ADR in the construction industry: a spectrum of control (Part 1 of 3)

This is a big topic. The construction industry is one in which disputes arise very frequently. The range and scope of those disputes is vast, and the case law and legislation determining them is voluminous. In this post, I intend to make one specific point, relating to the extent to which parties lose control when choosing to resolve their dispute by way of litigation in the courts. There are so many other ways to resolve matters so it is incredible that parties still choose to put themselves before the courts.

On the surface, construction litigation tends to involve adjudication, or failing that the courts, with a bit of mediation thrown in. In this post, I intend to set out the various means of resolving a dispute, in a logical order. That order represents the ability of the parties to mutually determine the outcome on their own.

Don’t get involved

Obviously in an ideal world, there would be no disputes. That world does not exist, has not existed in the past and will not exist in the future. For a start, human beings will always come into conflict. Even if we reach a future run by machines, disputes will remain. Anyone who has seen the film franchise Terminator will know that to be obvious, but actually on a more practical level, computer systems have entire protocols and systems for resolving disputes between different computers; it isn’t going to go away. There are, of course, things that a party can do to avoid disputes. Broadly speaking, they should agree their terms in writing. Certainly in the construction industry, there are a whole raft of standard terms to assist there, including JCT contracts and the like. Outside of construction projects, businesses can have well drafted terms and conditions and, if commercially possible, should obtain payment in advance of work being done and consider whether to have a deposit in place to cover defects (perhaps even held with a third party stakeholder). The construction industry goes even a step further in trying to prevent disputes. Certainly all major public sector projects should, by now, be using Level 2 Business Information Modelling (BIM) and many private sector projects are doing the same. With collaboration between designers, engineers and other professionals involved in major projects, the scope for disputes is hugely reduced. Many do not have the benefit of that kind of legal input or BIM system at the start of a project or transaction and even when they do there can still be some kind of dispute.

Just agree

The vast majority of disputes are resolved by informal negotiations. There are no statistics to verify what proportion but every meeting, every discussion, every agreement reached involves some kind of meeting of minds (or conflict) between two individuals with contrasting interests and in the vast majority of occasions, matters are resolved. There is a step further with negotiations, particularly when lawyers become involved. Formal offers can be made, and accepted, without any court proceedings or other type of ADR. Calderbank offers are very common. Indeed the Court of Appeal has recently considered such offers in cases such as Coward v Phaestos [2014] (decided by no less than my namesake Mr Justice David Richards) approvingly, though in that case the offer did not achieve the desired result. Then there’s Part 36 offers. These are, essentially, offers with teeth. The court is bound to make a particular costs order in relation to Part 36 offers. This is where the parties start to lose control. Once a Part 36 offer has been made, and not accepted (particularly Part 36 offers made by Defendants), there is an additional barrier to settlement that was not there before. Costs considerations become a factor to settlement and parties may reach settlement at a figure they would not otherwise have settled at. Look me in the eye Meeting face to face can help. An ordinary ‘without prejudice meeting’ can be so helpful that it is written into many of the pre-action protocols. In particular, the Construction and Engineering Disputes Protocol requires the parties to have such a meeting once the initial letters have been exchanged. In my experience, such meetings tend to result in a method of resolving the dispute, rather than a final outcome, but it is still helpful and the opportunity is still there. The parties are entirely free to mutually determine the outcome of the dispute. One step up from that, which is worth considering, is a Joint Settlement Meeting. In theory, they should be exactly the same as a without prejudice meeting; certainly the rules are the same. However, in practice a JSM has evolved into a beast of its own. It is most common in personal injury and professional negligence claims where often the focus of all the evidence and argument, at least in more substantial cases, is towards trial, but at the same time is towards attending a JSM.

Mediation

Though still a relatively new process, there is unlikely to be a litigation lawyer in any part of the UK who does not regularly advise on mediation. The costs consequences are enshrined in the Civil procedure Rules (CPR) (or at least Alternative Dispute Resolution (ADR) is enshrined in the CPR at 1.4(2)(e)), and most lawyers and judges usually take that to mean mediation), its accompanying protocols (e.g. paragraph 10 of the practice direction - pre-action conduct and protocols) and case law (e.g. Halsey [2004] and PGF v OMFS [2013]). Mediation remains a voluntary process. The only difference between a mediation and a ‘without prejudice meeting’ or a JSM is that there is an independent, neutral third party assisting the parties to reach a settlement. There is a subtle difference though, in line with the theme of this post. The parties take a mature decision that they are unable to mutually determine the dispute on their own. They need the assistance of a third party. What I have been talking about so far is facilitative mediation, which is by far the most common type of mediation. There are a few other options beyond that to consider, many of which effectively amount to the same thing. There is a school of mediation involving evaluative mediation. I do not propose in this article to go through the advantages and disadvantages of evaluative as compared to facilitative. Broadly speaking, the former involves the mediator giving some kind of opinion and/or advice and the latter involves the mediator being totally independent. In practice, most mediators sit in between, even if they sometimes don’t realise it! I certainly have been known when acting as mediator to blur the line a little, particularly when dealing with litigants in person who do not have the benefit of independent legal advice. Along similar lines, conciliation is a process very similar to mediation, which involves the independent third party playing more of an active role. That process is common in employment disputes. There are further variations on this theme. My colleagues in our family and matrimonial department will tell me that collaborative law has nothing to do with mediation, but the principles are similar, and that process belongs around here in this ongoing spectrum. I am also told that in very significant commercial disputes, an executive tribunal can take place, which is also non-binding. The common theme linking these procedures together in this heading is the control that the parties retain. They may be persuaded and they may be advised, but control remains.

Early Neutral Evaluation

I can already hear the mediators out there reading this shouting that there are hybrid forms of mediation to be considered (not least MedArb) and that things have moved on in the world of mediation. Hold on; we’ll get there. There’s plenty more to get through yet. The next forum of dispute resolution on the spectrum of control is Early Neutral Evaluation. I know from experience that judges are surprising litigants by suggesting this option. My own experience so far has been for judges to ask the parties whether they would agree to ENE in relation to a specific issue in the litigation which might determine the outcome. One example is a multi-party action, where a determination as to which parties should be involved can improve the prospects of settlement and significantly reduce the overall cost expenditure. Certainly the courts are keen to encourage parties to engage in this kind of process (Seals and another v Williams [2015]). Intermission So what was the point of that whistle stop tour of voluntary ADR? The point really is that there are a range of methods for parties to try to resolve their dispute without losing any control whatsoever. In abstract, that will always seem most appealing. However, in a world of conflicting needs and opposing views, it may be that a third party or the state need to be handed some element of control, in order to resolve the dispute. This discussion comes in three parts. This first part has looked at voluntary means of resolving disputes. The second part will look at the process of handing some or all control to a third party, and the third will look at handing control to the state, and an evaluation of where in the spectrum of control a dispute might adequately sit.