Dispute Resolution

  • Appraising Contractors’ tortious liability under the tort of negligence.

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    Introduction

    In the recent consolidated cases of Paul and another v Royal Wolverhampton NHS Trust, Polmear and another v Royal Cornwall Hospitals NHS Trust and Purchase v Ahmed, the Supreme Court of the UK has held that a Contractor owes a duty of care to an Employer in relation to building defects-arising from design, construction or both. This type of duty is usually parallel to a contractual duty that the contractor will perform its works with due skill and care. The existence of this parallel duty of care may be vital in cases where limitation periods are concerned. As such, even when defects occur almost six years after the completion date which would ordinarily be statute barred under claims in contract in the UK and in Uganda, claims in tort can be brought forward. This was established in the case of Dutton v Bognor Regis UDC where claims that were previously time barred by limitation were allowed.

    However, it should be noted that claims in tort for negligence, negligent advice or negligent misrepresentation are open for some standard forms of contract, for instance the FIDIC forms of contract where Sub-clause 20.4 of the 1999 FIDIC forms of contract allows for disputes in connection with or arising out of the Contract or the execution of the Works. Ashville Investments v Elmer Contractors Ltd is authority for the proposition that a clause which covers disputes arising under the contract but also includes the words ‘in connection with’ should be given a wide interpretation and will cover related claims for rectification, negligent misstatement, and the like.

    The Negligence Equation

    For a successful claim in the tort of negligence, the claimant-often the Employer, must show: (1) that the Contractor owed them a duty of care; (2) that there was a breach of that duty; and (3) this breach resulted in recoverable damage. It is important for all these components of this negligence equation to be satisfied in order for such a claim to succeed.

    While considering the first limb of this negligence equation, we consider the leading case of Donoghue v Stevenson where it was held that a manufacturer of goods owed a duty of care to their final consumer. This case established the ‘neighbour principle’ which determines whether a duty of care is owed by the defendant in any given situation. In his obiter, Lord Atkin defined a neighbour in the law as a “person who is so closely and directly affected by my act that I ought reasonably to have them in contemplation as being so affected when I am directing my mind to the acts or omissions which are called in question.” Consequently, the requirements of foreseeability and proximity set out in the neighbour principle form the basis of finding duty of care. The fundamental concept of the neighbour principle underwent reformulation in Caparo Industries v Dickman. In this case, there was introduction of the consideration of whether the existence of a duty would be fair, just and reasonable. With this, Caparo introduced a third requirement that extended beyond the two earlier criteria that were set by Donoghue.

    In the appraisal of negligence, it is important to examine both negligent actions and negligent advice. Appraising negligent advice has particular application on design and build projects. When determining the duty of care for negligent misstatements, reference is made to the case of Hedley Byrne v Heller where it was held that a duty of care could exist concerning a statement leading to pure economic loss, if the parties were in a ‘special relationship’. Such a special relationship arises, in part, when one party exercises skill and judgement and the other party acts in reliance of this skill and judgement.

    Given that the Contractor is a neighbor to the Employer, the Contractor often owes the Employer a duty of care for both negligent acts and negligent advice in some cases.

    Breach of Duty

    After confirming the existence of a duty of care, the next step in proving negligence involves demonstrating a breach of that duty. To ascertain breach of duty of care, it is necessary first to identify the standard of care and then determine if this standard was met in the given circumstances. The standard of care, as established in Blyth v Birmingham Waterworks, is that of the ‘reasonable man’. This is a legal abstraction which represents an average person who was further described by Greer LJ in Hall v Brooklands Auto-Racing Club as ‘a man on the Clapham omnibus.’

    However, if the defendant presents themselves as possessing specific professional skills, the applicable standard of care must be determined by comparing them with others in the same profession. In Bolam v Friern Hospital Management Committee, it was held that the ‘test is the standard of the ordinary skilled man exercising and professing to have that special skill. For the context of a Contractor on a project, the Contractor holds themselves out to the Employer as possessing particular professional skills to execute a design and build project or simply a build project and therefore this is the standard of care to which they must adhere.

    The legal burden to prove breach of duty is on the Employer in this case and this must be established on the balance of probabilities. The Employer can rely on the maxim of res ipsa loquitur. With this, in the absence of convincing evidence to the contrary, the court will give the Employer the benefit of doubt by inferring negligence from what is known. This was shown in Scott v London & St. Katherine Docks where it was held that a claimant will be assisted by res ipsa loquitur if the thing causing damage is under the control of the defendant or someone for whose negligence the defendant is responsible, and that the accident is such as would not normally occur without negligence.

