Figure 4.1: Methods for settling a dispute through a third party

■ What Is Third Party Determination?

Adjudication, EXPERT DETERMINTAION (a form of dispute resolution which involves the appointment, jointly by the parties, of an independent and impartial third party expert and are bound by their decision), arbitration and litigation involve the appointment of an independent and neutral third party, a judge in litigation, or a tribunal (an adjudicator or arbitrator). However, unlike EXPERT EVALUTAION (the objective and impartial evaluation of the merits of opposing cases made by a neutral third party) and mediation, which also involve independent third parties, in these methods the judge or tribunal will make a decision on the resolution of the dispute and that decision will be binding, in the interim, on the parties.

How Does the Third Party Make Their Decision?

You may think that the job of the judge or tribunal is to ‘get at the truth’. You may think that you know what that truth is because you were there and saw all of the events that led to the dispute. You may think that because of this the judge/tribunal must decide that you are right. In practice, this is unlikely to be the case.

The job of the judge or tribunal is to hear the arguments from both sides and then to decide, solely on the basis of the evidence presented, which description of events and facts is more likely to have occurred. In civil cases, the SATNDARD OF PROOF (to which an allegation or claim must be proven by the evidence adduced in its support) to be applied in coming to that decision is referred to as the ‘BALANCE OF PROBABILITIES’. This means that the judge or tribunal must believe that the event is more likely than not to have occurred – that is, a probability of more than 50%. This is far less onerous than the criminal standard of proof, which is ‘beyond ‘reasonable doubt’.

Having come to a decision on the facts, the judge or tribunal will then apply the relevant law to this version of the facts in order to determine any liability with respect to damages.

Can I Manage These Processes Myself?

None of the processes that are described in this chapter have any rules or regulations that would prevent you from preparing and managing your case yourself and representing yourself at any hearings. However, your chances of achieving a satisfactory outcome are likely to be increased greatly by enlisting professional assistance. There are a number of reasons for this:

Protocols and rules

All these processes are governed by specific protocols and rules. Having the assistance of someone who is familiar with them will allow you to concentrate on the factual and evidential matters concerning your case rather than trying to understand the detail of what you should be doing and by when. It will also increase the efficiency with which the process will be followed.

An independent view

An independent professional will be able to provide an objective view of the relative strengths and weaknesses of your case and that of the opposing party. This will help to focus your arguments on the strengths of your position and the weaknesses of the other. It will also avoid presenting arguments that are easily rebutted by the opposing side, which can lead to a general loss of credibility in the eyes of the judge or tribunal.

Evidence

The judge or tribunal will not have your level of knowledge of the detail of the project and the actions of all of the parties. He or she will be entirely reliant on the evidence that is presented in order to form a judgment. Discovering relevant evidence, organising and managing evidence so that it can be referred to easily and using evidence to support a coherent argument are complex tasks. They are best done by someone who understands both the way in which the evidence will be used practically throughout the process and how an argument may be supported or weakened by that evidence.

Should I Use Third Party Determination?

The principal advantage of handing the matter over to a third party is that it ensures that the matter will be resolved, by a neutral and independent specialist, within an identified timescale and prevents fruitless arguments from dragging on indefinitely. However, there are also a number of disadvantages to consider.

Loss of control over strategy

Assembly of the facts and evidence into a persuasive case, and the presentation of that case to the court or tribunal, will almost certainly require lawyers. This removes matters further from your control. Of course, it brings additional skills and expertise to your case but some issues that you feel strongly about may be abandoned, or given a different emphasis, in order to suit the case strategy preferred by the lawyers.

Loss of control over the outcome

By definition, third party determination of a dispute gives control over the outcome of the dispute to someone who was not involved in the dispute and who is not in a position, therefore, to understand the detail of the issues as well as the parties do themselves. A third party decision will be based primarily on an impartial assessment of the evidence and the arguments that are presented in writing or made orally at any hearings that may take place. The skill and persuasiveness with which those arguments are made may well affect the decision.

