Conciliation, adjudication and arbitration options in small building contracts – or court proceedings

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    Often small building contracts provide for three alternatives to litigation through the courts: conciliation, adjudication and arbitration.

    Conciliation is a process similar to mediation used in the construction industry whereby a conciliator seeks to facilitate a settlement between the parties. The conciliator (who under the contract can often either be agreed between the parties or appointed by the Federation of Master Builders in the absence of agreement) does not decide any issues of law or fact but conducts a process whereby each party states its position and then attempts to work towards a compromise. Any settlement achieved is then set down in writing in document binding upon the parties as a new contract. The costs of conciliation are the time of the conciliator and the venue for the conciliation. Parties do not have to be represented. Conciliation can only take place if both parties so agree, whether in the contract or after a dispute arises. Conciliation can be an effective way of reaching agreement over eliminating some of the parties’ more unreasonable requests.

    Adjudication is a more formal mechanism for dispute resolution that is designed to be quicker and a cheaper than arbitration or litigation. A third party adjudicator, usually a technical expert in the relevant field, decides the (generally factual) issues between the parties. Adjudication has a statutory basis under s.108 of the Housing Grants, Construction and Regeneration Act 1996. The adjudicator’s decision is binding upon the parties and may be the subject of appeal or enforcement in the courts.

    Finally, arbitration is the most formal of the three alternative procedures. It works very much like litigation (it is normal for parties to be legally represented). It is not necessarily quicker or cheaper than litigation and involves much of the same procedure (the production of statements of case, written witness evidence etc.). The main differences are that it is conducted in private, that the parties are free to agree procedural rules between themselves, and that the tribunal consists of arbitrators chosen (and employed) by the parties themselves. Arbitration has a statutory basis under the Arbitration Act 1996, which makes the decisions of tribunals (known as ‘awards’) enforceable in the courts. They are subject to very limited rights of appeal (generally only if the tribunal has made a mistake as to the law or there has been a serious procedural irregularity). Arbitration is often provided for in contracts as a binding alternative to litigation. It is otherwise available only if the parties agree.

    In many cases, there is no obvious advantage for a claimant in opting for arbitration over a fast track trial. 

    Humphreys & Co. 13.04.2011