If your contractual relationship starts to deterioriate and it feels like a dispute is brewing, you may be able to rely on your contract. A good contract will provide a clear roadmap for how you can resolve any niggles, rows or disputes, while trying to keep your relationship from failing completely.
In my 500-word construction contracts we keep it simple:
If we cannot resolve a dispute amicably, either party can refer it to adjudication under the Scheme for Construction Contracts 1998/649 (amended), with <name of adjudicator nominating body> nominating the adjudicator
This provides a brief three-step process: negotiation (which is not imposed as lack of willing will undermine its efficacy), adjudication (which is required under English law for construction contracts, using the process set out in the Scheme) and then litigation (ie taking court proceedings). The contract doesn’t expressly refer to litigation as the final step because under English law it is not possible to oust the court’s jurisdiction.
However, I realise that whether the first of these steps is followed relies heavily on the willingness of the parties to continue to collaborate even in crisis. Sparsely drafted dispute resolution provisions – which are intended to encourage the parties to keep talking, including deciding how best to resolve a specific dispute, rather than being overly prescriptive – may not be always be enforceable by the English courts.
Clarity on the dispute process
A 2023 Court of Appeal decision on a construction contract reviewed whether the parties had to take their dispute to a form of alternative dispute resolution before litigating.
The bespoke terms of the contract included a form of dispute board (called a liaison committee) who were to consider the issues and provide a binding decision, although the board did not include any contractor representative. The Court of Appeal confirmed that the elements needed for a certain dispute resolution process included:
- a sufficiently certain and unequivocal commitment to commence a process
- the steps required by each party to start the process
- a clear process setting out the minimum participation required of the parties and
- when/how the process will be concluded.
One of the issues for the Court of Appeal was that the process was intended to impose a final and binding decision on the contractor, but it had no right of representation, no right to attend, no right to make representations and no right to see any documents.
This would result in a breach of a core principle of ‘natural justice‘ ie the right to participate in a process which makes decisions about you. A judge said it would be a pointless and an unenforceable process.
The court noted that:
- the process was not defined – and as a bespoke process it needed spelling out
- there was no commitment to engage in a specific ADR process
- the contractor was not obliged to – and had no right to – participate, so the process could not resolve a dispute with it
- it was unclear how any contractor dispute would be referred, when the referral to be board would be concluded and the effect of any decision on the contractor.
What should you do?
Take control of how you would like issues to be resolved, while recognising that certain steps may be mandatory in some of your contracts. If your dispute process is clear then you will be able to rely on it, even if it includes arm-wrestling!
Case: Kajima Construction Europe (UK) Ltd & Anor v Children’s Ark Partnership Ltd [2023] EWCA Civ 292
