Construction Disputes in Ireland and ADR Options

Mark Kehoe Director Contact

 

This article focuses on the favoured forms of alternative dispute resolution “ADR” in Ireland and identifies reasons for the varying appetites of the protagonists for each option.

The construction market in Ireland is buoyant, and has experienced year-on-year growth since 2012, when the industry began to emerge from the banking crisis of 2008. Initially, a demand for modernisation and/or rebuilding of commercial office space fuelled the recovery and currently a push to redress a serious deficit in housing stock (a problem common with most of Europe) is responsible for continued demand.

The Irish construction industry was worth £23 billion to the economy in 2023 (down from £ 27 billion in 2022) but is forecast to grow by a further 5% in 2024. This is obviously a small fraction of the value of the industry in UK at £109 billion in 2023, but, to put the numbers in some context, the UK value equates to approximately £1,600 per capita compared to £4,600 per capita in Ireland.

Like the industry in UK there is invariably a resource limitation in the market – whether it be:

• a lack of skilled trade caused by a fall off in the numbers training (or indeed the emigration of those already skilled) due to a previous contraction or recession in the industry, or,
• supply chain issues for plant and materials both manufactured and raw

As a consequence, there is a limited level of quality resource in the market at any one time and the availability of the right resource is a major consideration when development potential is being appraised.

Both DGA staff in the new Dublin office have experience of working in other jurisdictions – UK, Australia, Hong Kong, South Africa and the Middle East. The apparent willingness in these countries to engage in adversarial dispute without overly considering the effect on future potential for commercial arrangements with the other party is in marked contrast to the scenario in Ireland. The markets are vastly bigger and the options for choice much wider – but in Ireland, the playground is too small.

Whilst Employers in the Irish market will consider the availability (and existing workload) of preferred contractors and likewise Contractors (especially) with sub-contractors when scheduling works – serious consideration will also be given to the course of action when a contract is in place and a dispute arises. The desire to maintain a relationship with a worthwhile performer must be balanced with protection of a business. The consequent preference for structured Conciliation and Mediation (and old fashioned negotiation) has worked in the past and for the moment sustains but, the pressures in the market are mounting.

The rise of interest rates together with the preference of many to work from home has left a number of high value hi-tech office developments complete or nearing completion in 2024/25 without any sign of rental income.

According to some sources, the current preference for “non-adversarial” and cheaper dispute resolution will be challenged and according to one well-placed legal source “the walking zombies in the market are evident” – meaning agreements made post Covid in respect of loss arising from inflation are unsustainable and on the other side, Employers have little resource with which to re-negotiate those agreements.

As Brian Hutchinson – Associate Professor of Construction Law at University College Dublin offered at a recent CIArb conference, the challenge for all will be to “find the forum to fit the fuss”.

Overview of dispute in Ireland

Globally, it is evident that the number of new construction related disputes being referred to the International Centre for Settlement of Investment Disputes (ICSID) has more than doubled in the five years to 2023ⁱ.. One reason for the increase is the complex nature of construction projects as governments around the world invest in major infrastructure projects, which only adds to the already technical nature of construction disputes with an industry battling with significant resource constraints.

In Ireland, it is no different, the trend is similar with the number of cases referred toⁱⁱ Construction Contracts Adjudication Panel quadrupling since 2018ⁱⁱⁱ.

When construction disputes arise, determining the forum and type of alternative dispute resolution is critical. Dependant on contract terms, relationship, cost and time are all factors to determine which “tool” or forum is best placed to fit the fuss.

Types of ADR

Most construction contracts contain dispute resolution clauses. In the context of the Ireland construction industry, one must consider the varying types of ADR available to parties, predominantly these are:

• Negotiation with expert reports (Early Intervention)
• Mediation – could be non-binding and on a without prejudice basis where a mediated outcome is derived from the parties.
• Conciliation – the parties may use the assistance from a conciliato of a reasoned recommendation.
• Adjudication – Statutory process referred to as the Construction Contracts Act 2013. Award is temporarily binding until returned in Arbitration or Court; and
• Arbitration. In Ireland, we don’t have a Technology and Construction Court (TCC) like the UK or other jurisdictions. As a result, the Ireland judiciary resources would be strained for a protracted hearing on complicated construction disputes.

Conciliation

To ascertain what is the most appropriate ADR method to fit the fuss, Ireland appears to have a large focus and a typical contractual mechanism, referred to as Conciliation. Conciliation is a consensual method of resolving disputes. Its primary purpose is to reach an agreed settlement (which is the sole purpose of mediation). Where agreement is not possible, the Conciliator issues a recommendation for the settlement of the dispute, which either party may reject within a defined time period. Where either party rejects the Conciliator’s Recommendation, within the allowed time period, the process has failed and the dispute is unresolved – through a rejected recommendation, this may be the catalyst to further negotiation towards a settlement. If neither party rejects the settlement the Conciliator’s Recommendation within the allowed time, the Recommendation becomes binding and enforceable^iv.

Is Conciliation the most appropriate ADR mechanism?

