Arbitration is the only alternative to using litigation as a method to resolve disputes. It was developed as a way to quicker and cheaper way to resolve disputes. Arbitration was used to enable parties to put their case in front of a construction professional as arbiter to the dispute. Unlike litigation, arbitration is only available if the parties have agreed that arbitration should be used in favour of litigation in what is known as an arbitration agreement.
Arbitration is binding on the parties.
The use of arbitration in construction disputes has been watered down by the advent of the Technology & Construction Court in which the Courts appoint a construction experienced JUDGE to decide the dispute.
Arbitration is an alternative to using litigation as a method to resolve disputes. It was developed as a speedier, cheaper and less formal alternative although this is not always the case. Unlike litigation, the use of arbitration is only possible where the parties to the dispute agree (known as the arbitration agreement).
Like a court judgment, an arbitration award is final and binding on the parties. Essentially, it is a private-sector alternative to litigation, for the binding resolution of disputes by an independent third party.
Arbitration is particularly appropriate for dealing with disputes of a technical nature, where the choice of the tribunal can be all-important. For this reason, it has traditionally been the main method of dispute resolution in the construction industry and for many years has been the preferred method of dispute resolution in most, if not all, of the standard forms of construction contract.
Before arbitration can be considered, there must be an arbitration agreement (defined in section 6 of the Arbitration Act 1996 as ‘an agreement to submit to arbitration present or future disputes …’) and a dispute must have arisen between the parties. Only once it has arisen can an arbitration be validly commenced.
Parties are free to agree the form and nature of the arbitration proceedings. It is usually started by an arbitration notice notifying the other party in writing of the intention to commence arbitration proceedings (see section 14 of the Arbitration Act 1996). The form of the notice is largely at the parties’ discretion and can be as simple as a letter stating that it is a notice of arbitration, but should follow section 14 of the Act and specify the matters in dispute.
It is also critical that parties commence arbitration proceedings within the statutory and any contractual time limits for commencement of proceedings.
Appointment of an Arbitrator
The parties are free to agree on the number and the qualifications of the arbitrator(s), as well as the procedure for their appointment. In the absence of agreement, the following rules apply under the Act:
- there will be a sole arbitrator;
- the appointment will take place within 28 days for a sole arbitrator or 14 days for 2 or 3 arbitrators. If required, a third arbitrator should be appointed by the 2 arbitrators that have been appointed by the parties; and
- if one party fails to agree an arbitrator within the time specified, then the other party may, after giving 7 days’ notice, appoint its own arbitrator.
Submission of Claims
The arbitral panel will set the procedure for how the proceedings are to be run and will require that the parties submit their statement of case, defence and any counterclaim and any other submissions by a particular deadline.
As part of the arbitrator’s power to set the procedure, the parties must disclose documents that they will rely on in their submissions and that are relevant to the dispute.
The award must be in writing, unless the parties agree otherwise. It must contain reasons for the tribunal’s decision, be signed by all the arbitrators and be dated. It should identify the parties and state whether it is a final or interim award.
An interim award deals with only some of the issues. If the award does not state that it is interim, it will be assumed to be a final award and the arbitrator will have no jurisdiction to continue to act (so they will be ‘functus officio’; see section 2 of the Act).
In an interim award, an arbitrator should take care not to comment on issues that are not being decided as part of the award. This avoids the parties claiming that the arbitrator has already made a decision on issues that have not yet been argued.
An award made by an arbitrator may be enforced in the same way as a judgment or order, with permission of the court. Where permission is given, judgment may be entered in the terms of the order (section 66 of the Act).
Depending on the circumstances, section 66 of the Act may apply whatever the seat of the arbitration, even if it is not England, Wales or Northern Ireland.
If the award is to be enforced abroad, specific advice will be needed in respect of the relevant jurisdictions. However, the provisions of the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) limit the grounds for refusing to enforce an award in most jurisdictions.
Where parties to an arbitration conclude a settlement, they should record its terms in a consent order, which should be signed by the arbitrator. This will be enforceable by the courts as with any arbitration award.