Risk of losing

We have seen that a claimant need do no more than show that it is more probable than not that the arguments they are putting forward are true in order to win their case. If there is credible evidence in support of both sides of the argument, which often happens, then there is a possibility that the evidence for the ‘wrong’ case may appear to be stronger than that for the ‘right’ case.

This may be because witnesses do not perform well under cross-examination, because written documents are not clear and are open to interpretation, or because the judge or tribunal simply takes a different view of the facts or the arguments presented..

Whatever the reason, there is always a risk that even a well-supported case may not win. This is commonly referred to as ‘LITIGTAION RISK’ but it applies equally to arbitration and, perhaps even more so, to adjudication.

Cost

The cost of preparing and presenting a case can be considerable. It is inherently greater than the cost of resolving a matter by negotiation or mediation because of the greater emphasis that is placed on written argument and on the documentary evidence that supports it. The time taken by solicitors, counsel and expert witnesses in order to prepare this will be considerable and expensive.

Having looked at the general characteristics of third party determination, let us look at the specifics of some of the most common processes.

■ Adjudication

Adjudication was introduced into the construction industry by the Housing Grants, Construction and Regeneration Act 1996, known colloquially as the CONSTRUCTION ACT and updated by The Local Democracy, Economic Development and Construction Act 2009. The process provides a quick and relatively inexpensive resolution to the disputes that often occur during the course of a construction contract. It allows a dispute to be resolved quickly and thus minimises disruption to the progress of the project.

The Act makes the use of adjudication available to any party to a construction contract, irrespective of whether both parties to the contract have agreed to its use. Furthermore, if parties are unable to agree an adjudication procedure then Section 114 of the Act refers to ‘The Scheme for Construction Contracts’ (the Scheme), which is an adjudication process and timetable that will be imposed by default.

Section 106 of the Construction Act excluded the operation of the Act to any contract that:

The Statutory Scheme of adjudication therefore will not be implied into construction contracts, or architectural appointments for residential works, and the adjudication clause in a standard form of contract should be struck out unless the Client agrees to adjudication. The Conditions of Appointment for an Architect for a Domestic Project 2012 states that the parties may agree to settle disputes under the RIBA Adjudication scheme for Consumer Contracts. However the choice of procedure must be left to the client.

How Does It Work?

The five principal steps of the adjudication process are set out below:

1. Notice of adjudication: this is the first formal step it sets out information about the parties and defines the nature and scope of the dispute.
2. Appointment of the adjudicator: this must be secured within seven days of the issue of the notice of adjudication. If the parties are unable to agree on an individual to act as adjudicator, the referring party may apply to an adjudicator nominating body (ANB). The ANB must advise the party of the identity of the adjudicator within five days.
3. Referral notice: this must be served within seven days of the issue of the notice of adjudication. It must set out the case of the referring party in detail and be accompanied by documents and witness statements supporting the claim.
4. Response: the non referring party may serve a response to the referral.
5. Decision: the adjudicator must reach and issue his or her decision within 28 days of the issue of the referral notice. This period may be extended by 14 days if the referring party agrees, or for a longer, indefinite period if both parties agree.

What are the Benefits and Drawbacks?

Since its introduction, adjudication has become a very popular method of resolving construction disputes, particularly, though not exclusively, those that arise between employer and contractor. This is largely because it offers some significant advantages over the alternatives of arbitration and litigation. However, there are also some disadvantages.

