Project1_Layout 1 07/05/2013 CONTRACTS IN FOCUS
Terminology found in
In this month’s article, David Jackson, solicitor and founder of the National Legal Consortium, poses the question: Why do lawyers use big words
Many of my clients know a great
deal about their chosen trades.
They can talk all day about
different specifications, tolerances
They aren’t lawyers and would never claim
to be, but unfortunately, modern construction
contracts require them to have some
knowledge of matters that really only lawyers
should know about.
This causes a problem. The typical subcontractor
is asked to sign a 30-page contract
and does not really know what he is signing up
to. Yet his entitlement to be paid for the work he
does is largely dependent on his fulfilling the
obligations set out in the contract.
Payment, termination and notification of delay
are all important terms that every sub-contractor
should understand as they enter a contract.
Other important terms deal with dispute
resolution and these need to be understood at
the start of a contract so that the sub-contractor
knows what he can do if his relationship with
the employer starts to fall apart.
So, what are the differences between litigation,
arbitration, adjudication and mediation? All these
terms feature in construction contracts and they
all mean different things. Choosing the right
method of dispute resolution is important as the
wrong method may effectively leave you without
Litigation is the name given to court proceedings.
Construction disputes are treated differently from
other disputes. They can be complicated and
expensive to sort out, so there is a dedicated court
called the Technology and Construction Court,
which hears construction cases.
Before proceedings can commence, parties
have to complete the Pre Action Protocol for
Construction and Engineering disputes. This
procedure is designed to settle disputes and
includes a mandatory meeting between the
parties and their advisors to see whether a
settlement can be achieved. A party can only start
court proceedings after the protocol has been
completed and the court may penalise a party that
starts proceedings in breach of the protocol.
Arbitration is a contractual dispute resolution
procedure. The parties agree to appoint an
arbitrator who acts as a judge to determine the
dispute between the parties. The arbitration is
conducted in accordance with The Arbitration
Act 1996 which sets out the powers of the
arbitrator. The parties to arbitration pay the
arbitrator for his time and this makes arbitration
more expensive than court proceedings.
There are three sets of fees to pay, two sets of
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– and what exactly do they mean?
lawyers and an arbitrator.
Arbitration is not suitable for lower value
claims, although there is a special 100-day
procedure for smaller value or less complicated
claims. Arbitration is very similar to court
proceedings, the parties set out their claims, they
disclose the documents on which they rely and
prepare statements of their case.
An arbitrator can deal with matters from
the documents prepared by the parties, or they
can hold a hearing. One important difference
between arbitration and court proceedings
is that arbitration is private and confidential,
and neither party can disclose the outcome of
the proceedings or anything connected to the
proceedings without the agreement of the other.
Adjudication is a relatively new dispute
resolution method and was devised to assist
the cashflow of small sub-contractors who
otherwise faced long and expensive disputes
with main contractors. Once a dispute has been
identified, the party with the claim, the Referring
Party serves a Notice of Adjudication on the
The notice sets out the dispute and the remedy
the Referring Party seeks. Once the notice
is served, the Referring Party applies for the
nomination of an independent adjudicator from
an authorised third party – usually RICS, RIBA
The adjudicator is appointed within seven
days of the date of the Notice of Adjudication
and then has 28 days to decide the dispute. He
can extend that time by a limited amount if
necessary. The adjudicator can direct that further
sums be paid to the Referring Party and can
apportion his fees between the parties on the
basis of their success in the adjudication.
Importantly, the adjudicator cannot require
one party to pay the other’s legal costs. This
means that a small contractor cannot be required
to pay the main contractor’s legal costs even
if it loses the adjudication. Although the subcontractor
will have to pay its own legal costs,
as adjudication is over in a few weeks and those
costs should be quite modest.
As both litigation and arbitration can take
well over a year to complete and can cost tens of
thousands of pounds, adjudication is a popular
and effective method of dispute resolution.
Mediation is the process by which parties to
a dispute appoint an independent mediator to
assist in the resolution of their dispute. There is
usually an initial meeting of both parties and their
representatives with the mediator when each party
sets out its position and answers questions from
the other party and the mediator. Then the parties
separate and the mediator spends time with each
party separately to try and broker a settlement.
Although the mediator has no power to make
any order or direct a settlement, I have found that
many matters settle at mediation. Although the
parties pay for the mediator’s time, the costs of
mediation are very small when compared to the
costs of litigation or arbitration.
If you have a legal query you would like
the National Legal Consortium to answer,
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