Choosing a Dispute Resolution Process
Adjudication
Under the Construction Contracts Act
The Choice of an Appropriate
Dispute Resolution Process
There are two broad ways of dealing with conflict:
· It may be directly resolved between the parties by:
violence
power manipulation
negotiation (perhaps with the assistance of others)
mutual avoidance
· A third party neutral may judge or intervene to impose a solution by:
litigation
arbitration
expert appraisal
adjudication
Wherever there is a potential for conflict or differences of opinion, it is prudent to pre-arrange a process to resolve it. This is as much for peace of mind and mutual interest of the parties as for efficiency and financial prudence. Most standard construction contracts and conditions of engagement so provide.
This is the Court-based process where a judge makes a decision based on representations made by legal counsel on behalf of their clients. The process is “adversary” i.e. “us versus them”, and the decision is made solely upon the evidence presented, without consideration of the needs interests or circumstances of the parties. Often the outcome is a clear-cut “win or lose”, and this presents a risk which must be assessed before proceeding.
An arbitrator is an impartial and independent person (usually with expertise in the subject area of the dispute) who is appointed by the parties to determine the dispute between them. Usually, as in litigation, the arbitrated outcome is “win - or - lose”, but it can provide for an apportionment to suit the circumstances.
This differs from arbitration because the “Expert” is specifically instructed to investigate and use his or her own expertise - with or without submissions by the parties - to determine the issue. The parties agree to be contractually bound by the decision of the Expert.
The simplest way to sort problems out is to discuss them. This may or may not settle or resolve the dispute, but it should certainly be the first step.
Mediation is essentially an “assisted negotiation”. There are many different techniques and processes which are variations on the theme of a third-party neutral (the mediator) intervening to assist the disputing parties to reach a mutually agreeable outcome by exploring non-adversarial problem solving techniques.
The mediator acts as a conduit for information between the parties, as a chairman of meetings, a counsellor, sage, peacekeeper, as may be required. If the process is to succeed, the mediator must gain the confidence of the parties that total integrity, impartiality and confidentiality will be shown throughout.
Note that the process is voluntary - the parties can withdraw at any time - and that the outcome is determined by the parties, not the mediator. The hoped - for result is an agreement that will contractually bind the parties to a particular course of action.
Partnering focuses on creating communication links between project participants with the intention of directing them to a common goal - the project outcome - ahead of their own self-interest. At the beginning of the project, at periodic intervals, or when the nature of the project work or participants changes, all participants get together to discuss their concerns and get to know the viewpoints of the others involved, and to identify potential areas of conflict with a view to avoiding their actual occurrence.
An agreed strategy for the resolution of disputes is formulated, generally requiring notification of disputes as soon as they are apparent, and a mechanism for resolving them at the lowest possible level before they escalate.
This may comprise one or several persons, who are not consultants directly involved in the project, but are engaged to maintain a "watching brief" to identify and attend upon disputes as they arise. Usually there is a procedure in place which provides for the DRB to make an "on the spot" decision or mediated agreement before a formal dispute is notified so that the project work can proceed, and that may be followed by various rights of review at increasingly higher levels until (if necessary) the dispute is finally settled by arbitration. The Disputes Review Board may be an adjunct to the partnering procedures.
Adjudication Under the Construction Contracts Act
This process is better described in the Construction Contracts Act page of this website.
The Choice of an Appropriate Dispute Resolution Process
Processes other than litigation are collectively described as ADR (Alternative – or appropriate – Dispute Resolution).
Arbitration has been the mainstay of dispute resolution in the construction industry for many years, but mediation use has increased markedly in the last few years, and many arbitrators now use mediation techniques as part of the process.
In the construction industry, resolution is often achieved by Med/Arb, where the same third party neutral attempts to resolve the issues by mediation, failing which they make the necessary determination. This process is frowned upon by the purists, but is very effective in relatively small disputes (say up to $30,000), especially if there are a large number of issues to be considered, and the parties are unrepresented. A similar process is also used in the Disputes Tribunal and the Employment Court.
The factors which should be considered in the choice of an appropriate Dispute Resolution process are set out below:
On-going projects:
If the parties have an ongoing relationship, some form of ADR is likely to be a good choice, since it provides the opportunity to enhance or modify that relationship to suit the needs of the parties under perhaps changing circumstances.
