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22 March 2010
Parties in construction regulate their relationships through the contractual arrangements into which they have entered. At times, the parties come into conflict or disagreement. Having a means by which those differences can be effectively resolved is as important as having a relationship that can work successfully to the mutual benefit of all parties. So, just as importance is placed on clearly setting out how long a project is to take and how much is to be paid before work commences, it is also important to have considered at the outset how the parties will resolve disputes or differences that may arise. At whatever stage a dispute arises, alternative methods of resolution are always available.
This update addresses the key issues which arise in relation to the choices for dispute resolution – when those choices should be made and which may be most effective – and examines current trends in alternative dispute resolution (ADR) specific to construction disputes in Ireland.
There are numerous dispute resolution options available to the parties to a construction contract. Some work better than others, depending on factors such as the nature of the project, the issues in dispute, the stage at which the dispute arises and the relationship between the parties. Mediation, arbitration, conciliation and expert determination are all growing in popularity. They are all confidential processes and are conducted in private.
Mediation is a private, without-prejudice process which involves a neutral third party assisting parties to reach an agreed resolution to the dispute. In essence, mediation is assisted negotiation and the mediator does not decide what the solution should be.
Conciliation is a private, without-prejudice process whereby an independent third party, either appointed by agreement of the parties or through the agreed governing bodies (eg, the Royal Institute of the Architects of Ireland, Engineers Ireland and the Law Society), listens to each party's case and seeks to bring them towards a settlement. Where this is impossible, the conciliator issues a recommendation, which will become binding on the parties if not rejected within a certain, often very tight timeframe.
Arbitration is supported by a statutory framework in Ireland and is commonly used in construction disputes. The arbitrator effectively sits as a judge and follows procedures akin to those applied by the courts. The arbitrator's decision can be challenged before the courts only in very limited circumstances.
Expert determination differs from arbitration in that no statutory framework has been established to govern it. The parties agree to, or the contract might provide for, the appointment of an independent expert who will give a decision within a finite period on the issues in dispute. Once the expert has rendered his or her decision, the matter is virtually at an end, since there are few grounds on which a party can appeal an expert's decision to a court. Parties that opt for expert determination as a method of dispute resolution are generally stuck with the expert's decision, even if he or she gets it wrong. Expert determination is often effective in resolving more technical disputes.
Adjudication has attracted a lot of attention in Ireland as an alternative means of resolving disputes, particularly those arising during the course of the works, largely as a consequence of the generally positive experience of adjudication in the United Kingdom. There is no reason why parties cannot agree to a procedure akin to adjudication in their contracts, identifying an agreed adjudicator at the outset and setting out the procedure through which disputes are to be referred. Adjudication can allow decisions to be made and can require that they be complied with (eg, that moneys be paid) pending referral of the issue to arbitration or another dispute resolution forum agreed by the parties.
The Construction Industry Federation has recently introduced a new standard form sub contract for use with public works contracts which expressly provides for mediation as a mandatory first step for dispute resolution. This is a first in any standard form building contract which is regularly used in Ireland.
A High Court decision delivered on July 15 2009 in HSE v Eamon Keogh trading as Keogh Software endorsed the binding nature of an expert determination clause in the relevant contract, rejecting an interlocutory application before the court on the basis that the matter was within the remit of the independent expert, and holding that there was no basis for the parties to depart from the dispute resolution mechanism provided for in the agreement.
The most appropriate dispute mechanism forum will depend on the role of each party in dispute, the contractual relations being entered into and the nature of the project. The resolutions that are reached may depend on each party's bargaining position.
Employers may need to consider whether they wish to keep disputes in court and, if arbitration is to be used, whether joinder provisions are necessary. On larger projects, employers may wish to consider whether a dispute adjudication board is appropriate.
For contractors, adjudication can be an effective means of ensuring that disputes over payment are resolved quickly, allowing payment to be made and works to proceed, pending referral to another dispute resolution procedure at the end of the project.
Professionals may prefer arbitration, thereby resisting being dragged into multi-party disputes, generally leaving them in a better bargaining position with their employer.
What works for one party may not be ideal for another. The options for dispute resolution should be considered in the same way as all other contractual provisions. Even if one dispute resolution method has been agreed, where a dispute occurs, parties would be well advised to keep an open mind as to whether another option might resolve the matter more quickly and cheaply.
For further information on this topic please contact Karen Killoran at Arthur Cox by telephone (+353 1 618 0000) or by fax (+353 1 618 0618) or by email (firstname.lastname@example.org).
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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