Following the Wembley Stadium litigation, in this article we examine the current trends in dispute resolution and consider the options available to construction professionals.

After £22 million in legal fees (including a £1 million photocopying bill!), two rounds of preliminary issues, two trips to the Court of Appeal, and finally a three month trial, Multiplex was awarded £6 million in damages in its dispute with Cleveland Bridge, the steelwork contractor for Wembley Stadium. With Multiplex being awarded only 20 per cent of its costs, as Mr Justice Jackson observed, the result of the litigation is that neither party has gained any significant financial benefit.

Does the Multiplex dispute represent a return to the old days of "trench warfare" litigation for the construction industry, or was it a one off? We examine the trends in dispute resolution below.

Adjudication

Adjudication remains the most popular method of resolving disputes in the construction industry. The adjudication process involves an independent third party (an "adjudicator") making a rapid decision (usually within 28 days) in relation to a dispute between the parties. The process is more informal than court proceedings, often conducted without any oral hearings. It is generally seen as a quick and relatively inexpensive process. The adjudicator's decision is binding subject to the parties' right to refer the decision to arbitration or the courts. Following the glut of appeals to the courts after adjudication was first introduced through the Housing Grants Construction and Regeneration Act (HGCRA) 1997, it is now rare for an adjudicator's decision to be challenged.

The number of adjudications (as reported by the Adjudication Reporting Centre) has generally fluctuated between 1,500 to 2,000 per year. There has been a slight reported decline over the last 12 months. This may reflect the concern we have felt in the industry over the quality of some adjudicators and their decisions and the fact that the process does not end up being as cheap as envisaged. The fact that the successful party generally cannot recover his costs from the loser, can make the process a painful one, which absorbs huge amounts of management time over the short term.

After a lengthy consultation process, the Construction Act 2008 is expected to come into force next year. This is expected to make significant changes to the adjudication process. In particular, it will no longer be a requirement for a contract to be in writing for it to be subject to adjudication. This is likely to lead to an increase in the number of adjudications (particularly on smaller projects where, frequently, written contracts are not entered into). It will also, no doubt, result in significant time and expense being incurred (at the front end) in resolving the precise terms of the contract under dispute.

The proposed new Act will also have an impact on the costs of adjudication. Currently, the HGCRA is silent on who pays the cost of adjudication and adjudicators have no power to make costs orders (unless the parties agree otherwise). As a result, many construction contracts require the referring party to pay all the costs of the adjudication, which discourages parties from using adjudication.

However, under the new Act, parties will not be able to agree who pays the costs of the adjudication until after the adjudicator is appointed. In addition, under the new Act, even if the parties agree on who pays the costs of the adjudication after the mediator is appointed, the adjudicator will have the power to decide the reasonableness of those costs.

Parties to construction contracts and their insurers will need to be ready for these changes. As construction professionals will be aware, the courts have held that claims against construction professionals can be adjudicated, provided the adjudicator is able to reach a fair decision within the time allowed by the parties.

Arbitration

In arbitration, the parties resolve their dispute by referring it to a third party (an "arbitrator") and agreeing to be bound by the arbitrator's decision ("the award"). The arbitrator will be a legal or technical expert, and may even be a judge. The benefits of arbitration are that it is usually final (and with limited rights of appeal) and enforceable by the courts, the proceedings and the award are usually confidential, the parties can elect the procedure for the arbitration, and the parties can decide what qualifications the arbitrator must have and how he or she will be selected.

However, arbitration can still be costly. You have to pay for the services of the arbitrator, which will be far more expensive than any court fees. There will usually still be requirements to exchange documents, submit factual and expert evidence, and have an arbitration hearing. It may be for these reasons that arbitration, like litigation, has fallen in popularity over the last 10 years. Institute of Civil Engineer ("ICE") arbitrations have fallen from 21 in 2000 to only three in 2007, and Royal Institute of British Architect ("RIBA") arbitrations have declined from 53 in 2000 to 18 in 2007.

The decline in popularity of arbitration was reflected in the JCT 2005 suite of contracts, where the default position is now that disputes are to be litigated through court proceedings, rather than arbitrated.

However, we predict a rise in the number of arbitrations over the next few years. In our experience, clients have felt that a streamlined arbitration process, with active case management by the arbitrator, can prove a more effective form of dispute resolution than adjudication. It provides a final solution, where costs can be awarded, and reduces the risks of going through the process all over again through the courts.

Dispute Boards

A Dispute Board is an impartial panel (combining a range of construction professionals from lawyers to engineers), appointed by the parties at the outset of a project. The panel visits the construction site periodically (for example, quarterly) to deal with any actual or potential disputes. Decisions made by the Dispute Board are temporarily binding (subject to challenge by court or arbitration proceedings). The decisions help the parties to resolve issues before they escalate into major disputes. However, decisions of Dispute Boards are not enforceable and their decisions can only assist the parties to avoid major disputes.

The construction contracts for the London Olympics provide the opportunity for parties to refer potential disputes to an Independent Dispute Avoidance Panel ("IDAP"), which is intended to perform a role similar to a Dispute Board. The IDAP is a 10 person panel that will deal with potential disputes, with a view to preventing claims from arising.

Mediation and negotiation

Mediation is the use of an independent third party (a "mediator") to improve dialog between the parties and achieve a resolution without recourse to proceedings. The JCT 2005 wording expressly provides for the possibility of resolution by mediation. Mediation is quick, confidential, and can encompass a variety of settlement options. However, it relies on agreement between the parties, so if the parties cannot resolve their differences, there will be no binding resolution.

King's College London has recently completed a survey designed to reveal the circumstances in which mediation is a real alternative to litigation for construction disputes. The final results will be published towards the end of this year, but the interim results reveal that about one third of claims that were commenced in the Technology and Construction Court ("TCC") but which settled, settled as a result of mediation. However, almost two thirds of those claims settled as a result of conventional negotiation.

Whilst there are a variety of mechanisms available to construction professionals to resolve disputes, the most appropriate method of dispute resolution will depend on the quantum and complexity of the dispute, the number of parties involved, and the terms of the relevant contract. In many circumstances, conventional negotiation may be the best and most effective means of dispute resolution.

Litigation

Traditionally, construction disputes were always litigated, usually in the TCC or its predecessor, the Official Referees' Court. Until recently, the number of claims issued in the TCC continued to decline steadily from 1,778 claims in 1995 to only 364 in 2005. However, the TCC's workload has increased over the last two years, with 392 claims issued in 2006 and 407 last year. The recent appointment of new, highly respected, judges to the TCC, and the ongoing development of the TCC services will, in our view, result in this trend continuing.

Do parties still insist upon having their day in court? Of the 407 claims issued last year, only 38 did not settle before judgment. The Multiplex and Cleveland Bridge dispute therefore remains the exception to the rule.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.