Conflict avoidance, management and dispute resolution procedures - Part II

Conflict avoidance, management and dispute resolution procedures for RICS APC candidates – Part II

A guide to the main methods and best practices for resolving construction disputes

As a construction professional, you may encounter situations where conflicts arise between parties involved in a project, such as clients, contractors, subcontractors, consultants or suppliers. These conflicts can have negative impacts on the project outcomes, such as delays, cost overruns, quality issues or loss of reputation. Therefore, it is essential to have the skills and knowledge to avoid, manage and resolve disputes effectively and efficiently.

In this blog post, we will explore the main methods of conflict avoidance, management and dispute resolution that are relevant for RICS APC candidates, namely adjudication, arbitration, pre-action protocol, litigation, expert witness, independent expert determination and Scott schedules. We will also provide references to the RICS guidance notes, the UK laws and real-life examples that illustrate the application and implications of these methods.

1 Adjudication

Adjudication is a fast and binding method of dispute resolution that is widely used in the construction industry. It involves the appointment of an independent and impartial adjudicator who reviews the evidence and arguments of the parties and makes a decision within a specified time frame, usually 28 days. The decision is enforceable by the courts and can only be challenged in limited circumstances, such as fraud, bias or breach of natural justice.

Adjudication is governed by the Housing Grants, Construction and Regeneration Act 1996 (as amended by the Local Democracy, Economic Development and Construction Act 2009), which gives parties the right to refer any dispute arising under a construction contract to adjudication at any time. The parties can also agree to use adjudication for disputes that are not covered by the Act, such as professional negligence claims. [8]

The RICS guidance note on adjudication (4th edition, 2017) provides detailed information on the principles and procedures of adjudication, as well as the role and responsibilities of the adjudicator. It also offers practical advice on how to prepare and present a case, how to deal with common issues and how to enforce or challenge an adjudicator's decision. [1]

An example of a real-life adjudication case is the dispute between Vinci Construction UK Ltd and Beumer Group UK Ltd, which involved the construction of a baggage handling system at Gatwick Airport. The adjudicator awarded Vinci £9.6 million plus interest and costs, after finding that Beumer had breached the contract by failing to complete the works on time and causing delay and disruption to Vinci. Beumer challenged the decision in the High Court, but the judge upheld the adjudicator's decision and rejected Beumer's arguments that the adjudicator had acted in breach of natural justice, had exceeded his jurisdiction and had made errors of law and fact. [11]

2 Arbitration

Arbitration is a private and confidential method of dispute resolution that involves the submission of the dispute to one or more arbitrators, who are appointed by the parties or by a third party, such as an arbitral institution. The arbitrators review the evidence and arguments of the parties and make a final and binding award, which can be enforced by the courts in most countries. The parties can agree on the rules and procedures of the arbitration, such as the language, the seat, the law and the scope of the dispute.

Arbitration is governed by the Arbitration Act 1996, which applies to both domestic and international arbitrations seated in England, Wales and Northern Ireland. The Act sets out the general principles and provisions of arbitration, such as the autonomy of the parties, the fairness of the process, the finality of the award and the limited role of the courts. The Act also incorporates the UNCITRAL Model Law on International Commercial Arbitration, which is a widely accepted framework for harmonising the arbitration laws and practices around the world. [9]

The RICS guidance note on arbitration (1st edition, 2018) provides comprehensive guidance on the use and conduct of arbitration in the construction and property sectors. It covers the key aspects of arbitration, such as the agreement, the appointment, the jurisdiction, the procedure, the evidence, the award and the costs. It also explains the role and duties of the arbitrator, the arbitrator's powers and the ethical standards that the arbitrator must comply with. [2]

An example of a real-life arbitration case is the dispute between Multiplex Construction Europe Ltd and Bathgate Realisations Civil Engineering Ltd (formerly Dunne Building and Civil Engineering Ltd), which involved the construction of a residential tower in London. The arbitrator awarded Multiplex £14.4 million plus interest and costs, after finding that Bathgate had breached the contract by failing to provide adequate design, workmanship and materials for the concrete works. Bathgate applied to the High Court to challenge the award, but the judge dismissed the application and confirmed the award, after rejecting Bathgate's arguments that the arbitrator had been biased, had exceeded his powers and had made serious irregularities. [12]

3 Pre-action Protocol

Pre-action protocol is a set of steps and procedures that the parties are expected to follow before commencing litigation in the courts. The aim of the pre-action protocol is to encourage the parties to exchange information, to narrow the issues, to explore the possibility of settlement and to avoid unnecessary litigation. The pre-action protocol also helps the parties to prepare their cases and to comply with the court's directions if the dispute proceeds to litigation.

The pre-action protocol for construction and engineering disputes (2nd edition, 2016) applies to all construction and engineering disputes, including professional negligence claims, in England and Wales. The protocol sets out the general requirements and the specific stages of the pre-action process, such as the letter of claim, the letter of response, the letter of settlement, the pre-action meeting, the experts' reports and the alternative dispute resolution. The protocol also provides guidance on the costs, the sanctions and the exceptions of the pre-action process.

