Early Dispute Resolution in the Construction Industry

Early Dispute Resolution

9 December 2014

Ben Worthington, Senior [email protected] | + 44 20 7067 3541

Disputes in the construction industry

• Litigation costs

• “ADR… has a vital role to play in reducing the costs of civil disputes, by fomenting the early settlement of cases. ADR is, however, under-used and its potential benefits are not as widely known as they should be” Lord Justice Jackson

• Impact of the credit crunch

• Alternatives to litigation and arbitration

• Types of dispute

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Problem solving hierarchies

• Problems or issues are referred to increasingly senior individuals in the respective organisations until the issue is resolved

• Partnering contracts often have a “core group” which:

• Reviews the programme

• Reviews early warnings

• Reviews performance

• Reviews disputes

• Votes on how to proceed

• If the core group cannot resolve a dispute matters are referred to mediation or other procedure


Problem solving hierarchies – do they work?

• Partnering philosophy promotes communication and negotiating in good faith

• Until recently there were very few reported cases involving partnering contracts such as PPC 2000

• The widespread effectiveness of such solving hierarchies remains to be seen


Expert determination - what is it?

• What is expert determination?

• Who can act as expert?

• What if the parties fail to agree an expert?

• When can it work?

• Technical issues requiring expert opinion

• Specialist issues such as valuation disputes

• It is not suitable for all disputes:

• Factual issues

• Legal issues


Expert determination clauses –common features

• circumstances which trigger the appointment of an expert

• Appointment process – named individual, by agreement or by reference?

• Expert to give written decision within 3 months of referral

• Procedure and submissions

• Specify that expert is not acting as arbitrator

• Specify that his decision final and binding

• Responsibility for costs

• Confidentiality


Expert determination – the good

• Advantages

• Expertise

• Speed / cost

• Limited scope for court intervention (this might be a disadvantage!)

• Non-adversarial

• Finality


Expert determination – the bad

• Disadvantages

• Lack of certainty

• Enforceability

• No right of appeal

• Limited scope to interrogate factual differences

• Dispute does not match expert’s experience: Walton Homes Ltd v Staffordshire County Council [2013]• "a classic reason as to why the allure of a (possible) speedy and informal

procedure is the way forward and [yet] turns out not to be so attractive ... This case involves entirely questions of law. Yet the parties subject to the manifest error exception allowed all questions of fact and law in dispute to be determined by someone who might have no experience of legal matters. [Hence] ... the surveyor retained counsel ... to advise him...".


Expert determination –challenging the expert

• Challenging the expert

• Shafi v Rutherford [2014] EWCA Civ 1186

• expert had erred in interpreting his jurisdiction – the expert determination was not enforceable

• “Manifest error”

“… such clauses are intended to be confined to oversights and blunders so obvious and so obviously capable of affecting the determination as to admit of no difference of opinion" (Veba Oil Supply & Trading GmbH v Petrotrade Inc[2001] EWCA Civ 1832).


Dispute boards – key features

• Project specific appointment – board exists throughout the duration of a contract

• Issues can be referred at any time by any one of the parties to make a recommendation or determination of the dispute

• usually made up of three board members.

• Board members should be independent and impartial

• typically selected and appointed by the contracting parties at the outset of the project, before any disputes have arisen

• created by agreement. The construction contract establishes the dispute board and gives it jurisdiction to hear and advise the parties on issues and disputes as they arise.


Types of dispute boards

• Dispute Adjudication Boards / Dispute Resolution Boards

• A DAB issues a decision on matters referred to it

• Binding upon the partners until resolved by litigation or arbitration

• Dispute Conciliation Boards / Dispute Review Boards

• normally issue non-binding recommendations

• This a reasoned suggestion to the parties, which is not binding on the parties when it is issued

• It becomes final and binding if neither party serves a notice objecting to the recommendation within the specified contract period


How do dispute boards work?

• In addition to resolving disputes, dispute boards may:

• Regularly visit site

• Attend site meetings

• Meet with the parties

• Review documents• Contract documents

• Instructions

• variations


Dispute boards – advantages

• board members become familiar with the project and issues as they arise

• Facilitates communication: provides a regular forum for discussion of difficult or contentious issues

• Informal and flexible: the board may provide –

• informal opinions or advice

• written determination

• Quicker than formal methods of dispute resolution

• Establishes a culture of claims avoidance and co-operation


Dispute boards – disadvantages

• Cost

• Issues of confidentiality

• Scope for decisions that are factually or contractually incorrect

• Perceived as contractor friendly


Summary

• Early dispute resolution can:

• Allow the parties to control the procedure

• Provide the parties with an opportunity to understand their respective positions

• Provide a forum for ‘decision makers’ to get involved

• Remain confidential to the extent agreed by the parties

• Provide the support of a neutral third party to facilitate discussions and/or resolve the dispute

• Help to maintain working relationships

• Reduce costs

• But there is no “one size fits all” approach


Any questions?

Early Dispute Resolution in the Construction Industry

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