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Dispute resolution in the construction industry: An overviewBy Nicholas Gould |
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IntroductionThis paper provides an introduction to the dispute resolution techniques that are frequently encountered in the construction industry. The focus is the UK domestic market, but international dispute adjudication boards are also considered. Arbitration has been the traditional method for the resolution of construction disputes for many years, until the introduction of a range of ADR techniques, adjudication and the introduction of pre-action protocols in litigation. The three core processes of dispute resolution are considered before introducing the range of frequently encountered techniques. Each of the main dispute resolution techniques is then considered in turn. The purpose is not to delve into the detail of each technique, but to provide an overview and draw out the main distinctions between the processes, whilst setting out the key characteristics of the techniques. The spectrum of dispute resolution techniquesThe “conventional” model of dispute resolution is one of an adjudicative
process, most frequently fulfilled by the Courts. According to Schapiro
the ideal court, or more properly the prototype of the Court, involves(1):
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(1) an independent judge applying (2) pre-existing legal norms after (3) adversarial proceedings in order to achieve (4) a dichotomous decision in which one of the parties was assigned the legal right and the other found wrong. He goes on to say that an examination of the Courts across a range of societies reveals that the prototype “fits almost none of them”. Nonetheless, this does provide a suitable starting point for what one might call the conventional model of dispute resolution. This is clearly at the formal binding end of the spectrum. At the other end of the scale, problem solving between the parties represents the informal, non-binding approach, the successful outcome of which is an agreement to “settle”. In its most basic form direct negotiation provides a simple party, based problem solving technique. A further dimension is added when either party introduces advisers. Nonetheless, the essential feature of this process is that control of the outcome remains with the parties. Litigation and arbitration require the parties to submit their dispute to another who will impose a legally binding decision. Negotiation is a “process of working out an agreement by direct communication. It is voluntary and non-binding.” The process may be bilateral (between two parties) or it could be multilateral (many parties). Each party may utilise any form of external expertise it considers necessary, and this is often described as “supported negotiating”. Mediation is a “private, informal process in which parties are assisted by one or more neutral third parties in their efforts towards settlement.” The new and distinguishing feature here is the addition of a neutral third party who aids the parties in dispute towards settlement. A further important factor is that the mediator does not decide the outcome; settlement lies ultimately with the parties. A distinction is often made between styles of mediation which are “facilitative” and those which are “evaluative”. During a facilitative mediation, the mediator is trying to reopen communication between the parties and explore the options for settlement. The mediator does not openly express his/her opinions on the issues. If, on the other hand, the mediator is called upon to state his/her opinion on any particular issue then he/she is clearly making an evaluation of that issue. Mediation or conciliation refers to a process in which an independent third party reopens or facilitates communications between the parties and so aids the settlement process. The process can be facilitative in that the third party merely tries to aid the settlement process, or evaluative in that the third party comments on the subject matter or makes recommendations as to the outcome. In the UK, the facilitative style of third party intervention is most frequently referred to as mediation, and conciliation is reserved for the evaluative process. ACAS is most widely associated with this evaluative style of conciliation in labour disputes, and more recently the ICE in connection with conciliation in civil engineering disputes. On the other hand, CEDR promotes a style that is more focused towards the facilitative end of the spectrum and refers to this as mediation. The position is not necessarily the same internationally. Mediation refers to a more interventionist evaluative approach in some parts of the world. Table 1: Facilitative and evaluative processes
In practice a mediation which starts off in a purely facilitative way may become evaluative in order to try and reach a settlement. This may occur intentionally, at the request of the parties, or with forethought on the part of the mediator, or unintentionally by the words or actions of the mediator. The boundary is clear in theory, but not necessarily in practice. Nonetheless, at a basic level a distinction can be made between “settlement” processes and “decision” imposing processes. Control of the outcome or the power to settle rests with the parties during negotiation, mediation and conciliation. By contrast, “adjudicative” or “umpiring” processes, such as litigation, arbitration and adjudication, rely on the Judge, arbitrator or adjudicator having the power to impose a decision. Table 2: Settlements and decisions
What we have then are three core techniques which may be employed in
the resolution of disputes. First, negotiation, which refers to
the problem solving efforts of the parties. Second, third party
intervention, which does not lead to a binding decision being imposed
on the parties; finally the adjudicative process, the ultimate outcome
of which is an imposed binding decision. Such an approach has been
adopted by Green and Mackie (1995), who refer to the “three pillars” of
dispute resolution.(2) The discrete techniques may be
introduced under one of the three pillars, depending upon the main characteristics
of the particular technique; see diagram below: |
1. Schapiro, M. (1981) Courts: A Comparative and Political Analysis, Chicago and London , The University of Chicago Press. |
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1 : “The Dispute Resolution Landscape ” Source: Mackie, K. Miles, D. and Marsh, W. (1995) Commercial Dispute Resolution: An ADR Practice Guide, Butterworths, London, p. 50. The chart was derived from a chart by Professor Green of Boston University (1993). Arguably, all dispute resolution techniques are built upon three basic principal methods: negotiation, mediation/conciliation, and some form of adjudicative umpiring process. Disputes pyramid |
2. Mackie, K. Miles, D. & Marsh, W. (1995) Commercial Dispute Resolution , London , Butterworths,. |
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Only very few disputes result in litigation or arbitration. Many disputes are resolved or settled through a wide range of alternative processes. Research by Sarat (1985) demonstrated that an even greater number of claims and grievances emerge but are not pursued.(3) He suggests that the stages of a dispute's manifestation and escalation could be represented visually as a pyramid. This “disputes pyramid” represents the stages in the disputing process. Gallanter makes reference to the disputes pyramid, stating that the lower layers relate to the construction of disputes, whilst the upper layers relate to lawyers and the Courts.(4) He considers that the official system of the Courts and lawyers may be visualised as the upper layers of a massive legal iceberg. Data may be collected on the occurrences of litigation which is in the public domain. He goes on to consider that there are 3 main categories of alternative to litigation:
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3. Sarat, A. (1985) “The Litigation Explosion, Access to Justice, and Court Reform; Examining the Critical Issues”, 37 Reutgers Law Review 299, at p.332. 4. Gallanter, M. (1983) “Reading the landscape of disputes; what we know and what we don't know (and think we know) about our allegedly contentious and litigious society”'. UCLA Law Review 31, p.4. |
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Figure 2: The disputes pyramid |
