MEDIATION OF CONSTRUCTION DISPUTES IN THE AGE OF ADJUDICATION

…on all “construction contracts” fundamentally changed the disputes landscape for the construction industry and has certainly brought substantial benefits. No longer, it was hoped, would contractors be hung out to dry financially as they could seek payment on a claim through a process that would lead to a Court enforceable award in a matter of weeks. And the courts would not tolerate frivolous attempts to avoid compliance with an award: Carillion Construction Ltd v Davenport Royal Dockyard Ltd. [2005] EWCA (Civ) 1358. Absent a proper allegation fraud (SG South Ltd. v King’s Head Cirencester LLP, Corn Hall Arcade Ltd. [2009] EWHC 2645 (TCC)), or the failure of the Adjudicator to meet the basic requirements of natural justice (Stellite Construction Ltd. v Vascroft Contractors Ltd. [2016] EWHC 792 (TCC)), the adjudication would stand until challenged by when of court proceedings or arbitration, s.108(3) of the Act.

Parties, it was hoped, would be forced to behave in a commercially sensible way by the mere existence of the threat of a referral. But hope can be a cruel master. What has actually happened is a pestilential blossoming of contractually enforced litigation. With the contractual provisions dealing with applications for payment, payment notices, and payless notices under s.111 of the Act – and then strict compliance with those provisions – not simplifying the payment system but instead leaving contract administrators live in fear of lawyers parsing every clause and analysing every notice seeking infinitesimal failures of compliance, effectively turning contraction contracts into a game of high stakes poker: winner takes all, at least for a time.

Moreover, the restricted timetable for adjudication – when coupled to the inevitable first mover advantage – means that parties to a construction contract are on a hair-trigger to be the first to refer a dispute to the adjudicator. The result of which, even for the “winner”, is a decision that only has temporary finality and one that invites challenge through the courts, with all the attendant legal costs and time and effort. The idea that parties might actually seek a mediated settlement of their dispute that would allow them to agree to a commercially and practically sensible outcome is for the birds.

The statutory promotion – and there is no other word for it – of litigation under the Act where accuracy of outcome is sacrificed to the speed of decision making and where it is accepted as a matter of course that there will be “casualties” makes a strange counterpoint to the fundamental shift in the approach now found in all other areas of litigation. Outside of the construction industry, mediation and alternative dispute resolution are seen as an unalloyed good and parties unreasonably refusing to participate in settlement outside of the court can face profound consequences when costs come to be determined. Litigating a dispute to trial is seen as very much the last resort and where a well drafted Part 36 offer can make the risks of litigating to the bitter end an entirely unappetising prospect. It should also be appreciated that the greatest advantage of a settlement agreement, mediated or otherwise, is that the parties can frame it for their own purposes – the Court’s and adjudicator’s powers are far more circumscribed and generally amount to little more than making findings as to who will be paying what and to whom.

The question is then whether the statutory adjudication process is now out of step with the modern approach to litigation – with its insistence on attempts at mediation and ADR – and consequent upon that whether there is any possibility of bringing the benefits of such an approach within the framework of the adjudication process.

One option might be to mediate the dispute. A mediation can be set up in 24 hours, if the parties are able to agree the identity of the mediator and sign the mediation agreement. The broader commercial setting beyond the scope of the dispute that has been referred to adjudication can be brought to the negotiating table. There are hurdles that need to surmounted, such as the rapid timescales and the diversion of resources from the adjudication itself: but many thought a 28-day adjudication process was impossible at the time of Sir Michael Latham’s report.

What I would propose instead is this. The adjudication system needs to adopt some of the dispute resolution mechanisms available to parties under the CPR and the adjudicator will have to wear two hats (albeit not at the same time). Once the Response is received the adjudicator should be empowered to convene a meeting and provide an Early Neutral Evaluation (‘ENE’). Such ENE, under the guise of preliminary non-binding judgments, have been part and parcel of the practise of some specialist courts – such as IPEC – for some time and in any event, they are now part of the general powers of the Court under CPR 3.1(2)(m).

Having provided the ENE the “adjudicator” could then act as mediator in subsequent settlement discussions. And only if those discussions fail to reach a conclusion would he or she go on to provide a final and binding award qua adjudicator, in the usual way. Such a process would allow the parties a final opportunity to reach a mediated settlement, without displacing either the role or timetable of the statutory adjudication process or incurring the costs of instructing both an adjudicator and a mediator. And once the dispute has settled then will be no question of the dispute being resurrected in later court proceedings.

For those that might complain that it would be unacceptable for the “adjudicator” to act as both mediator and then make an award if the mediation fails, need to grasp the reality that adjudication is already a rough and ready process, which does not even given credence to the concept of abuse of process: Connex South Eastern Ltd. v MJ Building Service Group Plc [2005] EWCA Civ 193 at para [40]. To be blunt, for the adjudicator to play two roles in the process would be no more offensive to the concept of justice than what goes on already.

It is therefore possible that mediation may still have a role to play in construction disputes – even in the age of adjudication – it just requires the adjudication system to apply a little more flexibly and to adopt procedural mechanisms that are already in general usage. For those that would prefer slavish adherence to the present system of winner-takes-all adjudications I would simply remind them that “…. consuming means soon preys upon itself.” (Richard II).