The RICS guidance note on pre-action protocol (1st edition, 2018) provides practical advice on how to comply with the protocol and how to deal with common issues and challenges. It also explains the benefits and drawbacks of the protocol and the alternatives to the protocol, such as the RICS pre-action conciliation service, which is a voluntary and confidential service that offers a quick and cost-effective way of resolving disputes without litigation. [3]

An example of a real-life pre-action protocol case is the dispute between SSE Generation Ltd and Hochtief Solutions AG, which involved the design and construction of a hydroelectric scheme in Scotland. The parties followed the protocol and exchanged the letters of claim and response, the experts' reports and the offers of settlement. However, they failed to reach a settlement and proceeded to litigation in the High Court. The judge found that Hochtief was liable for the collapse of a tunnel and awarded SSE £107.8 million plus interest and costs. The judge also took into account the parties' conduct during the pre-action protocol and awarded SSE an additional £1 million for Hochtief's failure to make a realistic offer of settlement. [13]

4 Litigation

Litigation is a formal and public method of dispute resolution that involves the commencement of legal proceedings in the courts. The parties submit their evidence and arguments to a judge, who makes a decision based on the law and the facts. The decision is final and binding, unless it is appealed to a higher court. The decision can be enforced by the courts and can have legal consequences for the parties, such as damages, injunctions or declarations.

Litigation is governed by the Civil Procedure Rules, which apply to all civil cases in England and Wales. The rules set out the general principles and the specific procedures of litigation, such as the pre-action conduct, the statements of case, the disclosure, the witness statements, the experts' reports, the trial, the judgment and the costs. The rules also provide for the management and the resolution of disputes, such as the case management, the directions, the allocation, the track, the summary judgment, the strike out and the alternative dispute resolution. [10]

The RICS guidance note on litigation (1st edition, 2018) provides an overview of the litigation process and the key considerations for the parties and their advisers. It covers the main stages and steps of litigation, such as the assessment, the strategy, the preparation, the presentation and the enforcement. It also highlights the risks and challenges of litigation, such as the complexity, the uncertainty, the delay, the expense and the publicity. [4]

An example of a real-life litigation case is the dispute between MT Højgaard A/S and E.ON Climate and Renewables UK Robin Rigg East Ltd and another, which involved the design and installation of foundations for offshore wind turbines in Scotland. The parties litigated in the High Court, the Court of Appeal and the Supreme Court, over the interpretation of the contract and the liability for the defects in the foundations. The Supreme Court found that MT Højgaard was liable for the defects and upheld the lower courts' decisions to award E.ON £26.25 million plus interest and costs. [14]

5 Expert Witness

Expert witness is a person who has specialised knowledge, skills or experience in a particular field that is relevant to a dispute. The role of an expert witness is to provide independent and impartial opinion evidence to assist the decision-maker, such as a judge, an arbitrator or an adjudicator, in understanding the technical or professional issues of the dispute. The expert witness must comply with the duties and the codes of conduct that are applicable to the dispute resolution process and the jurisdiction.

Expert witness is governed by the Civil Procedure Rules, Part 35, which applies to all expert evidence in civil cases in England and Wales. The rules set out the general provisions and the specific procedures of expert evidence, such as the instructions, the reports, the discussions, the statements, the questions and the evidence in court. The rules also provide for the court's powers and the parties' obligations in relation to expert evidence, such as the permission, the direction, the limitation, the disclosure, the instruction and the costs. [10]

The RICS guidance note on expert witness (4th edition, 2014) provides comprehensive guidance on the role and responsibilities of an expert witness in the construction and property sectors. It covers the key aspects of expert witness, such as the appointment, the terms of engagement, the scope of work, the conflicts of interest, the standards of care, the independence and impartiality, the report writing, the meetings of experts, the joint statements, the questions to experts and the giving of evidence. It also explains the RICS practice statement on surveyors acting as expert witnesses, which is a mandatory requirement for all RICS members who act as expert witnesses. [5]

An example of a real-life expert witness case is the dispute between Manchester Building Society and Grant Thornton UK LLP, which involved the audit and the advice of a portfolio of interest rate swaps. The parties relied on expert evidence from accountants, actuaries and valuers to support their claims and defences. The High Court found that Grant Thornton was negligent and in breach of contract and awarded Manchester Building Society £32.7 million plus interest and costs, after considering the expert evidence and the factual evidence. [15]

6 Independent Expert Determination

Independent expert determination is a private and final method of dispute resolution that involves the appointment of an independent and qualified expert who reviews the evidence and arguments of the parties and makes a determination on the basis of his or her own expertise and experience. The determination is binding on the parties and can only be challenged in exceptional circumstances, such as fraud, collusion or manifest error.

Independent expert determination is governed by the agreement of the parties, who can decide on the terms and conditions of the appointment, the scope and the criteria of the determination, the rules and the procedures of the process, the fees and the expenses of the expert and the enforcement and the challenge of the determination. The parties can also agree to use the services of a professional body, such as the RICS, to appoint and administer the expert determination.

