Whatever happened to arbitration?

Once upon a time, not so long ago, arbitration was the only means of dispute resolution provided for in most standard forms of construction contract, meaning that if the parties had a dispute that they were unable to resolve between themselves, then it was necessary to refer those disputes to an arbitrator.

The perceived advantages of arbitration were well known and included its privacy and the flexibility it offered to devise a procedure that was best suited to any particular dispute. This last feature also offered the opportunity to limit costs and timescales.

Against these advantages can be set a number of disadvantages, including arbitration’s relative inflexibility in being able to accommodate disputes involving more than two parties.

Over recent years standard forms of construction contract have started to include provision for other forms of dispute resolution. Most notably this has been because of the requirements of the Housing Grants, Construction and Regeneration Act 1996 for a compliant adjudication procedure, but there has also been recognition of the fact that other forms of alternative dispute resolution may sometimes be appropriate. For example, provision for mediation appears in the most recent editions of the JCT forms.

Together with these new options for resolving disputes, there has been a general trend away from arbitration, preferring instead to rely upon the courts to provide a final resolution to any disputes that may arise. The clearest example of this is found in the JCT suite of contracts where, from a situation where once only arbitration was envisaged, they started (from 1998) to offer litigation as an option, which the parties could select should they wish.

Contract exception

Currently the 2005 editions generally present litigation as the norm, with arbitration being relegated to an option for the parties to select should they wish. The exception to this is the JCT Major Project Construction Contract and its associated subcontract, which does not even offer arbitration as an option.

It is interesting to speculate why this fundamental change of position has occurred, but it is likely to have been influenced by the fact that arbitration is no longer generally perceived as either quicker or cheaper than litigation, while many of the disputes that are likely to be referred to arbitration or litigation will already have been the subject of adjudication.

One feature of arbitration that may rank as both an advantage and a disadvantage concerns the ability to appeal against an arbitrator’s award.

Section 69 of the Arbitration Act 1996 provides that any appeal to the courts from the award of an arbitrator can only be made in respect of a question of law, meaning that the arbitrator’s award cannot be challenged in respect of any findings of fact. Even if one of the parties wishes to appeal on the basis of a question of law that is only possible if either the other party agrees, or the court gives leave to appeal.

Leave to appeal will only be granted if all of the criteria set out in section 69(3) of the Act are met. One of the criteria is that, on the basis of the findings of fact, the award must either be obviously wrong or the question of law that is raised is of general public importance and the decision of the tribunal is at least open to serious doubt.

These restrictions on appeals are seen by many as being a positive advantage of arbitration, in promoting certainty and making it difficult for any award to be challenged in the courts. Of course, if you are unhappy with an award, your views of this
feature of arbitration may be
different.

Difficulties faced

A good example of the difficulties parties face in bringing an appeal against an arbitrator’s award can be seen from the case of The Council of the City of Plymouth -v- DR Jones (Yeovil) Limited. Here, the arbitrator had given an award dealing with when and how a contract had come into existence, identifying the relevant documents and terms and declining the council’s application for the contract to be rectified.

The council sought leave to appeal against this decision on a question of law and the Judge clearly identified the two main difficulties with the council’s application.

The first difficulty faced was that many of the decisions that it now sought to challenge seemed to be primarily questions of fact (ie, when the contract came into existence), rather than questions of law. In previous cases, judges have commented adversely upon a trend to attempt to put forward findings of fact as questions of law so that they may be appealed and, as in the previous cases, the judge was not convinced.

The second difficulty facing the council was that as the award related only to a particular set of facts and a particular project, it could not be said that any point of law that might be identified was of general public importance.

The consequence of this was that for leave to be granted the Council had to show that the
decision was obviously wrong. In relation to important matters, the judge in this instance did not
even consider the decision to be arguably wrong, and went so far as to suggest that it was probably correct. In the light of these conclusions it is perhaps unsurprising the judge stated that it was "…an application which never had any prospect of success".

All those who enter into construction contracts should bear this decision in mind in deciding what value they place upon the final nature of an arbitrator’s award, and whether they wish to incorporate an arbitration provision.