Last edited 22 Jun 2017

Arbitration in the construction industry

Arbitration is a private, contractual form of dispute resolution. It provides for the determination of disputes by a third party arbitrator or arbitration panel, selected by the parties to the dispute. Disputes are resolved on the basis of material facts, documents and relevant principles of law.

The arbitration process is administered by an appointed arbitrator subject to any relevant contractual rules and subject to the statutory regulatory framework applied by the domestic courts. There are only limited rights of appeal and legal costs are usually awarded to the successful party.

English law does not insist on any formal requirements for an arbitration agreement (for example it can be verbal), however if the agreement is not in writing it will be outside the supervisory regime of the courts established by the Arbitration Act.

Arbitration clauses are traditionally found in all standard form contracts used in the UK, often with related adjudication clauses (for example JCT 16, and ICE 7th Edition (now withdrawn in favour of NEC3)). In the last few years there has been a tendency to set the dispute resolution default at litigation rather than arbitration, leaving the parties to specifically agree to arbitration.

Arbitration commences with a notice to concur which provides for agreement on the appointment of an arbitrator, failing which an arbitrator may be appointed by a nominating body (which should be named in the contract). Arbitration is now usually combined with adjudication and mediation in tiered dispute resolution procedures.

Advantages:

It is private - there is no public record of any proceedings, although not necessarily confidential
Speed, although this depends very much on the manner in which the arbitrator conducts the arbitration
The parties can agree on an arbitrator with relevant expertise in the matter. The arbitrators award can be enforced as a judgement of the court

Disadvantages:

The parties must bear the costs of both the arbitrator and the venue
Sometimes arbitration simply mimics court processes and so you do not get the advantage of informality and speed
Limited powers of compulsion or sanction if one party fails to comply with directions of the arbitrator, which can significantly slow down the process
The arbitrator has no power to make interim measures, such as for the preservation of property
Limited appeal rights