So long as the parties can cope with the risk of an imposed outcome, or if they just want an answer without the hassle of working their way through the matters in detail, expert appraisal can be useful. Otherwise, litigation/arbitration tends to be confrontational and potentially destructive of ongoing relationships. The exception is when the matters at issue require outside determination in order to define the terms of the relationship. In that situation arbitration is less likely to disrupt the project than is litigation, and it provides the opportunity for informality, privacy, and an apportioned outcome.
Where there is an ongoing project - particularly a large one - in which disputes may periodically surface, a procedure built on the partnering model should be put in place. A useful part of that model is the appointment of a Disputes Review Board, comprising independent advisors and perhaps incorporating senior representatives from the contracting parties. The DRB would usually work through a set sequence of problem-solving stages, but would have the opportunity to put in place the ADR procedures at the inception of the project, and to facilitate changes to them to suit the circumstances during the course of the project.
Even if a partnering arrangement is not in place, the appointment of a DRB would be well worth while in any sized project.
One-off disputes:
Usually these take place at the end of a project, or perhaps spell the end of it! Because teamwork and goodwill is either already destroyed or no longer necessary, the dispute process depends more on the nature of the dispute than in an ongoing project. If the issues require privacy, then litigation is not an option. If the issues turn on the facts, upon the interpretation of legal obligations, or upon “customary terms of trade” (or quality), then arbitration or expert appraisal would be preferred. Where the issues are a matter of opinion, or are subjective, or may lead to a variety of possible outcomes, then mediation or negotiation provides that flexibility. Likewise if the outcome is likely to be a “trade-off” crafted to suit the circumstances of the parties.
Multi-party disputes:
There is provision in the Arbitration Act to aggregate several disputes, as would typically be the case in a construction project. This would require either the agreement of all concerned or that the contractual agreements between the parties all provided for arbitration. If the disputes involve interests (rather than obligations) as in a community dispute, then mediation, or even facilitation, would be appropriate.
Resource Imbalance:
A resource-poor party may have more to gain by a good win in litigation, but only if there are resources to achieve it! Conversely, they may not be able to face the risk of a loss. Arbitration presents a formal structure to offset power imbalance, and may present a saving in cost and time if the issue is amenable to technical evaluation. After an evaluation of the risks, a poorer party may seek fast resolution through mediation to save costs and retrieve what they can from the dispute.
If the owner is a "consumer" without specific skills in the area of the contract, and otherwise unassisted by a professional during the implementation of the project, it seems obvious to appoint an independent person - before disputes arise - to act as a DRB should it be necessary.
Intimidation may take the form of real or implied violence, deliberately heavy-handed conduct by one party in a position of power or influence, or by application of the Golden Rule (“them what got the gold make the rules”). In such a situation mediation and negotiation may only deliver an outcome which is a reflection of the original power imbalance.
Matters of principle or public policy:
Where the issues concern fraud or criminal intent, the Courts are the only venue. The Courts are also a public venue, and that may be important to at least one of the parties who considers the issues to be of public concern. Or who sees that as leverage over the other party. Litigation is the only process which will provide legal precedence, and that may be essential to defining the rights and obligations of the parties in future contracts.
Adjudication is likely to largely replace arbitration in construction disputes, and has only been formally available in NZ since April 2003. Standard conditions of contract as published by the New Zealand Institute of Architects, or by Standards New Zealand, provide a stepped process of dispute resolution constrained by set times: firstly a “formal decision” by the consultant, which if rejected must be followed by mediation, and if that fails to resolve the issues the matter is arbitrated. Accordingly, it is likely that contractors will seek adjudication before seeking a formal decision.
These notes are provided by Orchiston Architects Ltd, Architecture & Dispute Resolution, P.O. Box 9136 Wellington, ph 04 5627 438, based on information as at 20/08/06. They remain the copyright of Orchiston Architects Ltd, and may be copied and redistributed if and only if reproduced in full without any change in content whatsoever to the notes, letterhead/logo, and this footer. They are intended as a general guide only, and not specific advice: the author accepts no responsibility for persons acting or not acting upon the information herein, and specific advice should be sought from the author or other suitable professional in respect of particular issues as and when required.