Comparative Analysis of Construction Dispute Resolution

Dispute resolution in the UK Construction Sector

Disputes and conflicts are common in the construction industry, due to which the construction sector is considered to be one of the most conflict ridden and claim orientated sectors. Prior to the increasing use of methods of alternative dispute resolution (ADR), litigation was the most used methods of conflict resolution in the UK. However, it is also costly and time consuming, which has led to the construction industry using ADR increasingly to resolve their disputes. UK construction disputes can be resolved through different ADR methods, such as, mediation, arbitration, and expert determination. Adjudication is also used within the sector as a means for resolving disputes. In this section of the literature review, the different methods for dispute resolution will be discussed at some length.

The Latham Report 1994 is the turning point in the British construction dispute law. This report was commissioned by the government for studying the problems faced by the construction industry. The report made some important recommendations, which were implemented by the Housing Grants, Construction and Regeneration Act 1996. This law introduced statutory adjudication, which relates to the adjudication for disputes under construction contracts. In general, there are four methods by which the disputes related to construction contracts are resolved. The first method is negotiation or mediation, which is an optional process that can be adopted by the parties for settlement of their claims. The second is adjudication, which comes under the Housing Grants, Construction and Regeneration Act 1996. This is discussed in detail in this section. The Model Adjudication Procedure set out by the Construction Industry Council is applicable to such process. The third method is that of arbitration. The fourth method is litigation, wherein the dispute between the parties is submitted to the courts.

Although there has been a development of ADR methods and also a rise in the use of ADR methods, litigation still remains an important and one of the most common forms of dispute resolution methods used in the construction industry. The Housing Grants, Construction and Regeneration Act 1996 is applicable for this purpose. This law has established the Technology and Construction Court, which is a specialist court created for the specific purpose of resolving technology and construction disputes. The Civil Procedure Rules as well as the Technology and Construction Court Guide are applicable to the resolution of such disputes. Due to the inherent advantages of the litigation method, some parties may prefer to opt for litigation. The advantages of litigation are that the process is managed by a judge, who has the expertise to deal with complex issues that may be involved in construction disputes and who has the authority to give a binding and enforceable decision.

Irrespective of the advantages of litigation as a process, parties may still prefer to opt for ADR methods because there are also certain drawbacks of litigation as a method of dispute resolution. The first disadvantage is that only claims of value of more than £250,000 are admissible before the Technology and Construction Court. Other claims come within the jurisdiction of the County Court. The second disadvantage is that litigation is usually a time consuming process and also one of the most expensive methods for dispute resolution as it involves hefty court fees and costs for lawyers.

Adjudication involves decision making for the resolution of the dispute between two parties by a neutral third party. Within the construction sector, the Housing Grants, Construction and Regeneration Act 1996 is the principal legislation for adjudication. This legislation allows disputing parties with a construction contract related dispute to refer the same to an adjudicator. The decision of the adjudicator can be submitted to the Technology and Construction Court for the purpose of enforcement by the successful party. The decision is binding. However, the legislation allows the decision of the adjudicator to be revised under certain conditions in a process involving arbitration or litigation.

The process of adjudication is also known as a ‘pay first, argue later’ method for dispute resolution. Still, there are specific advantages to adjudication due to which parties may prefer to submit their disputes to adjudication. These advantages include: the role of the adjudicator as a neutral person; efficient and timely resolution of dispute; non-expensive method of resolving dispute; and binding nature of the decision of the adjudicator. One major disadvantage of the adjudication process is that the successful party is required to go to court anyway if the losing party refuses to comply with the adjudicator’s decision.

Expert determination is also one of the preferred modes of resolving construction disputes, particularly in disputes related to valuation. It is an informal system of dispute resolution and as of now it has shown limited use in construction related disputes because the parties may use it for issues like valuation where the expert determination is useful. In such disputes, expert determination is preferred because it is economic, inexpensive, and informal. However, the drawback of using expert determination is that it is not enforceable on its own and needs further litigation or arbitration proceedings for the purpose of enforcement.

