Session Two Dispute Resolution

What are the alternative dispute resolutions? Dispute resolution JCT SBC/Q Dispute resolution NEC 3

DISPUTES
Disputes arise due to series of factors that combine to form disagreements and ultimately disputes: People diversity, motivating factors, preconception on roles, project success or failure, business relations

Causes of contractual disputes in construction:

Late payment Insufficient payment Claim for loss and/or expense Claim for EOT (extension of time to contract period)

Methods of dispute resolution

If dispute arises parties not compelled to resort to the courts for settling it can choose amicable method needs to be signed and agreed by parties in writing Non adversarial ADR Use of courts expensive, uncertain and time consuming, Adjudication, arbitration or litigation. Usually parties represented by council whose skill lies in arguing and scoring points over each other Adversarial

Resolution Methods
Steps Non adversarial Prevention Risk allocation, incentives, partnering Negotiation direct or step negotiations Standing Neutral Architects ruling, dispute review board, standing arbitrator Nonbinding resolution Mediation, minitrial, early neutral evaluation, expert opinion

Steps Adversarial Temporarily binding Adjudication Binding Arbitration Litigation NB: As you go through each of these steps costs will increase and communication will decrease.

Non-Adversarial route
Negotiation
Three recognisable stages Preparation What would you like to achieve What you intend to achieve What you must achieve What is your walk away price Negotiation Explore Formulate alternative solutions Bargaining and settlement Post negotiation Cards on table, all things settled and drawn up as a contract

Standing Neutral
Dispute Review Boards Panel of 1 or 3 independents Appointed at the beginning of the contract Fees paid by the contractor and the client Will advise on issues as they arise with the aim of preventing them from escalating into disputes Has a 97% success rate in the US Is to be used on 2012 Olympics construction contracts.

Non binding resolution

These procedures are informal, cheap and investigatory rather than accusatorial. Interchangeable and therefore collectively referred to as reconciliation private non adversarial methods of resolving disagreement. Also known as intermediary step between dispute and courts ADR alternative dispute resolution Mediation agreement between parties Conciliation Private enquiry Mini trial

Mediation
Involves a third party helping the parties to the contract to work out a solution between themselves 2

 Minitrial

The mediator should not express his views, if he cant get the parties to agree then he walks away and the process ends The parties have a short time (a day or two) to put their cases to a panel made of senior executives from each company Still a negotiated agreement.

Expert Determination

The parties put the facts before an expert who gives an opinion on the outcome

Early Neutral Evaluation

Similar to above

ADVERSARIAL ROUTES
Adversarial Three methods Adjudication Arbitration Litigation

1. Adjudication History Used in construction contracts since 1976 where parties agreed to submit disputes of a certain type to an adjudicator Was used on NEC conditions Began to be incorporated into main contracts Latham report recommended adjudication as a 1st instance resolution method HGCR Act 1996 introduced adjudication as a right for all parties to construction contracts Adjudication Two routes for decision notification Decision issued in the form of an order Party who gained an award apply to court for 2nd order(a mandatory injunction) instructing the other party to comply with adjudicators order Not often followed in respect of payment OR Issue proceedings claiming the sum due An application for summary judgement (Macob Engineering Ltd v Morrison Construction Ltd (1999) Section 108(1)of the Construction Act (Housing Grants, Construction and Regeneration Act 1996) creates a statutory right to adjudication, designed to produce a decision which is, at least, temporarily binding on the parties. It includes the procedures to be followed
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 Prior to Construction Act only Arbitration and Litigation Adjudication revolutionised dispute resolution. Most cases previously dealt with by courts or arbitration now adjudication. Out of 15000 cases which came to adjudication from May 1998 to 2005 only 300 went to courts. Although decision not binding in adjudication 80% of cases accepted by parties. Since Construction Act came into force nos of construction disputes coming to courts has reduced to about third of what it was Key points Either party has the right to give notice at any time of their intention to refer disputes to adjudication There is a timetable for adjudication Adjudicator to be appointed within 7 days of the above notice The adjudicators decision must be within 28 days of the referral (which can be extended by agreement by another 14 days) The adjudicator must act impartially The adjudicator can act on his own initiative to ascertain the facts and the law related to the dispute The adjudicators decision is binding until its final determination by litigation, arbitration or agreement. The adjudicator is immune from liability for his actions or omissions Key stages in Adjudication Notice of Adjudication Appointment of the Adjudicator A dispute which has crystallised will be referred to adjudication within 7 days of the notice The Referral Notice The Response to the Referral Notice Decision making by the adjudicator The writing of the decision Correction of the decision Enforcement of the decision Notice of Adjudication Purpose is to inform the other party that a dispute has arisen served by the Referring party Requires evidence as to the nature of the dispute minutes, letters and witness statements.

