Since its introduction in 1996, Adjudication has become the default dispute resolution mechanism for domestic construction disputes. Is it time to consider more advantageous options?
The growing popularity of adjudication as the chosen method of dispute resolution in the construction industry can be traced back to the introduction of the Housing Grants, Construction and Regeneration Act 1996, which brought in an entitlement for the parties to a construction contract to refer their disputes to adjudication. Currently, around 1,500 adjudications a year are believed to take place in the industry.
John Starr is a construction lawyer, and explains that many of his clients still prefer adjudication to mediation because of a perception that they are “buying a decision, which is tangible and enforceable, rather than paying a mediator for some kind of amorphous facilitation, which may or may not result in anything”.
However, Starr, along with other industry commentators, argues that there are in fact many advantages to be gained from using mediation as an alternative to adjudication. One of the main benefits of mediation, he explains, relates to retaining ownership and control of the dispute. “Whilst it may, at a superficial level, seem like a good idea simply to hand over your dispute to an adjudicator, the outcome can be unpredictable”. By contrast, in mediation each party is in control of the negotiations, and a settlement can only be reached if both parties agree to it.
The other big benefit of mediation is that it works. A 2012 audit of civil mediation in the UK found that 70% of mediations settled on the day, with 20% settling shortly after that. By bringing the parties together in an informal setting, and allowing them to explore the issues on which they disagree, settlements can often emerge. Construction disputes, in particular, often involve complex issues, and have often arisen due to a lack of clear communication between the parties. Mediation allows the parties to agree the issues, identify exactly what is in dispute and explore different settlement options. It is therefore particularly relevant in cases where preserving a long-term relationship is vital.
The settlement options don’t necessarily need to involve any money being transferred, but can be far more creative, allowing the parties to preserve their business relationship. John Starr explains that the most recent mediation he was involved in related to a final account dispute with a contractor: “As often happens in mediations, the legal issues in dispute were put to one side and the parties just talked numbers. Settlement was eventually reached on the basis that the developer would pay the contractor a very reduced amount in return for being let off rectifying various defects that had come to light during the rectification period.”
Mediated agreements are reduced to writing. The settlement agreement then has the same force as any other commercial agreement. It is also far less likely to be challenged because it has been reached by mutual agreement.
By contrast, an adjudication, by its very nature, requires the losing party to be dissatisfied with the outcome, giving them the option of having the dispute reheard through the courts, or going to arbitration.
Preparation time is also much shorter with mediation. The parties simply have to issue a Position Statement and the mediation can be conducted within days of this. In adjudications, although not strictly necessary, the parties often choose to be legally represented, as submissions have to be made in writing to the adjudicator.
Mediation also tends to be a more cost-effective option than adjudication, given that it tends to last for just a few days, as opposed to anything up to 42 days or even longer, costing anything from £5,000 to £20,000. By contrast a mediator will charge a modest day rate plus VAT.
Finally, it is worth bearing in mind that the Technology and Construction Court has very strongly encouraged mediation, and that a failure to mediate will be taken into account by the courts when making a costs award.
John Starr suggests the following tactics on the day for a successful mediation:
- The presence of a decision maker is essential. There’s something about the atmosphere of a mediation that promotes settlement – being “on the end of the phone” just doesn’t work.
- The use of Counsel isn’t always helpful.
- The use of experts can be very helpful to deal with technical issues.
- Remember, it may be the only opportunity you’re going to get to address the opposing client directly and make them aware of the weaknesses in their case.
- Be aware that different mediators may have different techniques, e.g. side meetings of lawyers/experts/clients, time limits for offers etc.
This post was written by Maria Shahid, a legal/property journalist.