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23.2.4Entitlement and magnitude

The rough division of disputes into ‘technical’ and ‘legal’ is often reflected in two aspects of a claim. The first aspect is that, for any claim to succeed, legal entitlement to the money must first be proven. Second, the magnitude of the claim must be established. Entitlement arises from the legal interpretation of the contract and associated documents. Magnitude is a factual ascertainment of technical data that is identified as having been caused by the first element. In consequence, most disputes contain elements of both types of dispute.

23.3THE ROLE OF THE CONTRACT ADMINISTRATOR

One of the most distinctive features of JCT SBC 11, NEC3 ECC forms and FIDIC 1999 Red Book is the part played by the contract administrator (whether described as architect, engineer, supervising officer, project manager or whatever). In fact, the contract administrator plays not one part but two in a construction project: first, as agent for the employer in such matters as the issue of instructions, and second, as an impartial decision maker in such matters as certification and the valuation of variations and other claims. The latter role is obviously of considerable relevance to the topics now under discussion – decisions of the contract administrator may avoid or resolve potential disputes, although it must be said that such decisions are often the cause of disputes, particularly when an engineer issues a determination under FIDIC or the contract administrator certifies a final account value or date for completion and those decisions can only be reviewed under the contract’s formal dispute resolution procedures.

The legal principles governing a contract administrator’s certification and decision-making functions are considered in Chapter 18.

23.4METHODS OF DISPUTE RESOLUTION

It is sometimes, perhaps too often, thought that any dispute arising from a construction contract must be resolved by court action, arbitration or adjudication. This is simply not true. First of all, in UK construction contracts, the parties have a statutory right to refer their disputes to adjudication (dealt with in Section 24.1). In addition, whether or not there is an arbitration agreement in the contract, it must always be remembered that contracting parties can alter the terms of their contract (and any dispute about its interpretation) at any time, by mutual consent. This fact was not stressed, or even hinted at, anywhere in the clauses of earlier versions of JCT building contracts. However, JCT SBC 11 (and also the other major building contracts of JCT’s 2011 contract suite) now expressly mentions mediation (see Section 23.5). This mode of dispute resolution, in effect, is based on the assumption that the parties can resolve their disputes by agreement. Similar to the JCT forms, the NEC3 form offers the parties several modes of Alternative Dispute Resolution (ADR), in particular adjudication. FIDIC 1999 Red Book offers a Dispute Adjudication Board and amicable settlement (see Section 23.5). In any event, whatever the contract says, if a dispute arises, the parties are not compelled

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to resort to the courts for the settling of their differences. They can choose instead to attempt to settle their differences amicably. Of course, if this should happen, it is extremely important to record exactly what has been agreed, and to have it signed by both parties, in case of any future disagreement about what was agreed.

The use of the courts for settling disputes is expensive, uncertain and timeconsuming. It is also very public. The development of ADR techniques arises from dissatisfaction with and alienation from the legal system (Brown and Marriott 1999). Indeed, arbitration was originally devised as an alternative to litigation but is prone to many of the problems that beset litigation, not least because of the Arbitration Act (see Chapter 24).

Several techniques are available to help contracting parties to come to some form of settlement without resorting to adjudication, arbitration or litigation. These procedures are informal, and the terminology used to describe them is rather loose and vague. Their chief features are that they are intended to be cheap, investigatorial rather than accusatorial, and to provide a decision, settlement or outcome within a comparatively short period. Although they are informal, there is an emerging trend to formalize them (see Section 23.5).

The terms most commonly found to describe these procedures are Conciliation, Mediation and Early Neutral Evaluation. However, these terms are often used interchangeably, and sometimes inconsistently. Collectively, they may be referred to as reconciliation. Similar to the widespread term ADR, reconciliation is a generic term that indicates private, non-adversarial methods of resolving disagreement.

These techniques can be seen as an intermediate step between having an argument or disagreement, and referring to the courts (or to an adjudicator or arbitrator). Since reconciliation is voluntary, either party may pull out at any time and refer the matter to the courts instead, if satisfactory progress is not being made. What is more, the parties are not bound to accept the decisions of the person deciding the issue. As Brown and Marriott (1999) point out, ADR is based on a philosophy of empowering the disputants, putting them back in control of their own dispute. Much of the dissatisfaction with traditional dispute resolution procedures is because of the lawyers’ professionalization of a dispute, which leads to a legal dispute having a life of its own, almost displacing the disputants from the process. ADR techniques tend to place the disputants at the centre of the process and seek to help them to find their own way out of an impasse. This requires a will on both sides, without which ADR procedures are probably doomed.

