Alternative Dispute Resolution legislation for construction contracts

In this article we are going to deal with Alternative Dispute Resolution legislation for construction contracts.

When a construction contract runs into some form of disagreement, it is always best to use negotiation to solve the dispute. Negotiation is free, keeps the dispute between just the contractual parties and lets you keep your Client. Unfortunately, negotiation can lead to the weakest party being railroaded by the strongest party with scant regard to the question of fair justice.

Traditionally, if Negotiation does not work then the most extreme option would be to bring the dispute to the courts system. This is the slowest, most expensive and most acrimonious form of solving a dispute.

Over the years several forms of alternative dispute resolution have been introduced including mediation, conciliation, arbitration and adjudication.

In the opinion of the Stravelles team, Adjudication is the preferential form of dispute resolution after negotiation. This is because Adjudication provides a level playing field between the strongest and weakest of contractual parties and the decision is made an independent third party.

Stravelles run an online video course introducing Adjudication in construction. Our objective is to allow any party to confidently participate in the adjudication process as the referring or responding party without the need for legal advisors to hold your hand. Check out the course below.

Introduction to Alternative Dispute Resolution legislation for construction contracts

There are several forms of Alternative dispute resolution for construction contracts including mediation, conciliation, arbitration and adjudication.

These are the main forms of legislation that deal with these forms of dispute resolution.

Mediation

There is no legalisation for mediation but there are lots of guidance notes out there.

A good resource is the UK Governments website guidance.

Conciliation

No legislation.

Arbitration

The Arbitration Act 1996 firmly establishes Arbitration as a form of dispute resolution. In Arbitration a dispute is submitted to an Arbitrator or Arbitral tribunal for determination. The decision, the Arbitral award will be binding on both parties.

The Arbitration act 1996

Adjudication.

The Housing Grants, Construction and Regeneration Act 1996 introduces Adjudication as a faster, cheaper form of dispute resolution. In Adjudication a dispute is referred by one party to an independent person, the Adjudication who decides the issue. The Adjudicators decision is binding in the interim and must be abided by. The decision once abided by can be referred to Arbitration or the courts system at a later date if required.

The main act is the:

The Housing Grants, Construction and Regeneration Act (The construction Act)

Once The Construction Act became came into effect in 1998, another set of regulations, the Scheme, came into effect and cleared up some loop-holes or grey areas concerning Adjudication:

The Scheme for Construction Contracts (England and Wales) Regulations 1998

 

Consumer rights Act 2015

The Consumer Rights Act provides provisions that market and sell direct to consumers to utilise Alternative Dispute Resolution to deal with possible disputes.

This act applies both to businesses selling products and  tradespeople and consultants selling services direct to customers.

The act is useful for customers and small tradespersons to deal with any issues that arise in say construction contracts for small works around the house.

The Civil Procedure Rules (CPR) 1998

The Civil procedure rules  is a written code of pre-determined procedures which gives the court a duty to systematically deal with cases in a ‘just’ way.

So, the stated ‘over-riding objective’ of the codes is to 1) ensure a level playing field for both parties 2) reduce expense 3) reduce the length of the dispute process.

These objectives naturally lead the code into assessing each potential dispute and deciding which form of dispute resolution is best for them to reach these objectives.

The rules generally push the contractual parties towards attempting to resolve their disputes outside the courts system instead of bring the dispute to trial.

If a dispute is suitable for further negotiation, mediation or conciliation then the courts will push the parties towards these forms of dispute resolution.

Should a case be railroaded through the courts system and alternate forms of dispute resolution have not been attempted then the courts may choose to not award costs to the winning party.

Essentially, the courts recognise that they do not have resources to manage every single dispute and so are pushing back on parties to at least attempt to solve their own issues first before coming to the courts.

Compulsory Alternative Dispute Resolution

Alternative dispute resolution is not always technically compulsory.

There is no legal right to mediation or conciliation or arbitration unless both parties sign up contractually to this.

All parties have the statutory right to refer a dispute to adjudication so you could argue it is ‘compulsory’.

It is fair to say that the courts system want parties in dispute to increasingly resolve issues outside of the courts system. The following cases are good examples of this push towards alternative dispute resolution:

1. Burchell v. Bullard (2005) Court of Appeal.
2. McMillan Williams v. Range (2004) Court of Appeal.
3. McMillan Williams v. Range (2004) Court of Appeal.
4. Dunnett v. Railtrack (2002) Court of Appeal.
5. Hurst v. Leeming (2002)
6. SITA v. Watson Wyatt and Maxwell Batley (2002)
7. Cable & Wireless v. IBM United Kingdom Ltd (2002)
8. Cowl v. Plymouth City Council (2001) Court of Appeal.
9. Brown v. Rice and Patel and ADR Group (2007) Chancery Division
10. Multiplex Constructions Ltd v. Cleveland Bridge UK Ltd and Cleveland Bridge Dorman Long Engineering Limited (2006)
11. Cumbria Waste Management Limited, Lakeland Waste Management Limited v. Baines Wilson (a Firm) (2008)

Encouraging Compulsory Alternative Dispute Resolution

People in general don’t want to solve disputes in the courts system as it is long, costly and stressful. But a lot of parties simply cannot agree through negotiation just between themselves , so mediation, conciliation and other options could get them over the line. Arbitration and Adjudication are both great ways of staying out of the courts system while assessing fair justice.

However, traditionally (and perhaps unfairly) the legal profession is seen as pushing disputes to the courts system as that is where they can bill the most hours and make the most money.

In Halsey v. Milton Keynes NHS Trust (May 2004) the judge pointed out that the losing party should not necessarily have to pay both parties costs if the successfully party unreasonably refused to engage in alternative dispute resolution. A party cannot just force a dispute to the courts system and expect their costs to be paid should they win when there are more suitable forms of resolving the dispute than litigation.

The legal profession is starting to promote these Alternative Dispute Resolutions themselves instead of pushing a dispute to court. This is in part due to decisions should as Burchell v. Bullard (2005) Court of Appeal where both parties spent a combined £180k on a dispute worth under £20k. This is objectively crazy expenditure on resolving a dispute and diminishes the legal profession to the stereotype blood sucking parasite lawyer feeding on peoples disputes and egos.

How can a solicitor in this day and age recommend a Client bring a dispute to the courts when there are several other options on the table that are cheaper, faster and more efficient than entering into litigation

In 2005 the Law Society issued guidance on Alternative Dispute Resolution that legal professionals should bring their Clients through Alternative options to the courts process.

External references

• Chartered Institute of Arbitrators,
• ‘Alternative Dispute Resolution – A Discussion Paper’, The Lord Chancellor’s Department.
• The Institution of Civil Engineers’ Conciliation Procedure 1999 (1999) London: Thomas Telford Publishing.
• Tait J N and Cottam G (1994) ‘The ICE Conciliation Procedure 1994’, Civil Engineering Surveyor, November.
• The Centre for Effective Dispute Resolution.
• Dignan, Sorsby and Hibbert (1996) ‘Neighbour Disputes – Comparing the cost-effectiveness of mediation and alternative approaches’, Centre for Criminological and Legal Research, University of Sheffield. ISBN: 1872998364.
• The Central London County Court Pilot Mediation Scheme– Evaluation Report by Professor Hazel Genn.