Back to basics - construction disputes

02 June 2015


Continuing our back to basics series, we consider some of the practical points to consider if you think a dispute may be looming.

Unfortunately not all construction projects go exactly as planned and parties can often find that there are bumps in the road which need smoothing out from time to time. While some of these bumps turn out to be mere molehills on which the parties can reach sensible agreement in relatively short order, some of them have the potential to turn into large, complex, costly disputes.

The contract

Before investing time and money pursuing or defending a claim, it is a good idea to check the parties' relevant rights and obligations. These are likely to be contained within the relevant contract, although ascertaining what that means can often be something of a minefield in itself.

Contracts can be formed in many ways, including through written agreement (which may be a formal document but could also be, for example, by exchange of email), through conversations, through the actions of the parties or through a combination of one or more of these methods. When considering the parties' obligations, it's also important to consider that the parties may have changed their agreement and the original contract may be subject to agreed variations or instructions.

Only once the terms of the relevant contract have been identified can you objectively review your own performance and that of the other party and be able properly to ascertain whether obligations have been fulfilled and so evaluate the strength of your position in the potential dispute.

Time limits

Construction disputes come in many forms, but regularly focus on payment, delay and defective works. In the case of payment and delay, disputes often arrive during or shortly after the completion of the works. In the case of defects, these can either be patent (ie detectable or observable) or latent (ie concealed or not discoverable on a reasonable inspection of the completed works).

While disputes about patent defects usually arise around the date of practical completion, disputes concerning latent defects can arise long afterwards. If you are likely to become involved in a latent defects claim, it is important to ensure that you bring the claim in time. Limitation periods under construction contracts are usually six years from practical completion under a simple contract and 12 years under a deed. Therefore, particularly in the case of latent defects, it is important to ensure that your claim is brought before the relevant time limit expires.

Dispute forum

Depending on the nature and context of the anticipated dispute, it may be possible to reach an agreement without reference to formal dispute resolution proceedings, and negotiation between the parties either at project team level or senior management level may result in the parties solving their differences.

However, if the dispute has the potential to become serious, then knowing the contractual procedure which the dispute may follow is useful. Most contracts for construction works in England, Wales and Scotland will give the parties the right to commence adjudication at any time and the contract itself may incorporate one or more escalation procedures, mediation, expert determination, litigation (often by default) or arbitration.

Each of these processes follows different rules and timescales and has different cost implications for the parties. By ensuring that you know the available methods of resolving the dispute and the consequences which may follow each, you can review the risks associated with bringing a dispute to a head before you are committed to them.

Evidence

If you are aware that a disagreement may escalate then it is worth considering what evidence is available to support your position before the dispute really gets going. Consideration of the strength of the evidence you can provide to support your position will form an important part of assessing your chances of success.

In civil proceedings such as adjudication, arbitration and litigation you need only prove your case on the "balance of probabilities" (more likely than not) but it is no good being 100% right in principle but when the time comes being completely unable to prove it. A careful review of the evidence available at an early stage is likely to save you time and money in the long run.

Experts

If the dispute is technical or relates to quantum then the evidence available to you could potentially be bolstered or strengthened by an expert's report. While expert reports may be more common in formal proceedings, they can often be persuasive as to the strength of your position in negotiation or mediation.

When considering appointing experts it is important to remember that if litigation is likely or possible then you may want to later use that expert report in any subsequent proceedings. If this is the case then the report will need to comply with the court rules on expert evidence and so care must be taken properly to instruct the expert so that the report can be used in any subsequent litigation. By ensuring this, it may mean you only need to pay for one report - it also gives the other side a strong indication that you have considered that this matter may eventually end up in front of a judge.

Disclosure of documents/legal privilege

If the dispute does end up in court proceedings, the parties may be subject to strict disclosure obligations, where the parties will be required to disclose the documents on which they rely, the documents that adversely affect their case (or another party's case), and the documents that support another party's case.

The court's definition of what has to be disclosed can be extremely wide and accordingly extreme care should be taken when discussing the merits of the dispute in internal documents (including emails) in order to avoid having to disclose their existence to the other side and the other side potentially being able to inspect them.

The court will require that you make the disclosed documents available to the other side for inspection unless they attract privilege. Privilege is fairly complex but broadly speaking, privilege will attach to

  1. confidential documents which pass between you and your legal advisors and
  2. confidential documents which have been created when litigation is likely or has already begun, where the primary purpose of the document is for use in the litigation and which pass between you and your legal advisors or between you and relevant third parties.

Conclusion

An early investment of time can pay off. By bearing these points in mind, you will be better prepared to meet the challenges posed by construction disputes in a swifter and more cost effective manner.

See the rest of our back to basics series:


NOT LEGAL ADVICE. Information made available on this website in any form is for information purposes only. It is not, and should not be taken as, legal advice. You should not rely on, or take or fail to take any action based upon this information. Never disregard professional legal advice or delay in seeking legal advice because of something you have read on this website. Gowling WLG professionals will be pleased to discuss resolutions to specific legal concerns you may have.