Finally, before describing the distinct modes of ADR, it is useful to consider a relatively recent development, namely the active support of the UK courts in favour of ADR. Where parties commence litigation in UK, they are asked at the outset whether mediation has been attempted and, if not, this is encouraged. Second, cost sanctions have been introduced against parties that refuse to resolve a dispute through mediation where it would have been clearly in its interests to attempt to do so. The leading case is Dunnett v Railtrack.1 Here, the Court of Appeal refused to make an order as to the costs in favour of the successful party because, the Court reasoned, the defendants (who won the case) had refused to

1 [2002] 2 All ER 850.

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contemplate alternative dispute resolution at a stage before the costs of this appeal started to flow. Hence, the party who won the case could not recover its costs (i.e. especially the fees of its lawyers) from the losing party. With effect from 1 April 2013 the Court Civil Procedure Rules were amended principally relating to case management and awards of costs but compulsion for parties to use mediation was not introduced.1

23.4.1Adjudication, arbitration and litigation

These three methods of dispute resolution, discussed in detail in Chapter 24, are adversarial in nature. Contrary stances have to be taken, and this frequently results in people becoming entrenched in their views. Often in adjudication, arbitration and litigation, the parties are represented by counsel whose skill and ability lies in the art of arguing and scoring points over each other. They ‘play’ the adversarial roles with much skill. Unfortunately, this is not conducive to amicable settlement. However, good lawyers will not encourage their clients to take legal action if they do not see a good chance of winning the case. The expense of litigious actions is so enormous that, in the past (before the introduction of adjudication as a statutory right), most cases were settled out of court shortly before they got there, after the parties had done all their preparation work and had become aware of each other’s stance. However, two areas of development have revolutionized the landscape of dispute resolution. First is the avenue of adjudication (considered in detail in Section 24.1) Most cases which would have been dealt with by the courts or by arbitration in the past are nowadays dealt with by adjudication. Although the adjudicator’s decision is not necessarily binding (see Section 24.1), it is believed that well over 80% of adjudication decisions are accepted by the parties (Gaitskell 2005: 11), other estimations even propose the figure of ‘well over 90%’ (Uff 2005: 63). Of an estimated 15,000 adjudication decisions which occurred between the coming into force of the Construction Act on 1 May 1998 and 2005, only about 300 are believed to have reached the courts (Gaitskell 2005: 11). Exact figures about the shift from litigation/arbitration to adjudication are difficult to obtain since it is impossible to establish if an adjudication case would have gone to court (or arbitration) if this statutory right of adjudication had not existed. Surely, many adjudication decisions would have been settled by the parties without going to court. The second area of development is within court procedures. Parties are generally not permited to commence construction litigation without having first advised the other party of details of the dispute and the other party having replied, an innovation introduced through the pre-action protocol. The intended effect is to encourage parties to settle, or at least narrow areas of dispute, before trial commences. Second, in the early case management process, parties are being actively encouraged to attempt to resolve their dispute through mediation, with heavy cost sanctions for parties who seek to flout this. This has resulted in a large body of cases settling in mediation where, in the past, trial might have been inevitable. What is clear, though, is that since the Construction Act came into

1 Civil Procedure (Amendment) Rules 2013.

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force, and since introduction of procedural and cost-related reforms by the Courts, the number of construction disputes coming before the courts has reduced to about a third of what they were.

23.4.2Conciliation

A ‘conciliator’ must be absolutely independent of the parties to the contract. Impartiality is essential, since the purpose of this process is to precipitate an agreement by persuasion and suggestion. Conciliators do not take sides, take decisions or make judgements. They talk to each party in private, and must be sure not to reveal anything to the other party. Confidentiality is essential in order for discussions to be frank and meaningful. The conciliator may bring the parties together after a while for an open discussion, which he or she chairs and leads.