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Source: Sarat, A. (1985) “The Litigation Explosion, Access to Justice, and Court Reform: Examining the Critical Issues 37” Reutgers Law Review 299, at p. 332. The use of exiting from a relationship will essentially depend upon the availability of alternative opportunities or partners. Unofficial systems comprise a continuum of situations where parties settle amongst themselves by reference to the official rules and sanctions provided by the institutional facilities. (5) |
5. Galanter, M. (1974) Why the “Haves” Come Out Ahead: Speculation on the Limits of Legal Change, Law and Society, Fall, 95-160. |
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Alternative Dispute ResolutionThe term ADR has attracted a great deal of attention in legal and quasi-legal fields since the mid-1980s. However, the 1990s appear to have witnessed an enormous growth in the “ADR debate” with an ever increasing sphere of academics, lawyers and consultants entering the arena. Although the concept of dispute resolution techniques which are an alternative to the Court system is not new, the more recent advent of the acronym is essentially taken to describe the use of a third party mediator who assists the parties to arrive at a voluntary, consensual, negotiated settlement. Whilst the origins of mediation may be ancient and Eastern, the recent more formalised technique has principally developed in the USA.(6) In the UK, mediation was initially taken seriously in the resolution of family disputes.(7) But, has mediation, or other alternative methods, attracted equal attention in construction? Not only is the construction industry important nationally and internationally, but it is also, arguably, the largest industry in the UK; attracting an equally large volume of diverse disputes, across a wide range of values. The literature available indicates that ADR is a widely discussed discipline within the jurisprudence of construction disputes. Many writers provide an anecdotal review of the subject matter. Few writers venture beyond the normative to consider the reality of ADR, and many assume that this term relates only to mediation. In fact, many writers reveal their attitude towards the subject by suggesting that ADR may be taken to mean any of the following:
Nonetheless, some empirical research does exist. The Turner Kenneth Brown Report found that executives responsible for company legal services believed that ADR offered far more advantages than disadvantages, with 75% of the respondents considering ADR developments as a positive step and only 6% considering it negative.(8) Watts and Scrivener provide a comparative analysis of construction arbitration in Australia and the UK.(9) In the US, research by Stipanowich (1996) has documented the rise of mediation, which was first taken seriously by the US construction industry.(10) Apparently the Army Corp of Engineers pioneered the process in order to reduce the high costs of litigation. Stipanowich's recent survey indicates that 76% of the respondents had been involved in mediation during the 12 months preceding the completion of the questionnaire. In the UK, Fenn and Gould completed a project based on Stipanowich's US survey.(11) Surprisingly few mediations appear to have taken place in comparison to the size of the industry. Whilst 70% of the respondents could recount the benefits of ADR, less than 30% had actually been involved in an ADR process. In fact none of the respondents had been involved in more than 5 mediations in the preceding 12 month period. More recently Brooker and Lavers report on their work in the specific area of ADR in construction disputes, and accuse contractors of avoiding mediation.(12) The results of the largest survey of dispute resolution in the construction industry carried out just before the introduction of adjudication set out in N. Gould, and P. Capper, et al.(13) Benefits of ADRMaintains a business relationship The proponents of ADR argue that processes such as mediation can maintain existing business relationships as the parties are aided towards a settlement. Speed The average mediation lasts 1-2 days. The proponents of ADR frequently compare this to a trial lasting years. It is however important to remember that the parties may not be in a position to forge a settlement early on in the dispute process and it may in fact take many months or even years before they are in a position to mediate effectively. Lower cost Clearly a short mediation is a cheaper event than a trial or arbitration. Some argue that lawyers are unnecessary in the process (and therefore a further cost saving is made) while others consider lawyers a valuable addition. Confidentiality The proceedings of a mediation are confidential. Contrastingly, litigation is in the public domain and arbitration may become public if there is an appeal. Confidentiality is an advantage as some clients wish to keep their disputes from the public domain. Flexibility Arbitration and litigation are based upon the rights and obligations of the parties to the dispute. On the other hand a mediated settlement focuses on the parties' interests and needs. The mediator encourages the parties to search for a commercial solution which meets with both parties' needs. Greater satisfaction Many proponents of ADR argue that the ADR process and the outcomes are more satisfying for the parties than a trial or arbitration. Apparently the reaching of a settlement by consensus is viewed as producing high levels of satisfaction for the parties. Research has suggested that high levels of satisfaction are not attained. However, a mediated outcome is still more satisfactory than other forms of imposed decisions such as litigation, arbitration or adjudication. Perceived disadvantages of ADRI will disclose my hand Parties are frequently concerned that they may disclose some important
aspect of their argument which will then aid the other side in the event
that the mediation is not successful and the matter proceeds to trial.
Mackie et al suggest that this belief is more perceived than real and
notes three points.(14) First, if a party has a strong
case then disclosure of the strengths is likely to assist in settlement.
Second, if the party has a weak case then there is perhaps little advantage
in “prolonging the agony”. Third, if as in the majority of instances
the case is not particularly strong or weak then surely it is best to
consider ADR. |
6. Pheng, L. S. (1996) “The Influence of Chinese Philosophies on Mediation and Conciliation in the Far East ”, Arbitration , February, p.16-20. 7. Roberts, S. (1996) “ADR and Lawyer Negotiations” in Odams, A.M. and Higgins, J. Commercial Dispute Resolution, London , Construction Law Press, pp.229-241 8. Turner Kenneth Brown (1993) Alternatives to Litigation in the UK , London , Turner Kenneth Brown Library. 9. Watts , V. and Scrivener, J. (1994) Building Disputes Settled by Litigation. Comparison of Australia and the UK . 10. Stipanowich, T. J. (1996) “Beyond Arbitration: Innovation and Evolution in the United States Construction Industry” 31 Wake Forest Law Review 65. 11. Fenn, P. and Gould N. (1994) “ Dispute resolution in the UK construction industry” DART Conference Lexington, Kentucky, USA, 16-19 October 12. Lavers, A. and Brooker, P. (1997) Contractors Negative attitudes are hindering the development of ADR, paper delivered to Arbrix Club, King's College London 13. Gould, N, Capper, P; Dixon , G. & Cohen, M; (1999) “Dispute resolution in the construction industry, London Thomas Telford, |
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There is pressure to settle Some of those individuals who have experienced mediation suggest that as the process goes on the pressure to settle builds. This is no doubt borne out by the fact that many mediations are over during the course of one day and that frequently the parties and the mediator will work late into the evening in order to forge a settlement. I will give the impression of weakness or liability Some have argued that to suggest ADR or mediation demonstrates a weakness
in the case. While this may have been true at the start of the 1990s
it is arguably less of a disadvantage today. |
14. See footnote 2 |
