What is it?

Arbitration is a form of alternative dispute resolution. It has been referred to as litigation without wigs.

Some commercial contracts contain an alternative to litigation and offer the parties arbitration. Arbitration clauses confer jurisdiction on an individual or group of individuals, namely the arbitrators who determine the issues in dispute. The rules of the fight may also be incorporated into the agreement such as for example the Construction Industry Model Arbitration Rules. The different rules require their own consideration and too often at the point of drafting the contract their proper scrutiny is overlooked. The arbitration process can be very effective when used by experienced practitioners willing to agree the rules and before a respected and able arbitrator with knowledge of the subject matter in dispute. The advent of adjudication albeit supposed to produce only a temporarily binding outcome has in fact caused a huge decline in the number of domestic arbitrations as the parties often accept the adjudicators decision as final.

International Disputes

Internationally arbitration is however widely used as it provides a nationally impartial arbitrator to an international dispute and the awards made are readily enforceable in over 130 jurisdictions as a result of the 1958 New York Convention. Great care must be taken in considering choice of law for the arbitration and its seat as the seat of the arbitration will govern the procedural law to be applied.

The Arbitration Act 1996 (‘the Act’) was devised to restore confidence in the arbitration process by providing an impartial tribunal that would without unnecessary delay or expense bring about the fair resolution of disputes.

The Origins of the Arbitration Act

The Act which came into effect in 1998 restricts the courts intervention and gives the arbitrator increased powers.

In summary, there are three sets of powers established by the Act:

‘Mandatory’ provisions - these deal with the immunity of the arbitrator, appeals provisions, the general duties of the parties and the tribunal, enforcement and the liability of parties for fees and expense of arbitrators.

‘Default’ provisions - unless the parties agree otherwise, an arbitrator will automatically be able to order claimant to provide security for costs, give directions in relation to inspection and preservation of property and direct a party or witness should be examined on oath.

‘Optional’ provisions - these are provisions, which the parties can choose to incorporate by agreement. Section 39 of the Act provides an example of it. Under it, an arbitrator can make provisional arrangements for interim payments but only if the parties agree to the arbitrator having that power. There are many different arbitration clauses.

‘Additional’ powers - Section 39 of the Act provides that an arbitrator has the power to make a provisional order for the payment of money or the disposition of property. These additional powers exist only if the parties agree to the arbitrator having these powers.

In many cases, the choice of default and optional provisions has already been exercised. Very often arbitration clauses refer to specific rules under which the arbitration is to be conducted and those rules operate within the Act. Many of those specific rules deal with the default and operation provisions of the Act. The procedures adopted within arbitration tend to be flexible. Those procedures are now matched by the Civil Procedure Rules (‘CPR’). Indeed certain aspects of the CPR are now being adopted by arbitrators not least in relation to offers to settle and cost awards.

Areas to be borne in mind when deciding whther to incorporate into a contract

The two particular areas need to be borne in mind when deciding whether to incorporate this form of dispute resolution into contracts.

The first problem is that if there is an arbitration clause, the court has no jurisdiction to hear the claim unless the other party fails to apply to the court for a stay to arbitration. Under the Act, the court has no discretion and must order a stay unless it is satisfied that the arbitration clause is null and void, inoperative or incapable of performance. The net result of this is that any part of an arbitration clause may insist on the dispute going to arbitration and cannot any longer go to the court for a summary judgment.

The second issue relates to joinder of parties. Under the Act, the only parties to a dispute can be the parties to the arbitration contract. The effect of this is that if there are other parties at fault relating to the contract, the parties to the arbitration agreement will need to bring separate proceedings.

What is it?

It is a form of dispute resolution peculiar to the construction and engineering sector brought in with effect from 1st May 1998 under the Housing Grants, Construction and Regeneration Act 1996 (‘the Act’). The aim of the legislation is to provide a quick fix system for resolving disputes as and when they arise on site. There have been at least 20,000 adjudications since 1st May 1998 and these have given rise to some 120 court decisions mostly concerning the enforceability of the decision and in the vast majority of those cases the courts have enforced the adjudicator’s decision.

What your contract should provide?

A party to a construction contract caught by the Act has the right to refer a dispute to adjudication and the contract must provide a procedure for doing so. Where it does not (i.e. the parties fail to comply with just one aspect of the statutory requirements) then the statutory procedure contained in the Government Scheme for Construction Contracts (S1 1998 n.649) (‘the Scheme’) will apply.

Every construction contract must:

Enable a party at any time to give notice of his intention to refer a dispute to adjudication;
Provide a timetable for an adjudicator to be appointed and the dispute to be referred to him within 7 days of the notice of intention;

Require the adjudicator to reach a decision within 28 days of referral (it is open to the parties to agree a longer period);

Allow the adjudicator to extend the period for his decision by up to 14 days but only with the consent of the referring party;

Enable the adjudicator to take the initiative in ascertaining the facts and the law;

Impose on the adjudicator a duty to act impartially; and

Provide that the decision of the adjudicator is binding until final determination by litigation or arbitration.