The conciliator will be seeking to establish common ground, ascertaining the facts that are in dispute. In order to undertake this function effectively, the conciliator needs considerable knowledge of construction disputes. There may be previous judicial precedents which are appropriate to refer to, and the conciliator must be able to advise the parties of these, if necessary.

Where conciliation is adopted, the end of this process is very different from mediation in that, if no negotiated settlement results from the process, the mediator will make recommendations to settle based on his or her findings. A distinguishing feature of conciliation is that the conciliator will issue a non-binding recommendation to the parties with a view to helping them to settle their disputes in the immediate aftermath. Under some contract forms, there is an added impetus to settle where, after 30 days has elapsed, the recommendation is to be treated as being binding on both parties unless disputed in arbitration or court proceedings within a further 30 day period.

23.4.3Mediation

Mediation is the most widely used and therefore the most important mode of ADR. It is like an extended version of conciliation. The initial stages will probably follow a very similar process, often referred to as shuttle diplomacy, as the mediator consults first with one party and then with the other. It is ultimately up to the parties themselves to reach an agreement, and to decide upon the precise terms of that agreement, albeit with some encouragement and guidance from the mediator. This process accordingly retains the flexibility of conciliation, while encouraging a slightly more active role for the mediator. As a result, it tends to be less openended. According to anecdotal evidence, over 70% of cases referred to a mediator result in settlements. This is probably why recourse to arbitration seldom follows mediation. The Joint Contracts Tribunal has recognized the growing importance of mediation by referring to it in clause 9.1 of JCT SBC 11.

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23.4.4Private enquiry

This procedure involves the appointment of an independent professional to investigate some aspect of the project. It is commonly used for highly technical disputes, but is also valuable where the issues to be resolved are sensitive. Because the uses to which such enquiries are put are so wide-ranging, there is no fixed procedure for such an enquiry; it has to be created each time to suit the occasion. On the basis of the report produced, the parties are in a much better position to negotiate and reach a settlement.

It is very important that the appointee is given precise terms of reference in order that he or she can identify and carry out the intended task. Where this is done, it is usually found that private enquiries discover technical facts much more quickly than would a judicial enquiry. This is partly at least because arbitrators and judges are prohibited from using their own experience, and must reach a decision purely on the basis of upon what is put before them. This is by contrast with a private enquiry, where the person conducting the enquiry can make use of his or her own knowledge and professional expertise in arriving at a conclusion.

One of the greatest benefits of a private enquiry is its speed. It is interesting to note that the private enquiries set up to investigate the Lockerbie air disaster and the King’s Cross fire came to their conclusions after a few months had elapsed. This is by stark contrast to litigation. It is not untypical for litigated cases to take years.

23.4.5Early Neutral Evaluation

This procedure actually requires the disputing parties to present their cases to an independent neutral party, typically a senior lawyer or retired judge. Indeed, in UK, the Technology and Construction Court offers an ENE service whereby a practicing judge for the TCC will hear a case before trial, but where another judge would take over the case in the event that no settlement is achieved and the dispute proceeds to trial. Representatives of the employer’s and contractor’s organizations will conduct something like a trial in front of the neutral party.

Strictly speaking, this does not really fit the definition of reconciliation given above, because it is adversarial in nature. The two parties are expected to take opposite stances and to argue their cases in front of the neutral party. Having heard the evidence, the neutral party can then negotiate their respective positions until they reach agreement.

23.4.6Dispute Resolution Board

The term Dispute Resolution Board (DRB) is a generic term that covers, in particular, Dispute Adjudication Boards (DABs) , neutral party and neutral party (Institution of Civil Engineers 2005a: 1). Such boards are very common in major civil engineering projects, especially at international level. They have replaced the engineer in its role of being the first instance of dispute resolution in such projects (Draper 2007). The setting-up of a DRB requires an agreement between the parties

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which will often be part of a standard-form contract. The board commonly consists of three members (more rarely: only one member) and it is usually established at the commencement of a project, i.e. not only when a dispute actually arises. From the project’s beginning, the board members conduct routine visits on the site on a regular basis. Their presence on site serves to maintain a good working relationship between the employer, the contractors and the engineer; often they are used as sounding board by the parties: problems are being discussed before they develop into disputes. Another positive effect of the board members’ regular site visits is their familiarity with the project. As a consequence, when a conflict arises, the need for an evidential and hearing process can be kept to a minimum. Hence, although considerable costs may accrue already before any dispute arises, this mode of dispute resolution can be cost-effective if it avoids the more expensive modes of arbitration and litigation. This result, however, requires that the parties accept the decision of the board. It should also be noted that the costs inherent to the early establishment of DABs make this less appropriate in construction projects of a smaller scale (Draper 2007).