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Mediation and conciliationTo mediate means to act as a peacemaker between disputants. It is essentially an informal process in which the parties are assisted by one or more neutral third parties in their efforts towards settlement. Mediators do not judge or arbitrate the dispute. They advise and consult impartially with the parties to assist in bringing about a mutually agreeable solution to the problem. A mediator does not impose a decision on the parties in dispute, but assists them to reach their own settlement. The origins of mediation and conciliation can be traced to China some 3,000 years ago. More specifically, China has used these techniques as a primary dispute resolution process whilst other parts of the world have resorted to some form of adjudicative process. State courts have been used as a mechanism to support socialist ideals and, as such, have performed a controlling function with regard to activities considered as criminal.(15) On the other hand, activities relating to commerce fall outside of socialist ideals, as do non-criminal matters relating to private individuals. The resolution of these disputes by informal processes was encouraged in order to maintain “harmony” in the community. More recently, and probably during the past 10 to 15 years, there has been a growing international awareness of the benefits of mediation as a dispute resolution technique. In the US, research by Stipanowich has documented the rise of mediation, which was first taken seriously by the US construction industry.(16) Apparently the Army Corps of Engineers pioneered the process in order to reduce the high costs of litigation. In the UK, this recent move towards mediation under the banner of ADR first developed in the area of family disputes. The commercial sector began to take an interest in the late 1980s and CEDR was formed in 1990 in order to promote ADR in the general commercial setting, primarily through mediation. Specifically in relation to the construction industry, the ICE established a conciliation procedure in 1988. More recently, the Courts have piloted a court-based mediation scheme.(17) AdjudicationThe term adjudication can be misleading. In its general sense it refers to the process by which the Judge decides the case before him/her or the manner in which a referee should decide issues before him or her. More specifically, adjudication may be defined as a process where a neutral third party gives a decision which is binding on the parties in dispute unless or until revised in arbitration or litigation. This narrow interpretation may refer to the commercial use of an adjudicator to decide issues between parties to a contract. The use of an adjudicator is found in a variety of standard forms of contract used in the construction industry.(18) Until recently, adjudication in the construction industry has displayed certain characteristics. First, the Adjudicator is a neutral individual who is not involved in the day-to-day running of the contract. He or she is neither an arbitrator, nor a state appointed Judge. Second, the Adjudicator enjoys his or her powers by virtue of the agreement between the parties. In other words the parties have agreed by contract that the decision of the Adjudicator shall decide the matter for them. Third, the Adjudicator's decision is binding on the parties, and therefore, unlike mediation, the process does not require the co-operation of both parties. Fourth, adjudicators' decisions are usually expressed as being binding until the end of the contract when either party may seek a review of the decision, most commonly by arbitration. Finally, adjudication is not arbitration and is therefore not subject to the Arbitration Act 1996. It follows therefore that an adjudicator's powers are limited to those which are contained in the contract. For example, the DOM/1 (a widely used standard form of subcontract) made use of an adjudication provision in relation to payment and set-off. However, the position changed on 1 May 1998 with the introduction of statutory adjudication under the Housing Grants, Construction and Regeneration Act 1996. Stutory Adjudication The introduction of statutory adjudication under Section 108 of the Housing
Grants Construction and Regeneration Act 1996 was one of the key recommendations
in the Latham Report (1994). Latham recommended that a system of
adjudication should be introduced within all of the standard forms of
contract, unless some comparable arrangement already existed for mediation
or conciliation. He further recommended that the system of
adjudication should be “underpinned by legislation” capable of considering
a wide range of issues and that the decision of the Adjudicator should
be implemented immediately. |
15. Palmer, M. J. E. (1991) “Mediation in the People's Republic of China : some general observations” in Mackie, K. J. (ed.) A handbook of dispute resolution, London , Routledge. p.221-230 16. Stipanowich, T. J. (1994) What's Hot and What's Not, DART conference proceedings, Kentucky , October. 17. Butter, N. (1997) “Mediation and the Courts: first official pilot mediation”, The Expert, September, p. 17 18. McGaw, M. (1992) “Adjudicators, Experts and Keeping out of Court” Legal Obligations in Construction , Constructional Press pp. 605 – 664. |
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Housing Grants Construction and Regeneration Act 1996 The Housing Grants Construction and Regeneration Act received Royal Assent on 24 July 1994. However, those parts relating to construction (Part II of the Act) were not brought into force until the Scheme for Construction Contracts had been affirmed by Parliament. The Scheme and that part of the Act relating to construction commenced on 1 May 1998. At the same time an exclusion order reduced the scope of adjudication in relation to certain statutory provisions, contracts relating to private finance initiative, finance agreements and development agreements. The Act sets out a framework for a system of adjudication. All construction contracts must meet this minimum criterion. Should a contract fail to meet these minimum requirements then the Scheme for Construction Contracts will apply. A consultation document was issued by the then Department of the Environment in November 1996. This document indicated the likely content of such a scheme. However, this document received widespread attention and criticism.(19) Statutory Adjudication - The Process Under Part II of the Housing Grants Construction and Regeneration Act 1996 a party to a construction contract is unilaterally given the right to refer a dispute arising under the contract to adjudication. The Act only applies to “construction contracts” which fall within the detailed definition of Section 104; for example, “architectural design, surveying work or to provide advice on building, engineering, interior or exterior decoration or the laying out of landscape in relation to construction operations” are included within the scope of the Act, whilst contracts of employment are expressly excluded. In addition, a construction contract is defined so as to include an agreement to carry out “construction operations”. Construction operations are further defined in Section 105 to include a wide variety of general construction-related work together with a list of exceptions. A notable exception is a construction contract with a residential occupier. Section 108 sets out the minimum requirements for an adjudication procedure. These may be summarised as follows:-
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19. Enderson, G. (1996) Disputes, Draft Provokes Fury in Construction, 28 March, p.2. |
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The Scheme for Construction Contracts(21) If the construction contract does not comply with the above eight requirements then the Scheme will be implied into the contract. Alternatively, if the construction contract does comply with the above provisions then the parties may include further more detailed provisions and perhaps a procedure for enforcement. Essentially then the parties can achieve compliance with the Act in one of four ways:
Section 114(1) provides that the Secretary of State for England and Wales and the Lord Advocate for Scotland “shall by regulation make a Scheme (‘the Scheme for Construction Contracts') containing provisions about the matters referred to” in the Act. The Scheme for England and Wales was introduced by a statutory instrument which commenced on 1 May 1998 (Statutory Instrument 1998 number 649). In its consultation paper, the Department of the Environment (as it was) stated that: The Scheme may be used to remedy deficiencies in contractual adjudication agreements ... and also to provide payment terms. The Scheme detailed in the statutory instrument is divided into two parts; the first dealing with adjudication, and the second with payment. If a construction contract does not contain adjudication provisions which satisfy the eight key requirements of the Act then the Scheme applies in its entirety. The aim of the Scheme is to provide a series of workable arrangements which detail the mechanics of adjudication in the event that either no provision is made in the contract or an inadequate provision is included in the contract. The Scheme is therefore an attempt to provide a workable adjudication procedure which supplements the skeletal regime in the Act. For example, the Scheme states that the written notice must briefly set out the nature and description of the dispute, the parties involved, details of where and when the dispute arose, the remedy sought and the names and addresses of the parties to the contract. Further, the Scheme contemplates that there may be more than two parties to the contract and requires the notice of referral to be given to “every other party”. In addition, an attempt is made at joinder of related disputes and different contracts and the adjudication at the same time of more than one dispute, but only with the consent of all parties. Alternative standard form rules A range of alternative standard form adjudication procedures have developed from different corners of the industry. The Construction Industry Council (“CIC”) launched the first edition of the Model Adjudication Procedure.(22) The CIC is an umbrella body which seeks to represent both the supply and demand side of the construction industry. At the same time the Official Referee's Solicitors Association produced an adjudication procedure.(23) More interestingly, the Centre for Dispute Resolution (CEDR) was quick to establish an adjudication procedure.(24) At the time 99% of CEDR's work was in the field of mediation, and one might speculate that the development of CEDR's rules related to market sector protection rather than market opportunities, as their rules remind parties that mediation can be used at any time. From a legal perspective it is helpful to consider the construction industry as comprising the building sector and the civil engineering sector. Standard forms for building work have traditionally been dominated by the Joint Contracts Tribunal (“JCT”), while the Institution of Civil Engineers' standard forms have dominated the civil engineering side of the industry. These two bodies have adopted slightly different approaches to the Act. JCT's Amendment 18 was clearly a large scale amendment to the JCT form, and one which included its own adjudication procedures. A large proportion of Amendment 18 has been incorporated in the 1998 versions of the JCT Standard Form Contracts. On the other hand, the ICE chose to produce a stand alone adjudication procedure that is then referred to in the standard forms. In addition, the ICE have attempted to maintain conciliation within the framework of their multi-tiered dispute resolution clause, whilst leaving the engineer's decision as the primary tier. ArbitrationArbitration is a process, subject to statutory controls, whereby formal disputes are determined by a private tribunal of the parties' choosing. According to Stephenson, Lord Justice Sir Robert Raymond provided a definition some 250 years ago which is still considered valid today. An arbitrator is a private extraordinary judge between party and party, chosen by their mutual consent to determine controversies between them, and arbitrators are so called because they have an arbitrary power; for if they observe the submission and keep within due bounds, their sentences are definite from which there lies no appeal.(25) Providing arbitrators stay within the law, there is generally no appeal from the arbitrator's award, and the award may be enforced by the Courts if necessary. Arbitration is essentially a process which is available as an alternative to litigation. The parties must agree to submit their dispute to arbitration and a distinction is often drawn between existing and future disputes. The distinction is of historical importance because some jurisdictions, notably France, would not until comparatively recently recognise agreements to refer future disputes to arbitration. The advantages of arbitration are well rehearsed and include; flexibility, economy, expedition, privacy, freedom of choice of Arbitrator, and finality. On the other hand, the disadvantages of arbitration appear to have been on the increase. In comparison to litigation, where the Judge and court facilities are provided at public expense, the parties to an arbitration will ultimately have to bear the costs of the arbitrator and the facilities. Where, as is often the case in construction, more than two parties are involved in a dispute there is relatively little statutory power to consolidate the actions in one arbitration. Some forms of contract such as the JCT and the FCEC form of subcontract provide for consolidation in limited circumstances. The Arbitration Act 1996 The Mustill Committee in its 1989 report recommended the development of a new arbitration Act. The committee recommended against the adoption of the uncitral Model Law on international and commercial arbitration (“The Model Law”) despite the fact that this has been adopted in a great many countries around the world. The Mustill Committee considered that the existing English arbitration law was sufficiently well developed that the practical disadvantages of enacting a model law would outweigh any advantages. However, the committee considered that the existing law was unsatisfactory for a variety of reasons. Firstly, most of the law on arbitration is to be found in case law and is often only accessible to specialist lawyers. Secondly, the existing statute law was dispersed in a variety of Acts. Finally the disjointed and illogical arrangement of the existing statutes, together with the complex terminology is incomprehensible to the layman. The initiative for a new Act moved gradually forward, first, in a drafting
bid under the Marriot Working Group, and then under the umbrella of the
Department of Trade and Industry. A draft bill was published in
February 1994. According to Ambrose and Maxwell (1997), “the bill
was subject to much criticism and around 2,500 comments were received
during the 5 month consultation period”.(26) In
November 1994, Lord Justice Saville became the Chairman of the Departmental
Advisory Committee (DAC).(27) The new draft was published
in a consultative paper in 1995. (A final report and supplemental
report were published in 1997). The bill was debated in the House
of Lords and then passed on to the House of Commons before being committed
to the Special Public Bill Committee procedure. The Act received
royal assent on 17 June 1996. |
20. Capper, P. (1997) Adjudicator, Dispute Resolution 97, CIC conference on Arbitration, Adjudication and Expert Determination in Construction, London Hilton, 15th January. 21. The Scheme for Construction Contracts ( England and Wales ) Regulations 1998 (SI No. 649) 22. The Construction Industry Council Model Adjudication Procedure First Edition is the TeCSA Adjudication Rules, 2002 version 2.0 23. TeCSA Adjudication Rules 202 version 2.0 24. CEDR (1998) Rules for Adjudication, including guidance notes 25. Stephenson, D. A. (1998) Arbitration Practice in Construction Disputes, 4 th Edition, Spons, London . |
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The Aim of the Arbitration Act Five main objectives underlie the Act:
The first of these objectives is included in Section 1 of the Act: The provisions of this part are founded on the following principles, and shall be construed accordingly - (a) The objective of arbitration is to obtain the fair resolution of
disputes by an impartial tribunal without unnecessary delay or expense; |
26. Ambrose, C. and Maxwell, K. (1997) London Maritime Arbitration , London , LLP, p. 9. 27. The Right Hon Lord Justice Saville (1997) Departmental Advisory Committee on arbitration law, report on the arbitration bill (Feb 1996) & supplementary report on the Arbitration Act 1996 (Jan 1997) |
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The Process of Arbitration The process of arbitration can be considered under four main headings:
The Agreement to Arbitrate Parties can agree to arbitrate once a dispute has arisen, or more commonly they may agree to refer future disputes to arbitration should the need arise. Section 6(1) of the Arbitration Act recognises this distinction and defines an “arbitration agreement” as “an agreement to submit to arbitration present or future disputes. The definition does not restrict arbitration to merely contractual disputes, and could include a range of matters such as tortuous claims. There are limits to the kinds of dispute which may be “arbitrable” for example criminal matters cannot be settled privately by arbitration. Section 6(2) of the Act states that a reference to an agreement that
does contain an arbitration clause constitutes a valid agreement to arbitrate.
This resolves a frequently encountered problem in the construction industry.
The case of Aughton Limited v M.F. Kent Services Limited(28)
found that merely referring to a standard form contract which contained
an arbitration clause did not amount to an agreement to arbitrate.
