After the GFC in 2008, a colleague of mine from London commented that the highly anticipated flood of construction arbitrations never eventuated. The reason, he surmised, was that most businesses took a pragmatic approach to those disputes - if they could be settled, they were; otherwise, all but the most ironclad claims were abandoned.
It is likely that the covid-19 lockdown will be so much more significant, with most businesses focussing on maintaining financial viability rather than pursuing what might be expensive and uncertain claims. None more so than in the construction industry.
There is far more flexibility in most dispute resolution procedures than most avail themselves of; in the current environment, the time is ripe to look more closely at what is possible, and what might better meet the needs of clients caught in a disputes process.
Too often, mediation is viewed as a litigation settlement technique. Undoubtedly, it is an important adjunct to the litigation process, and the recommendation that mediation is best timed after discovery and once the parties understand the strengths and weaknesses of each other's positions is well made.
In the construction industry, however, at that stage considerable expense has been incurred, positions are typically entrenched and the relationship between the parties is beyond repair. Philosophically, disputes in construction projects are also based on principle. A dispute over variations early in the project will frequently determine how the rest of the project will proceed. Settlement in this context is not litigation settlement in the traditional sense so much as establishing a way forward.
Early mediation, run on an evaluative basis, to the point where the mediator provides a written opinion if required, can be a more effective alternative to the traditional facilitative model. The interests of the parties are less achieving an acceptable horse trade so much as resolving points of principle which enable them to work together for the balance of the project. Effective mediation also enables project managers and party representatives to explain to their chief executives and boards of directors why it is that they must accept a certain position they might not have anticipated.
The Construction Contracts Act 2002 provides less flexibility, with its strict timetable of claim, response, reply and rejoinder. However, for discrete and critical issues of disagreement in major projects, there can be significant latitude if the parties agree on their adjudicator, and agree on extended time frames for submissions.
The benefit of such a modified approach is a hopefully prompt, cost-effective and well-reasoned determination which is durable; but not final if it is not accepted by either party.
Arbitration will always be the final forum in construction contracts, and the only forum for resolution of international construction projects.
This can drive counsel to the comfort of High Court procedures, and all the arcane rules of procedural fairness which go with them. With that approach comes the criticisms frequently levelled at civil commercial litigation - delay, expense and an overly procedural approach largely confusing to the clients paying for them.
The benefits of arbitration are well-rehearsed - party autonomy, reflected in the ability to select your disputes resolver; procedural flexibility and efficiency; privacy; and international enforceability under the NY Convention. When we examine the Arbitration Act 1996 under a microscope, the Act and its schedules contain little that is prescriptive in how an arbitration is run.
There is a requirement for each party to be given the opportunity to present their case; an expectation that there will be an oral hearing; and that the award will contain reasons. The format of the claim and defence is not prescribed; formal discovery is not mandated; the presentation of evidence in chief and other procedural rules are left to the parties and the arbitrator to determine; and costs certainly don't follow the High Court Rules.
For most clients, a re-examination of arbitration is a welcome relief; provided they have been given the opportunity to present their cases. In the current environment, the sooner and more cost-effectively, the better.
The starting point, as outlined in an earlier LawTalk article, is selecting the arbitrator. Given the opportunity, most arbitrators will outline the procedure they will adopt for a given dispute. Some will prefer what I have recently described as their "happy place" and others will be more proactive.
Clients generally want their disputes heard and to understand that their positions have been properly considered. They then want to get on with their businesses.
Tomorrow's LawPoints article considers this issue further.