11 Dispute resolution

11.1 DB16 refers to five methods of dispute resolution: negotiation; mediation; adjudication; arbitration; and legal proceedings. One of these methods, adjudication, is a statutory right, and if one party wishes to use this method, the other must concur. Negotiation is an optional provision (Supplemental Provision 10). Negotiation and mediation are voluntary processes which depend on the co-operation of the parties, and either may lead to a binding result. If none of the options of negotiation, mediation or adjudication is used, or if either party is dissatisfied with the decision of an adjudicator, then the dispute will have to be resolved by arbitration or litigation.

11.2 DB16 requires the parties to decide in advance whether arbitration or litigation will be used. If arbitration is to be the final method of dispute resolution, then the contract particulars must indicate that ‘Article 8 and clauses 9.3 to 9.8 apply’. If this is the case, then all disputes will be referred to arbitration, except for those relating to the Construction Industry Scheme, VAT or the enforcement of an adjudicator’s decision.

11.3 There are therefore stages, either before or during the contract, where the parties have the opportunity to agree a preferred course of action, so it is important for them to understand the alternative methods.

Notification and negotiation

11.4 If Supplemental Provision 10 is incorporated, the parties are each obliged to notify the other promptly of any matter that may give rise to a dispute. The senior executives nominated in the contract (or persons of equal standing) must then meet and, in good faith, try to resolve the matter. There is no sanction for non-compliance, but refusal or failure to comply might be taken into account in any subsequent legal proceedings.

Mediation

11.5 If negotiations fail to achieve an agreement, the parties may wish to submit the dispute to ‘alternative dispute resolution’ (ADR), a term used to cover methods such as conciliation, mediation and the mini-trial. DB16 clause 9.1 requires each party to give serious consideration to a request by the other to use mediation. Footnote [57] to clause 9.1 refers to the Guide (DB/G), although the Guide does not in fact give any detailed explanation of this process. (The DB16 guide states that such choices are frequently better made by the parties when the dispute has actually arisen.) The parties could, of course, supplement DB16 by selecting a mediator or mediator-appointing body and setting this out in their contract. The RIBA, RICS, ACIArb and CEDR all maintain lists of mediators and will give guidance on appointment and procedure. 11.6 As mediation is a consensual process, any referral of a dispute to mediation would have to be supported by both parties. Usually a mediator is appointed jointly by the parties, and will normally meet with the parties together and separately in an attempt to resolve the differences. The outcome is in the form of a recommendation which, if acceptable, can be signed as a legally binding agreement, enforceable in the same way as any other contract. However, if the recommendation is not acceptable to one of the parties and is not signed as a binding agreement, it cannot be imposed by law, and so the time spent on the mediation may appear to have been wasted.

11.7 Nevertheless, there can be many advantages to mediation. Unlike adjudication, arbitration or litigation, it is a non-adversarial process which tends to forge good relationships between the parties. Imposed solutions may leave at least one of the parties dissatisfied and may make it very difficult for the parties to work together in the future. If the parties seek to promote a long-term business relationship, then mediation merits serious consideration. Even if mediation does not result in a complete solution, it has been found in practice that it can help to clear the air on some of the issues involved and to establish common ground. This, in turn, might then pave the way for shorter and possibly less acrimonious arbitration or litigation.

Adjudication

11.8 The Housing Grants, Construction and Regeneration Act (HGCRA) 1996 Part II as amended by the Local Democracy, Economic Development and Construction Act (LDEDCA) 2009 requires that parties to construction contracts falling within the definition set out in the Act have the right to refer any dispute arising ‘under the contract’ to a process of adjudication which complies with requirements stipulated in the Act. Article 7 of DB16 restates this right, and refers to clause 9.2, which states that where a party decides to exercise this right ‘the Scheme shall apply’. This refers to the Scheme for Construction Contracts 1998 (as amended in 2011), a piece of secondary legislation which sets out a procedure for the appointment of the adjudicator and the conduct of the adjudication. The Scheme takes effect as implied terms in a contract, if and to the extent that the parties have failed to agree on a procedure that complies with the Act.

11.9 By stating ‘the Scheme shall apply’, DB16 effectively annexes the provisions of the Scheme to the form, which therefore become a binding part of the agreement between the parties. Clause 9.2, however, makes its application subject to certain conditions which relate to the appointment of the adjudicator.