Mediation is also a common method of ADR used in the construction industry. Rules related to mediation are contained in the Technology and Construction Court Guide. The Guide states that before resorting to litigation, courts should encourage parties to use ADR methods including mediation. The Pre-Action Protocol for Construction and Engineering Disputes is applicable in such situations and it requires parties in dispute to meet, at least once before litigation commences for coming to an understanding on an ADR method which may be used to resolve the dispute instead of litigation. There are certain advantages to mediation. The first advantage is that mediator is a neutral, experienced and independent third party, who can be expected to act without bias. The second advantage is that all the suggestions of the mediator are given through the method of discussion between the parties. The third advantage is that it is an amicable method of dispute resolution, which helps parties to maintain business relations despite dispute. The fourth advantage is that mediation is time efficient and inexpensive. The fifth advantage is that the proceedings involved in mediation are confidential. This is an important advantage and can be compared with litigation as a public process. Business parties may prefer confidential proceedings for a variety of reasons. The disadvantage of mediation is that the parties may fail to come to a resolution of dispute which may mean that the cost of mediation will have been wasted.

Arbitration is an alternative to litigation and is a process that comes the closest to litigation despite being an ADR method of dispute resolution. Arbitration involves a third party or parties as arbitrator. Disputes are resolved on the basis of material facts, documents and relevant principles of law. The Arbitration Act 1996 is applicable in the UK and arbitrations in the construction sector are conducted as per the principles laid down in the Arbitration Act 1996. The advantages of arbitration are that it is cost-effective and time-efficient. Parties get to decide the arbitrators and the process is flexible. It is a confidential process. Arbitration also has certain disadvantages. The arbitrator does not have powers comparable to the court judge and there are fewer powers available to the arbitrator in the event that one party fails to comply with the directions of the arbitral order. Unlike court judgments, there are restricted appeal rights. On the other hand, arbitration may be as expensive as litigation.

One of the most significant developments in the construction law is that of adoption of adjudication through the application of the Housing Grants, Construction and Regeneration Act 1996. The parties to construction dispute have a statutory right to submit their dispute to adjudication under this law. There are many advantages to this system introduced after recommendations made by the Latham Report were adopted. As per the Latham Report recommendation, “a system of adjudication should be introduced within all standard forms of Contract, unless some comparable arrangement already existed for mediation or conciliation.”

Prior to the creation of the statutory right of submission of disputes to arbitration, there was an imbalance between the bigger companies in the construction sector and the smaller companies or developers; the former would not hesitate to submit their disputes to litigation, while the expensive nature of the process would deter smaller firms or contractors from the same. This led to a skewed relationship between the bigger and smaller contractors, with the latter often failing to recover monies due to them. The statutory right to adjudication given an option to the smaller players to refer construction related disputes to adjudication instead of litigation. There is no opting out of statutory adjudication even in the construction contracts, which means that parties entering into construction contracts are bound by statutory adjudication. Even if the construction contract is silent on statutory adjudication, it is implied term of the contract. Therefore, the first benefit of the adoption of the statutory adjudication method is that it places the bigger companies and the smaller contractors in a more balanced position vis a vis each other. Moreover, there is no option to opt out of statutory adjudication. For the construction industry, which is severely impacted if there are disruptions, statutory adjudication is a beneficial method because it does not disrupt the overall construction project. For contractors, this method is especially beneficial because they can recover their moneys quickly, which reduces any chances of their insolvency. In a way, statutory adjudication also puts both parties, which may have significantly differing financial resources on more equal footing.

Compared to litigation, statutory adjudication is speedier as the adjudicator is required to decide matters referred to them within 28 days. Matters that can be heard by the adjudicator may involve a variety of claims, such as, non-payment of monies, delays to construction, poor quality and defective work, and clarifications on the scope of project. Although adjudicators can hear more complex issues as well, for some kinds of complex issues, arbitration or litigation may be the more appropriate method. The benefit of the statutory adjudication system is that there is now no need to approach courts for straightforward issues, which can be decided more expeditiously by the adjudicator. The utility of the process to quickly adjudicate the issue has also been recognised by the court in AWG construction services Ltd v Rockingham Motor Speedway, in which Judge HH Toulmin noted that statutory adjudication is a “ procedure which parliament introduced to provide a quick, easy and cheap provisional answer so that in particular, sub-contractors were not unjustly kept out of their money. It has developed into an elaborate and expensive procedure which is wholly confrontational.”