Appointment of the Adjudicator Three basic routes Parties agree the adjudicator after the dispute has arisen The adjudicator is named in the contract An application is made to the ANB (adjudicator nominating body) to nominate one Adjudicators Fee Rate to be agreed with the parties prior to Adjudicator accepting the appointment Will be paid by both parties equally The Referral Notice States the referring parties claim Has the tactical advantage of being able to be fully explained and supported by evidence as it can be prepared before the clock starts ticking. Defending parties do not have this advantage Known as ambush can also be carefully timed e.g. many are served just before Christmas when parties may be on holiday and the clock is still ticking! Must contain the same points of claim as those given in the Notice of Adjudication Response to the Referral Responding parties reply to the matters referred Powers of the Adjudicator Adjudicator can carry out investigations to ascertain the facts and the law concerning the matters in dispute, which can involve: Meeting parties together or separately Visit site Carry out tests Obtain legal and technical experts Use his own knowledge The adjudicator must be careful to comply with the rules of natural justice. The Decision Adjudicators can only make decisions on matters referred to them. A decision should Give clear directions to the parties as to what they have to do Be easy to enforce Avoid suspicion of bias
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Power to correct a Decision An adjudicator has no power to change his decision once it is published However, the decision can be revised to Correct clerical or accidental errors Provide Clarification Remove ambiguity Make good an omission within a reasonable time. Adjudication Summary Adjudication to satisfy Act (avoid intervention of Scheme) contract must: Enable a party to give written notice at any time to all other parties of their intention to refer dispute to adjudication Notice includes nature of dispute and relief sought Adjudicator named in contract/nominated body (professional) 5days to nominate an adjudicator, 2 days to confirm Adjudicator must not be an employee of party in dispute Provide a timetable appoint adjudicator and referring dispute within 7 days Adjudicator can demand documents from the parties, appoint expert advisors, make site visits etc Adjudicator to reach decision within 28 days can extend by up to 14 days Adjudication Generally No method by which decision can be appealed as inherently binding temporarily. If dispute dealt with by arbitration or litigation start afresh 3 grounds on which enforcement of adjudicators decision resisted: 1) Lack of jurisdiction one of conditions not fulfilled (The Project Consultancy Group v Trustees of the Gray Trust (1999) 2) Error of law has the adjudicator answered the right question (Bouygues UK Ltd v DahlJensen UK Ltd(2000) 3) Procedural unfairness follow principals of natural justice not bias, acts fairly (Discain Project Services Ltd v Opecprime Development Ltd(2000): Barnes & Elliot Ltd v Taylor Woodrow Holdings Ltd(2004) adjudicators decision not made within time ltds An adjudicator has no power to change his decision once it is published, However, the decision can be revised to Correct clerical or accidental errors Provide Clarification Remove ambiguity
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 Make good an omission within a reasonable time.

