10
Dispute handling and resolution
10.1 At the start of a project the idea that the parties may fall into dispute may seem only a remote possibility and therefore not worth considering in detail. However, the reality is that once a dispute has arisen it will not be possible to sensibly agree a way forward to its resolution. It is therefore very important that care is taken at the outset to select dispute resolution options that are appropriate and with which both parties are happy.
10.2 Ideally, if a dispute breaks out it should first be handled informally, through negotiation, correspondence or, perhaps, at a specially called meeting. The advance warning notices required under clause 3.2, and any related meetings, will also help to avert or resolve many matters. Embarking on more formal dispute resolution methods is not something to be undertaken lightly; they will all involve the parties in additional costs and time (although to varying degrees) and may be very stressful. In addition, with the exception of mediation, they are likely to result in a poor relationship between the parties for the remainder of the project.
10.3 However, in some cases the need for a more formal method of dispute resolution will be unavoidable. For such situations, the RIBA Building Contracts offer several options: mediation, adjudication, arbitration and litigation. The parties are required to decide on the methods to be used before entering the contract, by means of entries in item N of the Contract Details.
10.4 In DBC, mediation, adjudication and arbitration can be selected, or none, or any combination. Litigation will apply by default as the final method of dispute resolution if arbitration is not selected. In CBC the adjudication option is preselected (see paras 2.24 and 2.25), but otherwise the same applies. The parties are invited to name the arbitrator, adjudicator or mediator of their choice, but if none is named, the guidance note to item N states that ‘selection can be made by the Royal Institute of British Architects’.
10.5 A brief outline of each method is set out below, in order to highlight the key differences between the procedures. More information can be found in the many texts on these topics, including the RIBA Good Practice Guides on mediation, arbitration and adjudication.
Mediation
10.6 Mediation is a voluntary process whereby the parties are helped by a professional mediator to resolve the dispute in a way that they are both comfortable with. The mediator has no authority to impose a solution, and it may be that the dispute is not resolved. However, as it is less adversarial than other methods, even if a solution is not reached the mediation may have helped to pave the way for further discussions. It is also less expensive than other methods, particularly if the mediation is limited to one day. The parties should bear in mind that they will nevertheless need to pay their own expenses, the mediator’s fee and the cost of the venue.
10.7 If this option is selected, the mediation would normally happen before any other steps are taken. It is not stated to be a ‘condition precedent’, so if it is selected, there would be nothing to prevent either party initiating adjudication, arbitration or court proceedings at the same time. However, if the parties are genuinely interested in resolving the dispute they are unlikely to take such steps while the mediation is in progress.
10.8 The RIBA offers a mediation scheme, whereby the mediator will be appointed to work with the parties, and is normally paid on a daily rate.1 For a small project, the mediation may last for a day or even less, but for large, complex disputes it could take several days. There are no set rules for mediation, and each mediator will have various techniques that they may use, for example meeting the parties separately, taking issues and suggestions back and forward between the two, and/or bringing them together for a chaired discussion. All proceedings are confidential and on a ‘without prejudice’ basis, so that offers made cannot be raised in future dispute proceedings, and nothing disclosed to the mediator will be disclosed to the other party unless a party permits it.
10.9 At the end of the mediation, if an agreement is reached, the parties will sign a binding agreement, which is enforceable in the same way that any contract between the parties would be. If the parties are still in deadlock they can ask the mediator to propose a solution, but of course they do not have to accept it.
Adjudication
10.10 Adjudication is a statutory right of any party to a construction contract that falls under the definition in the Housing Grants Act (see para. 1.14). It is a procedure by which the dispute may be referred by either party to an adjudicator, who must reach a decision within 28 days. In construction industry terms, this is a relatively short period, although it can be extended by 14 days by the referring party, and further by agreement. In the case of projects with a residential occupier (which would be the case with most projects under DBC, see Appendix 1: para A1.7), the Housing Grants Act does not apply by default, therefore adjudication would need to be selected in item N of the Contract Details if it is to be used.
10.11 Adjudication has advantages and disadvantages, the key advantage being that the matter is sorted out quickly, which limits the amount of time and resources that the parties can spend on it. The disadvantage is that the whole process can seem extremely rushed, particularly from the client’s perspective. Usually, the dispute is initiated by the contractor, who may have spent a considerable period in advance preparing for the process, but the client may be required to respond very quickly to what can be a lengthy claim. The decision may seem rather ‘rough justice’ as there is little time for the responding party to develop and put forward careful arguments, or to commission technical reports and collect other relevant evidence. On the plus side, the decision, although it must be complied with, can be challenged in the sense that the dispute can later be raised in arbitration or in court.
The adjudication process
10.12 Neither version of the RIBA Building Contract sets out a detailed procedure for adjudication. Instead, the contracts state that the rules will be as stated in item N of the Contract Details (cl. 13.6, CBC; cl. 13.2.5, DBC). In the case of CBC, this refers to secondary legislation, the Scheme for Construction Contracts2 (the Scheme, see para. A1.6), whereas DBC refers to the RIBA Adjudication Scheme for Consumer Contracts (the RIBA Scheme). The most significant difference between these is that the latter is a shorter procedure, and the adjudicator’s fees are capped.