    When examining a Contractor’s liability to the Employer, further reference is made to Gee v Metropolitan Railway Co where the train doors were presumed to have been the sole responsibility of the train company and therefore it was liable. Where structural failure/defects are due to design and construction solely done by Contractor, and without any evidence to the contrary, the Employer can be assisted by the maxim of res ipsa loquitur. As such, where the standard of care is not reached in the respective duty stations, it can be said that there is a breach of duty.

    Did the breach of Duty result in loss?

    After establishing that there was breach of duty, the next key question would be whether or not the breach of duty resulted in loss. The general test used by the courts to determine the factual causation is the “but for” test, where the key question is whether, but for the defendant’s breach of duty, the loss or damage would have occurred. For instance, Lord Denning stated in Cork v Kirby Maclean Ltd that “…if the damage would not have happened but for a particular fault, then that fault is the cause of the damage; if it would have happened just the same, fault or no fault, the fault is not the cause of the damage.”

    The two types of damage under consideration are physical damage and pure economic loss. In Spartan Steel v Martin, it was held that financial loss not directly stemming from physical damage is too remote to be compensable in negligence. As such, the law of negligence concerns actual damage, usually in the form of physical injury to persons or property.

    The courts have adopted different approaches to pure economic loss resulting from a negligent action and pure economic loss caused by negligent advice. This can be shown in Murphy v Brentwood where it was held that the loss described as physical damage due to the negligent act was in fact pure economic loss and was not recoverable. As such, pure economic loss arising from a negligent act is not recoverable. As such, Employers cannot claim for pure economic loss resulting from Contractor’s negligent acts.

    In the case of Henderson v Merrett, it was held that when one party undertakes to provide professional or quasi- professional services for another, this commitment, if relied upon by the person on whose behalf these services are performed, may be adequate to establish a duty of care in tort, irrespective of the contractual relationship between the parties. According to Henderson, the existence of contractual relationships between the parties did not exclude the possibility of a duty of care in negligence. Moreover, the special relationship extended beyond advice to also include the provision of services.

    In Hedley Byrne, it was held that a duty of care could exist concerning a statement leading to pure economic loss if the parties were in a special relationship such as that one discussed above in Henderson. In contrast to pure economic loss arising from a negligent act, pure economic loss arising from negligent advice is recoverable. Consider a design and build project where the Contractor recommends the use of a wall of contiguous piles which is later discovered to have been under-designed for their length and load bearing requirements. It can be considered that the Contractor provided negligent advice to the Employer thereby entitling the Employer to claim for pure economic loss resulting from this negligent advice.

    Damage suffered.

    The final limb of the negligence equation involves determining the extent of the damage suffered by the claimant which should be attributable to the defendant. In the Wagon Mound (No.1) case, it was held that the appropriate test for remoteness is reasonable foreseeability of the kind or type of damage suffered by the claimant. Applying the Wagon Mound test in Hughes v Lord Advocate, it was held that it is only the type of damage which must be reasonably foreseeable and not the manner in which it occurs or its extent.  Where there is physical damage due to a breach of duty of care and it is reasonably foreseeable that the Employer would suffer this loss as a result of the Contractor’s negligence, this limb which is essential in proving negligence is satisfied.

    Conclusion

    In conclusion, Contractors can be liable to Employers for negligent acts and negligent advice. As such, Contractors have to be aware of these liabilities which may not necessarily be “under the contract” and with which claims can be forwarded beyond the limitation period.

  • The Place for Mediation in Resolving Disputes in the Construction Industry in Uganda.