The main benefits of adjudication are:

• It is quick: the Construction Act, and its default scheme, requires the adjudicator to publish their decision within 28 days of the dispute being referred to them, although this time limit may be extended as noted above.
• It is relatively inexpensive: the speed of adjudication helps to keep costs low. Also, in straightforward cases, the process may be effectively completed using only the services and expertise available within the parties to the dispute. Where the matter is more complex, external assistance may be required from independent technical professional advisers and lawyers but the restricted timescales involved will, in any event, limit the overall expense of the proceedings.
• It is confidential: documents are exchanged between the parties only. All hearings are held in private and the decision of the adjudicator is not publicly available.
• Choice of tribunal: the parties can choose the adjudicator, either when they enter the contract or when the dispute arises. The adjudicator is often a construction professional rather than a lawyer, chosen for his or her knowledge and experience of the subject of the dispute.
• The decision may be reconsidered: the adjudicator’s decision is binding unless/until it is reviewed after a party refers the dispute to a further tribunal. If either party feels that the decision of the adjudicator is wrong, they have the opportunity to reopen the matter in either litigation or arbitration proceedings, depending on their contract, where the facts of the case may be reconsidered.

The main disadvantages of adjudication are:

• It is pressurised: the restricted timescales can place extreme pressure on the responding party, especially if the matter is complex and the claim has been prepared over an extended period by a team of expert professionals and lawyers.
• It has a restricted timescale: the adjudicator may be faced with large quantities of documents within a short space of time. It may be impossible to give detailed consideration to complex issues. It is for this reason that adjudication is sometimes described as dispensing ‘rough justice’.
• Bad timing: these difficulties may be exacerbated by the choice of timing made by the referring party. It is not uncommon for a responding party to find itself ‘ambushed’ by the service of a large and thoroughly prepared claim on the eve of a holiday period such as Christmas or Easter.
• Loss of ability to reconsider: a losing party in the adjudication may suffer a further disadvantage if it pays monies to a company that subsequently goes into liquidation. The opportunity to have the matter reopened in either litigation or arbitration proceedings then becomes meaningless.

When Is Adjudication Appropriate?

Adjudication is most appropriate for matters where the issues are:

• susceptible to a relatively straightforward contractual interpretation, to determine liability
• susceptible to a simple financial analysis, to determine quantum
• supported by evidence that is readily available
• supported by evidence that is relatively easy to access within the administrative systems of the parties
• of a type that would be familiar and comprehensible to a competent adjudicator.

Circumstances when it may not be appropriate

Allegations involving professional negligence, fraud or misrepresentation are more difficult to determine satisfactorily by adjudication. The restricted timescales make the assembly of sufficient evidence to support a credible claim or defence very difficult. Consideration of such evidence, particularly that related to allegations of fraud or misrepresentation, may also be beyond the expertise of an adjudicator with limited, or no, legal training or experience. Nevertheless, claims of professional negligence have been referred to adjudication and this may be a trend that increases as adjudication continues to establish itself as a credible form of dispute resolution and as more adjudicators offering a broad range of skills and experience become available.

How Should I Approach Adjudication?

Although the process itself is relatively straightforward, the very short timescale and the strictly prescribed time periods for the various activities make it advisable to seek professional help. If you are considering referring a matter to adjudication, then you should discuss the issues with a lawyer or a construction professional with experience of dispute resolution generally, and adjudication in particular, before serving a notice of adjudication.

Preliminary discussions should consider:

• the issues involved and whether the scope of the dispute is established
• the strength of the case that results
• whether a consensual process might not be more appropriate
• whether adjudication is the appropriate third party neutral process to pursue
• what the process itself is likely to involve.

If you decide to seek assistance, your first port of call is likely to be a firm of solicitors that specialises in CONSTRUCTION LAW, which refers to statutes and case law relating to the construction industry. However, if the case involves mainly technical, quantum or contract administration issues rather than strictly legal matters, it may be worth considering alternatives. People who act as adjudicators tend to be members of the construction professions: architects, quantity surveyors or engineers, and many also have some legal qualifications. Some of these also act as party representative in other cases. The combination of an appropriate technical background and knowledge and experience of the adjudication process may make such a person a more appropriate choice to prepare and manage your case and to act as your representative.

The RIBA, RICS, ICE and the CIArb amongst others all have panels of suitably qualified adjudicators (see pp. 118-119 for details on these).

What if someone starts an adjudication action against me?

