Construction Insurance and UK Construction Contracts
Page 407
CHAPTER 31
Dispute resolution
Dispute resolution
31.1 It is inevitable that occasions will arise when an insured and his insurer will take different views as to the existence and/or extent of coverage of the insurance contract to which they are parties. This chapter considers the options that are available to resolve such disputes.The policy
31.2 The first question is whether the parties have agreed to, and/or defined, the process by which any dispute between insured and insurer is to be resolved. At the most basic level, the policy terms will usually make provision as to the law that governs the contract and which any disputes regarding construction should be determined in accordance with. However, it may also be the case that the policy provides for one of the following:- (1) that the parties engage in mediation.
- (2) that in the event of a dispute, the issue is referred to a third party for determination and the parties agree to be bound by that decision (so called “QC clause”);
- (3) that any dispute is referred to arbitration for its resolution;
- (4) that any dispute is to be determined by way of litigation (i.e. by commencing proceedings in the High Court or county court depending on value and complexity);
| Forum | Pros | Cons |
|---|---|---|
| Mediation | Confidential | Consensual: no requirement for either party to remain |
| Consensual - expectation that a deal will be done | ||
| Quick: mediation typically one day with minimal preparation | ||
| Comparatively inexpensive | ||
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Confidential | Potentially narrow: clause may not allow wider interests to be taken into account in deciding outcome |
| Issue determined by specialist counsel with detailed knowledge of principles | ||
| Cost effective and efficient | ||
| Arbitration | Confidential | Potentially expensive particularly if institutional arbitration |
| Limited ability to appeal, resulting in certainty | ||
| Litigation | If Part 8 claim, efficient and quick decision making process | Unless Part 8 claim, time consuming Not confidential |
| Specialist judges | Ability to appeal greater than that which exists in arbitration which can result in uncertainty and increased costs | |
| Issue fees considerably less than arbitration | ||
| Financial Ombudsman | Confidential during the process, although if an award not accepted, documents produced in the process can be referred to in later proceedings. | Need to be “eligible complainant” Claim value limited to £150,000 |
Mediation
General
31.3 Mediation is an assisted settlement process, whereby parties to a dispute agree to an independent third party (the mediator) seeking to broker a settlement between the parties. It can take place at any time; and, depending on the nature of the dispute, it may be that a mediation is more likely to result in settlement if timed to take place after disclosure, or exchange of witness statements or expert evidence. However, it may equally be the case that the dispute can be mediated before any formal dispute resolution process is commenced; or that mediation can follow the determination of a preliminary liability issue. 31.4 The key features of mediation are that:- 1 the parties control the outcome of the dispute through their negotiations, as opposed to having a decision imposed upon them, which is the inevitable consequence of embarking on any of the other routes to resolution identified above.
- 2 The process is consensual. A party cannot be compelled to stay at a mediation, such that if they become dissatisfied with the process they can leave - although a mediator will usually ask that if a party does wish to leave, it is discussed with the mediator first.
- 3 The process is entirely confidential. Matters that are discussed, or concessions that are made in the course of the mediation cannot be referred to later on an open basis (so they could not be mentioned in court) in the event that settlement is not achieved.
- 4
As the process is not constrained by the strictures of pleading, procedure or law it is inherently flexible such that the parties can explore options that may not be available at court.Page 409
Practicalities
31.5 In terms of practicalities, most mediations follow a similar format, which commences with a plenary session chaired by the mediator, where each party has the opportunity to make a statement to the other side. This will often be led by the party’s legal representative, but it is also common for the party to make a statement or express their feelings about the dispute to the other side.1 Each party will then break out into a separate room, in which private discussions will take place with the mediator. It is important to recognise that the function of the mediator is not to determine the relative rights and wrongs of the dispute: mediation is not an adversarial or inquisitorial process in that respect. The role of the mediator is to assist the parties in agreeing a commercial outcome of the dispute. 31.6 Mediations usually last one day, although in very complex or multi-party disputes they can run over two days. It is not unusual for agreements to be reached very late at night. Once an agreement is reached in principle, a formal document will be drawn up that records the terms agreed with the parties being asked to sign off before they leave. There is no “cooling-off” process: so a party needs to be clear on the matters it believes it has agreed. That said, as it is a consensual process a party is at liberty to leave the mediation, reflect on matters agreed and at a later date see if the other party is still prepared to sign up to the terms, or to ask the other side to hold the offer open for acceptance overnight. 31.7 Whilst mediation is a consensual process, should a party unreasonably or unjustifiably refuse to attend mediation that refusal can be sanctioned in costs.2 The clear message from the judiciary is that the importance and effectiveness of mediation should not be underestimated; and that parties should be slow to reject mediation. In Northrop Grumman Mission Systems Europe Ltd v BAE Systems (Al Diriyah C4I) Ltd, Ramsey J made the following observation as regards a case that turned on the construction of a licensing agreement:I regard this case as being like many cases, where points of construction are major issues at the centre of a financial claim. In all such claims a skilled mediator can assist the parties in resolving the dispute by finding a solution to disputes which each party would regard as incapable of being settled and would be unable to settle without such assistance.3