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    Introduction

    I was privileged to attend the first mediation conference hosted by the Chartered Institute of Arbitrators’ Kenya Branch on 28th October 2022 in Nairobi with the theme “Coming of Age for Mediation: An encounter from Africa”. Notable amongst the speakers was Jane Gunn, the President of the Chartered Institute of Arbitrators (UK), Owek. Chris Bwanika, the Attorney General of Buganda Kingdom, Dr. Kariuki Muigua, the Alternative Dispute Resolution (ADR) practitioner of the year 2022, and Retired Lady Justice Joyce Aluoch. The different speakers noted that conflict is culture specific and that conflict management in African culture was aimed at promoting peace, harmony, and unity in what is commonly referred to as “Ubuntu”. Mediation as a mode of dispute resolution is not a novel practice and has existed in Africa for over 600 years. It can be seen through various traditional justice systems like the Mato put in Northern Uganda, the Gachacha hearings in Rwanda. Rwanda also has the Abwonzi, who are members of the community who handle conflicts less than 3,000,000 RwF (approximately 10,700,000 UGX). The different speakers also noted the need to “Re-Africanize” conflict resolution, more so, through the use of mediation.

    The concept of Mediation

    Different scholars define the concept of mediation in various ways. Dr. Kariuki Muigua, for instance, defines mediation as advanced negotiation where two or more parties involve a neutral third party to facilitate the negotiation process. Mediation generally is a voluntary, non-binding dispute resolution process in which a third party helps the parties to reach a negotiated solution. It is a cost effective, flexible, speedy, confidential process that allows for creative solutions, fosters relationships, enhances party control. Mediation is particularly useful in projects because of the need to preserve the ongoing relationship between the parties and enhance communication. Mediation involves attempts to settle disputes outside the mainstream judicial system, through the assistance of a neutral umpire. There are two types of mediation: facilitative and evaluative. In both, the parties are given the opportunity to voice their point of view. In a facilitative mediation, the mediator simply facilitates agreement between the parties. The mediator helps the parties to focus on the real issues in the dispute and find their own solution. The mediator gives no view on the merits of each party’s position. In an evaluative mediation, the mediator provides the parties with an assessment of the merits or the likely outcomes. These views are not binding unless the parties agree that they will be. Mediation is used to resolve domestic and international disputes as demonstrated by the number of global providers of mediation services such as the International Chamber of Commerce (ICC) together with more regionally based institutions such as the Singapore Mediation Center, International Center for Arbitration and Mediation in Kampala (ICAMEK).

    Mediation and the Construction Industry

    The construction industry plays a key role in spurring economic growth. Not only does it provide employment opportunities and demand for goods and services but also through interlinkages with other sectors like the finance sector creates an eco-system of business synergies and opportunities which need to operate efficiently in the execution of a construction project. Inadvertently, conflicts are inevitable in the construction industry due to differences in perceptions among the project participants. If these conflicts are poorly identified and managed, they often quickly turn into disputes, which are among the major factors that prevent successful and timely project completion in Uganda. Therefore, it is important for us to be aware of some of the causes of disputes in the construction industry in order to complete the construction projects in the desired time, quality, and cost.

    Causes of disputes in Construction Contracts

    Ambiguities in construction contracts are one of the key causes of conflicts in the construction industry. According to Black’s Law dictionary, an ambiguity is an indistinctness or uncertainty of meaning of the expression used in a written instrument. This could present itself as being unclear about the activities, responsibilities, and risks to be borne by the individual parties involved in the construction project. Ambiguities can also be amplified when a language that will specify the parties’ rights and obligations is not chosen. Solving the ensuing interpretation problems can be complex. The meaning of terms in common usage may be lost in repeated translations. The use of a stipulated third language, in some cases, can be confusing for both parties since the services of a translator can be both expensive and time consuming.

    Unclear payment terms can also be a cause of conflict. A construction contract should comprise of the payments that are required to be made to the different stakeholders and the timelines in which those payments have to be made. A delay in payments may affect project timelines and different project stakeholders in different ways which could cause major challenges on a construction project.

    Inflation is a universal plague of the world. Given that construction projects generally span long periods of time, inflation is a cause of concern and could be a cause of conflicts on a construction project. Contractors face inflation on many fronts when they import labor and materials from a variety of countries. This could cause the construction costs to rise and therefore create a conflict between the contractor and the employer.

    Changes in the original design project scope can also be a source of conflict on a construction project. Examples of scope changes are variations in the contract price and duration. Such changes are grounds of conflict due to the loss of profit to contractors, delays, and loss of revenue to the Employers due to the over budget. When site conditions indicated in the design differ from the actual site conditions, conflicts may arise. Differing site conditions affect the progress of the works and cost of the project thereby causing a conflict between the Contractor and the Employer.

    Does Mediation have a place in the Construction Industry in Uganda?

