Avoid Disputes with Wedding Cakes

Having considered the importance of clarity and records in avoiding disputes (both easier said than done), Susannah’s last post reviews the role of contract clauses that set out a series of dispute resolution options. These are tiered procedures, hence their nickname ‘wedding cake clauses’.

Although you cannot avoid a dispute with a dispute resolution clause, you can ‘nip a dispute in the bud’ before it becomes formal proceedings. The clause maps your journey, from initial grump to claim to proceedings. It gives you and the other party clarity and certainty.

Using contract remedies

But before jumping in all guns blazing, dig out your nice clear contract and check if you can rely on a remedy in that contract to resolve your issue.  For example, most contracts include procedures relating to:

Construction contracts contain more sophisticated remedies including:

  • defect remedies when quality is poor
  • rights to more time when the client extends the scope or delays you
  • rights to change the scope
  • suspension for non-payment

If you read, understand and use your contract properly you will prevent disagreements arising.

‘Wedding cake’ clauses

Like many of the standard form construction contracts, you can pre-agree a journey for resolving disputes.

Classic stages (in order of when they happen) are:

  1. Negotiation – both between the original team and then between more impartial or more senior managers.  It’s great to raise and discuss issues while the facts/events are fresh in everyone’s mind. It improves openness and helps avoid formal disputes. Any settlement should be recorded in a contract.
  2. Mediation – this can help retain business relationships as well as solve continuing project issues. It is more innovative, successful and faster than court proceedings and an experienced mediator can ‘knock heads together’ in the nicest possible way! Any settlement should be recorded in a contract.
  3. Adjudication – construction contracts automatically (under statute) must enable the parties to take disputes to adjudication at any time, and this can result in a temporarily binding decision within 28-56 days.
  4. Arbitration/Litigation – these are more formal proceedings with longer timetables and processes such as disclosure of documents, expert reports and witness statements. Arbitration is private.

Unless you are under a specific time pressure to commence a claim (because of limitation issues or strict requirements under the contract) it is usually best to attempt to resolve disputes in this order.  A judge or tribunal can treat a party unfavourably (in cost terms) if they rush into formal proceedings without first speaking to and/or corresponding with the other party on an informal basis first.  These discussions could be conducted on a “without prejudice” basis in order to allow both parties to speak freely, suggest compromises and make concessions without prejudicing their positions.

You don’t need to include all of these steps in your contract, because once a dispute arises you can agree to do them anyway. But it does provide a map for the journey, which can nudge the parties down a more direct route, instead of staring at the signpost of possible options and wondering what to do next.

What should you do?

Disputes can be avoided by making sure everyone understands exactly their clearly-defined obligations in your contract . Given the nature of construction projects, it is impossible to ensure that disputes never arise.  But by taking simple steps to ensure you fully understand your contract (first post), you keep accurate records (second post) and you have a well-drafted dispute resolution clause (above), you will be well placed to deal with any dispute which arises swiftly and cost effectively.

If you would like more tips, techniques and tools to help you avoid disputes, Susannah and Sarah can deliver an interactive practical in-house workshop focusing on your contracts, your projects and your business. Just get in touch.

Susannah Lee, consultant solicitor specialising in the construction and engineering sector (susannah@sjleelegalservices.com)

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