If you receive a notice of adjudication, you should seek advice from a suitably experienced legal or construction professional immediately because the time limits imposed upon the adjudication process are very short and you will need to respond quickly. There will be no time to familiarise yourself with the process, the protocols and the deadlines in addition to understanding the details of the claim and preparing to rebut it. You must also notify your PI insurer immediately.

■ Expert Determination

Expert determination normally is appropriate for use in technical or quantum matters, rather than those of a legal nature. The expert is likely, therefore, to be an architect, building surveyor, quantity surveyor or other construction professional with demonstrable relevant technical experience, rather than a lawyer.

The process is essentially similar to expert evaluation (see Chapter 3, p. 64), with the crucial difference that the parties agree to be bound by the decision of the expert.

What are the Benefits and Drawbacks?

The benefits of expert determination include:

• Flexibility: the scope of the instructions to the expert, the process and the timetable all can be agreed between the parties.
• Simplicity: because the majority of the submissions are likely to be technical rather than legal in nature, much of the necessary documentation can be prepared by the parties themselves rather than by legal teams.
• Low cost: the limited need for legal assistance helps to keep the external costs of the process to a minimum, although the cost of staff or principals involved in preparing documentation must not be overlooked.
• Low stress: it is a straightforward and relatively informal process, which helps to minimise the stress involved.
• Speed finality: the process can be rapid with timescales agreed between the parties and the expert. It is not dependent on the availability of courts or arbitral tribunals, and rarely involves oral hearings, which can be time-consuming to arrange and to hold. The dispute will be concluded by the process.
• Employment of expertise: in coming to a decision, the expert is able to use his or her knowledge and experience to carry out informed investigations and enquiries rather than simply relying on the submissions made by the parties.

The major disadvantage of expert determination is that the outcome is not an agreed settlement but rather the imposition on the parties of a binding decision made by a third party. Furthermore, the decision of the expert is final. If either party is dissatisfied with the decision or with the performance of the expert, there is very limited scope for appeal.

When Is Expert Determination Appropriate?

Expert determination is likely to be appropriate where:

• the issues are predominantly technical rather than legal in nature
• any legal aspects of the matter are straightforward and minor in nature.

In these circumstances, and where the parties have become too entrenched in their view of the dispute to enable them to negotiate or mediate effectively, expert determination may offer a speedy and inexpensive resolution of the matter.

Expert determination may be particularly appropriate for the resolution of a specific matter within a broader dispute. In these circumstances, resolution of a technical matter may facilitate settlement of the overall dispute by negotiation or mediation.

When is it not suitable?

In order to start the process, the parties must be able to agree on a number of issues as described below.

For this reason, expert determination may not be suitable for disputes where relationships between the parties have broken down or become acrimonious, or where they have adopted entrenched positions. In these circumstances, agreement on the matters necessary to initiate the process may not be possible.

How Should I Approach Expert Determination?

There are no formal rules or procedures set down to regulate expert determination. It is up to the parties to agree a process that best suits them and the issues between them.

Preliminary considerations

Before embarking upon expert determination, it is important that the nature of the dispute has been firmly established and the specific matters at issue have been identified. This is because the process is most suitable for disputes of a strictly, or largely, technical nature. If arguments of a legal or procedural nature are likely to develop, then the scope of the expert determination may need to be carefully delineated or a different process of dispute resolution selected.

Before starting, the parties should agree on the:

• individual expert to be appointed
• scope of the issues to be put before the expert
• nature and extent of the information to be provided to the expert
• timetable for the provision of the information and for the provision of the expert’s determination.

Choosing an expert

It is also important that the chosen expert is independent and is acceptable to both parties. It is unlikely that anyone who is previously known to either party will be appropriate. It will be necessary, therefore, to approach one of the professional institutes, such as the RIBA, RICS, or ICE, or a specialist body such as the CIArb, or the Academy of Experts in order to find suitable candidates for selection (see pp. 118-119).

