Arbitration Practice in Construction Contracts

D.A. Stephenson

• Publisher: Routledge
• Year: 2003
• ISBN:
  9781135826505
• Edition: 3
• Topic: Architecture
• Subtopic: Architecture General

Considers each stage in the course of an arbitration in detail, from the claimant's decision to seek the means of resolving a dispute to the arbitrator's award, explaining clearly and concisely what is expected of the claimant, respondent and arbitrator and when.

1 Introduction

SYNOPSIS

The basic principle of arbitration, namely that the parties to a contract from which a dispute arises elect to appoint a tribunal of their own choice to determine that dispute, is especially relevant where, as in construction, technicalities are involved. But arbitration depends for its efficacy upon the law: for without a framework of law within which recognition is given, the award of an arbitrator could prove worthless if the losing party chose to ignore it. Enforcement of arbitration awards is available to the parties through the courts of England and of most other civilized countries: though the law of England will in general require that the arbitration proceedings have been conducted, and the award made, in accordance with that law.

DEFINITION

‘An arbitrator is a private extraordinary judge between party and party, chosen by their mutual consent to determine controversies between them. And arbitrators are so called because they have an arbitrary power: for if they observe the submission and keep within due bounds, their sentences are definite from which there lies no appeal.’

The words of Lord Chief Justice Sir Robert Raymond, expressed some 250 years ago, still provide a valid definition: for if the phrase ‘due bounds’ is taken to mean ‘the law’, there is indeed no appeal from an arbitrator’s award. The limited grounds upon which an appeal may lie only cover points of law, including failure by the arbitrator to conduct himself or the proceedings in accordance with the law (see Chapter 10).

Arbitration is a voluntary procedure, available as an alternative to litigation, but not enforceable as the means of settling disputes except where the parties have entered into an arbitration agreement. In such cases the right of either party to have disputes resolved by arbitration will, except where there are good reasons to the contrary, be upheld by the court (see p. 9).

LEGAL FRAMEWORK

This book is concerned with arbitration under English law, which applies in England and in Wales, but not in Scotland or in Northern Ireland. English law applies automatically as the procedural law of arbitrations arising from contracts under the ICE Conditions, the FCEC Form of Subcontract, the JCT Forms of Contract or any other standard form where the contract is made and the work is to be performed in England or Wales, and where no other system of law is specified in the contract.

English law will also apply to arbitrations arising from contracts of a non-domestic type (that is, where one or both parties are based overseas, or where the work is to be performed overseas), where the parties elect that it shall apply. Their choice in this matter is not necessarily affected by their choice of the proper law of the contract (the law by which the contract is to be construed), although in general there will be a presumption to that effect where no other system of law is specified.

It is desirable that where English law governs the arbitration procedure the place of the arbitration should be within the jurisdiction of English courts so that the many ‘supervisory’ functions provided by those courts and described in this book are readily available.

There are indeed good reasons why arbitrations should be conducted under English law even in the case of non-domestic contracts, and even when the proper law of the contract is not English law. Firstly, English commercial law, and especially arbitration law, is more highly developed and sophisticated than any other legal system. Secondly, it forms the basis of many other legal systems throughout the world, and is therefore more readily accepted and understood than other systems. Thirdly, the general use of the English language in many overseas contracts reduces the problems of interpretation where English arbitration law is adopted.

ENGLISH LAW OF ARBITRATION

Arbitration in England is known to have been recognized in common law since the beginning of the seventeenth century: indeed the system is claimed to be as old as legal history. The first statute was the Arbitration Act 1697, since which date there have been a number of re-enactments. Fortunately for today’s practitioners, however, much of the law of arbitration was summarized and codified in the Arbitration Act 1950 (referred to herein as the 1950 Act) and this Act, except for one major change, has remained substantially unaltered, being now referred to as the ‘principal Act’.

The 1950 Act (see Appendix B) has the merits of simplicity and clarity. It also performs the valuable function of filling gaps that might otherwise exist in arbitration agreements, by defining the constitution of the tribunal, authorizing the arbitrator to make orders, to make an award at any time, to make an interim award, to order specific performance and to award costs. But perhaps the most important function of the 1950 Act is that contained in section 26 wherein an arbitration award may effectively be converted into a judgment of the High Court.

