In part 1, Building and Construction and Dispute Resolution Special Counsel, Daniel Morris, and Director, Murray Thornhill pointed out some of the problems that may be caused by civil and construction contractors’ uncritical adoption of standard contract terms that are in common use and suggested alternatives that many in the industry may regard as a better fit. The discussion now continues, with a focus on alternative dispute handling clauses and time bars that civil and construction contractors often accept without being aware of the harm that these provisions can cause.
Alternative dispute resolution
Almost every present-day civil or construction contract makes some kind of provision for arbitration or expert determination. Unless you are doing business across national borders, here are the reasons to avoid these alternative dispute handling processes:
- It is common for several parties involved in a civil and construction contract to have contributed to one defect or delay. Examples include fellow contractors, design and engineering consultants, and suppliers or manufacturers of faulty materials, plants, and equipment. Because arbitration is a private, contractual process, though, only the other party to a construction contract can be made to participate in an arbitration. This means that other contributors to the one-loss must be sued separately for their contribution. In most cases, having to run two parallel proceedings, one in arbitration and one in court, will weaken your position, both strategically and forensically, because it will prevent you from negotiating with all parties in the one mediation and proving every part of your case once and for all in front of one decision-maker.
- The idea that domestic arbitrations are cheaper than going to Court is a myth. In our experience, there is very little procedural difference between arbitral and court proceedings and despite the rules of evidence technically not applying in arbitrations, they are usually followed anyway, because they are essentially rules of fairness and due process. In terms of cost, there is one difference that actually makes arbitrations more expensive than litigation. That is: litigants enjoy the services of Judges, Registrars, and other Court staff at public expense (save for court filing fees), whereas parties to arbitration pay privately for every part of the service: case management, mediation, expert referral, hearing, and determination.
- Incorrect judgments are appealable. However, the right to appeal an incorrect arbitral award is very limited. It is so limited that in several recent cases, lawyers have tried to disguise an appeal (which is not allowed) as a complaint that the arbitrator had no power to make the wrong decision. Lawyers have been severely criticised for trying to circumvent the restrictions on appeals against arbitrators in this way. In those cases, if the contract had allowed the dispute to be taken to a court, this would not have been necessary.
Time-bars that are impossible to meet
- Contractors should not accept time limits for notifying of a qualifying delay event, that starts from when the event occurred. Contractors usually don’t find out that the critical path of their works has been impacted by a notifiable event until after the time for reporting that event has already expired under the contract. This makes it virtually impossible to meet such a time-bar. To make compliance possible, insist that the time limit to give the required notice starts from when you became, or should reasonably have become, aware of the qualifying delay event. Otherwise, you will almost certainly become liable to pay liquidated damages, even for delays that were not your fault and that you were powerless to prevent.
- Avoid contract terms whereby claims other than for price variations, extensions of time, and delay costs must be notified within short time bars that start from the date of the event that triggered the claim. By the time you find out that the event has happened and that it has caused you to suffer a loss, then make an appointment to see a lawyer who, after careful considerations of relevant facts and evidence, advises you that your employer may be held liable for that loss, the time-bar will almost certainly be long gone.
We will be sharing part three of the Principals and Contractors: Make Civil and Construction Contracts Work For You series soon.
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