■ Arbitration

Arbitration is a method of alternative dispute resolution where the issues are presented to an arbitrator or panel of arbitrators (the tribunal), who sit in a judicial capacity and issue a decision which is binding upon the parties. Like litigation, arbitration is capable of resolving disputes where the technical and legal issues are complex and where the sums in dispute are large.

In addition to resolving disputes involving complex legal and technical matters that would otherwise need to be settled in the High Court, arbitration is also used where adjudication is not available to the parties, (such as to a home owner) and as a further tribunal following adjudication, where the contract provides for this.

How Does It Work?

The principal objectives of the arbitration process are to:

• be fair
• be cost-effective
• be rapid
• offer some autonomy to the parties in deciding the procedures to be followed
• ensure that the supportive powers of the courts are available at appropriate times.

The Arbitration Act 1996

Arbitration in England and Wales is governed by the Arbitration Act 1996. This act sets out the objectives of the process, the duties and responsibilities of the arbitrator or arbitral tribunal, and a number of mandatory provisions that must be followed. It also sets out a number of default procedures that will apply to the process unless the parties agree otherwise. This provides the parties with a degree of autonomy over the process and timetable for the arbitration, and allows the process to be adjusted to suit the circumstances of the parties and their particular case.

The steps of arbitration

The first step is to put in place an agreement to use arbitration as a method of resolving disputes. It is a requirement of the Arbitration Act that such an agreement, which must be made in writing, should be in place before arbitration may be undertaken. It is important that the parties expressly agree this because the decision of the arbitral tribunal is not only binding but also final. The scope for appeal is strictly limited and does not allow for the facts or merits of the cases to be re-examined.

In practice, the process of arbitration is very similar to litigation and generally goes through the following series of operations:

1. Service of a notice of arbitration: this puts the receiving party on notice of the action and sets out briefly the case that it will be required to answer.
2. Selection of arbitrator or tribunal: this process has no equivalent in litigation, where the judge is allocated by the court system and the parties have no say in the choice.
3. Case management conferences: where the arbitral tribunal gives orders for the direction of the process regarding matters such as timetables, disclosure of evidence, the nature and extent of expert witness evidence and other practical issues related to the process.
4. Case preparation and management: this will include the preparation and service of statements of claim and of defence and counterclaim; the collection and organisation of documentary evidence; the disclosure of documentary evidence to the other side; the collection of evidence from witnesses of fact and the preparation of witness statements for those witnesses; and the preparation and exchange of expert witness reports.
5. Hearings: although some cases may be decided by the arbitral tribunal ‘on the papers’, that is by reference only to written statements and evidence, the majority will involve a hearing where counsel will set out their party’s case and cross-examine the witnesses to the opposing case.
6. Decision: the final stage in the process is the decision of the tribunal. This is known as the arbitral award and, unless the parties decide otherwise, it provides a reasoned explanation of the tribunal’s thought process and decision. The award is binding on the parties. The Arbitration Act does allow for appeals but these may only be made on matters relating to jurisdiction, process and points of law; the factual matters of the case will not be re-examined.

What Are The Benefits of Arbitration?

The principal benefits that arbitration offers over litigation include:

Confidentiality

The main advantage that domestic arbitration (that is arbitration within the jurisdiction of England and Wales) offers over litigation is confidentiality, unlike the proceedings, hearings and judgments of the courts of England and Wales, which are accessible to the public. The awards of arbitral tribunals are issued only to the parties themselves. This can be very attractive to commercial organisations who may need to disclose sensitive information in evidence in order to prove their case.

Flexibility

The Arbitration Act sets out a number of default procedures, but the parties may agree to adopt alternatives that are more appropriate for their particular circumstances. This should allow for a speedier and less expensive service than the courts provide. In practice, however, most large arbitrations adopt procedures similar to those set out in the Civil Procedure Rules (CPR) for the courts and so these advantages are not always realised. CPR is an extensive set of rules and directions that govern litigation in England and Wales.