Another benefit of the statutory adjudication method is that the outcome of the process is a binding decision of the adjudicator, which can be enforced under the law. If one party to the proceedings refuses to comply with the adjudicator’s decision, then the other party can have recourse to enforcement procedures through the Technology and Construction Court. In other words, not only is the outcome of the dispute resolution guaranteed in 28 days from the adjudicator, the enforcement of the decision is also provided for under the law. For such cases, the Civil Procedure Rules become applicable for both monetary judgment and other declaratory relief orders given by the adjudicator. Even where the other party wants to challenge the decision of the adjudicator, there are specific grounds only on which such a challenge can be raised. These include, absence of written construction contract, dispute not being crystallised at the time, and absence of correct procedures in appointing the adjudicator. Therefore, challenges to the adjudicator’s decisions are more commonly made out on the basis of lack of jurisdiction for the adjudicator or lack of power to adjudicate.

Due to the reasons discussed above, statutory adjudication has come to be recognised as an effective method of resolution of certain kinds of disputes within the construction industry in different parts of the world. In the UAE, however, the method of statutory adjudication is yet to be accepted. Rather, UAE greatly relies on arbitration and litigation as the two principal methods for dispute resolution in the construction sector. The UAE does follow the International Federation of Consulting Engineers (FIDIC) FIDIC contracts for construction projects in the UAE. However, domestic legislation in the UAE leads to the modification of FIDIC Contracts in the UAE. The UAE Civil Law is similar to the FIDIC in that it requires parties to act in good faith. In other words, the Contractor is responsible for providing highest possible quality work to the Employer. The FIDIC also imposes on the Contractor a separate obligation of notifying the Employer of construction defect or mistake. For FIDIC Contracts, disputes are to be first submitted to the Dispute Adjudication Board. The adjudicators in the Dispute Adjudication Board are to be appointed in conjunction by both parties to the dispute.

Clearly, there is no statutory adjudication in the UAE unlike the UK where such as process of mandated by the law itself. In the UAE, if the parties have entered into FIDIC contracts, then they are required to submit their disputes to adjudication, otherwise not. It is a point worth noting that FIDIC contracts are usually entered into where the contract is international in nature. The kind of protection that is statutorily given to the smaller contractors involved in domestic construction does not appear to be provided in the UAE. In FIDIC contract context also, the process is consensual in nature because the appointment of the Dispute Adjudication Board is based on the choice of the parties concerned. Parties cannot be made to sign the Dispute Adjudication Agreement. This agreement is the basis for the submission of the dispute to adjudication. In the absence of such an agreement, the parties may only be able to submit the dispute to arbitration or litigation.

This literature review has delved into the benefits of the statutory adjudication, which are now seen in the UK. The statutory adjudication system has now been implemented in the UK since 1996. There is now considerable literature that indicates the benefits and advantages of adjudication. There is also considerable case law which can show the practical ways in which the law is applied. In the UAE, there is no specific statutory law for adjudication in the construction industry. Rather, what the UAE experience shows is that FIDIC contracts are submitted to the Dispute Adjudication Board. Even so, there are areas of concern related to the Dispute Adjudication Agreement, which cannot be compelled as between parties at the time of entering into contracts. This literature review indicates that there is scope for a comparative study of the adjudication method in construction contract disputes as between the UK and the UAE. Such a comparative study would allow the researcher to understand with more clarity as to how the dispute adjudication process in the UK is beneficial to the construction industry. The lessons derived from the UK experience can help to formulate recommendations for the UAE as well. The UAE is already following FIDIC in this regard, which means that they already are familiar with adjudication and any recommendations favouring a similar process as is found in the UK, in the UAE may be made without being too radical in nature.

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