It may be difficult, in the optimism at the start of a construction project, to consider what you are going to do if things go wrong. Often the first time parties even look at the dispute resolution clause is when the relationship has deteriorated beyond repair.
It is impossible to eliminate construction disputes. It is however possible to mitigate the costs, diversion of management time and other negative effects which disputes will have on your business.
What is appropriate dispute resolution?
There is no "one size fits all" approach and there are many forms of dispute resolution. Here, we consider the four common methods that rely on a third party decision maker: litigation, arbitration, expert determination and adjudication. There are also other options including facilitated settlement methods such as mediation and conciliation.
In the UK, the Housing Grants, Construction and Regeneration Act 1996 allows parties to most construction contracts to refer any dispute to adjudication at any time. Otherwise, parties are free to agree almost any form of dispute resolution they want.
How long can dispute resolution take?
Speed is adjudication's trump card. A typical adjudication takes 28 to 42 days. Another positive is that the courts will allow the successful party to expedite the summary judgment procedure to obtain judgment in less than a month. Expert determination is typically fairly quick (similar to adjudication) but this depends entirely on the parties' agreement. However, the speed of these procedures does leave them open to ambush tactics and errors.
Both arbitration and litigation can be more time consuming. While both procedures can be flexible, depending on the nature of the dispute and the agreement between the parties, a typical court action or arbitration takes nine months to two years and sometimes longer. If one party can gain a tactical advantage by delaying the process, they probably will.
Am I bound by the decision and what if I don't like it?
Arbitration, court proceedings and expert determination all produce binding decisions. Unless the agreement provides otherwise, an expert's decision is very difficult to challenge (even if it is wrong!). This can be an advantage and a disadvantage. Both arbitration and court proceedings are subject to limited rights of appeal. In arbitration, the parties' contract may limit these rights. An adjudicator's decision is generally only temporarily binding until a court or arbitrator finally resolves the dispute. However, in most cases the adjudicator's decision is not challenged. If certainty is required, then you may want to consider placing a limit on the time period for disputing the adjudicator's decision.
How much will it cost?
Adjudications are generally a lot less expensive than litigation or arbitration. However, this may not be the case for high value, complex disputes which cannot be resolved within 42 days. The costs of expert determination depend on the procedure agreed by the parties and the complexity of the dispute.
What if my dispute is technical?
Construction disputes are often extremely technical and the parties do not want to spend time 'educating' a judge. Fortunately, the Technology and Construction Court has a number of highly experienced judges. Also, bodies such as the Royal Institute of British Architects, Royal Institution of Chartered Surveyors, Technology and Construction Solicitors Association and Technology and Construction Bar Association can select an appropriate arbitrator, adjudicator or expert if the parties cannot agree on one. In most cases, they can draw on the expertise of others if necessary.
What if the losing party does not comply with the decision?
The English courts will enforce all four procedures. Where there is an international aspect to a contract, such as where one of the parties is incorporated overseas, arbitration might be the best option. For example, the New York Convention (acceded to by 144 countries across the world) means an arbitration award made in a New York Convention state is easier to enforce internationally than an English High Court judgment.
Will my dispute be kept confidential?
Court litigation is public which means that third parties, including the media, can access documents contained on the court file. By contrast, arbitration is private (unless there is an appeal to court) and can easily be subject to stringent confidentiality requirements. Adjudication and expert determination are a halfway house. If the parties comply with the decision then it will remain private and confidential. However, if one party needs to apply to the courts to enforce the decision then those court proceedings will become public and so will the decision.
Important matters to bear in mind
Whichever method of dispute resolution you choose, the dispute resolution clause should be clearly and precisely drafted to meet the parties' needs. It should also be explicit as to the options or mechanisms available to the parties. Arguments between the parties as to the proper forum and jurisdiction for a dispute only serve to add cost and time to its resolution. Clear and careful drafting is paramount.
The final note echoes the first - think about what you want your dispute resolution clause to achieve and the choices available to you in advance and not in the heat of battle!