The role of Alternative Dispute Resolution in resolving construction disputes
By its nature, the construction industry lends itself to legal disputes on a regular basis. Contractual disagreements, project delays and quality of work issues are all common reasons why disputes arise.
Traditionally, these disputes would be resolved through litigation, a process known for being both time-consuming and expensive.
However, Alternative Dispute Resolution (ADR) offers a more streamlined and harmonious pathway to resolution.
The courts in England and Wales have started to look favourably upon ADR and have encouraged parties engaged in such methods. In fact, further reforms are likely to occur in this domain which will likely make ADR a compulsory first step before court proceedings can be issued
The Technology and Construction Court (TCC) has already advocated for this within its guidance and has encouraged parties to engage in ADR.
The case of The Sky’s the Limit Transformation Ltd v Dr Mohammed Mirza (2022) perfectly exemplifies the changing attitudes of the courts towards ADR. In this case, the contract was terminated over a dispute regarding unpaid invoices, leading to the building contractor commencing legal proceedings.
The judge ultimately ruled that the defendant owed no further money to the claimant, however, as part of his judgment, the judge confirmed his view that steps to address such domestic property renovation building contract disputes in a timely and cost effective manner are now required. The judge proceeded to suggest, in such disputes, a mandatory pause in proceedings for mediation should be implemented, and that if the parties are not willing to mediate, an order for nearly neutral evaluation before another judge, should then be implemented.
Against this growing call for greater ADR in construction disputes, we should consider the benefits and workings of this process.
The workings of ADR
ADR encompasses various dispute resolution techniques that operate outside of the courtroom, including:
Each method offers a unique approach to dispute resolution, catering to different needs and scenarios.
Mediation involves a neutral third party, the mediator, who facilitates negotiations between the disputing parties, helping them find a mutually agreeable resolution without imposing a solution.
This can often be the preferred method of resolution when the parties involved have a long-standing relationship that they wish to maintain, or if alternative methods seem too costly.
Arbitration sees an arbitrator or a panel of arbitrators hearing the evidence and arguments of the parties involved and making a potentially binding decision.
This form of ADR is used when a legally binding resolution is desired without resorting to court proceedings.
Adjudication is a process specific to the construction industry, offering a quick and legally binding resolution to disputes that may arise during the construction process.
This method was introduced to address the frequent delays and cash flow issues that plagued the industry. It involves an independent adjudicator who is appointed to review the evidence and arguments presented by both parties and arrive at a decision within a short timeframe, usually 28 days.
This decision is binding, meaning it holds unless the dispute is overturned through litigation or arbitration, or if both parties agree to accept it as the final resolution.
Early Neutral Evaluation
The parties agree to appoint an independent evaluator to assess the strengths and weaknesses of each side’s case. This can be helpful in encouraging early settlement.
The evaluator does not rule on legal issues, however by providing an independent assessment of each party’s strengths and weaknesses in the case, the evaluator provides valuable input which should focus the minds of each party to hopefully lead to settlement.
With the agreement of all parties, the dispute is submitted to one (or more) experts, who make a determination on the matter.
The determination is legally binding, unless the parties agreed other side at the point of the submission to the expert(s).
O’Rourke Civil Engineering Ltd v. Healthcare Support (Newcastle) Ltd
ADR can be seen in action in the case of O’Rourke Civil Engineering Ltd v. Healthcare Support (Newcastle) Ltd (2010).
In this case, O’Rourke Civil Engineering Ltd sought payment for additional work carried out during a construction project. The dispute was referred to adjudication. The adjudicator ruled in favour of O’Rourke, awarding them a substantial sum.
This case illustrates the effectiveness of adjudication in resolving disputes swiftly, allowing for the enforcement of payment terms and ensuring the smooth progression of construction projects.
The benefits and challenges of ADR
While ADR offers a more flexible and cost-effective solution to dispute resolution, it is not without its challenges.
The success of ADR largely hinges on the willingness of the parties to cooperate and find a mutually agreeable solution.
ADR plays a particularly crucial role in the construction industry, as there is often a contractual agreement within the construction contract agreed at the outset of the project that any disputes are referred to adjudication.
By understanding the depth of each ADR method and its appropriate application, parties involved can navigate disputes with a strategy that is both informed and effective.
At Ansons solicitors, our dispute resolution team have achieved successful outcomes for clients in the construction industry by using ADR methods. Please contact us today for expert advice.