One of the main features of arbitration under English law is the emphasis laid upon compliance with the law. The danger has long been recognized that arbitrators, who are generally not qualified legally and who conduct proceedings in private, may stray from the law of the land, developing their own fund of ‘case law’ based upon their own concept of equity. In so doing they might well diverge from the law, not only as a body of arbitrators, but also as individuals; ‘legal’ precedents set by each individual might differ both from those of common law and from each other. In order to control this danger a system was set up, originally under the Common Law Procedure Act 1854 and more recently in the 1950 Act, whereby a point of law arising either during the course of a reference or in an award might, on the application of either party or of the arbitrator, be made the subject of a ‘Special Case’ for determination by the High Court.

Although this procedure, which was defined in section 21 (later repealed) of the 1950 Act, provided a means by which case law developed to a high degree of sophistication in commercial contracts, it also provided a means whereby an unmeritorious party might delay the day of judgment. For by applying to the arbitrator for an award in the form of a special case on some spurious point of law, and then pursuing that point through the hierarchy of the courts, the losing party in an arbitration could delay, sometimes for many years, the date upon which payment became due, thereby gaining a financial advantage because of the unrealistically low rate of interest formerly allowed in law upon arbitration awards.

Pressure from a number of commercial and legal bodies, and in particular from the Chartered Institute of Arbitrators, has resulted in the special case procedure being repealed, and replaced by a limited right of appeal on points of law, under section 1 of the Arbitration Act 1979 (referred to herein as the 1979 Act; see Appendix D), which came into force on 1 August 1979 and applies to all arbitrations commenced after that date, and to other arbitration where it is adopted by agreement of the parties.

The 1979 Act makes provision, under section 2, for a limited right to apply to the High Court for determination of a point of law arising in the course of a reference (see Chapter 10). It also fills certain gaps in the principal Act, such as that which arises when an appointing authority named in an arbitration agreement neglects or refuses to make the appointment, and it strengthens the power of an arbitrator to deal with a recalcitrant party.

In order to complete the list of statutues currently applicable to arbitration mention is also necessary of the Arbitration Act 1975 (Appendix C), the principal purpose of which is ‘to give effect to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards’. This Act is not, however, relevant to domestic arbitrations.

ADVANTAGES OF ARBITRATION

Many of the advantages most frequently claimed of arbitration as an alternative to litigation are especially relevant to those arising from construction contracts.

Freedom in choice of arbitrator

The parties to an arbitration agreement are free to choose a suitable person to be arbitrator. Frequently disputes arising from construction contracts involve such questions as whether or not certain ground conditions could reasonably have been foreseen by an experienced contractor; whether or not it was reasonable for the engineer or architect to issue drawings when he did, or to give the instructions he gave; or questions may involve the technicalities of the various standard methods of measurement. A proper understanding of these and many other points that may arise can only be gained by long experience in the construction industry – and preferably experience both in contracting and as the engineer under the contract. Hence it is desirable that the arbitrator should in such cases be an experienced engineer (or, where appropriate, architect or quantity surveyor): and this objective is usually best achieved by naming as the appointed authority the president of the appropriate professional body.

While it is recognized that technical expertise is available in litigation through the appointment of experts, there is a very real danger that a nontechnical judge may be influenced more by the eloquence and powers of explanation and persuasion of the expert than by the technical merits of his evidence.

Flexibility

Disputes arising from construction contracts may in some cases involve a few thousand – perhaps even a few hundred – pounds, or they may involve tens or hundreds of millions. They may involve questions of principle that will affect future contracts, or may (more commonly) be of a ‘one-off nature affecting only the contract from which the dispute arose. They may involve technical or legal issues or both: and the credibility of the witnesses to be called may or may not be in doubt. All of these factors affect the choice of procedure and the most appropriate form and level of representation – if any – of the parties. In arbitration the parties are free to determine these matters by agreement; and while neither party can dictate to the other where it is thought, for example, that costs are being incurred unnecessarily, the party may bring its contentions to the notice of the arbitrator and request that he take them into consideration in his award of costs.

