Different options for resolving building disputes

A building dispute can have serious implications for all parties involved, the most obvious being delays to the construction project and the resulting financial loss.

A dispute may arise from disagreements over the interpretation of a contract term, incomplete or defective works, variations to the scope of works, or charges for prime cost items and provisional sums.

Bringing a building dispute matter before a court or tribunal can exacerbate the issues between the parties, delay the project further, incur additional costs and cause even more damage to the parties’ strained relationship. It is almost always beneficial to settle a building dispute through alternative dispute resolution (ADR).

ADR involves retaining an impartial third party to assist in reaching an early settlement of the matter. In fact, most jurisdictions require that parties to a building dispute make genuine attempts to settle the matter before proceeding to a tribunal or court.

Construction contracts often contain ADR clauses that specify the approach to be used if a dispute arises. The ADR method may be facilitative, advisory or determinative.

When preparing or entering a construction contract, it is important to understand the different ADR approaches and their implications, and to choose the type most suited to the circumstances. If there is no ADR clause, the parties may agree to use a particular method. The following is a summary of each.

Facilitative

A building dispute may be resolved through mediation which involves a neutral person meeting face to face with the parties to assist them in narrowing the disputed issues, exploring options and reaching a solution.

Mediation is informal and confidential, and the mediator does not provide legal advice nor does he or she determine the matter. The parties should be willing to negotiate in good faith and make genuine attempts to resolve the dispute.

The parties meet in a “without prejudice” environment and the mediator coaches the parties through the issues and encourages them to engage in meaningful negotiations.

Mediation allows the parties to reach an early settlement that may be more flexible than one imposed by a court or tribunal and may assist in preserving the parties’ commercial relationship allowing them to continue working throughout the project and beyond.

The construction contract will usually specify who may be appointed as a mediator and stipulate who is responsible for the costs of the mediation – this is often shared equally between the parties.

Advisory

Advisory ADR processes may include conciliation, expert appraisal and case appraisal. Each involve the appointment of a third party to consider the available material and provide advice regarding the facts and appropriate law and how the matter may be settled.

Early Neutral Evaluation was first used in the United States in response to a critical backlog of cases within the courts system and generally falls within the category of case appraisal. An evaluator with knowledge of the law is appointed and considers the parties’ respective arguments and evidence. The evaluator may be a dispute resolution practitioner or judicial officer. They make a non-binding evaluation of the strengths and weaknesses of each side, the likely liability and an estimate of damages.

In other words, the parties are provided an expert opinion, from an experienced and respected neutral party, regarding the likely outcome if the matter was to go to a court or tribunal. The evaluation is confidential, and the appraisal provided generally encourages settlement without the delay, costs and formalities associated with a court or tribunal hearing.

Senior Executive Appraisal, also known as a mini-trial, involves a panel of senior experts joining an independent neutral third party to consider and evaluate the dispute. The parties present their own evidence and the panel convene to attempt to settle the matter. The power conferred on the panel and independent third-party is predetermined by agreement.

Determinative

An independent expert with appropriate technical knowledge is appointed by the parties to determine the dispute. The determination is generally made on the respective parties’ written submissions, statements and evidence and the expert may conduct his or her own investigations before determining an award. Oral evidence does not usually form part of the process.

The contract generally sets out the process governing this method of ADR, including who the expert should be, how the expert is appointed, the relevant timeframes, the binding nature of the decision and how costs are to be paid.

If the contract provides for the determination to be binding and a party refuses to comply with the decision, then the other party will generally need to rely on the contract’s provisions to enforce the decision through the court.

When ADR is unsuccessful

Not all building disputes may be successfully negotiated.

If resolution is impossible or impractical, either party may make the appropriate application to their state or territory Administrative Tribunal or court. The matter will proceed according to the type of construction project, the value of the claim, and the parties to the dispute. Tribunals and courts are formal jurisdictions and have strict processes and timeframes.

Conclusion

Unresolved building disputes can escalate quickly depleting valuable time and resources of the parties involved. Utilising ADR to resolve a dispute can be time efficient, cost effective and assist in preserving the relationship between the parties.

Determining which ADR method is appropriate will depend on the facts and circumstances of each case. In all matters however, the parties should be willing to listen and make genuine efforts to negotiate and resolve the issues.

If you or someone you know wants more information or needs help or advice, please contact us on +61 2 9248 3450 or email [email protected].