Time and cost

The flexibility that the Arbitration Act allows offers the possibility of adopting procedures that may reduce the time taken to undertake the process when compared to litigation. For example, limits may be set as to the length of written submissions and the disclosure of evidence, and time limits may be imposed on the presentation of oral evidence and the cross-examination of witnesses. These limitations are likely to reduce the legal costs associated with the process when compared to litigation.

Support of the courts

The Arbitration Act provides that the parties to an arbitration, or the arbitral tribunal itself, may call upon the support of the courts where this is necessary for the effective progress of the arbitration. The types of support that may be required include the issue of injunctions to restrain the behaviour of one of the parties, to freeze assets or to compel the provision of evidence and the issue of witness summonses or compelling a witness to make themself available to give evidence to the tribunal.

Enforcement

The Arbitration Act also sets out a procedure whereby an award issued by an arbitral tribunal in a domestic arbitration may be enforced by an order of the court.

Arbitration is also widely used in an international context, to settle disputes between parties from different countries. There are a number of reasons for this, in addition to the advantages set out above with respect to domestic arbitration. Some international bodies, including the United Nations and the International Chamber of Commerce, have produced rules for international arbitration, and the International Bar Association provides rules for the taking of evidence. These rules provide the reassurance of consistent international application and independence from nationally imposed constraints. They also provide a setting in which lawyers from COMMON LAW and CIVIL CODE JURISDICTIONS can work together. Common law jurisdiction operates a common law legal system while civil code jurisdictions operate a codified legal system. Most significantly, the enforcement of arbitration awards across the world is facilitated by the New York Convention, an international treaty drawn up by the United Nations. The widespread application of this convention means that, in a foreign court, the enforcement of an arbitral award is more likely to be successful than the enforcement of the judgment of a national court.

What Are The Drawbacks of Arbitration?

The main disadvantage of arbitration is that there are very limited grounds for appeal. These are set out in Sections 67 to 71 of the Arbitration Act. In general terms, it is not possible to appeal against the arbitrator’s findings with respect to the facts or the merits of the cases.

Another, practical disadvantage of arbitration is that, except in very small disputes, it will almost certainly require that you involve a professional legal team; it is not suitable for going it alone for the reasons set out in the section below: ‘How should I approach arbitration?’.

A more general drawback is the fact that arbitration does not create legal precedent. Because arbitration proceedings are confidential, there is no body of case law (legal principles made by judges based on previous cases) built up from cases that are decided and therefore although arbitral tribunals must decide with reference to the facts and the case law of the courts, arbitral awards have no influence on any following decisions either in the courts or in arbitration proceedings.

When Is Arbitration Appropriate?

Arbitration may be used to resolve almost any dispute. It is particularly appropriate for disputes that involve complex legal and technical matters, where substantial sums of money are at stake, and which would otherwise be litigated in the High Court. It is especially appropriate for international disputes.

In addition to the drawbacks outlined above, the cost of arbitration is likely to mean that it is not suitable for smaller claims. Where the sum claimed is less than about £50,000, the costs involved are likely to be disproportionately high.

How Should I Approach Arbitration?

The process of arbitration is not fixed by a set of rigid rules. The Arbitration Act sets out a number of procedures but few of these are mandatory and many may be adapted to suit the requirements of the parties.

Decisions on which processes to adapt and adopt may have a significant impact on the ability of a party to present its case effectively and efficiently, with respect to time and cost. For this reason, arbitration is not a suitable process to embark on without professional assistance.

As with adjudication, if you are considering referring a matter to arbitration then you should discuss the issues with a lawyer or a construction professional with experience of dispute resolution generally and arbitration in particular at an early stage. Preliminary discussions should consider:

• the issues involved and the strength of the case that results
• whether a consensual process might not be more appropriate
• whether arbitration is the appropriate third party neutral process to pursue
• what the process itself is likely to involve.

