Despite efforts to minimise the level of construction disputes, adjudication, litigation and arbitration are all flourishing. Dominic Carman reports
While there are many relevant statutes and a significant body of case law, construction disputes benefit from having a single overarching piece of legislation: the Housing Grants, Construction and Regeneration Act 1996, commonly known as the Construction Act. In some recent decisions, judges have increasingly endeavoured to broaden the ambit of the act, which was last amended in 2011, to capture a wider range of construction activities as the sector continues to recover from a turbulent political period.
‘The courts are taking an increasingly broad approach to “construction operations” under the Construction Act, in part so that the perceived benefits of adjudication – chiefly speed and lower costs of obtaining a decision – are conferred on as many participants in the construction industry as possible,’ notes Rebecca Williams (pictured), co-head of the London dispute resolution group at Watson Farley & Williams (WFW).
The number of cases heard by the Technology and Construction Court (TCC) fell just short of the 400 mark last year, compared with 311 in 2016, an 8% compound annual growth rate. This rise in litigation guarantees an increasingly heavy workload for the nine full-time TCC judges, four of whom are women – the most diverse gender representation at any level of the judiciary.
‘We are disruptors compared to more traditional practices.’Rebecca Williams, Watson Farley & Williams
‘For difficult technical cases, the TCC is so well equipped to deal with them: there is a huge amount of trust in the TCC and the judges sitting there,’ says John Morris, global head of Clyde & Co’s projects and construction group. ‘In terms of administration and running cases, the new generation of judges move things on more quickly while some of their directions are more creative. We are all getting better in ensuring that clients get significantly better added value for money, which I don’t think any of us were properly focused on a decade ago.’
Williams points out why construction continues to be so litigious: ‘It’s a very fertile area for disputes, with multiple very high-value projects, often involving complex interfaces and lots of variables. You have also got contractors operating to very fine margins and, unfortunately, a culture where developers, owners and employers try to offload as much risk as they can onto those contractors.’
Adjudication lottery
Nevertheless, most disputes never even reach the TCC. ‘Yes, there has been a rise in the number of TCC cases, but many of those are now public procurement challenges,’ says Neal Morris, head of construction at Pinsent Masons. ‘Construction is a very competitive and low-margin industry, therefore clients are always demanding. What they particularly look for is innovation and price certainty. The unique feature of construction dispute resolution is the statutory intervention and provision of adjudication for construction disputes at any time.’
The latest annual report from the Adjudication Society shows that there was a 13% annual increase in adjudication (1,905 referrals) in the year up to April 2019 – nearly twice the volume of a decade ago and continuing a trend of year-on-year growth. The sums adjudicated are often sizeable: nearly one in five adjudications last year involved disputes in excess of £500,000.
Despite the growth in adjudications, they can often present their own challenges. ‘We have to give clients a health warning that adjudications can be a lottery, however strong their case may be,’ says John Morris. ‘Because they have often not come through judicial ranks, adjudicators can sometimes be much more partisan.’
Neal Morris counters: ‘Adjudicators certainly have less training and experience than a judge, but 43% of them are lawyers. There’s been a steady increase in lawyer adjudicators, coupled with a decrease in quantity surveyors.’ He points to time pressures: ‘Parties have 28 days to say what the answer is and present all of their arguments, and the adjudicator then has to read everything and make their decision – that’s why there is very rarely disclosure or a hearing. About two thirds of adjudications settle, so respondents are rightly desperate not to enter that process unless they absolutely have to.’
Williams admits to having been ‘quite negative’ about adjudication in the past ‘because the quality of adjudicators can be very inconsistent – it is still regarded as the wild west of dispute resolution forums. However, the interim binding result of an adjudication can provide parties with a platform for commercial negotiations and avoid the need for further TCC proceedings or arbitration.’
Key cases
But it is groundbreaking TCC cases that make the headlines. PBS Energo v Bester Generacion, where Williams successfully represented Bester Generacion, was the first occasion in which the TCC refused to enforce an adjudication decision because of a properly arguable defence that it had been obtained by fraud.
Williams notes that WFW’s construction team is winning new work from institutional clients and new clients – much of it from renewable energy projects, but also a consistent pipeline from the wider real estate and hotel and leisure sectors. ‘We are disruptors in the market compared to more traditional disputes practices,’ she says. ‘Working in this sector has allowed us to develop a sustainable business model based on long-term relationships, providing dispute avoidance advice on a range of different projects.’
The Court of Appeal (CoA) has also helped to reshape construction law through several recent decisions: Grove Developments v S&T (UK), which upheld the TCC, confirming that the employer may adjudicate to establish the ‘true value of the sum due’ in a second adjudication, which finally brings down the curtain on ‘smash and grab’ adjudications; Herons Court v Heronslea, where the CoA held that approved inspectors who certify construction works owe no duty to homebuyers for defects they overlook; and Mears v Costplan Services, where the CoA confirmed that practical completion is achieved when works have been completed free from patent defects.
In Triple Point Technology vs PTT Public Company, the CoA rejected a claim for liquidated damages for delays up to the termination date of the contract. The case will now be heard by the Supreme Court this year. ‘Everyone is watching that closely because it is something we litigate and arbitrate on all the time,’ says John Morris. ‘Liquidated damages are always hugely contentious and a grey area in relation to whether they continue after termination. In many cases, there have been differing views, so it will be very interesting to have the position clarified: the courts are keen to set down what they think is the correct approach.’
Construction arbitration
TCC judgments are also significant in arbitration, according to Ellis Baker, head of White & Case’s construction practice. ‘You may well not be arguing under an English law contract and very often you won’t be, especially in cases where the seat is abroad,’ he says. ‘But the arguments and reasoning in those cases you will very often use to inform your own arguments and the tribunal will be aware of them. In terms of soft power, they are very influential.’
ICC arbitrations are most common in construction disputes, he suggests. ‘London is very often chosen as a place for hearing arbitrations involving international projects, even if the juridical seat is not here, because it has a formidable and pre-eminent position in the resolution of construction disputes. We have an enormous amount of expertise here in terms of arbitrators, experts and lawyers.’
In high-value disputes, the trend is very much in favour of arbitration, Baker notes, particularly given the wide enforceability of awards. But he also identifies ‘a very important trend’ in favour of alternative dispute resolution. ‘Everybody accepts there must be a final resolution by arbitration but, equally, everybody accepts that it’s expensive, involves delay and if the project is under construction, which it often is, it involves disruption to the project execution. Therefore, there is a very significant move in favour of seeking to avoid disputes arising in the first place and, if they do, to resolve them quickly and cheaply.’
Looking ahead, Neal Morris anticipates a continued increase in private finance initiative and multi-party disputes. ‘Complicated contracts, unusual finances and competitive pressures continue to flow through money and defect cases all around the UK,’ he says. ‘We will see a continuation of road, street lighting, healthcare, bridges, waste and infratech disputes.’
Williams concludes: ‘Unfortunately, even with the best will in the world, and all the attempts to usher in an era of more collaborative working and early claims resolution, construction is going to continue to be an industry that’s pretty dispute ridden.’
Those who have no choice but to become involved in a construction dispute might choose to recall the words of the late Mr Justice Comyn, who observed that litigation was like betting on the horses but without the same degree of certainty. One thing, however, is certain in the minds of construction lawyers: the volume of disputes in adjudications, the TCC and arbitration is set to keep climbing. LB