November 8, 2021
Few disputes are as complex and multifaceted as those arising out of the construction industry. This can be a result of the industry’s peculiarities, characterised by the adoption of multilevel subcontracting systems, involvement by multiple contracting parties and stakeholders, variable contractual arrangements and payment methods, power imbalances, the scale of projects, and the pervasion of highly technical knowledge and expertise. Given the sophisticated nature of construction disputes, specialised and bespoke dispute resolution mechanisms may be of pivotal importance to the satisfactory settlement between parties.
A creature of contract, tiered dispute resolution clauses (TDRCs) serve to facilitate a bespoke dispute resolution strategy, ensuring issues are carefully evaluated and overcome as they arise. In its most simple form, TDRCs provide a sequence of resolution methods, with each tier more formal than the previous. Alternatively, it can provide tailored pathways for different types of disputes (for example, high value vs low value; technical vs non-technical). Through meaningful and conscientious drafting, TDRCs can provide intelligent, reliable and effective dispute resolution strategies. Its goal: ensuring disputes are addressed quickly and informally so that problems are solved before they get out of hand, ensuring working relationships are protected and time and money is not wasted.
Utmost appreciation for the individual needs of each and every project is the common thread throughout this article series. As the third and final part of the series, this article discusses the function, advantages, and pitfalls of TDRCs.
TDRCs – What Are They?
TDRCs set out a series of alternative dispute resolution strategies that parties must rely upon prior to commencing formal legal or arbitral proceedings. These strategies may include reliance upon:
- discussions and negotiations between different levels of staff;
- expert determination (ED);
- dispute avoidance boards (DABs);
- mediation; and/or
- arbitration.
The parties may decide during contract negotiations the form of dispute that is to go before each resolution strategy. Alternatively, it may be that disputes beyond a prescribed value are permitted to bypass “softer” strategies for consideration through to “harder” strategies, such as arbitration. To what extent decisions are final and binding or capable of being challenged is also to be defined by the parties. This places the resolution strategy solely in the hands of the parties, who ultimately know the project and its imminent challenges best.
Top 3 Practical Drafting Tips
To be enforceable, a TDRC must be clear and certain as to the parties’ intention to be bound by an obligation to undertake the defined resolution process before commencing any formal proceedings. As such, a well drafted TDRC should:
- Set out clear, ascertainable time limits and procedures for each step in the ADR process – whether that involves discussions, ED, or DAB, it should be clear to the parties at what point each step has become exhausted thereby triggering the next step in the process, and how each step is to be taken. This means setting out what is expected in terms of any negotiations;
- Make clear whether each step in the alternative dispute resolution process is mandatory and not taken by either side, it will prevent that party from taking any further steps or commencing legal proceedings; and
- Expressly preserve the right to seek urgent interim relief from the court. In some situations, a party may need to obtain an injunction or another form of interim relief pending the outcome of attempts to resolve their dispute. A carefully drafted TDRC should contain an express carve-out allowing the parties to seek relief where necessary and even before any resolution strategy or formal legal process has started.
While TDRCs are praised as a flexible and reliable dispute resolution strategy, it is important parties consider its advantages and disadvantages before enshrining one into contract.
Advantages of TDRCs
- Firmly places alternative dispute resolution strategies “on the agenda”;
- A means of ensuring parties communicate and settle disputes amicably so that their working relationship might continue to function, and focus can remain on achieving practical completion;
- Facilitate the use of problem-solving methods of alternative dispute resolution which can minimise disruption to business and projects; and
- Implementing TDRCs can have very few upfront costs but offer a significant potential upside in terms of savings.
Pitfalls of TDRCs
- If inadequately drafted, discrepancies can result in further satellite litigation;
- If they are no more than an agreement to agree, they present difficulties for the parties to decipher are deemed too uncertain for the courts to monitor and enforce; and
- May compel the parties to participate in a collaborative process even where the relationship between them has disintegrated, operating as a roadblock to litigation and an arduous process.
Ultimately, TDRCs provide parties with strategic control over the dispute resolution strategies available to them throughout a project’s lifetime. With careful and meaningful drafting, these strategies serve to instil confidence in the parties that disputes, if and when they arise, will be swiftly and effectively managed. This allows focus to remain on what is most important: achieving practical completion.
LPC Lawyers
The LPC Lawyers team have a wealth of experience to assist across contractual drafting and dispute processes. Through providing clients support across the duration of a project’s lifecycle, we can assist in ensuring a project’s successful and efficient delivery.
If you have any questions or concerns about your current or future projects, please do not hesitate to contact LPC Lawyers for a discussion on how we can assist.
The contents of this article is for information purposes only; it does not discuss every important topic or matter of law, and it is not to be relied upon as legal advice. Specialist advice should be sought regarding your specific circumstances.
Contact: Peter Lamont or Brigitte McLeod
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