■ Litigation

Litigation is the process of resolution of a dispute using the civil court system of the state. Both the judge and the court premises are provided by the court system for a one-off fee, which is payable when the claim is made. Judges are civil servants appointed from the ranks of qualified and practising lawyers. The majority are barristers, though a number come from the solicitor branch of the profession (see Chapter 5, pp. 100-101, for a description of the differences between barristers and solicitors). Judgments are binding on the parties and are generally easy and quick to enforce.

How Does It Work?

The process of litigation is set out in the CPR (Civil Procedure Rules) and whilst each individual case will be different, all will follow the same general pattern.

Pre-action protocol

To begin with, for claims in the High Court there is the pre-action protocol. This involves an exchange of letters which set out the claim and any defence to it, meetings between the parties and, possibly, a mediation (see Chapter 3, p. 66). The intention of these preliminary activities is to attempt to resolve the matter without recourse to the remainder of the process.

Where lawyers have been involved at the very earliest stages of a dispute, the legal team will handle these pre-action protocols. However, if the issues are small and straightforward and you are considering dealing with the matter yourself (see Chapter 5 on going it alone as a litigant in person), you will need to be aware of the requirements of these protocols. Failure to comply with them may invalidate a claim or may lead to a costs penalty, even if you are successful in bringing or defending the claim.

Service and issue of proceedings

Service and issue of proceedings will follow if the matter has not settled and these will be followed by a period during which each party will prepare its case for trial. During this period, there will be a number of short hearings or meetings with a judge, known as CASE MANAGEMENT CONFERENCES. These will deal with practical matters such as timetables for the various preparation activities, the need for expert evidence, disclosure of evidence between the parties, estimates of cost, and the date and period of the trial itself.

The hearing

It is likely that there will be ongoing attempts to settle the matter before it comes to trial but if these are not successful then the parties will attend a hearing in court to put their respective cases. Witnesses of fact and expert witnesses, if needed, will be required to attend. Their main evidence will have been presented in advance by way of written statements, but they will be questioned (cross-examined) about their written evidence in court in front of the judge.

Following the trial, the judge will prepare and issue their judgment.

The Court System and Hierarchy

The civil courts are organised according to the value and subject matter of the dispute and whether the case is being heard for the first time (at ‘first instance’) or is the subject of an appeal. Figure 4.2 shows the basic hierarchy as it relates to cases involving the construction industry. A diagram of the full court system is available at the government website.²¹

Figure 4.2: The Court Hierarchy for the Construction Industry

Benefits and Drawbacks

The benefits of litigation are:

• Flexibility: it provides a range of courts adapted to the needs of differing scales of dispute.
• Specialism: it also operates a specialist court, the TCC, which is staffed by specialist judges who have extensive experience of construction law.
• Judicial excellence: the quality of the judiciary, especially at the higher levels, is excellent and highly respected worldwide.
• The possibility of appeal: there is an established system of appeal through the Court of Appeal and up to the Supreme Court if necessary.
• Legal excellence: the highly qualified lawyers and advocates who support the operations of the court system have all been trained in its use and are familiar with its operation and many of them specialise in construction law.

The drawbacks to litigation are:

• Expense: the costs associated with a legal team are high and legal costs can quickly rise to a level that is disproportionate with respect to the amount in dispute, as shown by the unfortunate case of Stanley v Rawlinson (see Court Case 3.1).
• Timing: the process can be relatively slow. The courts have a finite and limited capacity and this can mean that a case may have to wait some time before a court becomes available for a trial.
• Publicity: proceedings are held in public and the judgments are publicly available for anyone to read. This may be a particular disadvantage to some parties.
• Lack of choice: parties have no say in which judge will be allocated to their case and no opportunity to select or change procedures that will speed up the process.
• International complications: where parties are from different countries or the dispute involves a contract for work outside the jurisdiction of England and Wales, then issues of conflict of laws and enforcement of judgments may make litigation impractical when compared to international arbitration.

What Are The Benefits and Drawbacks?