    The question one would ask oneself ,then ,would be “Does Mediation have a place in the Construction Industry in Uganda?”

    The Construction industry in Uganda has a number of multinational companies acting in different capacities on projects across the country. It is important to note that careful preparation of contract documents does not guarantee efficient project completion. A perfect contract cannot eliminate the occasional differences of opinion between the Employer and the contractor. A working knowledge of social and cultural differences between multinational parties and domestic parties is important in order to avoid and resolve conflict. Construction disputes tend to occur as a result of a breakdown in communication between parties and as such, mediation provides the setting for the parties to communicate and negotiate effectively with the presence of a neutral third party. Additionally, mediation goes into understanding the underlying reasons behind a certain dispute through understanding the cultural and social differences between parties and thereby ensures resolution of the dispute at hand.

    Mediation is also a response to the financial cost and emotional stress to parties in a dispute that would have otherwise been incurred when the dispute is referred to litigation or arbitration. Mediation allows the parties to minimize legal costs, control the process, maintain business relationships, and provides the most rapid process for full resolution of disputes. Referring a matter to mediation reduces the instances where a dispute leads to the termination of a commercial relationship. Given that the process is confidential, parties can easily protect their brand image and reputation thereby not losing client confidence.

    Conclusion

    In conclusion, according to a survey conducted by the Construction Industry Federation of Ireland (CIF), the preferred method of ADR to resolve construction disputes was mediation followed by conciliation and arbitration. Therefore, mediation has its place in the construction industry in Uganda. Despite its importance, mediation is not yet a popular dispute resolution mechanism in the construction industry. Mediation techniques are suitable for any type of construction claim and one major way of promoting their applicability is the inclusion of a mediation clause or a provision of the use of mediation in construction disputes. These clauses are drawn in such a way that in case of a dispute arising out of a construction contract, mediation shall be the first mode of dispute resolution adopted. This shall popularize its use for construction contracts.

    Despite the fact that mediation is a court-linked process in Uganda, there is no comprehensive and integrated framework that provides for construction mediation. Bolstering the framework that would be used in promoting and guiding the use of construction mediation in Uganda is of critical importance.

    There is also a need to sensitize construction practitioners about the process and advantages of mediation through different fora for example the Uganda Institute of Professional Engineers (UIPE) and universities in order to allow its proliferation and wide use in the field.

  • Why is there a need for Arbitration in the Construction Industry in Uganda?

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    Introduction

    The construction industry is a major contributor to economic growth worldwide. In a Report of Economic Consultants LEK for the UK Contractors Group, it has been estimated that in the United Kingdom, every £1 investment in construction output generates £2.84 in total economic activity. In Uganda, conservative estimates from the Uganda Bureau of Statistics (UBOS 2018) suggest that the construction sector directly contributes to approximately 7 percent of gross domestic product (GDP). This growth in the construction sector is attributed to an accelerated rate of execution of public investment in energy and infrastructure. The upward trend in public investment is consistent with the country’s strategy, as outlined in the National Vision 2040 and the second National Development Plan, to focus on building its capital stock, as a way to address Uganda’s infrastructure deficits and build production facilities to prepare for exploitation of the country’s oil resource(Colonnelli & Ntungire, 2018).

    CG Engineering Consults Staff on-site at the Katosi Drinking Water Treatment plant

    Alternative Dispute Resolution in the Construction Industry

    These complex construction projects are rarely completed without encountering risks that lead to changes to the time and cost required for their execution. Those changes in turn give rise to disputes, the majority of which are submitted to Alternative Dispute Resolution (ADR) mechanisms. Arbitration is one of the mechanisms that are commonly referred to as ADR mechanisms. These mechanisms are set out in Article 33 of the Charter of the United Nations. Arbitration arises when a neutral third party is appointed by the parties or appointing authority to determine the dispute and give a final and binding award. The 2017 International Chamber of Commerce (ICC) Dispute Resolution statistics show that, in 2017, 23% of the ICC’s total caseload was in the engineering and construction sector. This was the largest percentage of any subject matter by a significant margin.

    Why do parties choose ADR?