11 .10 Under DB16, the adjudicator may be either named in the contract particulars or nominated by the nominating body identified in the contract particulars. It should be noted that the list of bodies has changed since DB05, and now includes, as well as the RIBA, the RICS and the CIArb, the ‘constructionadjudicators.com’ and the Association of Independent Construction Adjudicators (AICA). A named adjudicator will normally enter into the JCT Adjudication Agreement Named Adjudicator (Adj/N) with the parties at the same time as the main contract is entered into.

11.11 The party wishing to refer the dispute to adjudication must give notice under paragraph 1(1) of the Scheme. The notice may be issued at any time and should identify briefly the dispute or difference, give details of where and when it has arisen, set out the nature of the redress sought, and include the names and addresses of the parties, including any specified for the giving of notices (paragraph 1(3)). If no adjudicator is named, the parties may either agree an adjudicator or either party may apply to the nominating body identified in the contract particulars (paragraph 2(1)). If no nominating body has been selected, then the contract states that the referring party may apply to any of the bodies listed in the contract particulars. The adjudicator will then send terms of appointment to the parties. In addition to the form for a named adjudicator, the JCT also publishes an Adjudication Agreement (Adj) for use in this situation.

11 .12 The Scheme does not stipulate any qualifications in order to be an adjudicator, but does state that the adjudicator ‘should be a natural person acting in his personal capacity’ and should not be an employee of either of the parties (paragraph 4). In addition, DB16 requires that, where the dispute relates to clause 3.13.3 (repeat testing), the person appointed shall ‘where practicable’ be ‘an individual with appropriate expertise and experience in the specialist area or discipline relevant to the instruction or issue in dispute’ (cl 9.2.2.1). Where the person does not have the appropriate expertise, he or she must appoint an independent expert to advise and report.

11.13 The referring party must refer the dispute to the selected adjudicator within seven days of the date of the notice (paragraph 7(1)). The referral will normally include particulars of the dispute, and must include a copy of, or relevant extracts from, the contract, and any material it wishes the adjudicator to consider (paragraph 7(2)). A copy of the referral must be sent to the other party and the adjudicator must inform all parties of the date it was received (paragraph 7(3)).

11.14 The adjudicator will then set out the procedure to be followed. A preliminary meeting may be held to discuss this, otherwise the adjudicator may send the procedure and timetable to both parties. The party which did not initiate the adjudication (the responding party) will be required to respond by a stipulated deadline. The adjudicator is likely to hold a short hearing of a few days at which the parties can put forward further arguments and evidence. There may also be a site visit. Sometimes it may be possible to carry out the whole process by correspondence (often termed ‘documents only’).

11.15 The adjudicator is given considerable powers under the Scheme (e.g. paragraphs 13 and 20), including the right to take the initiative in obtaining the facts and the law, the right to issue directions, the right to revise decisions and certificates of the contract administrator, the right to carry out tests (subject to obtaining necessary consents) and the right to obtain from others necessary information and advice. The adjudicator must give advance notice if intending to take legal or technical advice.

11.16 The HGCRA 1996 requires that the decision is reached within 28 days of referral, but it does not state how this date is to be established (section 108(2)(c)). Under the Scheme, the 28 days start to run from the date of receipt of the referral notice (section 19(1)). The period can be extended by up to 14 days by the referring party, and further by agreement between the parties. The decision must be delivered forthwith to the parties, and the adjudicator may not retain it pending payment of the fee. The provisions state that the adjudicator must give reasons for the decision if requested to do so by the parties (section 22).

11.17 The parties must meet their own costs of the adjudication, unless they have agreed that the adjudicator shall have the power to award costs. Under the Act, any agreement is ineffective unless it complies with section 108A, including that it is made in writing after a notice of adjudication is issued (DB16 therefore does not contain such an agreement). The adjudicator, however, is entitled to charge fees and expenses (subject to any agreement to the contrary), although expenses are limited to those ‘reasonably incurred’ (paragraph 25). The adjudicator may apportion those fees between the parties, and the parties are jointly and severally liable to the adjudicator for any sum which remains outstanding following the adjudicator’s determination. This means that in the event of default by one party, the other party becomes liable to the adjudicator for the outstanding amount.