1. The success rate is very high and the vast majority succeed in resolving the dispute. Unlike mediation, the process has a further phase when the Conciliator must issue a Recommendation.
2. Conciliation is low-cost and quick if managed correctly. Legel representation is not a requirement.
3. A consensual resolution can maintain a relationship in comparison to an imposed resolution.
4. If the contract is not complete, Conciliation is a useful tool to maintain the relationship between the parties, in contrast to adjudication and arbitration.
5. The main difference between Mediation and Conciliation is Conciliation has a fallback whereby a Recommendation is made. This is predominant when both parties genuinely may not have the best interests to resolve the matter. Mediation is intended to be voluntary whereas Conciliation is typically mandatory in contracts.
6. Should Conciliation fail, the typical contractual fallback is arbitration and/or litigation. Where other methods have failed, both arbitration and litigation have the advantage to impose a final resolution, albeit they are generally slow and expensive processes.
7. Conciliation is very flexible and can be adopted to suit the flexibility of the dispute.

As Conciliation, Negotiation and Mediation are a relatively “lighter” band of ADR, we have also looked at the pros and cons of Arbitration and Litigation.

Advantages of litigation over arbitration

Right of Appeal – If a court case is lost that a party feels that they should have won, a right to recourse through appeal exists.

By contrast, a notable drawback of Arbitration is the limited ability to appeal Arbitration decisions. Unlike court cases, where decisions can be appealed to higher courts, Arbitration awards are typically final and binding other than if generally the Arbitrator makes a legal error or misinterprets the evidence, it can be challenging to have the decision overturned.

Cost – A further consideration in choosing to litigate rather than seek Arbitration might be cost. While Arbitration as we know it in Ireland emerged originally as an alternative to the costly process of Litigation, it has become just as costly (through its legal reference to the rules of evidence and process of discovery) and arguably more so when one considers that the ultimate decision maker in Arbitration must (unlike litigation) be paid by the parties.

Co-operation – A successful and efficient Arbitration process relies amongst other things upon the co-operation of the parties to the process and the extent to which they are willing to abide by the direction and procedures prescribed by the Arbitrator.

One reason to choose Litigation over Arbitration is where an opposing party is uncooperative or unwilling to engage in Arbitration.

In such cases, the court system provides a means to compel the other party to participate and follow through with the legal process.

Advantages of Arbitration over litigation

Technical Expertise – Typically and in Ireland, an Arbitrator has experience in the specific merits of a construction claim. In the absence of a specialist court in Ireland similar to the Technology and Construction Court in the UK, the Arbitration route can be appealing as the judge even in the Commercial Court may not have specific expertise in the field of engineering and construction (or worse a misconceived appreciation of only some of the technical aspects).

Confidentiality – Some parties may value the confidentiality and expediency of Arbitration over the prospect of the performance of their obligations within a construction contract to become public knowledge.

Cost – As the principle of “costs follow the event” applies in Arbitration, the parties to the building contract are forced to carefully consider their actions and determinations during the currency of the contract as they may one day come under scrutiny by an Arbitrator.

During the Arbitration itself the realisation by one party that they may have to pay the cost of the opposing side(s) can often lead to negotiated settlement of matters and this should be considered a success for this particular ADR process.

Flexibility of the Dispute Resolution process – the Arbitration process can be more flexible than Litigation. The parties can decide where they want hearings to take place and have input into when these will be dealt with. They can also agree on the volume of written submissions, utilise technology as they wish for matters such as document storage and virtual hearings and decide on the number of conferences that will be held prior to the hearing.

Med-Arb – Arbitration costs can be reduced can be less costly when a hybrid approach is adopted. “Med-Arb” for example is a combination of Mediation and Arbitration and has proved beneficial in certain circumstances. This approach allows parties to attempt mediation first and then proceed to Arbitration if Mediation fails.

A key advantage of this process is that the parties will discover where an impartial third party might identify the merits of the arguments of each party to the dispute – prior to embarking blindly in arbitration without proper consideration of the perspective of the opposing parties.

Conclusion

The Irish construction industry is an important contributor to Ireland’s economy and has experienced significant growth in recent years. The industry therefore has challenges it faces, including skills shortages, rising material costs, onerous regulation requirements, and access to finance, to ensure its continued growth and success.

With those constraints, an appropriate ADR decision is important to consider, as Ireland’s construction market is a different market to the UK and Europe and naturally dependant on the circumstances, but the forum to fit the fuss could be summarised in the following brackets:

1. Negotiations via executives (under Contract or otherwise);
2. Mediation / Conciliation (dependant on the intent to preserve relationships)
3. Adjudication (we have not expanded – for the next article!)
4. Arbitration and Litigation.

Commencing from (1) to (4) is typically the range in both cost and time starting with the least intense form to the most forceful type of ADR.

The unique nature of Ireland’s market lends itself to a less intrusive type of ADR and that is why Conciliation is (and we suggest will remain) a dominant choice ultimately to preserve relationships due to the closer knit industry.

References

i https://icsid.worldbank.org/resources/publications/icsid-caseload-statistics
ii https://enterprise.gov.ie/en/construction-contracts-adjudication-service/annual-report/
iii The seventh Annual Report covers the period from 26 July 2022 to 25 July 2023 and a copy of the report is attached below.
iv Conciliation of Construction Industry Disputes by Dr. Brian Bond