The parties needed to include a written agreement to arbitrate in their
primary agreement. Section 6(2) apparently solves this problem. |
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An arbitration agreement must be in writing, but this is interpreted widely and includes any method of recording the agreement such as electronically or on tape. The agreement to arbitrate need not be complicated. In fact, the words “English Law – arbitration, if any, London according to ICC rules”, has been held to constitute a valid arbitration agreement which provided for arbitration in London under the ICC rules in accordance with English Law.(29) In practice a detailed arbitration agreement is recommended in order to avoid arguments over the validity of the agreement, provide a method of appointing an arbitrator and establish the arbitrator's powers. The JCT 1998 Editions of the Standard Form of Contract provides an arbitration agreement which the parties may choose to adopt. Article 5 of the contract contains the agreement to arbitrate, whilst clause 41 deals with issues such as the appointment of the arbitrator, the joinder of additional parties, the reviewing of certificates and instructions, the nature of the award, ability to appeal and also confirms that English Law is applicable. It states what to do if the arbitrator dies or ceases to act and provides that the arbitration is to be conducted in accordance with the JCT arbitration rules. These rules provide a detailed structure for the arbitration process. The Arbitrator A variety of methods exist for the appointment of arbitrators. An arbitrator or arbitrators may be appointed by agreement of the parties. Alternatively, the parties may have agreed that an institution will appoint an arbitrator on their behalf. Alternatively, the Court may appoint an arbitrator. The most frequently used method in construction contracts is to provide a timescale within which the parties can agree the name or the sole arbitrator, failing which either party may request that the president of a professional institution select and appoint an arbitrator. Section 33 of the Arbitration Act requires that the tribunal should: (a) Act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and (b) Adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined. The arbitrator's dilemma is to progress the arbitration and issue an
award which deals with the matters in dispute whilst acting fairly and
impartially between the parties. At the same time the arbitrator
must not exceed his or her powers but must observe the agreed procedures
whilst dealing with all of the issues raised.(30) |
28. [1991] 57 BLR 1 29. Arab African Energy Corporation Limited v Olieprodukten Nederland B.V. [1983] 2 Lloyd's Rep 419 |
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Section 29 states that an arbitrator is not liable for anything done or omitted in the discharge of his function as an arbitrator unless the act or omission is in bad faith. This immunity does not apply if the arbitrator resigns. However, the Court has a power to grant the arbitrator relief from liability if the Court considers that it was reasonable for the arbitrator to resign.(31) The arbitrator obtains his or her powers from the agreement between the parties, the applicable rules and the Arbitration Act 1996. The Act provides the arbitrator with wide-ranging powers, all of which are subject to the agreement of the parties. The Procedure Arbitration is commenced when one party sends the other a notice stating that a dispute has arisen between them and refers it to arbitration. If an arbitrator has not been named in the contract, then the party will also send a “notice to concur” in the appointment of an arbitrator. If the parties are unable to agree on a arbitrator then it is common for the professional institutions to appoint one, although this can only be done if the parties have agreed that this mechanism is appropriate. Most commonly, a procedure for default appointment is included within their contract. Arbitration rules may adopt one or more of the following three possibilities:
The procedure without a hearing anticipates that the arbitrator will make an award based on documentary evidence only. The parties support their statements with a list of relevant documents together with a copy of any documents upon which they rely. The short procedure may be appropriate for disputes which are simple in nature. The timescales are short, allowing only 28 days for the entire process. This procedure is not frequently used. However, when it is used it is not uncommon for the parties to agreed to extend the timescale. Finally, the full procedure with a hearing provides that the parties will serve their statements of case and that the arbitrator will conduct a full oral hearing. Often the parties will be legally represented, expert witnesses are appointed and evidence is given under oath. The Award and Enforcement The Arbitrator's award is final and binding on the parties unless they agree to the contrary.(32) Section 66 of the Act provides that the award may, with leave of the Court, be enforced as if it were a judgment of the Court. The ability for a party to challenge the award is extremely limited. On issuing the award the arbitrator becomes functus officio. This means that the arbitrator's duty and powers are at an end and save for minor corrections the arbitrator is relieved of his task. Frequently, the arbitrator may make more than one award, each award dealing with different issues. These “partial awards” or “interim awards” could relate to a part of the claim or an issue that affects the whole of the claim.(33) An interim award is not provisional in nature but is final and binding with respect to the issues with which it deals. The benefit of interim awards is that a major issue can be dealt with by the arbitrator as a preliminary points which dispenses with the need to spend time and money on related issues. The resolution of an important issue early in the proceedings may lead the parties to settle the whole of the dispute. Should the parties settle the dispute, then the arbitrator may issue a consent award which records the parties agreement. Such an award is capable of enforcement in the Courts. Unless the parties have agreed otherwise then the arbitrator has the power to award a wide range of remedies:
In addition, Section 49 of the Act provides that the arbitrator can unless otherwise agreed by the parties award simple or compound interest. This is an interesting provision as in most instances the Court can only award simple interest. Rarely does the Court have the power to award compound interest. Litigation in the Technology and Construction CourtPart 60 of the CPR deals with Technology and Construction Court claims. The Technology and Construction Court means any court in which TTC claims are dealt with in accordance with Part 60. A claim may be brought in accordance with Part 60 as a TTC claim if: (a) it involves issues or questions which are technically complex;
or The practice direction gives examples of claims which may be appropriate, and these include:(34) (a) building or other construction disputes including claims for the
enforcement of the decisions of Adjudicators under the Housing Grants,
Construction and Regeneration Act 1996; The above are set out in the practice of direction by way of example. A TCC claim forms a part of the specialist list, and is dealt with by a TCC Judge. A TCC claim must be issued in the High Court in London, a District Registry of the High Court, or a County Court specified in the practice of directions. All claims are treated as allocated to the multi-track and so Part 26 does not apply. An appropriate TCC claim that has not been commenced in the TCC, can be transferred by application to a TCC Judge. One of the key characteristics of the TCC is the management of the case by the Judge. A TCC Judge is assigned to the case at the commencement of the proceedings. The Court fixes a date for a Case Management Conference at the outset. The Practice Direction states that a Case Management Conference will be fixed within 14 days at the earliest of: (i) the filing of an acknowledgement of servicing; Before 1998 the TCC was known as the Official Referee's Court. The post of an Official Referee began by virtue of Section 83 of the Judicature Act 1973. The original role of an Official Referee was simply limited to investigation and report on matters of fact which had been referred to the Official Referee. The role of the Official Referees developed, until 1998 when their importance was recognised by the Lord Chancellor. From 9 October 1998 the Official Referee's Court became known as the TCC, and the Official Referees' as TCC Judges who were from then on to be addressed as “Your Honour”. The Judge in charge of the Technology and Construction Court is the Honourable Mr Justice Forbes. He has produced a very useful guide to the TCC dated 19 December 2001.(35) The guide produces an overview of the work of the TCC and an introduction to the key stages in the TCC litigation processes. |
