Hotel development disputes – A whistle stop tour of the options available

Disputes relating to any hotel development are never welcome but are often unavoidable. Not only can they strain relationships between those working on a project but they can also add a significant amount of cost, delay and stress to already problematic situations. Sometimes time can be of the essence and it is essential to get a quick resolution to a particular dispute. Sometimes resolving issues can be all about cost management and ensuring a deal is done to minimise cost exposure. As such, it is useful for those working on any hotel development to be aware of the potential options available in resolving disputes as quickly and/or cost effectively as possible at all stages of a hotel project.

It is not uncommon for disputes to be resolved quickly through informal discussions and meetings without legal intervention, and good working relationships usually aide this approach. However, when the issues are more problematic (and often the sums are higher) parties can become more entrenched in their position and disputes can escalate. For example, if the issue relates to significant delay in developing a new hotel which pushes back the opening date, it is less likely for a quick and easy resolution to be found as the cause of delay is not always obvious. In such circumstances, and if both parties are willing, a more structured meeting with the use of an independent third party mediator may facilitate the best deal.

If it appears that formal proceedings are inevitable to resolve a dispute, then there are still differing options that may be available. The classic route of Court proceedings can seem unappealing to most – Court fees and legal costs can be expensive and matters usually take a significant amount of time to reach a conclusion. However parties can benefit from crucial cost protection if they are realistic with their position with the general rule being ‘the loser pays the winner’s costs’ (although, a word of warning, successful parties usually still only recover between 60-80% of their actual costs incurred).

If the priority is for a quick resolution then alternative routes of dispute resolution may be preferable. Arbitration proceedings largely mirror the Court process but with an Arbitral tribunal presiding over the matter and with the big benefit that the parties can agree a much shorter timetable for the dispute to reach a conclusion. The downside is that the Tribunal’s costs are usually much higher than the Court fees and, critically, both parties need to agree to proceed via Arbitration (whether that be in the contract between them or otherwise).

The quickest path to resolving differences, however, is undoubtedly Adjudication proceedings.  Adjudicators are bound (unless agreed otherwise) to provide a decision within 28 days of receiving full details of a claim.  Each party bears their own legal costs regardless of the outcome and, again, both parties need to agree to resolve matters by Adjudication. However, if the contract between the parties is a construction contract then legislation provides that either party has the automatic right to refer any dispute to Adjudication at any time. It is common for most disputes relating to a hotel development to fall within the remit of a construction contract and, as a result, Adjudications tend to be the most common formal method of resolving issues within the hotel construction industry despite many developers having little knowledge of the process itself. Given the quick process, adjudications can be a very useful weapon in problematic situations.

Whilst it is often said that the best form of avoiding disputes is to prevent them from happening in the first place, it is invaluable for any party to a hotel development project to be well advised of the potential routes around a dispute when one inevitably knocks at the hotel door.

If you want help with any issues, or have any general enquiries, please contact one of Gordons LLP’s legal experts.