Contractual disputes arise due to a series of factors, combined in various ways to produce arguments and disagreements.
A dispute is a difference of opinion or disagreement between parties to the contract.
A dispute exists if there is a claim or position on an issue by one party and its denial by the other party.
Methods of Dispute Resolutions
Litigation – in courts
Alternate Dispute resolutions (ADR) – Conciliation
– Mediation
– Adjudication
– Dispute Adjudication Board (DAB)
– Arbitration
Litigation vs. ADR
| Litigation | ADR |
| High cost and time | Low cost and lesser time |
| Open to public | Private |
| Place of inquiry decided by the state | Place decided by the parties |
| Time of inquiry decided by the state | Time decided by the parties |
| Judges are appointed by the state | Selected by the parties |
Factors affecting disputes
- The terms of the contract
- The technological issues of site and works
- The character of project personnel
- Environmental factors
- The legal basis of the argument, etc.
Disagreement often arises over technical questions. For example, the use of different and unfamiliar techniques or methods may be the cause of disagreements and arguments. The site condition is also often a source of argument. Although at the time of the site visit, everything above ground level is visible, it can hold many surprises once excavation starts.
Whose responsibility to resolve disputes?
To find out the answer to this question, one has to look at the clauses in the contract.
- Should any dispute, which arises out of a construction contract, must be resolved by courts or at arbitration?
- Whether an arbitration agreement is included in the contract or not.
It must always remember that contracting parties can alter the terms of their contract at any time by mutual consent.
A variety of techniques is available for the parties to form a settlement without resorting to arbitration or litigation.
These procedures are informal. The terminologies used to describe them are somewhat loose and unclear. However, they are cheap and nonbinding.
Mostly used non-binding ADR methods are as follows;
Conciliation
The conciliator must be independent of the parties to contract. The purpose of this process is to agree with persuasion. Therefore, impartiality is an essential factor. Conciliators do not take sides. Also, they do not take decisions or make judgments. They talk to each party in private and will not reveal anything to the other party. The conciliator may bring the parties together for an open discussion, which he leads. The conciliator will be seeking to establish common ground, ascertaining the facts, which are in dispute. However, ultimately parties themselves have to reach an agreement.
Mediation
This is an extended version of conciliation. The initial stages will follow a similar process. The mediator consults first with one party and then with the other party. The end is different from conciliation. If no negotiated settlement results from the process, the mediator will make recommendations to settle the dispute, based on his findings. The mediation process retains the flexibility of conciliation. However, it encourages a slightly more interventionist role for the mediator. Therefore, it tends to be less open-ended. The mediation process does not expect any party to pull out. This process expects that both parties will accept the decision of the mediator.
Adjudication
Most conditions of contract require the engineer to act impartially. Concern has often been expressed that this may conflict with his other role as the agent of the employer. This has led to the creation of a technique for the resolution of disputes known as adjudication.
The contract provides that disputes over certain matters be referred to an independent adjudicator. This person is expected to make a quick decision on the matter, which the parties agree to treat as temporarily binding but their eventual rights as determined by arbitration or litigation. The prime objective of this procedure is to enable continuing rather than holding it up until rights and obligations can be finally determined. The basis of this system is for the duration of the contract there is always a person available to whom a dispute can be referred.
This decision is not legally enforceable in the sense that the decision of a judge or arbitrator is enforceable. By signing a contract, which includes a provision of adjudication, the parties are indicating that they intend to accept the adjudicator’s decision.
Dispute Adjudication Board (DAB)
This method is used in very large contracts. The persons in the DAB are called “Members”. There are one or three suitably qualified persons in a DAB. Each of the members shall be fluent in the language for communication defined in the contract. Also, they shall be professional and experienced in the type of construction involved in the works and with the interpretation of contractual documents. If the number of adjudicators in the DAB is not stated, the DAB shall comprise three persons. And, one of the adjudicators shall serve as chairman.
With the mutual agreement of both parties, the appointment of any member may be terminated. But, the Employer or the contractor alone cannot remove members. If not agreed mutually by both parties, the DAB shall expire when the discharge shall have become effective.
There are so many factors that may initiate a dispute between parties. A dispute may arise between the parties in connection with or arising out of, the contract. It may be due to the execution of the works, or due to a payment certificate, or determination, instruction, opinion, or valuation of the Engineer. If so, any party to the agreement may refer the dispute in writing to the DAB for its decision, sending copies to the other party and the Engineer.
Within 84 days after receiving such reference, or within such other period as may be proposed by the DAB and approved by both parties, the DAB shall be given its decision, which shall be reasoned.
