Dispute resolution under the subcontract

In addition to negotiation, four  methods of dispute resolution exist under the JCT Standard Building Sub-Contract (SBCSub):

• mediation
• adjudication
• arbitration and
• litigation.

The subcontractor has ten days from issue of the final payment notice to challenge any of the following issues or else the notice becomes conclusive:

• quality of any materials or goods or of the standard of an item of skills that had expressly been reserved for the approval of the architect/contract administrator
• valuation of the subcontract works
• subcontractor's entitlement to extensions of time
• subcontractor's entitlement to direct loss and expense or
• contractor's reimbursement entitlement.

If proceedings of any kind have already been issued prior to the final payment notice, those proceedings must be progressed within 12 months of the final payment notice in order for the notice not to be deemed conclusive on the matters referred to in the proceedings.

Mediation

Mediation is recognised under the  SBCSub/C and the SBCSub/D/C as a means of dispute resolution and is a voluntary method.

Mediation involves a neutral third party (the mediator) who takes the disputing parties through the following stages to encourage a flexible resolution to the issues in dispute:

• introduction
• exploration and objective self-evaluation
• negotiation and
• settlement and conclusion.

On reaching agreement through mediation, the disputing parties can opt to have their agreement reflected in the terms of a legally binding contract.

The only commercial pressure to use mediation as a form of dispute resolution is that it is the quickest and cheapest form of dispute resolution, usually taking only a day. The process involves the parties' time, the mediator's costs and the venue and travel costs but can involve a resolution that is more than simply a monetary order. For example, an agreement reached through mediation may include a discount on future work or a side sell that benefits one of the parties. A monetary order is the only order obtainable from any other form of dispute resolution. Therefore, the mediation process is more flexible.

Disputing parties are encouraged by the UK courts to resolve their dispute before instigating litigation. This is through the threat of onerous costs sanctions for lack of participation, without justification, in mediation before seeking redress via litigation.

Adjudication

Adjudication is a product of the enactment of the Housing Grants Construction and Regeneration Act 1996 whereby all qualifying construction contracts must comply with the Act by incorporating a mandatory adjudication process for the resolution of disputes. If the qualifying contracts do not comply with the Act, the Scheme for Construction Contracts (the default mechanism contained in the statutory instrument regulations) will be automatically implied. The ‘the Local Democracy Economic Development and Construction Act 2009 and the corresponding Scheme also apply.

The SBCSub/A and the SBCSub/D/A incorporates adjudication, which states that the Scheme rules must apply, subject to the following conditions:

• The adjudicator/adjudicator nominating body must named in the subcontract particulars. Where no adjudicator has been named and no nominating body has been selected, then the referring party may select any one of the nominating bodies listed in the subcontract particulars.  
• If the dispute or difference relates to the  instructions to open up for inspection or to test any further similar non-compliant works and whether a direction issued under that clause is reasonable in all of the circumstances, then to decide such a dispute the adjudicator must (where practicable) have appropriate expertise and experience, or appoint an independent expert with such expertise and experience.

The adjudication process has the following special characteristics:

• adjudicators are not bound by previous adjudication decisions
• the issue between the parties must be in dispute, i.e. the parties must be able to establish disagreement on the issue or procrastination by one party rather than simply a lack of response by one party to an overaggressive assertion by another party
• the adjudication can only resolve one dispute – although case law has made it clear that one dispute may consist of several issues, but each adjudication cannot consist of more than one dispute without both parties' consent
• the adjudication process is confidential
• the adjudication decision is made in 28 days (or such other time period as the parties may agree) and the adjudicator is free to set the timeline and rules of the adjudication in that 28-day (or such other extended) period
• adjudication is an interim decision and therefore the adjudicator could make the wrong decision in both fact and in law provided that they answer the question referred to them.

The notice of adjudication is vital as it sets out the dispute and the confines of the adjudicator's jurisdiction, i.e. the adjudicator can only answer the question they are asked in their decision, to do otherwise is to exceed their jurisdiction. Part 1(3) of the Scheme states the notice of adjudication should set out:

• details of where and when the dispute has arisen
• the nature of the redress sought and
• the names and addresses of the parties to the contract (including any addresses specified for purposes of notices and adjudication).

The adjudicator is usually appointed based on the JCT Adjudication Agreement although this is not mandatory. A different form of adjudication agreement could be used if the parties wish.

Because the adjudication is a contractual process, where an adjudicator's decision is not adhered to, this represents a breach of contract. An adjudication decision is an interim measure and if not complied with needs to be enforced through the courts. It is common for adjudications to face the threat of jurisdictional challenges (from the responding party) to undermine the enforcement process. However, unless the jurisdictional challenges are raised by the parties at the appropriate time and have substantial merit, in most cases they are given short shrift by the courts.

If an adjudicator issues a decision post-final payment notice and one of the parties wishes to have the issue determined by arbitration or litigation, it must launch its subsequent proceedings within 28 days or the adjudication decision will become finally binding on both parties.

Arbitration

The SBCSub/A and the SBCSub/D/A specify  whether arbitration will apply to the subcontract. Arbitration is not applicable unless agreed to by both parties, i.e. unlike adjudication it is not statutory backed and therefore a mandatory dispute resolution mechanism for the subcontract.

Arbitration, as with adjudication, is a contract-based method of dispute resolution that utilises a third party, the arbitrator (usually with relevant technical expertise), to hear the dispute(s) and issue a judgment in the form of an award (except that an arbitration award, unlike an adjudication decision, is final). In that sense, arbitration has the judicial characteristics of litigation and often carries similar time and monetary costs. The costs of arbitration are often substantial. However, like adjudication, arbitration is private and confidential.

Where a party tries to go to litigation, the other party may apply (under section 9 of the Arbitration Act 1996) for the litigation to be stayed.

The arbitrator can set the proceedings and timing that is convenient for the parties subject only to the Arbitration Act and the rules of the JCT Construction Industry Model  Arbitration Rules 2024 (CIMAR) specified for use within SBCSub and can hear multiple disputes arising out of or in connection with the subcontract.

Litigation

The starting point under any UK litigation relating to construction disputes is the Pre-Action Protocol for Construction and Engineering Disputes invoked under the Civil Procedure Rules. This guides the parties on how they should conduct their proceedings prior to commencing litigation.

The Civil Procedure Rules provide that under the 'overriding objective', and regardless of the type of dispute, where there exists no justifiable reason not to do so, parties should attempt to resolve their dispute first by alternative dispute resolution. In most cases this equates to the parties attempting to resolve their dispute via mediation before recourse to litigation. This is the why the JCT 2024 suite of contracts has included express reference to mediation.

However, it can be argued that if the Pre-Action Protocol for Construction and Engineering Disputes is followed correctly and amicably by both parties, there should be no need for mediation as the overriding objective will have been fulfilled in the pre-action steps promoted by the Protocol.