30. Section 68 31. Section 25 32. Section 58 33. Section 47 34. 2.1 of the TCC practice direction |
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Some Features of Construction Litigation The contract may say that the architect or engineer is to certify as a condition precedent some right, or if a certificate is given then it is final, binding and conclusive. This is the case unless it can be set aside, so the question that often arises in construction disputes is the status of an architect or engineer's certificate. The problem was compounded by the case of North Regional Health Authority v Derek Crouch.(36) The Court of Appeal compared the powers of the Court and of arbitrators under the JCT 1963 Standard Form of Building Contract. The term in that contract gave the arbitrator power to “open up, review and revise any certificate, opinion, decision…as if no certificate, opinion, or decision had been given.” The question was whether, if a dispute was to be determined in court, the Court had the same power as an arbitrator. In the case of Crouch the Court of Appeal held that the Court did not. For some time it was argued that the best forum for construction disputes was that of arbitration because of this additional power that the arbitrator enjoyed. However, the Court could declare a certificate inoperative if the architect did not have the power to issue it. However, Crouch was overruled by the House of Lords in the case of Beaufort Developments (NI) Limited v Gilbert Ash (NI) Limited.(37) The interesting question is whether this issue has only been overruled in respect of the JCT contracts, or whether indeed it has a wider scope such that any court has the same powers as an arbitrator. If a contract contains an arbitration clause, then a dispute arising under that contract must be referred to arbitration. Section 9 of the Arbitration Act 1996 states that the Court shall stay a matter in litigation if there is an arbitration clause unless that clause is “null and void, inoperative or incapable of being performed”. Disputes are often of a technical nature, and so expert evidence is frequently encountered in construction litigation. There are often many matters forming the subject of the dispute, and so a form of pleadings known as “Scott Schedules” is common. Scott Schedules are basically tabulated schedules where each of the individual matters are dealt with in a single row. The column headings provide the opportunity to give each item a serial number, identify it by reference, set out the nature of the breach complained of, together with comments and an amount of money in respect of that item. Further blank columns are then provided giving the other party an opportunity to comment and also the provision of a final column for the Judge to make a decision and decide the amount due. Given the interaction of many issues in construction disputes the costs are often high even if the amount in dispute is low. Cross-claims are also common. For example a claim for additional money may be met by a defects claim. Such cross-claims often raise difficult issues of the fact and more, thus contributing to the high costs of construction litigation. Finally, many parties are involved in construction projects, and so it is not unusual for the litigation to involve many parties. Pre-action Protocol for Construction and Engineering DisputesThe Pre-action Protocol for Construction and Engineering Disputes states that it applies to all construction engineering disputes, including professional negligence claims against architects, engineers and quantity surveyors.(38) A claimant is, however, not required to comply with the Protocol if the proceedings are for the enforcement of an adjudicator's decision, including a claim for interim relief, will be subject to the claim for summary judgment under Part 24 of the CPR, or relate to the same issues that have been the subject of an adjudication or some other form of ADR. The objectives for the Protocol are to encourage the early exchange of
information about the proposed claim so as to enable the parties to review
their respective positions and hopefully avoid litigation by agreeing
to settle the matter before commencing proceedings. If proceedings
cannot be avoided then the Protocol is to assist in the efficient management
of the proceedings once litigation has commenced. |
35. The Hon. Mr Justice Forbes (2002) The Technology and Construction Court Guide 36. [1984] QB 644 CA 37. [1999] 1 AC 266 HL |
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The Court is concerned with “substantive compliance”, and may award cost sanctions against a party for non-compliance. In the case of Paul Thomas Construction Limited v (1) Damian Hyland (2) Jackie Power it was held that the appropriate sanction is in order that the Claimant pay the costs of the action on an indemnity basis.(39) In that case, the Claimant had been unreasonable in that the action had been commenced even though the Defendant was taking steps to appoint a surveyor to review the claims. Further, the Claimant completely ignore the Pre-action Protocol. The Pre-action Protocol requires the Claimant (or his solicitor) to send to each of the proposed Defendants a copy of the claim letter. A clear summary of the facts should be provided, together with the basis upon which each of the claims is made. If contractual terms or statutory provisions are relied upon, then they should be clearly set out. The nature of the relief claimed should also be set out together with a breakdown showing how the damages have been quantified. If experts have been appointed, then the identity of those experts should be revealed. Within 14 calendar days of receipt of the Pre-action Protocol claim letter, the Defendant should acknowledge the letter. If the Defendant does not acknowledge the letter in 14 days, then the Claimant can commenced proceedings. If the Defendant intends to object to any or all of the claim then the Defendant must within 28 days from receipt of the Pre-action Protocol claim letter respond by setting out the objections and the grounds upon which the Defendant relies. The claimant need not set out all of its objections, but if it fails to do so the Court might take that matter into account when considering the question of costs if issues are raised as subsequent litigation. If the Defendant does not issue its letter within the period of 28 days, then the Claimant is entitled to commence proceedings. If the Defendant issues its response, it may of course include a counterclaim. Equivalent time periods are provided for the Claimant to respond. Once exchange of correspondence has been concluded the parties should hold a Pre-action Protocol meeting. The aim of that meeting is for the parties to:
The parties should also attempt to agree the extent of expert evidence, whether the joint expert could be appointed, and the extent of disclosure. A Pre-action Protocol meeting is disclosable to the Court, but only to the extent that the meeting took place, where the meeting took place and who attended. If a party refused to attend then the grounds for such refusal are also disclosable as are the reasons why a meeting did not take place or why any agreement could not be concluded between the parties. Anything else said at a Pre-action Protocol meeting is said on a without prejudice basis. Hybrid and multi-stage techniquesThis section considers “hybrid” variations to the core processes, together with a range of “multi-stage” procedures. A variety of dispute resolution and conflict avoidance mechanisms are explored. Approaches such as the DRA and DRB seek to deal with conflict early on and avoid the formation of full-blown disputes. Multi-stage procedures are also considered. Med-Arb Med-Arb is essentially a hybrid ADR two-stage process. In the first stage the parties attempt to settle their dispute amicably in the forum of mediation. If settlement cannot be found then the parties move to the second stage: arbitration. The essential characteristic of this technique is that the mediator in the first stage becomes the arbitrator for the final and binding stage. The commitment by the parties to use this process may arise either through the contract in the form of a multi-stage dispute resolution clause or alternatively the parties may agree to bind themselves to Med-Arb once a dispute has arisen. The apparent advantages of Med-Arb are that it combines the benefits and possibility of a mediated settlement with the finality of arbitration. As Newman et al points out: Med-Arb recognises that arbitration may not resolve all the issues between the parties but limits the arbitration solely to the intractable disputes, thereby bringing a cost and time saving to the parties.(40) Some commentators have expressed their concerns over such a procedure.
