitive in all but the highest value cases.

Using mediation

Alternative dispute resolution comes in many different forms but here we will focus on mediation.

Mediation is a process by which the parties and an independent third party discuss the issues in dispute and explore options for settlement. It is a flexible process and the parties can agree with the mediator how the mediation should be conducted.

However, it usually involves the mediator having a series of meetings with the parties (both together and separately) in order to facilitate a settlement.

One of the principal advantages of mediation is cost. The costs of preparing for and attending a mediation are likely to be much lower than the costs of conducting an adjudication or court/arbitration proceedings.

Even if the mediation does not result in a full and final settlement, the process is likely to have been valuable in other ways. For instance, it may help to narrow the issues in dispute, or you may have gained a valuable insight into the other side’s arguments or commercial position.

Mediation has also proved to be an effective dispute resolution tool. In its 2016 Mediation Audit, the Centre for Effective Dispute Resolution reported that 67% of cases settled on the day of mediation, with a further 19% of cases settling shortly thereafter.

Still underused

However, despite its benefits and its impressive success rate, in our experience mediation is still underused. Indeed, one encounters familiar excuses when inviting an opponent to mediate: “it’s too early for mediation”, “the parties are too far apart”, “this case is too complicated for mediation”.  These excuses do not usually bear scrutiny and the courts have indicated that they will not generally accept these as valid reasons for refusing to mediate.

In a number of recent cases, the courts have imposed severe costs sanctions on parties who have refused to mediate – even where the refusing party has subsequently been successful at trial.

We do not suggest that mediation is some sort of panacea: it is not. Every dispute is different and will require its own carefully thought out dispute resolution strategy.  However, parties (and their advisers) should consider mediation as a real alternative to adjudication and litigation/arbitration, and not just a procedural hurdle to jump once formal dispute proceedings are under way.

Christian Charles, Senior Associate, Fladgate LLP (ccharles@fladgate.com)

 

 

 

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