The decision shall be binding on both parties. The parties shall give effect to the decision unless and until it is revised in an amicable settlement or an arbitral award.
If any party is dissatisfied with the DAB’s decision, then the party may, within 28 days after receiving the decision, give notice to the other party of its dissatisfaction. And, also they can express their intention to commence arbitration.
If the DAB fails to give its decision within 84 days, then parties to the agreement may give notice to the other party of its dissatisfaction and intention to commence arbitration. However, it shall be within 28 days after the expiration of 84 days period.
After the DAB’s decision, if no notice of dissatisfaction has been given by either party within 28 days after the DAB’s decision, then the decision shall become final and binding upon both parties.
ARBITRATION
Generally to follow arbitration the provision must be made specifically in the contract. ICTAD conditions of contract outline the procedure for the settlement of disputes;
“if the contractor believes that a decision taken by the engineer was either outside the authority given to the engineer or the decision was wrongly taken, the decision shall be referred to the adjudicator. The adjudicator shall give a decision within 28 days. Either party may refer a decision of the adjudicator to an arbitrator within 28 days of the adjudicator’s decision. If neither party refers the dispute to arbitration within the 28 days, the adjudicator’s decision will be final and binding.”
Arbitration is often more suitable than the court proceedings, because of the highly involved technical issues which have to be decided on, since it is usual to have as the arbitrator, a person with experience and knowledge of construction works.
Special features of Arbitration:
- Resolve dispute finally – cannot refer back to courts
- Is relatively quick
- Generally less expensive than full litigation- but not necessarily
- Is private and not open to public
Powers of Arbitrators:
The arbitrator has powers to:
- Open-up arbitration;
- Control proceedings-documentary evidence, oral question, presentations by parties;
- Order protective measures – parties are required to disclose any document which arbitrator or other party requires;
- Conduct hearing;
- Summon witnesses;
- Review engineer’s
- Decision;
- Opinion;
- Direction;
- Certificate;
- Valuation
Selection of Arbitrators
Arbitration Act of Sri Lanka allows the parties to determine the number of arbitrators. Where such determination is not made, the number of arbitrators shall be three.
Procedure for hearing
- Summon parties to preliminary meetings;
- Will listen to basic information about the dispute(s);
- Will disclose the way of hearing;
- Order one party to answer other parties questions;
- Order parties to lodge documents with him.
During the hearing
- will fix the date and venue of hearing;
- Will decide the order of hearing;
- Will order submission in writing when required;
- May order to submit a list of witnesses;
Unlike the judges, the arbitrator can ask questions himself.
After hearing
The arbitrator can take a reasonable time to consider his award. He can recall evidence and can refer to legal points. The arbitrator will deliver the written award to both parties.
Cost
The arbitrator’s fee is met by both parties.
Objection for Arbitration award
No party can object to the award made by the arbitrator(s). The arbitrator’s decision is final.
The only area that the award can be taken to court action is on the way of conducting the hearing of arbitration or the arbitrator is at a fault.
Arbitration Agreement
An arbitration agreement may be in the form of;
– Arbitration clause in the contract; or
– In the form of a separate agreement.
An arbitration agreement shall be in writing. When a party to an arbitration agreement, institute legal proceedings in a court against another in respect of a matter agreed to be submitted for arbitration, the court shall have no jurisdiction to hear and determine such matter if the second party objects to the court.
Composition of Arbitral Tribunal
The parties shall determine the number of arbitrators of an arbitral tribunal, subject to the provision in the arbitration agreement. When no such determination is made in the agreement, the number shall be three. Where the parties appoint an even number of arbitrators, arbitrators so appointed shall jointly appoint an additional arbitrator who shall be the chairman.
The parties shall be free to agree on a procedure for appointing the arbitrators, subject to the above, and include in the agreement.
Conduct of Arbitration Procedure
The tribunal shall deal with the dispute submitted, impartially and expeditiously.
The tribunal shall afford all the parties, an opportunity, of presenting their cases in writing or orally and to examine all the documents and materials furnished by other parties or any other person.
The parties can select and agree mutually on the place of arbitration. Failing such agreement, the place shall be determined by the tribunal.
Unless a contrary intention is expressed in the agreement, any decision made in the course of proceedings, by a majority of the tribunal and failing a majority, the decision of the arbitrator appointed by the other arbitrators, or when there is a Chairman, the decision of such Chairman, shall be binding,
Award
The award shall be made in writing and shall be signed by the arbitrators constituting the tribunal. For a tribunal consisting of more than one arbitrator, the signature of the majority shall suffice, stating the reason for any omitted signature.
A copy of the award is delivered to each party.
The award shall give the reason on which it is based.