Alternative Dispute Resolution (ADR) HomeAlternative Dispute Resolution (ADR)

 

Alternative Dispute Resolution (ADR) covers a whole range of consensual dispute resolution techniques from mediation through to mini trials.  Mediation is effectively a structured means of facilitating negotiation aimed at achieving a negotiated settlement, which is acceptable to both parties.  The parties are assisted in their negotiations by a third party, a neutral mediator, who will discuss the issues with the parties in open or private sessions, assist the parties to understand the strengths and weaknesses in their positions and identify avenues for settlement which often involve issues and options outside the immediate matters in dispute.  Mediation is actively encouraged by the courts and is ideally suited to parties who have a commercial view and an interest in reaching a negotiated settlemen, but just need a little further assistance and encouragement to do so.  If you are in litigation and the other side offer mediation, you must consider it carefully.  If you unreasonably refuse mediation, you could end up paying your opponents costs as well as your own after a trail, even if you win!

Some courts have now started offering mediation services, at a fraction of the costs of independent mediators.  However, we would only recommend the use of such services in low value uncomplicated cases.

Early Neutral Evaluation (ENE) involves the use of a third party neutral expert to give a non-binding opinion on technical or legal issues which are likely to assist the parties in settling their dispute.  This has been expanded upon to develop a system of expert determination with the parties agreeing to be bound by the outcome.  This has gained some popularity as an industry expert decides the dispute and the costs are significantly less than arbitration or litigation.

 

Most standard forms of construction contracts contain an arbitration clause for the resolution of disputes arising under the contract, but as a result of the Housing Grants, Construction and Regeneration Act 1996, the initial form of dispute resolution now tends to be adjudication.

However, arbitration still remains a common forum for resolving construction disputes. I f there is an arbitration clause in the contract, the court will automatically stay court proceedings to allow the parties to complete the arbitration process.  Following the recent reforms of the Technology and Construction Court (TCC) it remains to be seen whether arbitration will maintain its popularity as a dispute resolution forum.  The TCC has now tailored itself to better meet the needs of the construction industry.  The judges have impressive construction expertise and it has become apparent that resolving a dispute through litigation in the TCC can be both quicker and less costly than resorting to arbitration. There are further complications where the dispute has an international flavour.  Where the parties in dispute reside in different jurisdictions, there is often a reluctance on behalf of each party to submit to the home courts of the other.  Furthermore, the greatly increased scope for enforcement of arbitration awards around the world provided by the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards means arbitration is more attractive.  Enforcing an English High Court judgment within a foreign jurisdiction can be fraught with difficulties.

 

Adjudication under the Housing Grants, Construction and Regeneration Act 1996 has become the predominant means of resolving disputes in the construction industry.  Section 108 of this Act provides parties to construction contracts with a right to refer disputes under the contract to adjudication.  It sets out certain minimum procedural requirements, which enable a party to a dispute to refer the matter to an independent party who is then required to make a decision within 28 days of the matter being referred.

If a construction contract does not comply with these requirements, a statutory default scheme called the Scheme for Construction Contracts (“the Scheme”) will apply.

Adjudication does not necessarily achieve final settlement of a dispute because either of the parties has the right to have the same dispute heard afresh in court (or where the contract specifies arbitration, in arbitration proceedings).  Nevertheless, recent experience shows that the parties accept the majority of adjudication decisions as the final result.  The legislation provides that adjudication can be used at any time.  For example, provided the parties have a written contract (the definition of “written” is wide), it can be used to decide contractual disputes with designers before construction begins; it can be used to resolve contractual disputes with and between designers, contractors and sub-contractors both during construction as well as after completion.

Once a dispute has arisen between the parties, either party may seek adjudication.  The adjudicator is selected within a week and must decide the dispute within a further four weeks (subject to any agreed extension).  Once the adjudicator has made a decision.  The next step is to appoint an adjudicator. I f the construction contract names an adjudicator, that person must be appointed.  If the contract does not name an adjudicator or if the person named is unwilling or unable to act, an Adjudicator Nominating Body such as the Association of Independent Construction Adjudicators, the RICS, TeCSA or the RIBA can select an adjudicator.  It may be possible to agree the identity of the adjudicator with the other party to the dispute.  In any event, the adjudicator should be appointed within seven days of the notice of adjudication.

Once the adjudicator has been selected, the referring party must send a referral notice to both the adjudicator and the other party or parties to the dispute.  The referral notice should again explain the nature of the dispute, detail the facts, set out the remedy sought and why the referring party is entitled to that remedy.  Copies of the construction contract and other relevant evidence should be sent with the notice.compliance can usually be obtained within a matter of days.  The adjudicator will decide whether a hearing will be necessary.  If there is to be a hearing, the adjudicator will decide how formal it should be.

The adjudicator must give a decision within 28 days of receiving the referral notice.  This period can be extended by up to 14 days with the consent of the referring party and for longer periods of time with the consent of all parties to the dispute.

Adjudication is thus very quick in comparison with other methods of dispute resolution such as arbitration or litigation and it can also be used during the currency of a contract.  Adjudication can be a simple procedure, so in many cases there is no need to involve lawyers or other advisers.  It is usually more cost effective than arbitration or litigation.

The adjudicator is required to take the initiative in ascertaining the facts and can:

  1. Ask for further documentation meet and question any of the parties to the contract make such site visits as he considers necessary (subject to obtaining necessary consent from a third party) carry out tests or experiments (subject to obtaining necessary consent from a third party)
  2. Appoint experts, assessors or legal advisers provided he has notified the parties of his intention to do so give directions as to the timetable and conduct of the adjudication open up, revise and review any decision taken or certificates given by any person referred to in the contract (unless the contract states that the decision or certificate is final and conclusive)

Adjudicators may only consider disputes that have been referred to them.  For this reason, it is important to be careful about the wording of the referral notice.  An adjudicator can decide whether and when payments are due under the contract and can also award simple or compound interest on outstanding payments.

At present comparatively few adjudication decisions are being reviewed.  Even where they are reviewed, the courts have indicated that they will enforce adjudication decisions unless the adjudicator has acted without having the authority to act or to make the decision that has been made, has not acted impartially or allowed each party sufficient opportunities to make its case.

Under the terms of the scheme, the adjudicator will decide who should pay his fees and in what proportion.  All parties are jointly and severally liable for the adjudicator’s fees, which means that if one party defaults in paying his share, the other is liable for the defaulting party’s share.

The scheme does not give the adjudicator power to award legal costs against a party.  This means that a party’s legal costs cannot be recovered from the other party, even if the decision is made in their favour.  However contractual adjudication procedures may give the adjudicator such a power or the parties can agree to give the adjudicator such a power on one particular dispute.

 

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