11.18 The adjudicator’s decision will be final and binding on the parties ‘until the dispute is finally determined by legal proceedings, by arbitration, or by agreement between the parties’. The effect of this is that if either party is dissatisfied with the decision, it may raise the dispute again in arbitration or litigation as indicated in the contract particulars, or it may negotiate a fresh agreement with the other party. In all cases, however, the parties remain bound by the decision and must comply with it until the final outcome is determined.

11.19 If either party refuses to comply with the decision, the other may seek to enforce it through the courts. Generally, actions regarding adjudicators’ decisions have been dealt with promptly by the courts and the recalcitrant party has been required to comply. Paragraph 22A of the Scheme allows the adjudicator to correct clerical or typographical errors in the decision, within five days of it being issued, either on its own initiative or because the parties have requested it, but this would not extend to reconsidering the substance of the dispute.

Arbitration

11.20 Arbitration refers to proceedings in which the arbitrator has power derived from a written agreement between the parties to a contract, and which is subject to the provisions of the Arbitration Act 1996. Arbitration awards are enforceable at law. An arbitrator’s award can be subject to appeal on limited grounds.

11.21 If arbitration is preferred to litigation as the method for final resolution of disputes, then this is confirmed by selecting Article 8 in the contract particulars. The range of disputes that can be referred to arbitration is wider than for adjudication, as Article 8 refers to ‘any dispute or difference between the Parties of any kind whatsoever arising out of or in connection with this Contract’. The arbitration provisions are set out in clauses 9.3 to 9.8, which refer to the Construction Industry Model Arbitration Rules (the Rules). The Arbitration Act 1996 confers wide powers on the arbitrator unless the parties have agreed otherwise, but leaves detailed procedural matters to be agreed between the parties or, if not so agreed, to be decided by the arbitrator. To avoid problems arising, it is advisable to agree as much as possible of the procedural matters in advance, and DB16 does this by incorporating the Rules, which are very clearly written and self-explanatory. The specific edition referred to is the 2016 edition published by the JCT, which incorporates supplementary and advisory procedures, some of which are mandatory (Part A) and some of which apply only if agreed after the arbitration is begun (Part B). The paragraphs below refer to the JCT edition.

11.22 The party wishing to refer the dispute to arbitration must give notice as required by DB16 clause 9.4.1 and Rule 2.1, briefly identifying the dispute and requiring the party to agree to the appointment of an arbitrator. If the parties fail to agree within 14 days, either party may apply to the ‘appointor’, selected in advance from a list of organisations set out in the contract particulars. If no appointor is selected, then the contract states that the appointor will be the president or a vice-president of the RIBA. Under Rule 2.5, the arbitrator’s appointment takes effect when they agree to act, and is not subject to reaching agreement with the parties on matters such as fees.

11.23 The arbitrator has the right and the duty to decide all procedural matters, subject to the parties’ right to agree any matter (Rule 5.1). Within 14 days of appointment, the parties must each send to the arbitrator, and to each other, a note indicating the nature of the dispute and amounts in issue, the estimated length of the hearing, if necessary, and the procedures to be followed (Rule 6.2 and mandatory procedure 6.2.1). The arbitrator must hold a preliminary meeting within 21 days of appointment to discuss these matters (Rule 6.3 and mandatory procedure 6.3.1). The first decision to make is whether Rule 7 (short hearing), Rule 8 (documents only) or Rule 9 (full procedure) is to apply. If the parties cannot agree on a rule, mandatory procedure 6.3.2 states that Rule 8 shall apply, unless the arbitrator directs that Rule 9 shall apply. The decision will depend on the scale and type of dispute.

11.24 Under all three Rules referred to above, the parties exchange statements of claim and of defence, together with copies of documents and witness statements on which they intend to rely. Under Rule 8, the arbitrator makes the award based on the documentary evidence only. Under Rule 9, the arbitrator will hold a hearing at which the parties or their representatives can put forward further arguments and evidence. There may also be a site visit. The JCT amendments set out time limits for these procedures.

11.25 Under Rule 7, a hearing is to be held within 21 days of the date when Rule 7 becomes applicable, and the parties must exchange documents not later than seven days prior to the hearing. The hearing should last no longer than one day. The arbitrator publishes the award within one month of the hearing and the parties bear their own costs.

