Arbitration in the construction industry

This Article is all about Arbitration in the construction industry.

Stravelles run a course in Adjudication which aims to  allow the student to run their own adjudication as the referring or responding party without paying for legal representation.

We support legal representation in more complex cases but we want to encourage especially smaller companies to feel more confident fighting for their contractual rights.

Introduction to Arbitration in the construction industry

Arbitration is a form of formal dispute resolution that produces a binding decision to both parties. Arbitration has been traditionally popular in the construction industry for solving disputes but is generally being replaced by other forms of dispute resolution, in particular, Adjudication.

In Arbitration a third party expert or panel of experts is selected to decide the dispute. This expert, the Arbitrator runs the process mimicking the formal courts process and comes to a decision based on the fact and the relevant legal principles.

It would not be unfair to say that Arbitration is like a clone of a court room process but instead of a judge you have an Arbitrator.

Advantage’s of Arbitration in the construction industry

Completely Private

The Arbitration process is completely private unlike the courts process where the key facts can be reported to the public. Arbitration has this advantage in common with negotiation, mediation, conciliation, adjudication compared to litigation (the courts process) which is open to the public.

Speed

Compared to the courts process arbitration is much faster than the traditional courts process. This is because an Arbitration session can be booked in faster as it is run by private enterprises rather than waiting to be slotted into the public courts system. However Arbitration is much slower than Adjudication.

Binding

The Arbitrations award can be enforced if necessary by obtaining a court order. This court order can be fast tracked by the courts so a contractual party can be legally chased down for enforcement.

Disadvantages of Arbitration in the construction industry

Takes longer than Adjudication

As mentioned above, Adjudication is simply much faster than Arbitration. Adjudication must by law, reach a decision within 28 days. There is no such statutory time limit on an Arbitration which could take months.

More expensive than negotiation, mediation, conciliation, Adjudication

If there is no time limit to an Arbitration then it follows there is no limit to the chargeable hours available to each parties legal professionals. In addition to the costs of the private venue to host the Arbitration this adds to the cost and is a lot more expensive than Adjudication. In Adjudication there is no venue as the decision is based simply on the information submitted by the referring and responding parties.

Both parties can be liable to pay for the costs of the Arbitrator but generally like the courts system the losing party may be more likely to have costs awarded against. In Adjudication, the Adjudicator has the final say on who pays the legal costs.

Lack of appeal

There is very little room for appealing the decision of an Arbitrator whereas in Adjudication the decision can be reviewed by Arbitration or the courts system.

Does not help cashflow in the construction industry

Because an Arbitration could take months it is no use to a main contractor or subcontractor who is chasing payment. If a subcontractor is owed £200k by the main contractor they cannot take much solace in the fact that they can win a decision against the main contractor in several months. They may well be out of business by then.

How do you appoint an Arbitrator ?

An agreement to refer a dispute to Arbitration must be included within the original contract otherwise there is no legal statutory right for either party to Arbitration.

So, if you want to refer any disputes to Arbitration you need to expressly say so in the contract.

What is the process of an Arbitration ?

There are several steps to an Arbitration process.

Step one: Initiation of the process

The claimant issues a notice of arbitration to commence the process.

Step two: Appointment of Arbitrator

If both parties cannot agree on a specific arbitrator or arbitration panel then a nominating body can nominate a candidate.

This nominating body is usually mentioned in the contract in any Arbitration clause.

Step three: First Preliminary meeting

Both parties and their legal professionals meet with the Arbitrator or Arbitration panel to discuss the dispute, agree the process and set out a clear road map for the process.

Step 4: Claimant issues Statement of claim

Claim issues a document called the statement of claim which outlines their arguments and what they want.

The respondent then issues their statement of response.

Step 5: Discovery

Now that the Arbitrator or Arbitration panel has all the information they have time to review the information and make any investigations or request any information that they desire.

Step 6: Exchange of evidence

Any information that the Arbitrator or panel requires is issued by both parties to the Arbitrator  or panel and is copied to all parties.

Step 7: Hearing

This is formal meeting in a hired venue where all parties meet to discuss and clarify and issues. There may be questioning of witnesses and so forth just like a real court case. All parties are sworn if they are due to testify so it is quite formal.

Stage 8: Award

The Arbitrator or panel will issue their award in writing with justification for the decision. This award is legally binding and generally cannot be appealed to the actual courts system.

How do you become an Arbitrator ?

Anyone can become an Arbitrator by completing a course in Arbitration (usually a postgraduate course) and then applying to join an Arbitration body of which there are several in the UK.

However, this does not guarantee you actually winning any work in this extremely competitive niche space.

External references

• FIDIC contract.
• JCT/CIMAR: Construction Industry Model Arbitration Rules.
• PACE: Guide to the Appointment of Consultants and Contractors

• ICE contract.
• JCT contract.