The Technology and Construction Court’s caseload rose by almost one-fifth last year. But with all this litigation and arbitration, we seem to have lost the ability to negotiate and to mediate
Thirty years ago, there were only a few construction law specialists. Most disputes were settled through negotiation or mediation. “Going legal” was an absolute last resort.Clients and contractors seemed to be far more concerned with salvaging relationships, and face-to-face communication was more common.
Today, parties seem more reluctant to sit down and talk. A worldwide culture of arbitration and litigation has led to highly adversarial relationships.
A measure of how litigation is rising can be found on the Technology and Construction Court website. Its annual reports collate data on the caseloads of its courts in London and regional centres. There were 695 cases to the end of September 2005, compared with 818 for the same period in 2006. This is a rise of almost one-fifth in one year.
A number of factors have contributed to this increase. Cost and time pressures and increased competition have forced contractors to accept lower margins, and forced them to maximise revenue.
Sophisticated software has enabled detailed analysis of performance and robust exploitation by all parties of the consequences of changed circumstances such as variations, delays and disruptions.
Problems also arise when clients force contractors to adopt unreasonable levels of risk by drafting onerous contract conditions, often by modifying standard conditions that were designed to share risk equitably.
Individuals now avoid taking responsibility for their decisions as personal indemnity and liability are such hot issues. Clients pass the responsibility, on even the simplest of issues, to arbitrators or the courts, where the processes are time-consuming and costly.
For example, I was involved in two road rehabilitation projects in Central America for the same contractor; the first in the late 1980s and the second about 15 years later. Significant disputes arose on both contracts and, although the conditions of each case were different, the problems in the 1980s were resolved through mediation and negotiation whereas the more recent case had to be settled by arbitration.
What’s wrong with litigation and arbitration? They’re expensive, time-consuming and damaging to the whole industry as they set people on the defensive.
Litigation and arbitration are expensive, time-consuming and damaging to the whole industry
And the costs are staggering. One contractor racked up legal costs of $1.5m (£758,000) for arbitration on a project in South-east Asia in the late 1990s . And that was using lawyers from Singapore whose fees are modest compared with their British counterparts.
Fee levels for legal and other experts vary depending on their nationality. English-language contracts are increasingly common so English-speaking specialists are favoured – much to the chagrin of European and Asian contractors that prefer the value for money provided by their native professionals.
What’s the solution? Disputes should be resolved more amicably and effectively through negotiation, mediation, conciliation or adjudication.
Unfortunately, these processes are not binding and can usually be referred to arbitration.
We need a willingness by parties to accept the findings of these processes, rather than automatic rejection of unfavourable findings.
Arbitration processes adopted in other countries avoid some of the potential pitfalls of the UK. For instance, Danish arbitrations can be more relaxed and effective by employing joint experts and by judging issues on the balance of probability, as compared with the more onerous level of proof often demanded in U.K. proceedings. This speeds up the throughput of cases, which frees individuals to return to their jobs sooner.
I believe we are heading for a peak in arbitration and litigation, at which point contractors and clients will see the sense of directing their energies towards avoiding disputes.
This position may have already been reached in the UK and I can only hope that it continues.
Peter Eley is international director at Leach Group, a quantity surveyor specialising in dispute avoidance and resolution