Adjudication under the Scheme

Notice of Intention to Refer to Adjudication

The Notice of Adjudication is the beginning stage of adjudication. The party who has not been paid or may have some other dispute prepares a Notice of Intention to Refer to Adjudication and this notice is served on every party to the contract. The notice must set out briefly the following:

A brief description of the dispute and the parties involved;
Details of when and where the dispute arose;
The nature of the remedy being requested; and
The names and addresses of the parties to the contract

Selection of an Adjudicator

This may be specified in the contract or it may identify a nominating body to which the parties should apply. If the contract is silent and it is not possible to reach an agreement, the following are some of the adjudicator nominating bodies who may be asked to select an adjudicator.

Centre for Dispute Resolution

Chartered Institute of Arbitrator

Chartered Institute of Arbitrators

Chartered Institute of Building

Institute of Chemical Engineers

Institute of Electrical Engineers

Institute of Civil Engineers

Technology and Construction Court Solicitors Association

Technology and Construction Court Bar Association

Royal Institute of British Architects

Royal Institute of Chartered Surveyors

A fee will be payable to the nominating body to whom the Notice of Intention to Refer to Adjudication should be sent. The nominating body should appoint an adjudicator within 5 days of receipt of the application.

The Referral Notice

Once the adjudicator is appointed, the referring party has 7 days in which to send to him the Referral Notice. This document sets out the basis of the claim and identifies the remedies sought. It should be accompanied by all the documents in support of the case upon which the referring party wishes to rely. At the same time that the Referral Notice and supporting documents were sent to the adjudicator, a copy should also be sent to the other party.

The Response

Once the Referral Notice has been received, the adjudicator usually writes to both sides setting out when the other party should respond. The Response should address every point in the Referral Notice and clearly state the responding parties’ case.

The Response should also have in support any documentation on which the responding party intends to rely.

The Powers of the Adjudicator

The Scheme gives the adjudicator wide powers to reach a prompt decision. Those powers include:

To require the parties to provide documentation;
To meet and question any of the parties and their representatives;
To make site visits and inspection;
To carry out tests;
To appoint experts or such other assistants as he deems necessary provided he obtained parties’ consent to do so;
To require the parties to limit the length of written or oral submissions;
To set a timetable for directions to be complied with;
To open up, revise any decision taken or any certificate given under the contract unless it states that such a decision or contract is final and conclusive.
The Decision

The adjudicator has 28 days to reach his decision from receipt of the Referral Notice or 42 days if the Referring party agrees.

His decision should state whether any payment is due from either party or specified period within which it is to be paid.

Under the Scheme, the adjudicator does not need to give reasons for his decision unless requested to do so. The giving of reasons does increase costs but reasons given may assist the parties. The decision is only an interim one and is therefore temporarily binding on the parties until final determination by litigation or arbitration unless the parties agree to accept it as a final decision.

Adjudication under Other Forms of Contract

In standard form contracts printed since the Act came into force include provisions in relation to adjudication will be included. The procedure under these contracts is very similar to the Scheme. It may have been changed so that an adjudicator is named in the contract or the adjudicator nominating body is specified. It is essential to consider the terms of each contract before considering adjudication so that the procedures set out in the contract are carefully adhered to.

Enforcement of the Adjudicators Decision

The Courts are required to uphold the adjudicator’s decisions and will not go behind the adjudicator’s reasoning even if it is wrong or there is an obvious error. The courts are required to be satisfied that the adjudicator did not act outside of his jurisdiction. Issues concerning this aspect abound.

If the adjudicator’s decision is not complied with then it is necessary to issue court proceedings and there is an expedited court process that provides for a speedy judgment without a need for a trial. Judgment is usually granted provided the adjudicator has acted within his jurisdiction.

Costs of the Adjudication

An adjudicator will be paid by the parties based on the terms, which he agrees with them. Care is required in deciding what he should be paid. If the dispute is complex, then he may need expert assistance or legal advice and provided he obtains the parties agreement, the cost of obtaining that assistance or advice will be borne by the parties. The terms and conditions of the adjudicator’s appointment could be agreed between the parties in writing. These commonly provide that the adjudicator’s fees and expenses are shared equally between the parties. Depending upon the terms of the contract in question, the adjudicator may have the power to order either side to pay the whole amount of those costs when he issues his decision.

Most of the standard forms of contract provide that each party should bear their own costs and that the adjudicator’s costs should be borne equally by the parties unless the adjudicator directs otherwise.

Subject to the terms of the contract, the adjudicator can only order the other side to pay the Referring Party`s legal costs if this has been requested to do so in the Referral Notice and the Responding Party also requests their costs in their response.

The costs of legal representation to enforce an adjudication decision are at the direction of the court. The court rarely refuses to enforce such a decision and the usual order is that the party against whom the award is to be enforced bears the costs of the enforcement process.

The subject of legal costs is a complex one for which specific legal advice must always be taken in advance of deciding which process to use.