February 18, 2008

Construction Law

Dispute-resolution plan can help keep construction companies out of court, construction law experts say

Jean Sorensen

correspondent

Vancouver lawyers specializing in construction law say that having a good dispute resolution mechanism for project problems is a good way to stay out of costly court battles.

More construction companies, unable to solve their difficulties at a project level, are turning to mediating to gain speedy resolution and get back to work.

“Approximately 70 to 75 per cent of mediation cases are settled,” said Bryan Shapiro, QC, of Shapiro, Hankinson & Knutson Law Corporation, and a past chairman of construction law sections of both the Canadian Bar Association and B.C. Bar Association.

David A. Garner, managing partner of Alexander Holburn Beaudin & Lang LLP, said that construction companies want to stay out of court for a number of reasons.

“It’s better to move onto the next dime than fight over a nickel,” he said. “Things are just taking longer in court today – things that used to go three or four days can take up to 15 days.”

Time in protracted cases also translates into opportunities lost as companies have to divert resources into preparing cases and committing managers and executives to court appearances, said John Shevchuk of Lex Pacifica Law Corporation, also a construction law lawyer.

Shevchuk recommended clients put in a “referee provision” within a contract, which sets out a dispute resolution mechanism to be used by the company with several levels of in-house talks.

At the last level, the names of individuals with decisive power should be named in the contract.

“It can be the owner or contractor,” he said, adding that it may initially start with the architect or engineer.

One of the measures of a good internal dispute mechanism is that it has the means of bypassing stalemates at one level or personality clashes.

Shevchuk said that Canadian Construction Documents Committee (CCDC) forms also set out provisions for dispute resolution.

These CCDC documents are better than what used to be out there, agreed Garner, but they only form a base.

Every contractor should be ensuring that they fit their specific need and cover all situations that might arise.

Equally important, he said, is to revisit that clause if there is a change in the corporate structure.

There should also be a clear protocol for how disputes will be handled both inside and outside the company.

“You don’t just want a dispute over the project, but another one over how to settle it,” he said.

Initially, some people in the industry are reluctant to delve into this area.

“It’s almost as if they are superstitious – if you talk about it, it will happen,” Garner said.

The reality, he said, is that disputes happen on all projects.

“Building a hotel is different than building condominium units,” he said, adding that a project manager might handle all the contractors involved rather than the one general contractor.

The lawyers agreed that when parties can’t settle in-house, a good contract sets out whether mediation (the preferred route), arbitration (binding or non-binding) or litigation should be taken.

Shapiro said a benefit of mediation is that it is non-binding, without prejudice and the information in preparing the case can be used later if the dispute escalates.

Shevchuk said that the trend to move into mediation has deepened over the past five years.

Court action may be started “to catch the other parties attention” said Shevchuk. “(But) most court actions started today are ended before they get to court, arbitration or mediation.”

Mediation only works if both parties are going into it with view that they may be moved from their position, he said.

Shevchuk said he has worked on cases where two years were spent preparing a case for a trial expected to take two months.

Both sides finally agreed to mediation with a skilled industry mediator before the court date.

“In two days, the whole thing was done. They had resolved their differences through mediation in a fraction of the time it would have taken in arbitration or court,” he said.

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