Is it not the case that Med-Arb compromises the intermediary's capacity
to act, initially as a facilitative mediator and then in an adjudicative
capacity, without restricting the flow of information. The fundamental
objection to such an approach is that the parties will not wish to reveal
confidential information during private sessions with the mediator which
may then taint the mediator/arbitrator's view of their case during the
arbitration. |
38. The Pre-action Protocol for Construction and Engineering Disputes (August 2000) 39. [2002] CILL 1748 |
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Dispute Resolution Adviser The basic concept of a Dispute Resolution Adviser (“DRA”) involves the use of a neutral third person who advises the parties to a disagreement or dispute and suggests possible settlement options. This concept is clearly similar to that of the Early Settlement Adviser. According to Wall the idea stemmed from Clifford Evans who, in 1986, suggested the use of an “independent intervener”.(41) The independent intervener would be paid for equally by the employer and contractor to settle disputes as they emerged, rather than wait until the end of the contract. The decision would be binding until the end of the project when either party could commence arbitration proceedings. Unlike the independent intervener the DRA does not make interim binding decisions, but advises on the means by which settlement could be achieved. The power to settle ultimately rests with the parties. There are a variety of benefits with such an approach. First, disagreements at site level can be addressed before a full-blown dispute develops. Not only does this avoid the breakdown in working relationships which could then affect the rest of the project's duration, but it also allows the issues to be dealt with whilst they are fresh in the parties' minds. Further, neither the parties nor the adviser are limited to a “legal” outcome in the sense that the settlement could encompass wider solutions mutually beneficial to the parties and the project. The disadvantage is that the parties may be unable to agree or may reject the DRA's advice. Because they are not bound by the advisers' suggestions the dispute may continue to develop. The logical conclusion was developed by a working party of the Chartered Institute of Arbitrators, and labelled the Dispute Adviser. Severn presents the working party's two-stage solution, which classifies disputes as being either “minor disputes” or “major disputes”, and makes use of a Dispute Adviser.(42) Severn (1989) Minor disputes are those initial disagreements which may be dealt with by the Dispute Adviser, or some other expert who the parties and the Adviser call in. If a settlement is not reached or the problem continues then the minor dispute becomes a major dispute. Major disputes may be conciliated, mediated or the Dispute Adviser may make a recommendation. In this context conciliation refers to a purely facilitative process whilst mediation may lead to a written reasoned opinion, binding until overturned by arbitration. The Dispute Adviser may make a recommendation about a likely settlement which the parties could accept or reject, or alternatively help the parties to select either conciliation or mediation in order to progress the resolution of the dispute. In any event major disputes lead to a binding recommendation, rather than allowing a reticent party the opportunity of delaying payment until post- completion arbitration. Wall presents the most widely recognised use of a Dispute Resolution Adviser in practice in the form of a complete process - the DRA System. His model was first developed for use by the Hong Kong Government's Architectural Services Department in the refurbishment of the Queen Mary Hospital in Hong Kong. It is a hybrid system which builds on existing concepts. He states that the: DRA system draws upon the independent intervener concept as modified by the Dispute Adviser but provides a far more flexible approach. It embodies the dispute prevention attributes of the Dispute Review Board and Project Arbitration, it uses partnering techniques to re-orient the parties' thinking and encourages negotiation by using a tiered dispute resolution process. It is based on giving the parties maximum control through the use of mediation techniques but also includes prompt short-form arbitration which encourages voluntary settlement and, if necessary, provides a final and binding resolution to the dispute. The complete process has several distinct stages. First, at the commencement of the project the DRA undertakes partnering-styled activities in order to build a rapport with the parties whilst at the same time encouraging the parties to work as a team. Second, the DRA will then visit site on a regular basis in order to maintain a level of familiarity with the project and its participants. This also provides the opportunity for the DRA to assist in the settlement of any disagreements which may have arisen since the last visit. |
40. Newman, P. (1999) ADR in the Construction Industry 41. Wall, C (1992) “The Dispute Resolution Adviser
in the Construction Industry” in Fenn, P. and Gameson, R. (Eds.) Construction
Conflict Management and Resolution, London, E & FN Spons, p.328.
42. Severn , K. (1989) New Concepts in the Resolution of Disputes in International Construction Contracts |
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Figure 2: Outline of the DRA system, adapted from C.Wall | |||||||||
Disagreement |
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The third distinct stage of the DRA's work relates to formal disputes. The contract provides a time limit of 28 days within which any decisions or certificates issued under the contract may be challenged. If a decision or certificate is not challenged then it becomes final and binding. In the event of a challenge, the parties have 28 days within which to try and resolve the matter by direct negotiations. If unsuccessful the aggrieved party is required to issue a formal notice of dispute within the 28 day period, otherwise the right to challenge is lost. It is most likely that the DRA will have tried to facilitate the early settlement of such disputes, but in the event that a Notice of Dispute is issued then the DRA and the site representatives have 14 days to attempt to resolve the dispute. During this period the DRA may try almost anything to resolve the dispute, from mediation to calling in an expert in the particular area if the problem proves to be beyond his/her expertise. The important point is that any evaluation is carried out by another neutral third party and not the DRA. By maintaining a purely facilitative role the DRA does not jeopardise the impartial and neutral position which he/she has developed with the parties. Time limits may be extended under certain circumstances and the process come to an end in the event of a successful settlement or resolution. The parties could agreed on a settlement or they may agree to be bound by an expert's opinion. The fourth stage relates to disputes which have not been settled at site level. The DRA produces a report which outlines the nature of the disputes and each party's viewpoint; this may contain a non-binding recommendation or evaluation of the dispute. The site representatives are given an opportunity to check the accuracy of the report and comment. This provides an important chance for the individual disputants to review their position before the report is passed to senior management. Senior management should be able to obtain a clear picture of the nature of the dispute and bring a non-emotional perspective to the problem. The DRA may continue to facilitate the resolution of the dispute at senior management level. At the fifth stage, if the matter remains unresolved 14 days after the DRA's report, then a short-form arbitration may be employed. This should take place within 28 days from termination of the senior management's efforts. An arbitrator is selected by the parties or, if they cannot agree, then the DRA will select an arbitrator. The contract provides the rules for the short-form arbitration which include the following key elements:
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According to Wall, the Queen Mary Hospital project has raised “numerous problems yet there have been no disputes”.(43) The Architectural Services Department has used the DRA on other large projects and apparently now ensures that the system is used on all building projects with a value in excess of HK$ 200 million. Dispute Review Boards (“DRBs”) The concept of the Dispute Review Board (“DRB”) appears to have developed in the USA. It is essentially a process where an independent board of three people evaluates disputes as they arise during the project and makes settlement recommendations to the parties. The board is constituted at the commencement of the project, much like a panel of three arbitrators. Each party selects one board member. The parties may then agree on the third or, if they fail to do so, the two board members will select the third. The board periodically visits the site and receives project information to ensure familiarity with the project and the parties. The board meets regularly to discuss problems or disputes, hears presentations from the parties and suggests solutions. It seems that the main benefit of the DRB is that its mere existence helps to prevent disputes. The parties themselves become familiar with the board's view on particular issues which then aids the negotiation and settlement process which the parties undertake before presenting their dispute to the board. The main disadvantage is the cost of such a system. The non-binding nature also implies a risk that disputes may not settle, and may therefore fester and disrupt the project. The board evaluates the disputes, and there is a danger that one party may perceive that the board is bias if a series of evaluations run contrary to that party's expectations. Dispute Adjudication Board (“DAB”)In 1999 FIDIC produced a new suite of Standard Forms (the red, yellow and silver books).(44) These new forms introduced a contractual Dispute Adjudication Board procedure. In effect, part of the function of the engineer had been removed, thus giving the Dispute Adjudication Board the power to deal with disputes arising during the course of the works. The engineer is, of course, still required under these new forms to determine matters such as extension of time, valuation of variations and so on. However, the engineer is recognised now to be acting solely for the employer, unlike the previous FIDIC Conditions where he was required to act impartially. Clause 20 of the 1999 FIDIC Conditions sets out the procedure, and requires the party to appoint a Dispute Adjudication Board within 28 days of the commencement date of the contract. It will normally comprise three parties, so each party nominates one member for the approval of the other. The parties then consult with their nominated members before then agreeing a third member to act as Chairman. Interestingly, a tripartite agreement is to be entered into by the employer,
contractor and the members of the Dispute Adjudication Board(45).