10.13 Under the statutory Scheme, the party wishing to refer a dispute to adjudication must first give notice to the other party identifying briefly the dispute or difference, giving details of where and when it has arisen and setting out the nature of the redress sought. If no adjudicator is named, the parties may either agree an adjudicator or either party may apply to any nominating body specified in the contract or, if none is specified, to any nominating body. CBC states that ‘selection can be made by the RIBA’ but as this is arguably not a binding agreement to apply only to this body, it might be sensible for the parties to confirm the agreed nominating body is clearly under item N. Once appointed, the adjudicator will normally then send terms of appointment to the parties. In the case of the RIBA Scheme, the party wishing to have the dispute resolved by adjudication must apply to the RIBA.
10.14 Under the statutory Scheme, the referring party must refer the dispute to the selected adjudicator within 7 days of the date of the notice (Scheme para. 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 the party wishes the adjudicator to consider (para. 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 (para. 7(3)). The adjudicator will then set out the procedure to be followed. A preliminary meeting may be held to discuss this, otherwise the adjudicator will send the procedure and timetable to both parties. The party that did not initiate the adjudication (the responding party) will be required to respond by a stipulated deadline. The adjudicator may hold a short hearing and/or may visit the site. Occasionally, it may be possible to carry out the whole process by correspondence (often termed ‘documents only’). The adjudicator must reach a decision within 28 days of the referral, unless extended by agreement.
10.15 The RIBA Scheme does not set out any particular procedure. It is left entirely to the discretion of the adjudicator to direct the parties as to whether and when referral documents and a response are to be submitted, but in most cases the adjudicator will ask for information from each side and may, as above, decide to hold a meeting. In this case the decision must be reached within 21 days of the adjudicator being appointed.
10.16 The adjudicator is required to act impartially (Scheme para. 12(a); RIBA Scheme para. 16). The statutory Scheme states that the adjudicator is not liable for anything done or omitted when acting properly as an adjudicator (para. 26).
10.17 Under the statutory Scheme the parties must meet their own costs of the adjudication, unless they have agreed that the adjudicator shall have the power to award costs, which they may only do after the dispute has arisen. The adjudicator, however, is entitled to charge fees and expenses (subject to any agreement to the contrary) and may apportion those fees between the parties. The parties are jointly and severally liable to the adjudicator for any sum that 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. In the case of the RIBA Scheme the parties must meet their own costs. The adjudicator’s fees are limited to £150 per hour (exclusive of VAT) up to a maximum of fifteen hours, and the adjudicator may apportion those fees between the parties. The parties are not jointly and severally liable for the fees, instead the adjudicator may take court proceedings against any party that does not pay its apportioned amount.
Challenging an adjudicator’s decision
10.18 The Scheme states that the adjudicator’s decision will be final and binding on the parties ‘until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement between the parties’ (para. 23(2)). 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 Details, 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.
10.19 The RIBA Scheme states that ‘The customer and the contractor must follow the adjudicator’s decision as part of their obligations under the building contract, unless and until either party obtains a court judgment about the dispute which is different from the decision of the adjudicator’ (para. 22). There is no reference to final determination by arbitration, possibly because the RIBA Scheme was originally developed to cater for the JCT Building Contracts for a Home/Owner Occupier, which do not include arbitration as a dispute resolution option. Users of a RIBA Domestic Building Contract that intend to select arbitration as the final forum may wish to include an appropriate amendment to paragraph 22 of the RIBA Scheme under item P.
10.20 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 5 days of it being issued, either on the adjudicator’s own initiative or because the parties have requested it, but this would not extend to reconsidering the substance of the dispute.
Arbitration
10.21 Arbitration is essentially a private alternative to court proceedings. If arbitration is not selected, the default process for the ultimate resolution of disputes will be the courts (cl. 13.9, CBC; cl. 13.5, DBC). If it is selected, either party has the right to require that any dispute is taken to arbitration (cl. 13.8, CBC; cl. 13.4, DBC). If one of the parties nevertheless initiates court proceedings, the other can apply for a stay, and the courts would normally freeze the proceedings to allow the arbitration to take place.
10.22 The process is supported by statute (the Arbitration Act 1996), and a court would enforce the decision (‘award’) of an arbitrator in the same way that it would enforce its own judgments. There are very limited rights to challenge the enforcement of an award, the grounds of which are confined to matters such as lack of jurisdiction of the arbitrator or bias. In some circumstances a party may appeal the award on a point of law, but even this right can be excluded if the parties agree.
10.23 Arbitration is a private process, which is often an attractive feature to clients and their consultants. It is also very flexible, as the parties can agree the timetable and venue; failing agreement, the arbitrator has authority to direct these matters. The form of proceedings can vary hugely, but they are often relatively long and formal, and consequently expensive in comparison with mediation and adjudication. Various sets of rules exist that the parties can adopt, such as the Construction Industry Model Arbitration Rules (CIMAR).3 These include rules for a ‘documents only’ arbitration (i.e. with no hearing, see Rule 8), for a short hearing (Rule 7) and for a full procedure (Rule 9).
10.24 Under the Arbitration Act the arbitrator has the power to award costs, unless the parties agree otherwise. 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 (CIMAR Rule 13.1). The arbitrator will be 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 incurred.
10.25 As the costs in an arbitration are often significant (sometimes amounting to more than the actual amount claimed), the issue of who pays them is of considerable concern to the parties. In an effort to reduce their liability for costs, the party that is being claimed against may make an offer to settle. If this is done correctly, and the other party refuses the offer but ultimately is awarded less than the sum offered, it will not be able to recover any of its costs from the date the offer was refused.