Everybody knows court cases are horribly expensive, but then so are ‘cheaper’ methods such as adjudication and mediation. So here’s a way to save money

Some people love disputes. Some depend on disputes to make a profit on construction jobs. Some make a living from them. Most people would rather that there were no disputes at all. However, they arise on everything from the smallest of house extensions to the largest of office project.

There are many ways to sort out disputes. The most common, not involving lawyers at all, is for the parties to sit down and sensibly do a deal on whatever it is that don’t agree about. That is more or less cost free. The least common way, which does involve lawyers, is to have a full-blown arbitration or court action: that, as most people know, can be expensive. The most common alternatives are adjudication (statutory under the Construction Act or by agreement) and mediation.

Adjudication and mediation can also be expensive. In adjudication, the parties have to pay their own costs and the adjudicator’s fees. In McAlpine PPS Pipeline Systems Joint Venture vs Transco those costs were reported to be about £100,000 in relation to a five-figure claim. This was not an extraordinary case. In some adjudications the parties deploy solicitors, barristers and experts in what is assumed will be a dummy run for the impending arbitration or action; costs of £300,000 to £400,000 per party and adjudicator’s charges of £50,000 are not unheard of (see Tony Bingham, over, for more on this).

Mediation is often a “good thing” because the independent mediator can engineer a full and final settlement of the matters in dispute. In litigation, the courts can insist on mediation and will stay proceedings while this is done. In many cases, the cost of this exercise can be expensive because the parties will insist on deploying lawyers and experts. Professional expenses of £50,000 to £100,000 per party and mediator’s fees of £20,000 are not uncommon. If the mediation “fails” and no settlement is achieved, the money might be considered as entirely wasted.

Some contracts specifically require the parties to go through what is in effect a negotiation process before they are permitted to proceed to arbitration. In some international or larger domestic contracts, the parties are required to meet before any arbitration or action is instituted. If those requirements are ignored, the court or an arbitrator might effectively stay the proceedings until that amicable process is gone through, although there will be a reluctance to do so if the parties believe that it is unlikely to result in settlement.

Costs of £300,000 to £400,000 per party and adjudicator's charges of £50,000 are not unheard of

An alternative to these alternative dispute resolution methods is the “neutral evaluation” approach, which has much to commend it. This involves the reference of the dispute to an independent third party who will objectively analyse the matters in issue and come up with an opinion. It is not that different from the final and binding decision of an independent expert, which is sometimes agreed to by parties, except that the neutral evaluation method is usually not binding. It is most suited to cases where there is a genuine legal difference between the parties, where the issue involves an interpretation of undisputed facts or where there is a difference between experts.

The courts now recognise that “early” neutral evaluation can be effective. Paragraph 6.5 of the Technology and Construction Guide permits in appropriate cases such an evaluation by a TCC judge although, to maintain impartiality, the judge who does it will not later try the case. Unfortunately, it appears that this approach has not been adopted often.

There is a lot to be said for parties agreeing an even earlier neutral evaluation, well before adjudication, arbitration or litigation is threatened. It should be cheap, because there will be little (if any) lawyer involvement. Best of all, with a decent evaluator who is respected by both sides, there is a good chance that the evaluator’s opinion will be right and, therefore, being accepted by the parties.

Robert Akenhead QC is a barrister specialising in construction law at Atkin Chambers and joint editor of Building Law Reports