When a dispute arises, either party may refer it to the DRB which in turn will look into it and render its decision within a short period of time. To prepare its decision the board may, among other things, request information and hear witness statements. If one of the parties is dissatisfied with the DRB’s decision, it can refer the dispute to arbitration or, if there is no arbitration agreement, to litigation. The arbitrator (or judge) does not review the board’s decision since it is the dispute and not the board’s decision that is referred to arbitration or litigation. However, according to anecdotal evidence, it is very rare that a decision of the DRB is not accepted by the parties.

23.5REFERENCES TO ADR PROCEDURES IN STANDARD FORMS

The techniques discussed above are consensual (meaning that a party cannot be forced to agree upon a mode of ADR) and thus they are often agreed upon on a ‘one off’ basis when a construction dispute actually arises. However, modern standard forms encourage the parties to resolve their disputes amicably, i.e. without adjudication, arbitration or litigation. This encouragement takes place in form of explicit references to various modes of ADR and, in some cases, to particular ADR procedures.

In terms of JCT standard-form contracts, most forms of the 2011 suite contain the following reference in their conditions: The parties may by agreement seek to resolve any dispute or difference arising under the Contract through mediation

(JCT SBC 11 clause 9.1, JCT DB 05 clause 9.1). A particular ‘mediation procedure’ is not specified. This is because the Joint Contracts Tribunal is of the opinion that this decision should be better taken by the parties when a dispute arises (Joint Contracts Tribunal 2011c: 20). However, the parties can use the mediation agreement (which contains simple procedural rules) published by the JCT in its 1995 Practice Note 28 (Joint Contracts Tribunal 1995). Additionally, an optional clause, if adopted, requires each party to notify the other of any matter that appears likely to give rise to a dispute or difference, following which senior executives named in the contract particulars are to meet for direct, good faith

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negotations to resolve the matter (JCT SBC 11, Schedule 8, clause 6 and SBC DB 11, schedule 2, clause 12).

The NEC3 ECC form deals with dispute resolution in its options W1 and W2. These contain two different adjudication procedures, one compliant with the Housing Grants, Construction and Regeneration Act 1996 (option W2) and one non-compliant with the act (option W1). The latter is drafted for use in international contracts to which the Act does not apply. Most surprisingly, NEC3 does not contain a reference to mediation or any other form of ADR. One would have expected such a reference because the NEC standard forms have always been at the forefront of modern procedures. In this regard, as Eggleston (2006: 317) puts it, NEC 3 has not kept pace with the growing trend for fully structured dispute resolution procedures…[such as]…negotiations at various levels, expert determination, conciliation and/or mediation, dispute resolution boards, adjudication and, only finally, arbitration or litigation. However, nothing prevents the parties to an NEC 3 contract from resolving their disputes amicably, i.e. by means of mediation or other modes of ADR.

The FIDIC 1999 Red Book is unique in providing a multi-tier approach to dispute resolution. First, parties may submit disputes for adjudication by a Dispute Adjudication Board (DAB), i.e. a form of a DRB (dealt with in Section 23.4.6 above). According to the FIDIC contract, the decision of the board becomes final and binding if no notice of dissatisfaction has been issued within a period of 28 days. In the respect, this mirrors former conciliation procedures that had featured in earlier ICE and FIDIC forms, but with the conciliator replaced by the DAB.

If such a notice has been served by either party, the parties are to attempt to resolve their dispute amicably before the commencement of arbitration (clause 20.5). Hence, arbitration cannot be commenced before the 56th day following the day on which notice of dissatisfaction was served. From a legal perspective, since one cannot impose an obligation on the parties to attempt to reach a settlement, this period simply prolongs the time before which arbitration may be commenced. However, there is nothing to stop the parties from attempting to reach agreement without going to arbitration. In fact, the clause only serves as a timely reminder to the parties that they really ought to try.