Construction Disputes - a viable alternative?

10 September 2015


Sometimes disputes are unavoidable and incapable of being resolved through commercial negotiations. The next step in the process is to consider recourse through formal proceedings.

 

In our Back to Basics AAA on Construction Disputes we touched upon the choice of dispute resolution forum and the tactical considerations when preparing a claim. Most construction contracts will give the parties the right to commence adjudication at any time and the contract itself may incorporate one or more procedures including (but not limited to) mediation, litigation or arbitration.

With the upturn in the economy, the rate of disputes going to adjudication has increased, with more "smash and grab" type speculative claims. The substantially higher court fees that were introduced in March 2015 (with a further hike currently under consideration) mean that parties are noticeably wary of committing their claims to court proceedings.

Pragmatically, however, one view of the fees is that they simply reflect the cost of the venue and the tribunal's time. These have always been payable in other forms of dispute resolution including arbitration, adjudication and mediation; a factor undoubtedly to be taken into account when deciding upon the forum but one that may not, of itself, be determinative of strategy.

In any event, while the courts have retained a key role in resolving the more complex and higher value claims, parties have increasingly looked towards other methods of dispute resolution, such as adjudication, with the expectation of a quicker and cheaper result.

However, is this all about to change? Two pilot schemes - the Shorter Trials Scheme (STS) and the Flexible Trials Scheme (FTS) will be introduced for court claims commencing from 1 October 2015 and will run for a period of two years. The schemes will run in various London courts including the Technology and Construction Court (TCC).

Shorter Trials Scheme

The STS is intended to offer "dispute resolution on a commercial timescale". The aim is to have shorter and earlier trials in litigation, at a reasonable and proportionate cost. The pilot scheme will offer a streamlined court procedure so that cases are brought to trial within 10 months of the issue of proceedings and a judgment then published within six weeks of the end of the trial.

The introduction of this pilot scheme is in response to criticism from litigants and practitioners that the courts have become inaccessible in recent times. The aim of the scheme is to "foster a change in litigation culture which involves the recognition that comprehensive disclosure and a full, oral trial on all issues is often not necessary for justice to be achieved".

The STS sets out an abbreviated procedure and is predominantly aimed at cases which do not require extensive disclosure or extensive witness/expert evidence. Cases will be managed by allocated judges and the maximum trial length will be four days including reading time. Cost budgeting (under CPR 3.12) will not apply in the STS, unless the parties agree.

Claims can be issued in the STS from the outset, or an application can be made to transfer an existing case into the scheme. It is open for defendants who object to the use of the scheme to apply for the case to be transferred out of the scheme.

Flexible Trials Scheme

The FTS allows parties "by agreement" to create a more flexible trial procedure to suit their particular case. The scheme sets out a standard default procedure which can be adopted in full or varied by agreement between the parties.

The intention is to reduce costs, simplify the timetable and enable cases to reach trial far more quickly. Parties will be encouraged to limit disclosure, witness and expert evidence and submissions at trial.

A more viable alternative?

There have always been pros and cons of the various forms of dispute resolution. The STS and FTS may however make litigation far more attractive for appropriate cases by reducing some of the negative aspects such as delay and costs while arguably retaining (and therefore accentuating) the key benefits of the court process which include:

  • A binding decision
  • Decision by a specialist TCC judge
  • Easier costs recoverability
  • More procedural certainty
  • A tangible impetus for settlement.

To pick up on the last point listed above, one factor you should take into account when considering strategy is that disputes being adjudicated very rarely settle before receipt of the adjudicator's decision, whilst those in litigation are mostly resolved before trial. Adjudication may well be "quick and dirty" in itself, but it often becomes only a precursor to a more long and drawn out resolution process.

Cash flow remains, of course, a key driver for the construction industry and a shorter court timetable which results in a binding judgment is likely to increase the courts' appeal in the resolution of construction disputes. These pilot schemes may pave the way for the courts to offer a more accessible alternative to adjudication, depending on the nature and extent of the dispute.

Time and experience will show if issues arise in the implementation of the two pilot schemes and whether the schemes work as intended. If they are successful, they may in due course transform the construction dispute landscape, making litigation a far more attractive alternative.

We will keep you updated.


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