In theory, any type of dispute may be resolved by litigation. In practice however, litigation is likely to be preferred where:

• complex matters of law are the sole or a significant part of the issue in dispute
• the question of law involved is uncertain and the establishment of a precedent would be beneficial as a matter of public policy
• an established route for appeal is important to one or both parties
• matters of public policy are involved
• one or both of the parties wish to rely on an established legal precedent.

Alternative forms of dispute resolution may be preferred where:

• matters in dispute have a low financial value
• matters in dispute do not involve complex points of law
• there are complex technical issues
• there is a benefit in preserving an existing relationship
• there is a need for speedy resolution
• there is a need for confidentiality.

How Should I Approach Litigation?

The process of litigation is governed by the CPR. These are extensive and largely prescriptive and cover all aspects of the process in exhaustive detail. An outline of those rules that are likely to apply to construction disputes is given on p. 107 in Chapter 5.

The existence of these rules makes the process predictable, prescribed and, in theory at least, useable by a layman. However, the extensive range of events and activities that they cover and the incalculable number of permutations and interpretations that they permit makes it difficult even in relatively simple cases, and impracticable in more complex ones, to manage the process without guidance. In most circumstances, therefore, you are well advised to employ a professional legal team and let them deal with the process while you concentrate on what you know best, that is the facts of the case.

Understanding costs

The common perception is that litigation is expensive. Indeed, the cost of preparing a case and taking it through to trial can be disproportionately high, as the case of Stanley v Rawlinson (Court Case 3.1 in Chapter 3) illustrates. Especially where the sums in dispute are modest, the costs involved can be greater than the sum in dispute or the sum recovered. In these cases, the winner is sometimes left out of pocket despite his or her ‘victory’.

The convention is that the winner in a case will be reimbursed for the reasonable costs reasonably incurred in preparing the case. However, in practice parties usually win only a proportion of the amount claimed, and are usually reimbursed only a proportion of their costs.

There are some circumstances where this convention may not be followed. For example, where a winning party has unreasonably refused to engage in mediation, the court may order that party to pay the costs of the losing party. Also, where a winning party has previously refused to accept an offer which was greater than, or close to, the sum awarded by the court, costs may not be awarded at all, or the winner may be ordered to pay the costs of the losing party from the time of the offer. Such an offer will be subject to the conditions of Part 36 of the CPR, which deals specifically with offers to settle and sets out the procedure for making this type of offer.

Limiting the legal costs

It may be possible to limit exposure to legal costs by seeking either a CONDITIONAL FEE AGREEMENT with the legal team, or AFTER THE EVENT INSURANCE. In these arrangements the lawyers, or an insurance company, agree to take on a degree of the risk involved in the dispute:

• In a conditional fee agreement, a lawyer will be paid up to double their normal fee if the case is won but nothing, or a reduced fee, if the case is lost. However, the additional fee payable if the case is successful is not recoverable from the losing party.
• An after the event insurance policy will pay the opponent’s legal costs if the case is lost, and may be available to cover other disbursements such as fees for counsel and expert witnesses. Naturally, neither lawyer nor insurance company will enter such agreements unless they assess, objectively that the chances of success are good.

The operation of both conditional fee agreements and after the event insurance is subject to regulation and exactly what is available and appropriate is likely to vary in accordance with the facts of a specific case. A full examination of these arrangements should be made with your legal team if they are felt to be necessary or desirable.

Other considerations

Comparatively few cases in litigation make it all the way to the court hearing and attract all of the costs and the cost risks associated with the complete process. Most cases settle. So why begin a process that is not likely to be completed? There are two main reasons:

1. Starting proceedings sets a process in train that will inevitably lead to a resolution. This can prevent, or can bring to an end, prevarication on the part of a party who is reluctant to acknowledge that a dispute exists or to engage in any form of consensual resolution procedure.
2. Preparing for litigation identifies both the strengths and the weaknesses of your case. It also reveals those of the opposing case. The evaluation of this knowledge can form a constructive basis for negotiation or for mediation.