Essentially, the fees are to be met jointly by the employer and contractor;
the members of the DAB are to be impartial and independent, and they must
be available for site visits. A default provision provides that
the DAB should visit at intervals of not less than 140 days. |
43. Wall, C (1994) The Dispute Resolution Adviser, DART Conference 16-19 October, Lexington , Kentucky p. 10. 44. FIDIC (1999) red, yellow and silver books |
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Either party may refer a dispute to the DAB. Once referred, the DAB has 84 days to give a decision. The DAB will need to establish a timetable for receiving submissions, reviewing the documents, visiting the site as necessary and conducting the hearing in order to issue its decision. The 84 day period is a relatively short period of time given that the contract is mostly used on large international projects. The decision of the DAB is binding, and the parties are required to give the decision effect immediately. If either party is not satisfied, then that party has 28 days within which to issue a “Notice of Dissatisfaction”. This does not relieve the dissatisfied party of the obligation of complying with the decision in the meantime. The issuing of a Notice means that the DAB decision is not final and binding. The DAB decision will become final and binding if a Notice is not issued. If a Notice is issued, an attempt should be made to reach an amicable settlement. If this fails, then the final dispute resolution procedure is arbitration. The Impact of ADR on LitigationThere have been several highly significant decisions regarding costs
orders against successful litigants on the basis that those litigants
failed to seriously consider mediation. The first of these was Susan
Dunnett v Railtrack Plc in the Court of Appeal.(46)
Susan Dunnett's three horses had been killed when the gate to her
paddock, which had been replaced by Railtrack, had been left open,
allowing the horses onto the line. The gate was not padlocked, nor
was there any mechanism for automatically closing the gate, despite the
fact that Susan Dunnett had warned Railtrack that people
left the gate open. There was an appeal and cross-appeal from the
first instance decision, and in granting permission to appeal the Lord
Justice stated that mediation or a similar process would be highly desirable
in this particular case because of its inherent flexibility. |
45. See Appendices to the FIDIC 1999 Forms 46. 22 February 2002 |
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Regardless of the Court's suggestion Railtrack refused to engage in mediation. Railtrack effectively won the appeal, but the Court of Appeal found that as Railtrack had refused to mediate then a costs order should not be made against the unsuccessful claimant. One of the Court of Appeal judges said that a skilled mediation could achieve results far beyond the Courts, and a party who dismissed the opportunity for mediation without proper thought would suffer uncomfortable consequences. The Court of Appeal was in effect following the view of Lord Woolf in Frank Cowl v Plymouth City Council.(47) In that case Lord Woolf emphasised the need for parties in dispute with public bodies to consider ADR. Lord Woolf said that “today sufficient should be known about ADR to make the failure to adopt it, in particular where public money is involved, indefensible.” In Dunnett v Railtrack Lord Justice Brooke stated that: When asked by the Court why his clients were not willing to contemplate alternative dispute resolution, said that this would necessarily involve the payment of money, which his clients were not willing to contemplate, over and above what they had already offered. This appeared to be a misunderstanding of the purpose of alternative dispute resolution. Skilled mediators are now able to achieve results satisfactory to both parties in many cases which are quite beyond the powers of lawyers and the courts alike… Given that the CPR requires the parties to consider ADR, and that obligation is extended into the Pre-action Protocols there is now clear obligation on the parties to seriously consider some form of mediation or other ADR process. It seems that that obligation will, if ignored, lead to cost consequences, even if the party concerned is successful. However, there may be some circumstances when a failure to mediate is justified. The case of Hurst v Leeming(48) gives some guidance as to when a refusal to mediate might be justified. The case concerned the dismissal of an action against a barrister, Leeming. The Claimant argued that despite the dismissal of the action he should still receive his costs as Leeming had refused to mediate. Leeming raised five reasons as to why he had refused to mediate:-
Lightman, J in the Chancery Division considered each of these grounds and decided that the first three were insufficient. Therefore, the matter of legal costs already incurred, the seriousness of the allegation and the fact that there is no substance to the claim does not give valid reason for refusing to mediate. However, lack of any prospects of a successful mediation, given the obsessive character and attitude of the Claimant and his repeated history of litigation, which demonstrated that it was highly unlikely that the Claimant would make any serious attempts to settle during a mediation, was sufficient. Therefore, Leeming was not deprived of his full entitlement to costs. The Court of Appeal has also recently held that there are circumstances
within which it is reasonable to refuse to mediate. In the case of Alan
Valentine v (1) Kevin Allen (2) Simon John Nash (3) Alison Nash(49)
the Respondents had put before the Court considerable correspondence which
made it clear that real efforts to settle the dispute had been made, and
that the offers were reasonable and generous. 29 July 2003 |
47. The Times , 8 January 2002 48. 9 May 2002 |
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The Respondents had also tried to arrange a “round the table” meeting. Those offers were refused by Valentine who sought the payment of a large sum of money in settlement. The Court of Appeal therefore distinguished this case from the case of Dunnett v Railtrack Plc even though the Respondents had refused Valentine's offer of mediation. The Court of Appeal held that their refusal to mediate was reasonable, and so Valentine would pay the Respondent's costs in resisting the appeal. ConclusionIn summary then, adjudication has arguably had an impact upon arbitration and litigation. The use of adjudication has become more widespread in the industry, and there has been an increasing use of adjudication in often substantial post-practical completion final account claims. Recent research suggests that few claims progress beyond adjudication, perhaps supporting a decrease in the use of arbitration and litigation. Nonetheless, the number of claims served in the Technology Court during the past 12 months has risen. One of the reasons for the increase in claims served may be due to the pre-action phase in litigation. It used to be possible to serve a writ (now replaced by a “claim form”) and then investigate the detail of the claim during the initial phases of the litigation process. Under the CPR the Pre-action Protocols demand a detailed claim letter together with identification of supporting documents. There is then a period of time for a response and then a pre-action meeting before commencing proceedings. This procedure delays the issuing of a claim form, and also provides a timeframe for consideration of the case and attempts at settlement. Finally, the recent cases of Dunnett v Railtrack and Hurst v Leeming further demonstrate the emphasis of the CPR and the Courts in moving parties away from an exclusively adversarial approach to the resolution of dispute and towards negotiation and ADR. Coupled with the Pre-action Protocols, more cases are being argued between the parties' lawyers in the pre-action phases before service of a claim form. The threat of failing to properly consider the case arises in the form of cost sanctions, and thus one should seriously consider ADR. |
49. 29 July 2003 |
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