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Twixt THE SAFETY NET AND THE TRAPEZE
00:00 25 Aug 1994
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There is a debate raging in the arbitration 'industry' over the
need for reform of the procedural characteristics of arbitration.
Most construction contracts include for dispute resolution by
arbitration on the basis that the courts are unsuited to dealing
with such complex technical matters.
And yet, all too often, arbitration procedures now simply ape High Court practice.
It is said that lawyers have highjacked the whole process. To add insult to injury, the ransom having been paid, lawyers are now advising their clients to remove arbitration agreements in the first place.
Against this background, reform of arbitration law has been promised for years. Earlier this year the DTI published a draft arbitration bill for consultation, and hopes are high that we may therefore begin to see the light. But as they say, 'don't hold your breath'.
Michael Heseltine, president of the Board of Trade, has given his commitment to the bill. So too has Neil Hamilton, minister for 'deregulation'. But the government will have enough on its plate in the coming months (as Sir Michael Latham will no doubt discover). Repeal of the existing arbitration statutes, together with the enactment of a new bill, will be low on the agenda unless the 'industry' lobbies long and hard with one voice.
At present that voice is a babble. The draft bill has been met with fairly vicious criticism. Few believe it gets anywhere near resolving the fundamental problems of the arbitrator's management and control of an arbitration reference.
Sir Michael Latham in his industry review endorsed a comment by Roger Knowles that: 'It is the constant spectre of appeal which conditions the manner in which many arbitrations are conducted and which has emasculated the whole process.'
Resolve this problem? The current draft bill will not.
Some examples of the peripheral thinking of the new draft bill:
l Arbitrators will be able to make interim awards for payment (section 14), in similar fashion to the High Court order 29 procedures, prior to finally determining the dispute.
l All awards are 'final and binding' (section 20), yet interim awards are subject to adjustment (section 14), and the parties may apply for an amendment to the award (section 23).
l The arbitrator is said to be given clear powers to award interest to the winning party, yet the section concerned can hardly be said to add anything to the existing section 19A which has been so ludicrously undermined as in the decision of Kingdom Engineering v BP Chemicals.
Here the arbitrator's award of interest was disallowed upon appeal to the High Court, on the basis that there was no cause of action for interest to start running until publication of the award itself.
Even the great Houdini would have had difficulty with that one.
l Arbitrators will be entitled to claim interim fees (section 34) from the parties.
l An absolute standard of impartiality is placed upon both the arbitrator and any party that is aware of grounds for partiality or dependence (section 8).
Other areas in which the DTI consultation document seek guidance include:
l whether to allow arbitrators to decide cases without being bound by the law (so called equity clauses);
l whether arbitrators may decide on the extent of their own jurisdiction;
l the question of an arbitrator's immunity from suit;
l how the new bill should address consolidation and multi-party arbitrations.
From all of this it may be rightly concluded that the new bill will do nothing to solve the main problem - arbitration is too slow and costly.
At present arbitration law is generally drafted as a safety net, through which improper judicial practice should not be allowed to fall. No attempt is made to consider the construction of the trapeze above: this is left to contractual or ad hoc arrangements employed by the parties themselves.
If any real change in arbitration practice is to be brought about, the law will have to look closely at the trapeze act itself. Otherwise, arbitration will remain where it currently finds itself: great fun for the spectators, but perilous for the artistes taking part.
And yet, all too often, arbitration procedures now simply ape High Court practice.
It is said that lawyers have highjacked the whole process. To add insult to injury, the ransom having been paid, lawyers are now advising their clients to remove arbitration agreements in the first place.
Against this background, reform of arbitration law has been promised for years. Earlier this year the DTI published a draft arbitration bill for consultation, and hopes are high that we may therefore begin to see the light. But as they say, 'don't hold your breath'.
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Michael Heseltine, president of the Board of Trade, has given his commitment to the bill. So too has Neil Hamilton, minister for 'deregulation'. But the government will have enough on its plate in the coming months (as Sir Michael Latham will no doubt discover). Repeal of the existing arbitration statutes, together with the enactment of a new bill, will be low on the agenda unless the 'industry' lobbies long and hard with one voice.
At present that voice is a babble. The draft bill has been met with fairly vicious criticism. Few believe it gets anywhere near resolving the fundamental problems of the arbitrator's management and control of an arbitration reference.
Sir Michael Latham in his industry review endorsed a comment by Roger Knowles that: 'It is the constant spectre of appeal which conditions the manner in which many arbitrations are conducted and which has emasculated the whole process.'
Resolve this problem? The current draft bill will not.
Some examples of the peripheral thinking of the new draft bill:
l Arbitrators will be able to make interim awards for payment (section 14), in similar fashion to the High Court order 29 procedures, prior to finally determining the dispute.
l All awards are 'final and binding' (section 20), yet interim awards are subject to adjustment (section 14), and the parties may apply for an amendment to the award (section 23).
l The arbitrator is said to be given clear powers to award interest to the winning party, yet the section concerned can hardly be said to add anything to the existing section 19A which has been so ludicrously undermined as in the decision of Kingdom Engineering v BP Chemicals.
Here the arbitrator's award of interest was disallowed upon appeal to the High Court, on the basis that there was no cause of action for interest to start running until publication of the award itself.
Even the great Houdini would have had difficulty with that one.
l Arbitrators will be entitled to claim interim fees (section 34) from the parties.
l An absolute standard of impartiality is placed upon both the arbitrator and any party that is aware of grounds for partiality or dependence (section 8).
Other areas in which the DTI consultation document seek guidance include:
l whether to allow arbitrators to decide cases without being bound by the law (so called equity clauses);
l whether arbitrators may decide on the extent of their own jurisdiction;
l the question of an arbitrator's immunity from suit;
l how the new bill should address consolidation and multi-party arbitrations.
From all of this it may be rightly concluded that the new bill will do nothing to solve the main problem - arbitration is too slow and costly.
At present arbitration law is generally drafted as a safety net, through which improper judicial practice should not be allowed to fall. No attempt is made to consider the construction of the trapeze above: this is left to contractual or ad hoc arrangements employed by the parties themselves.
If any real change in arbitration practice is to be brought about, the law will have to look closely at the trapeze act itself. Otherwise, arbitration will remain where it currently finds itself: great fun for the spectators, but perilous for the artistes taking part.
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