Parties to a construction contract have a right to refer disputes to adjudication and everyone has a right (although not necessarily the means) to go to court. There are no such rights for alternative forms of dispute resolution (ADR): parties must first reach agreement if they want to use, for example, arbitration, expert determination or mediation.

That agreement is best sought up front, in contract negotiations, while the parties are keen to make their trading relationship work. It is much harder to agree an ADR process if arguments start later in the project. That is one of the reasons why standard form contracts include tried and tested dispute resolution clauses (DR clauses).

Sometimes, it is necessary to amend DR clauses in standard forms or replace them with bespoke provisions to suit the project. However, if parties agree to amendments, they must think carefully about the wider consequences – especially where there are, or is a risk of, multiple disputes.

Irish case K & J Townmore Construction Ltd. v. Kildare and Wicklow Education and Training Board [2019] IEHC 666 (K&J) is a good example of an amended DR clause having unintended consequences. In K&J, the employer and contractor’s building contract had included DR clauses providing for conciliation and arbitration. When disputes arose, the parties agreed in writing to refer some (not all) to an expert for determination (the Agreement).

The expert issued a number of determinations. The employer, unhappy with the expert determination process, rejected the expert’s jurisdiction and purported to withdraw. The expert decided the employer could not do this on a unilateral basis and proceeded to find the employer in debt to the contractor. The employer refused to pay, arguing that the expert’s decisions were not final and should be referred to arbitration. The contractor argued that the Agreement had disapplied both the conciliation and arbitration procedures.

The judge had to consider the effect of the Agreement on the original arbitration agreement. This involved considering the proper interpretation of the Agreement. Unfortunately, neither the parties nor the expert had made reference to the effect of the Agreement on the arbitration agreement. On the facts, the judge concluded that the parties had agreed that the expert’s determinations on the disputes referred to in the Agreement would be final and binding: they had intended to disapply the conciliation and arbitration clauses. The determinations could not be referred to arbitration.

Tips to consider if amending a DR clause:

• Review the appropriateness of DR clauses at the start of the project.
• Remember that the English and Welsh courts respect commercial agreements freely made – including how to resolve disputes − and endeavour to uphold them in court.
• Amendments to a DR clause are binding contract variations. Draft them clearly and in writing. Pay as much attention to the knock-on effects of amendments as you would were you amending, say, payment notice clauses.
• Be specific about whether a proposed ADR process will apply to the current or all disputes. Does it supersede the current DR provisions? Will the decision be binding or capable of being appealed/reviewed in another forum?
• On large projects, do not lose track of the big picture. A change of approach on one, minor dispute could affect how the others are handled.

If disputes arise, well-drafted DR clauses enable parties to spend their time, energy and money on the substantive issues − not the procedure for resolving them.

This article was first published in Construction Law. To subscribe to Construction Law, click here: www.constructionlaw.uk.com.