Scenario
As part of an affordable housing initiative, the main contractor agreed with the client to design and build 250 new homes under an amended JCT contract.
The main contractor subcontracted to a specialist subcontractor the design supply and installation of a low cost communal heating and hot water system for the new homes using innovative heat pumps. After the majority of the houses had been built, it became clear that the heating system was inadequate. The main and subcontractor each blames the other for this. After long discussions they have however agreed that the crucial issue to be resolved is whether the deficiency results from the design of the system itself or the water pressure supplying the system from a private bore hole. The bore hole and pumping station supplying the new homes was designed and constructed by another subcontractor, and is therefore (as between the main and subcontractor) the main contractor's responsibility.
The subcontractor has engaged an expert to look into this issue and his advice is that on balance the subcontractor's arguments should succeed but that the answer is not clear-cut.
There are a number of other minor disputes between the main contractor and the subcontractor but this is by far the most significant as the total costs of remedial works and other losses caused by the heating and hot water problems are likely to total at least £1.5 million. The subcontractor has a substantial turnover and is in good shape financially. It has however had substantial sums withheld and is also owed retention. In addition, it carries P.I. cover of only £1M and as it is hoping to float on the stock market soon, a definite answer to the problem is needed within the next three months.
Relations between the management of the main and subcontractor have been poor to date but the subcontractor has just appointed a new managing director from outside the company who is keen to sort things out.
The subcontract is on the main contractor's standard terms. These provide for High Court litigation in the event of a dispute. They also require the subcontractor to meet both sides' costs of any adjudication and to "provide a Bond (to the full value of any adjudicator's award against the Contractor) in an acceptable format to the Contractor, prior to any monies being paid over by the Contractor to the Subcontractor on any adjudicator's award." The subcontractor has notified its PI insurers of the claim. Given the size of the claim they have agreed to let the subcontractor take the lead in trying to agree on an appropriate form of dispute resolution to resolve this dispute quickly.
Martin Green the managing director of the sub-contractor has called a Board meeting to discuss the best means of dispute resolution to adopt for the resolution of this dispute. You and all your fellow students on the MSc in Construction Law & Dispute Resolution are also on the Board of Directors. He requires you all to engage in written dialogue on the 'Discussions' board of this MyBeckett site to explore the best way ahead. Go now to the 'discussions' board and between now and 7th October you are required to submit your own opinions on the above situation, read any other contributions that have been posted and comment on at least two of those other contributions. The MD is keen to see some lively debate as he is very concerned that collectively we come to the right decision.
RESOLUTION OF DISPUTES IN CONTRACT
If they cannot agree otherwise, the parties have two courses of action to achieve a final settlement of their contractual disputes:
- litigation through the courts; and
- arbitration using a skilled arbitrator
-
o usually an expert in the matters under dispute
o he may also have some legal qualification, but not necessarily.
If the contract does not include alternative terms for settlement of disputes, then the courts are the most likely method of settlement and a solicitor's preferred option.
The TCC
If the dispute is technical, even if points of law are involved, the High Court may refer the case to the Technology and Construction Court. The judge may not be an expert, but is more adaptable to commercial procedures, and is experienced in 'commodity' disputes such as building disputes.
Resolving the Dispute
The parties do not have to go to court to resolve their differences. It is always best to resolve differences before they develop into disputes. The means adopted should enjoy the confidence of the parties as a method likely to arrive at a just answer. The best way is for the parties themselves to reach a mutually acceptable solution. This is likely to be quicker, cheaper, easier, and involve no third party, and future business relations can be maintained.
Some people view conflict as being an essential and inevitable part of commercial life in the Western hemisphere, being part of dynamic capitalism. There is nothing wrong with this as long as it is recognised for what it is and properly managed using risk management or conflict management techniques. At the simplest level conflict could simply be a difference of opinion over the sharing of ideas - a healthy contribution to a commercial problem. It is how that conflict is managed or how the risks associated with it are managed that is important. Most conflict can be resolved in a civilised manner through informal discussion and negotiation.
Once conflict has been allowed to develop into a strong difference and the parties have begun to entrench themselves in their positions we have the beginnings of a dispute in embryo form. The parties then have three options:
- Swallow hard and accept they have been wronged but do nothing;
- Resolve the situation now;
- Continue to argue and see the dispute harden and escalate.
Alternatives to the Courts for resolving disputes, in increasing order of formality and enforceability include (amongst other methods and hybrid methods):
- Negotiation;
- Conciliation;
- Mediation;
- Expert Determination;
- Mini Trial;
- Adjudication;
- Arbitration.
Pre-Requisites to Arbitration or Litigation
Parties are now expected by the Pre-Action Protocol for Construction & Engineering disputes to attempt some form of ADR before resorting to litigation. Failure to do so may mean that even if you are successful in litigation you may not recover all (or even any) of your costs!
Pre-requisites for success in ADR:
- A genuine desire for a fair outcome (not a victory) because honouring the outcome often depends on good will;
- Must honestly desire a settlement without extra costs - court etc.;
- Must want a quicker settlement than through courts or arbitration;
- Must realise that the dispute could still go to court or arbitration;
- Must realise that assembly of particulars by an expert may in itself induce a settlement (cf. court cases being resolved before the hearing);
- Must be prepared to disclose to the tribunal all pertinent facts (the tribunal guarantees confidence);
- Must be prepared to deal personally with the tribunal as in certain circumstances no legal representatives are allowed (though technical representatives may be allowed with the consent of the other party and the tribunal);
- Understand that the conciliator/mediator cannot later act as an advocate, adjudicator or arbitrator;
- Understand that either party can withdraw from mediation, conciliation, mini trial, expert determination etc at any time.
Attachment:- Previouse posts.pdf