    The reasons why these parties choose ADR are varied and they include the inefficiencies of national courts as compared to out-of-court dispute resolution. Uganda, for example, lacks construction specialist departments or judges with construction expertise and judgment. Arbitration, on the other hand, allows parties to appoint arbitrators who are experts in the industry. Furthermore, arbitration allows construction parties to choose the dispute resolution procedure in a way that addresses a number of procedural challenges in construction arbitrations. These include the large volume of documentary evidence, the use of experts to determine delay and quantum in claims as well as other technical issues and program analysis. As such, international companies would rather look to arbitration to resolve their disputes, as opposed to subjecting themselves to the idiosyncrasies of local court systems and their inherent risks.

    Furthermore, the use of arbitration provides parties with a large degree of privacy, as most elements of the arbitration process are kept between the parties and are not subject to public scrutiny, unlike litigation. Most arbitration awards are never released to the public, and if they are, it will be with the consent of the parties and in a redacted form. Additionally, the decision of the arbitral tribunal may be reached with less cost and complexity than in litigation. Arbitration also has the advantage of speed as compared to litigation, for example, the backlog level as of 30th June 2021 stood at 51,748 cases in Ugandan courts. It’s important to note that In Uganda, a case is considered to be in backlog when it spends more than two years in the court system. The arbitration may appear to be more expensive than going to court. However, the flexibility of a well-managed arbitration can yield substantial cost savings to the parties, yet court costs are becoming a significant factor in some jurisdictions.

    Cg Engineering Consults Staff at a concrete U-drain construction site.

    A major advantage of arbitration for international business operators is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention). The New York Convention gives arbitration awards common currency among all states which have agreed that their courts will treat arbitration awards made in one convention state as if they were local judgments of their own state. The New York Convention is the backbone of international arbitration today. Uganda became a convention state on 12 February 1992.

    Uniqueness of the Construction Industry

    The question that often arises, therefore, is: what is special about construction disputes that require specialist arbitration knowledge?

    Firstly, Construction projects are associated with more risk than other typical commercial transactions both in terms of the risk allocated under them and the complexity of the risk. Their nature and typically long duration lead to risks including fluctuation in the price of materials and in the value of a currency, political risks, and legal risks.

    Secondly, time is often extremely critical in construction projects. The late delivery of a project, for example, a dam, can disrupt the project financing used to fund it.

    Furthermore, there is the involvement of a wide number of parties with different capacities and divergent interests which adds to the complexity of construction disputes, for instance, a limited dispute arising on one subcontract may lead to disputes under other subcontracts and the main construction contract. This may have financial and legal consequences for many of the above parties, triggering disputes under much wider documentation such as shareholder agreements, joint operating agreements, funding documents, and concessions. That often gives rise to issues about multiparty arbitration proceedings and third-party participation in arbitration proceedings.

    Another important feature of construction disputes is the widespread use of standard forms of contract, such as the FIDIC or the ICE conditions of construction contracts. These specialized forms of contract often generate difficult points of law. Efficient dispute resolution often requires familiarity and understanding of the risk allocation arrangements of these standard forms. Arbitration has been included in FIDIC contracts since the publication of the first FIDIC contract in 1957.

    Finally, construction disputes are technically complex, requiring efficient management of challenging evidentiary processes, including document management, expert evidence, program analysis and quantification of damages. Evidentiary challenges in these disputes have given rise to the use of tools, such as Scott schedules, which are unique to construction disputes.

    Conclusion

    One thing that is beyond question; there is a bright future for arbitration and ADR in Uganda and around the world. Since it is a consensual, flexible, cost-effective, private, and fast process, the role of arbitration in an emerging economy like Uganda cannot be gainsaid. The use of arbitration in construction disputes and all other disputes where it is amenable is thus the way of the future. In the past, there has been a capital flight by investors who have relocated from Uganda due to the protracted court battles that are the hallmark of any dispute in Uganda. Apart from running a profitable enterprise, an investor’s only other concern is business certainty and confidentiality, and litigation has promoted none of those.

    However, arbitration is still fairly misunderstood in Uganda, and sometimes it has been made as structurally complex as litigation by those opting for it, thus making it unattractive to others who would want to use it. However, dissemination of information and increased training of professionals in the field of ADR, with arbitration, in particular, will go a long way in popularizing and demystifying it.

    Arbitration is the way for the future, for access to justice, and for the proliferation of the construction industry in Uganda.

    Credits — Gavamukulya Charles, ACIArb — CEO CG Engineering Consults.

    CG Engineering Consults is a company that deals in engineering design, claims consultancy, and dispute resolution.