Arbitration - is it a good choice?

Construction contract disputes can be resolved in many different ways, including negotiation, litigation, adjudication, mediation and various forms of other Alternative Dispute Resolution (ADR). But the major form of dispute resolution missing from this list is arbitration. 

Arbitration continues to be very popular for international contracts and there are many good reasons for this. However, it has fallen out of favour for domestic disputes. When the JCT launched the 2005 version of its suite of contracts, the default dispute resolution procedure changed from arbitration to litigation. 

The main reason for the reduction in the popularity of arbitration has been the rise of adjudication. Introduced in 1998, adjudication provides a quick way of resolving disputes and courts have the power to enforce decisions. Courts that deal with construction disputes are now very efficient and knowledgeable, and so many of the advantages of arbitration no longer exist. 

Parties must contractually agree to refer a dispute to arbitration, and this is usually done when the parties negotiate the contract. The advantages of arbitration are:

1. You can choose the arbitrator. 
2. You can choose the procedure to be followed - there are lots of different sets of rules.
3. The proceedings are confidential.
4. You can decide where the arbitration takes place.
5. The decision is final and binding.
6. The arbitrator is usually an expert in his or her field. 
7. The award can be enforced abroad.

However, there are also disadvantages, including: 

1. Arbitration is very costly. You have to pay for the Arbitrator.
2. It is often the case that only two parties are able to take part in the arbitration; other parties cannot participate even when they are relevant to the dispute. 
3. The proceedings can be delayed by a party who is obstructive. 
4. It is less likely that you would obtain a summary decision on a claim. 
5. The Arbitrator may not be an expert in judging the merits of a case.

It is important, therefore, to consider carefully whether or not arbitration is the appropriate form of dispute resolution to choose when entering into a contract. 

In a construction contract the right to refer the dispute to adjudication is automatic, so perhaps selecting one of the other forms of dispute resolution, such as mediation, would be more appropriate. However, arbitration retains some key advantages, particularly confidentiality and the opportunity to use an expert in a specialist field, and these advantages may mean it remains the right form of dispute resolution for you. 

Peter Allen at Birkett Long LLP recommends that you always seeks advice from a specialist lawyer before you enter into any construction contract. Contact Peter on 01245 453813 or [email protected]