My purpose is to generate debate. In England, by 1996, the arbitration process had failed the construction industry. This failure spawned the Housing Grants, Construction and Regeneration Act 1996 (HGCRA), which created the statutory right to adjudicate all disputes arising under a very wide range of construction contracts and provided a fast-track system of dispute resolution at relatively low cost compared with arbitration. It also enabled many disputes to be resolved during the contract period, rather than retrospectively. 

The introduction of statutory adjudication was a response to the delays and cost of court proceedings, as well as of arbitration. Nevertheless, it was, significantly, the arbitration process which had let the construction industry down. Arbitration clauses were habitually written into construction contracts. Arbitrations were taking too long. The legal costs and often the arbitrator’s fees were disproportionately high. Those involved in arbitration in England have been slow to accept the implied criticism which statutory adjudication involved and to learn the lessons necessary to instil confidence in arbitration. Although the Arbitration Act 1996 is contemporaneous with the HGCRA and embodies the principle that arbitration should be swift and cost-effective, confidence in arbitration will not return until its process and procedures undergo a metamorphosis and the mentality of many arbitrators change.

It is not appropriate to confine criticism of arbitration to arbitration in the English construction industry. Concerns about the speed and cost of arbitration continue to blight international arbitration.

Regenerating the arbitration process

Arbitration is often considered to be necessarily retrospective. The forum of the arbitration is generally perceived to be some remove venue which the parties to the dispute must attend, bearing with them the ingredients of their dispute. There is, however, no reason why arbitration should not be a virtually contemporaneous process running alongside the performance of the contract and there is no reason why arbitrators should not commit themselves to attending on the parties at the scene of their disputes. In the old days, if a dispute arose over whether corn was bad, or fish had gone off, an arbitrator would be called upon to attend for the briefest of arbitrations in which he would look, feel and smell and determine who was right and who was wrong. This sort of dispute resolution persists today. Some of this immediacy needs to be restored to arbitration under construction and other large commercial contracts. 

In any commercial contract of several months or years duration, an arbitration procedure could be devised under which the parties require and empower a named arbitrator or an arbitrator selected from a shortlist to resolve disputes quickly. The selected arbitrator who accepted the appointment would sign an agreed set of terms with the parties. The parties could require the arbitrator to attend to resolve certain categories of dispute within a few working days and to make a decision within, say, a week after that. In other categories of less urgent disputes, the arbitrator could be required to make a decision within a month, similar to the adjudication process. If an arbitrator was unavoidably unavailable, then another arbitrator could be engaged. The chosen arbitrator, alternatively, could be empowered to delegate to another arbitrator on a shortlist. If the dispute was not within the arbitrator’s expertise, he or she could be required to nominate an expert from an agreed list.  The expert would also be committed to an immediate response. The role of the arbitrator and experts would be proactive and contemporaneous, rather than retrospective and based on old records which may be inaccurate.

The machinery for this kind of arbitration needs to be developed and refined and the process of refinement could take decades. Inevitably, different sectors of the economy will develop the process to suit their needs. Arbitrators who are able to meet the challenge of this sort of responsive role would inevitably be well remunerated. The nature of an arbitrator’s decision under this regime would need to be established either at the time the arbitration agreement was entered into, or at least before any decision was made. By the Arbitration Act 1996, s.58, unless the parties otherwise agree, an award of an arbitrator is final and binding, even if it is an interim award. It would be prudent to agree that certain decisions made during the course of a contract were not final and could be reviewed. Decisions on certain matters could be treated as provisional orders or as provisional relief. The parties can agree this under s.39.  Such orders are subject to adjustment in the final award and are brought into account in the final award.

The role and mentality of the arbitrator

Perhaps the worst cancer of the arbitration process is delay. Arbitrators are often afraid to deal with delays by one party and to make peremptory orders. When both parties are in delay, arbitrators are often confused about how to proceed. Of course, if both parties openly apply to the arbitrator for a stay of proceedings, and the arbitrator is satisfied that they have access to proper advice, he or she will generally grant this stay. Sometimes, however, an arbitrator will be concerned that the quality of the evidence will deteriorate in the face of an indefinite stay. It may be perfectly reasonable for the arbitrator to insist, for example, that witness statements are taken and filed before the stay is granted, unless there are strong reasons why this should not be done. Delay seems to affect even very large international disputes. Although arbitrators need to be conscious of the complexity of the parties’ motives, they must also recognise that they control the procedure of arbitration and that they must do so effectively and robustly. Arbitrators concerned that evidence may be growing stale are perfectly within their rights to call the parties and inform them that they intend to expedite the arbitration process. The arbitrator may then fix a date for the arbitration convenient to the parties and set a timetable for other directions leading to the final hearing. It by no means follows that because both parties are in delay an arbitrator should countenance it. In one international arbitration in which I was involved as a representative of one of the parties, the solicitor on the other side suggested that the proceedings should be slowed down. The clear inference was that the lawyers would gain more from the arbitration process if it proceeded more slowly and that since the arbitrator himself would gain from a slower process, he would be unlikely to object. Arbitrators cannot know the cause or reasons for delay: they must simply be mindful of their duty to proceed expeditiously.

The authoritative arbitrator

Those trained to be arbitrators in the early 1990s will recall being told to be authoritative. There is nothing wrong with this approach, provided that authority does not equate to self-importance. In modern arbitration, they should perhaps classify themselves as servants, albeit professional, of arbitration process. It may be necessary for modern arbitrators, like Mohammed, to travel to the mountain of the dispute. It may be necessary for them to act quickly and to be proactive rather than reactive. It may even be necessary for them to perspire in the pursuit of their duties. They should perhaps revise their self-image to that of effective technicians and managers of process rather bask in the reflected glory of their status.

Conclusion

Arbitration may have lost some of its salt. Its saltiness can be restored. This will require the reinvention of the arbitration process as a flexible dynamic for resolving disputes and it will require hard work and the willingness on behalf on the arbitrators to make themselves available and accessible in the rapid resolution of disputes.

 

 

About the author

Philip Harris Partner & Solicitor-Advocate

Philip is a construction solicitor, advising on all aspects of construction law. Philip also practises as an arbitrator, mediator and adjudicator.