11.26 The arbitrator is given a wide range of powers under Rule 4, including:

• the power to obtain advice (Rule 4.2);
• the powers set out in section 38 of the Arbitration Act 1996 (Rule 4.3);
• the power to order the preservation of work, goods and materials, even though they are a part of work that is continuing (Rule 4.4);
• the power to request the parties to carry out tests (Rule 4.5);
• the power to award costs.

11.27 Under clause 9.5 of DB16, the arbitrator is also given wide powers to review and revise any certificate, opinion, decision, requirement or notice and to disregard them if need be, where seeking to determine all matters in dispute.

11.28 Where the arbitrator has the power to award costs, this will normally be done on a judicial basis, i.e. the loser will pay the winner’s costs (Rule 13.1). The arbitrator is entitled to charge fees and expenses and will apportion those fees between the parties on the same basis. The parties are jointly and severally liable to the arbitrator for fees and expenses.

Arbitration and adjudication

11.29 Under Article 8, any dispute that has been referred to an adjudicator may be referred to arbitration if this is required by either party. Clause 1.8.2.1 states that, even where the decision has been given after the due date for the final payment, either party may refer the dispute to arbitration, provided the arbitration is commenced within 28 days of the adjudicator’s decision.

Arbitration or litigation

11.30 As stated above, DB16 contains alternative provisions for arbitration and litigation in Articles 8 and 9, and a choice has to be made before tender documents are sent out. Both processes give rise to binding and enforceable decisions and both tend to be lengthy and expensive, although there are provisions for short forms of arbitration.

11.31 Litigation cases involving claims for amounts greater than £25,000 are normally heard in the High Court, and construction cases are usually heard in the Technology and Construction Court, a specialist department of the High Court which deals with technical or scientific cases. Procedures in court follow the Civil Procedure Rules, with the timetable and other detailed arrangements being determined by the court. A judge will hear the case and although, in the past, parties were required to be represented by barristers, now they may represent themselves or elect to be represented by an ‘advisor’.

11.32 Disputes in building contracts have traditionally been settled by arbitration. Arbitrators are usually senior and experienced members of one of the construction professions and, for many years, it was felt that they had a greater understanding of construction projects and the disputes that arise than might be found in the courts. These days, however, the judges of the Technology and Construction Court have extensive experience of technical construction disputes. The high standards now evident in these courts are likely to be matched, in practice, by only a few arbitrators.

11.33 The court has powers to order that actions regarding related matters are joined (for example, where disputes between an employer and contractor, and contractor and subcontractor, concern the same issues). This is much more difficult to achieve in arbitration. Even if all parties have agreed to the Construction Industry Model Arbitration Rules, the appointing bodies must have been alerted and have agreed to appoint the same arbitrator (Rules 2.6 and 2.7). If the same arbitrator is appointed, they may order concurrent hearings (Rule 3.7), but may only order consolidated proceedings with the consent of all the parties (Rule 3.9), which is often difficult to obtain. The court’s powers may therefore offer an advantage in multi-party disputes, by avoiding duplication of hearings and possible conflicting outcomes.

11.34 There remain, however, two key advantages to using arbitration. The first is that in arbitration the proceedings can be kept private, which is usually of paramount importance to construction professionals and companies, and is often a deciding factor in selecting this process. In court, the proceedings are open to the public and the press, and the judgment is published and widely available.

11.35 The second advantage to the parties is that the arbitration process is consensual. The parties are free to agree on timing, place, representation and the individual arbitrator. This autonomy carries with it the benefits of increased convenience, and possible savings in time and expense. The parties avoid having to wait their turn at the High Court, and may choose a time and place for the hearing which is convenient to all. In arbitration, however, the parties have to pay the arbitrator and meet the cost of renting the premises in which the hearing is held.

11.36 It should perhaps be noted that, even where parties have selected arbitration under Article 8, it is still open for them to select litigation once a dispute develops. If, however, one party commences court proceedings, the other may ask the court to stay the proceedings on the grounds that an arbitration agreement already exists. This would not apply to litigation to enforce an adjudicator’s decision, as Article 8 excludes all disputes regarding the enforcement of a decision of an adjudicator from the jurisdiction of the arbitrator. If, on the other hand, the parties had originally selected litigation, this would not prevent them from subsequently agreeing to take a dispute to arbitration, but, in such cases, they would also have to agree how the arbitrator is to be appointed and which procedural rules are to apply.