The RICS guidance note on independent expert determination (1st edition, 2017) provides practical guidance on the use and conduct of independent expert determination in the construction and property sectors. It covers the main features and benefits of independent expert determination, such as the speed, the cost, the flexibility, the confidentiality and the finality. It also outlines the role and duties of the independent expert, the process and the stages of the determination, the evidence and the submissions of the parties, the determination and the reasons of the expert and the enforcement and the challenge of the determination. [6]

An example of a real-life independent expert determination case is the dispute between Woking Borough Council and Hochtief (UK) Construction Ltd, which involved the construction of a leisure centre in Surrey. The parties agreed to refer the dispute to an independent expert, who was appointed by the RICS, to determine the final account and the claims for variations, loss and expense and defects. The expert determined that Hochtief was entitled to £1.8 million plus interest and costs, after reviewing the documents and the submissions of the parties and applying the contract and the industry standards. [16]

7 Scott Schedules

Scott schedules are a format and a tool for presenting and analysing the claims and the counterclaims of the parties in a dispute. They are usually prepared in a spreadsheet or a table, with columns for the description, the valuation, the response and the comment of each item of the claim or the counterclaim. They are used to identify, quantify and compare the issues, the arguments and the evidence of the parties and to assist the decision-maker, such as a judge, an arbitrator or an adjudicator, in assessing and determining the dispute.

Scott schedules are not governed by any specific rules or regulations, but they are often required or recommended by the courts, the arbitrators or the adjudicators in construction and engineering disputes, especially in complex or multi-issue cases. The parties are expected to cooperate and agree on the format, the content and the timing of the Scott schedules and to update and revise them as the dispute progresses. The parties are also expected to use the Scott schedules as a basis for negotiation and settlement.

The RICS guidance note on Scott schedules (1st edition, 2018) provides useful guidance on the preparation and the use of Scott schedules in the construction and property sectors. It covers the main purposes and advantages of Scott schedules, such as the clarity, the structure, the comparison, the evaluation and the resolution. It also explains the key elements and principles of Scott schedules, such as the identification, the categorisation, the valuation, the response, the comment and the summary. It also provides examples and templates of Scott schedules for different types of disputes, such as defects, variations, delay and disruption. [7]

An example of a real-life Scott schedule case is the dispute between Grove Developments Ltd and S&T (UK) Ltd, which involved the construction of a hotel in London. The parties prepared Scott schedules for the final account and the counterclaims, with over 300 items and over £40 million in dispute. The adjudicator used the Scott schedules to decide on the merits and the value of each item and to award Grove £14.8 million plus interest and costs. The High Court and the Court of Appeal upheld the adjudicator's decision and confirmed the validity and the utility of the Scott schedules. [17]

8 Conclusion

In conclusion, conflict avoidance, management and dispute resolution are essential skills and knowledge for RICS APC candidates, as they are likely to encounter various types of disputes in their professional practice. The main methods of dispute resolution that are relevant for RICS APC candidates are adjudication, arbitration, pre-action protocol, litigation, expert witness, independent expert determination and Scott schedules. Each method has its own features, benefits, drawbacks and implications, and the parties should carefully consider the suitability and the consequences of each method before choosing or engaging in it. The RICS guidance notes provide valuable guidance and information on the use and conduct of each method, as well as the role and responsibilities of the parties and their advisers. The real-life examples illustrate the application and the outcome of each method and the issues and challenges that may arise in the process.

9 References

1. RICS (2017) Adjudication (4th edition). London: RICS.

2. RICS (2018) Arbitration (1st edition). London: RICS.

3. RICS (2018) Pre-action protocol (1st edition). London: RICS.

4. RICS (2018) Litigation (1st edition). London: RICS.

5. RICS (2014) Surveyors acting as expert witnesses (4th edition). London: RICS.

6. RICS (2017) Independent expert determination (1st edition). London: RICS.

7. RICS (2018) Scott schedules (1st edition). London: RICS.

8. Housing Grants, Construction and Regeneration Act 1996 (as amended by the Local Democracy, Economic Development and Construction Act 2009).

9. Arbitration Act 1996.

10. Civil Procedure Rules.

11. Vinci Construction UK Ltd v Beumer Group UK Ltd [2016] EWHC 2283 (TCC).

12. Multiplex Construction Europe Ltd v Bathgate Realisations Civil Engineering Ltd (formerly Dunne Building and Civil Engineering Ltd) [2018] EWHC 1396 (TCC).

13. SSE Generation Ltd v Hochtief Solutions AG [2018] EWHC 2783 (TCC).

14. MT Højgaard A/S v E.ON Climate and Renewables UK Robin Rigg East Ltd and another [2017] UKSC 59.

15. Manchester Building Society v Grant Thornton UK LLP [2019] EWHC 134 (Comm).

16. Woking Borough Council v Hochtief (UK) Construction Ltd [2018] EWHC 2476 (TCC).

17. Grove Developments Ltd v S&T (UK) Ltd [2018] EWCA Civ 2448.