Relevant Case law Bouygues V Dahl Jensen (2000) Error in adjudicators decision stands even if the liquidation of one party mean that the referring party will not be able to recoup losses. Glencot Development vs Ben Barrett & Son (Contractors) Ltd (2001) Natural justice and potential bias. 2. Arbitration Arbitration is a procedure for the resolution of disputes which is under control of the parties and traditionally been construction industries preferred means of settling disputes. Conditions of arbitration are: Decision/award must be capable of enforcement as if a judgement of a court Binding contractual agreement to submit dispute to arbitration by a third party chosen by the parties or in accordance with their instructions Reference to arbitration in accordance with whatever procedure laid down in the agreement Governed by the Arbitration Act 1996 Requires A contract A valid arbitration agreement A dispute Amec Civil Engineering Ltd. v Secretary of State for Transport (2000), defines disputes A claim is not the same as a dispute A claim must be rejected and resubmitted in order to become a dispute Process Once a dispute has arisen and it is ascertained that there is a valid arbitration agreement Claiming party prepares a statement of case Defendants then prepare a statement of defence Defendants can ask for further and better particulars and can prepare a counterclaim All documents should be disclosed
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Arbitration Act 1996 procedure: Principles Object of arbitration is that it obtains a fair resolution of disputes by impartial tribunal without unnecessary delay or expense Parties free to agree how their disputes are resolved Court does not intervene unless act states so

Duties Act fairly and impartially Opportunity given for each party to put forward its case Adopt suitable procedures so as to provide fair means for the resolution of the matters to be determined while avoiding unnecessary expense and delay Arbitration procedure in general Standard set of rules Arbitrator can make provisional awards Arbitrator add interest to any sum due Make orders for any liability for cost Arbitration Act has bought about two sets of rules: Construction Industry Model Arbitration Rules 2005(CIMAR) 3Nr full procedure, documents only & short hearing Institute of Civil Engineers Arbitration Procedure 2006(ICE) However clear cut the dispute is it is still a dispute and if falls within a valid arbitration clause defendant entitled to have dispute heard at arbitration ( Halki Shipping Corp v Sopex Oils Ltd (1997) Arbitration Act control by courts Courts power to remove an arbitrator when 1. Justifiable doubts as to arbitrators impartiality (Verital Shipping Corporation v Anglo Canadian Cement Ltd (1966); Turner (East Asia) PTE Ltd v Builders Federal(Hong Kong) (1988) 2. Arbitrator lacks qualifications 3. Doubt to arbitrators physical/mental capacity to conduct arbitration 4. Arbitrator failed to conduct proceedings Courts power to give ruling on particular point of law Advantages of Arbitration Hearings are private The award is published privately
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 Parties can choose their own arbitrator who will be a specialist in the particular field Venue and times are flexible dictated by party agreement Less formal Lawyers are optional Arbitrator can award security for costs Can be cheaper Can have a documents only option Arbitrator can award interest and costs Disadvantages of Arbitration Rights of appeal are restricted Not ideal for multi-party disputes The arbitrator and the venue have to be paid for within the duration A reluctant party may be less robustly dealt with 3. Litigation Process in which disputes are settled by a court Usually the Technology and Construction Court 8 circuit judges Litigation dispute settled by action of the court Which court will depend on: Size of dispute below certain size go to county court. Building & civil engineering cases of significant size tried in Technology and Construction Court specialist division of High Court Nature of dispute which division of High Court Location tried locally or circuit judge for High Court Litigation procedure April 1999 civil litigation governed by Civil Procedure Rules (CPR); Enables courts to deal with cases justly parties on equal footing, saving expense, ways which are proportionate (amount of money, importance, complexity, financial position), dealt with expeditiously & fairly, allotting appropriate court resources Litigation remedies 1) Summary Judgement enables court to dispose of claim, defence or particular issue without full trial. Saves money and time 2) Interim payment enables claimant to apply for an order for interim payment on account of damages or other sums defendant liable to pay Advantages of Arbitration to litigation Cost generally cheaper if not complex construction project
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 Speed generally on smaller less complex projects which do not require a trial Technical complexity arbitrator has technical expertise and appointed by both parties Convenience time and place arranged to suit parties Privacy not officially in the public domain Commercial expediency less confrontational nature parties can continue business after Parties can insist that arbitrator visits site Disadvantage Cannot insist on witnesses being present Advantages of litigation to arbitration Third parties can be introduced Legal aid available Legal complexity where a point of law better to have it decided by judge than arbitrator who has no legal qualifications Decisiveness arbitrators tend to not rule wholly in favour of one party prefer split the difference

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