Economy

Critics of arbitration often argue that costs in total are likely to exceed those incurred in litigation, because in the latter the judge is paid out of the public purse, while the arbitrator is not. While true, this is not usually a major factor in the total costs of the proceedings: the arbitrator’s charges are often much less than those of the parties’ solicitors and counsel. Furthermore, where technical matters are involved it is likely that experts will be needed to present such matters to a judge, but not to a technically qualified arbitrator. Again, proceedings in court are likely to be more protracted, and hence more costly, than in arbitration.

Economy is not achieved automatically by use of arbitration rather than litigation, but it may be achieved where the parties act sensibly in choosing the form of the proceedings and of their representation. Where one party acts sensibly but the other does not, it is within the power of the arbitrator to award costs accordingly.

Expedition

It is especially important in construction disputes that unnecessary delay in their resolution should be avoided. Such disputes often involve voluminous documentary and oral evidence of details of progress, instructions, delaying factors and other matters. With the passage of time records may get lost or dispersed; memories fade; staff move on or die; defective work may become obscured or affected by alterations. Furthermore, in some cases progress of the remaining work may be delayed pending resolution of a dispute, for example where a contractor encounters conditions which he had not foreseen and which he claims entitle him to reimbursement of extra costs under Clause 12 of the ICE Conditions. Generally arbitration, if properly used, provides the means of resolving a dispute with the minimum of delay.

Privacy

Arbitration proceedings, unlike those in the courts, are not open to the press or to the public; only those persons involved in the proceedings are entitled to attend. It is of course open to the parties, by agreement, to allow others to be present, and they often do so where for example the arbitrator wishes a pupil to gain experience. Such attendance is normally on the condition that the confidentiality of the proceedings will be respected.

Usually the parties to construction disputes have no wish to publicize either the matters disclosed at the hearing or any other details of a reference; and frequently the damage to a previously harmonious relationship between two parties resulting from a dispute is more rapidly healed where there has been no publicity.

Finality

One respect in which arbitration under English law differs from that under most other legal systems is in the emphasis given to the need for awards to comply with the law. This point has been the subject of much criticism and debate in recent years, it being argued against the English system that finality is more important than legality and that, having chosen their arbitrator, the parties should be content to accept his decision, whether strictly in accordance with legal precedent or not.

Until the 1979 Act became law parties were able on the flimsiest of pretexts to ensure that an award, when given, would not be final, but was capable of being challenged through the courts. Now, however, the right to appeal is strictly limited (see Chapter 10) and may in some circumstances be eliminated entirely.

DISADVANTAGES OF ARBITRATION

Cost of arbitrator and of court facilities

In contrast to litigation, wherein both the judge and the court facilities are provided at public expense, the parties to an arbitration, or one of them, will ultimately have to bear the costs of the arbitrator and of the courtroom facilities. However, in most cases such costs are small in comparison with other costs incurred in litigation (see p. 5).

Legal aid is not available

Where arbitration is used as a means of resolving minor disputes, and in particular those in consumer industries, the non-availability of legal aid may be an important consideration. However, in many such arbitration schemes administered by the Chartered Institute of Arbitrators the aim is to obviate any need for legal representation, and to keep costs to a nominal amount.

Joinder difficulties

Where more than two parties are involved in a dispute – for example employer, main contractor and subcontractor – there is no statutory power whereby all parties may, as in litigation, be joined in a consolidated action. Certain standard forms of contract, such as the FCEC Form of Subcontract and the JCT Form of Building Contract, do however provide for consolidation in limited circumstances.

Incompetent arbitrators

While judges are appointed only after they have gained extensive experience, usually at the bar, arbitrators having inadequate qualification may be, and sometimes are, appoin...

Table of contents

• Cover
• Halftitle
• Title
• Copyright
• Contents
• Foreword
• Preface to the third edition
• Preface to the first edition
• Acknowledgements
• 1 Introduction
• 2 Arbitration Agreements
• 3 Powers of an arbitrator
• 4 Appointment of the arbitrator
• 5 Preliminaries
• 6 Evidence
• 7 The hearing
• 8 The award
• 9 Costs
• 10 Finality of the award; enforcement; appeals
• 11 The contractor as claimant
• Appendices:
• Bibliography
• Table of Cases
• Index