Government publishes dispute resolution guidance under Developer Remediation Contracts

The government has recently published guidance under the provisions of its Developer Remediation Contracts (“DRC”) agreed in connection with the Responsible Actors Scheme. The guidance focuses on the use of mediation to resolve disputes arising between third parties and developers in connection with DRCs. This Law-Now provides a brief summary of the guidance and some of the legal issues it gives rise to.

Developer Remediation Contracts

As part of the drive to remediate unsafe high rise buildings, in 2023, the government asked major developers to sign a DRC committing the developer to progress work to address life-critical fire-safety defects in their buildings. As of 14 October 2024, 54 developers had entered into a DRC with the Ministry of Housing, Communities & Local Government (“MHCLG”). Developers who refused to sign DRCs would be prohibited from carrying out development work under the Responsible Actors Scheme. For more information about the Responsible Actors Scheme and the operation of DRCs please see our previous Law-Now here.

Clause 16 of the DRCs refers to the possibility of a dispute arising between the developer and a third party (for example freeholders, building managers, or tenants) in relation to the developer’s performance of its DRC obligations. This likely envisages circumstances  where there is a disagreement about the scope or cost of remediation, or issues with accessing a property to undertake investigations, and the failure to resolve these issues means that remedial works contracts cannot be finalised. Reference is also made to developer/works contractor disputes concerning the scope of remedial works following assessments to understand the fire safety risk profile of a property.

The Guidance

Clause 16 empowers the MHCLG to facilitate the adopting of a dispute resolution process by issuing guidance. This guidance has now been issued by MHCLG and sets out a unique form of mediation which is to be supervised by the MHCLG (the “Guidance”). The Guidance notes that a refusal to engage in good faith in the mediation process “may be interpreted by MHCLG in a way which has significant contractual consequences for parties and/or future remedial works”. Whilst it is not explicitly stated, this presumably means that a warning notice threatening the revocation of the developer’s membership of the Responsible Actor’s Scheme (making the developer subject to planning and building control prohibitions) could be issued under regulation 25 of the Building Safety (Responsible Actors Scheme and Prohibitions) Regulations 2023 (the “RAS Regulations”).

The Guidance discusses the key tenets of the mediation process i.e. quicker and less expensive than more formal dispute resolution processes, with the parties having greater control over the outcome and a greater chance of a mutually agreeable resolution. However, the Guidance also proposes some amendments to the traditional mediation process to better suit disputes arising under the DRC. The MHCLG expects the process to be finalised within 60 days and proposes that the developer is responsible for the mediator’s fee. However, the MHCLG also reserves the right to choose the mediator in circumstances where it has not been possible to reach an agreement on the appointment, and to also attend the mediation if it considers it is necessary to do so.

In addition, and significantly, where a settlement is not achieved, the mediator is required to share a non-binding statement of the key facts and circumstances with the MHCLG and the parties, as well as “details of any next steps or material matters in progressing the remediation as appropriate to the parties” and any other observations the mediator considers relevant. The Guidance notes that if a developer appears to be failing to engage properly with the mediation or is failing to act in good faith to reach a resolution, the MHCLG may take action under the DRC. This presumably includes a warning notice under the RAS Regulations as noted above.

Where settlement is achieved, any agreement (binding or non-binding) recording the terms of the settlement is to be shared with the MHCLG in order that the remediation progress can be monitored.

Conclusions and implications

While, in a bid to facilitate progress, the Guidance signposts the government’s drive to resolve disputes between parties involved with the remediation of high-rise properties, the proposals raise a number of legal issues:

• Whilst the Guidance states that developers are “obligated” to comply with it, clause 16 of the DRC is less emphatic, referring to a “Dispute Recommendation” which can “facilitate the adoption of a dispute resolution process”.
   
• Communications between the parties concerning a proposal to mediate are often protected by “without prejudice” privilege. This would include a party’s refusal to agree to mediation. However, the Guidance invites other parties to provide the MHCLG with evidence of a developer’s refusal to participate, which may be a breach of such privilege.
   
• Considerable tension also exists between the rules of “without prejudice” privilege and the mediator’s report required at the end of an unsuccessful mediation. The pro forma mediation agreement included within the Guidance confirms that all information and communications made in connection with the mediation are to be “without prejudice” and privileged, but does not address how this relates to the mediator’s report. If the mediator’s report is to result in an absence of privilege, this in itself may cause a mediation to be less effective than it otherwise may be.
   
• The suggestion that MHCLG may rely on a mediator’s report to take action against an uncooperative developer may raise fairness issues as to the developer’s ability to rely on its own evidence of the mediation to dispute the mediator’s account. If fairness requires that the developer be permitted to rely on such evidence, an even greater erosion of “without prejudice” privilege will follow.
   
• The requirement to deliver a mediator’s report, and the scope for dispute which such reports may give rise to, may be unattractive to many mediators, who often insist on terms requiring the parties to agree that they will not be called to give evidence in any future proceedings concerning their mediations. It is unclear whether the Guidance has the support of industry mediation bodies. 

Whilst the government’s focus on removing obstacles to progressing  fire safety work remediation will be very welcome, it remains to be seen to what extent parties will actively engage with the Guidance, and whether, if they do, it will achieve the MHCLG’s desired aim of speeding up remedial work.

References:

Developer Remediation Contract: Dispute resolution guidance and mediation agreement.