RICS draft guidance note - Risk, liability and insurance, 3rd edition

Risk, Liability and Insurance - 3rd edition

Appendix E: Dispute resolution

If the contract between a firm of valuers and their client is silent as to how disputes are to be resolved, the default position will be litigation, i.e. formal proceedings in the court.

The parties can choose not to go to court. The principal alternatives are explained below. These alternative choices can be made after a dispute has arisen, but by that stage, one party may already have resolved to go to court, so if a firm prefers one of these alternative routes for resolving disputes with clients, it would be better to agree that 'up front' in the engagement letter or standard terms and conditions.

RICS requires all firms to have a complaints-handling process in place. This document must also include an ADR provision as a part of RICS' commitment to promoting ADR as a means of resolving disputes. In addition to the alternatives to litigation described below, RICS' Dispute Resolution Service (DRS) has been providing ADR services for over 40 years and has developed a new form of ADR designed specifically for the resolution of claims relating to residential valuations.

E1 Court proceedings/litigation

The court process is usually the most reliable and thorough way to resolve a dispute, but unfortunately it can also be slow and expensive and is public. Over the past decade, the English courts have taken steps to address this, first, by requiring more active 'case management' by the courts, and secondly, by implementing the Pre-Action Protocols.

There is a specific Pre-Action Protocol for professional negligence claims, which includes claims against valuers. The purpose of the Protocol is to require the parties to exchange correspondence and documents, and investigate the dispute fully and to consider ADR before commencing court proceedings.

A claimant is supposed to start proceedings only if the Protocol has been complied with and it has not brought the matter to an end.

It is important to understand the costs consequences of court proceedings. The basic rule is that the loser pays the other side's costs as well as their own costs (although in fact the other side's costs are generally reduced by approximately 10 - 40% depending on the nature of the costs order made, or even more in Scotland).

The courts are taking an ever more proactive role in managing legal costs. Since April 2013, parties to most types of UK litigation have been obliged to prepare detailed costs summaries, which must either be agreed or approved by the court, and which then set the maximum limit of recoverable costs. Litigants therefore need to manage their legal costs carefully, or risk facing a substantial exposure to costs even if they win the case. It should also be noted that the basic 'loser pays' rule can be displaced - or watered down - if the court is informed at the costs stage that the winning party refused unreasonably to participate in a mediation at an earlier stage.

E2 Arbitration

Arbitration can be similar to litigation, but the parties appoint their own judge (arbitrator) when the dispute arises. The most important difference from court proceedings is that the arbitration process is private; the judgement (called the award in an arbitration) is confidential to the parties. It can be quicker and less expensive than court proceedings, but that is not always the case. As in court proceedings, the arbitrator will make a decision about the costs of the process after deciding the substantive dispute, and just as in court proceedings, the default position is that the loser pays both parties' costs. An arbitration award can sometimes be appealed to the courts, but only in limited circumstances.

E3 Expert determination

Expert determination is similar to arbitration, but it is less formal. Arbitration is an 'adversarial' process, like litigation, where each party presents its case and the judge/arbitrator makes a decision. By contrast, expert determination is essentially an 'inquisitorial' process, whereby the expert conducts inquiries with the parties' assistance before making a decision, but the process can include elements of the adversarial process. Expert determination is usually less expensive and quicker than court proceedings, but because the process for expert determination and arbitration is more flexible, it is not possible to say which will be quicker and less expensive in any given case as between expert determination and arbitration. The process is best suited to resolving disputes over specific technical issues. It is often used in valuation disputes, but it must be understood that it can also be less thorough than court proceedings or arbitration. The expert is usually not bound to apply legal principles, and the decision can only be challenged in extremely limited circumstances.

E4 Mediation

Mediation is a negotiation, facilitated by a mediator. The mediator does not have to be a lawyer, and in many valuation disputes, it is a chartered surveyor.

Mediation will only resolve the dispute if both parties agree to the outcome. The mediator does not make a decision, or even (unless specifically asked to by both parties) express a view on the merits of the dispute. Because it is consensual, it works best against the backdrop or pressure of one of the more formal processes outlined above. Often, contractual parties, including valuers and their clients, agree at the outset of an engagement that, if a dispute arises, they will at least try mediation before resorting to more formal processes.

E5 Ombudsman

The Financial Services Ombudsman has jurisdiction to hear complaints and to award financial redress of up to:

£150,000 for complaints referred before 1 April 2019

£160,000 for complaints concerning acts / omissions before 1 April 2019

£350,000 for complaints referred between 1 April 2019 and 31 March 2020 and concerning acts / omissions after1 April 2019

£355,000 for complaints referred after 1 April 2020 and concerning acts / omissions on or after 1 April 2019

if a firm is carrying on regulated activities, or is providing ancillary services, including providing valuation advice, in connection with regulated activities. The Ombudsman may become involved if a valuer's services are provided as part of a mortgage application.

In addition to the Financial Services Ombudsman, there are currently two government-approved providers of Ombudsman services for property agents:

  • Property Redress Scheme and
  • The Property Ombudsman (TPO).

RICS also approves Centre for Dispute Resolution (CEDR) as an alternative dispute resolution provider for regulated firms. These providers offer consumer redress for firms involved in the property sector, including estate agents and valuers, without charging the consumer for the use of the service.