Arbitration – An Introduction

Following our intro to adjudication, this article takes a very brief look at dispute resolution in arbitration. Much older than statutory adjudication, arbitration is another route to resolving disputes without having recourse to the courts. The method comes with some strong advantages. Though arguably, there are some disadvantages too.

The process involves the appointment (usually through the project contract) of an arbitrator. A dispute is resolved in a similar manner to a court, but the hearing is confidential and held in private with the arbitrator (or arbitrators), rather than in a public court.

The History of Arbitration

Arbitration is old. Some would argue thousands of years old. It can certainly trace its origins to the 18th Century, and like most things in law, the early days of trade and the industrial revolution. The trusted source, ‘Wikipedia’, refers to arbitration being a feature of the ‘Jay Treaty’ of 1794, to tackle issues around the US / Canada border.

However, these days it’s used frequently in commercial disputes. It’s popular where parties want to keep their disagreements away from the courts but still resolve issues with a degree of certainty. The ‘New York Convention’ is often mentioned in relation to arbitration. That’s because the New York Convention of 1958 is actually called the, “Convention on the Recognition and Enforcement of Foreign Arbitral Awards”. 172 countries have signed up to this convention. In theory, this means that those countries will all enforce a decision made in a recognised arbitration.

Key features of Arbitration

Arbitration is private – this is one of the biggest selling features it has. Unlike court hearings, the outcome of arbitration will never be in the public domain unless there is a challenge to an arbitral award. This means that the costs, arguments, and outcomes will always remain private. This makes it very attractive to businesses for that reason. There is little risk of unpleasant headlines hitting the front pages of newspapers, etc.

It’s possible for parties to also select the ‘seat’ of their arbitration – where the decision is made. This has led to certain locations (such as London) being very popular for arbitration. Parties will look for a well-established legal system and a degree of ‘certainty’ or fairness in the arbitration process.

There are limited options for appeal, which means that upon reaching a decision, it will be final. And parties are able to select the arbitrator based on their skills, rather than risk having a judge appointed by a court. In many jurisdictions, judges may have little or no expertise in the field of the dispute.
However, compared to adjudication, the process is usually lengthier and more expensive and involves more parties. This can be off-putting to some, particularly those struggling to fund a legal dispute.

Enforcement can be a challenge. So you may have a satisfactory result in the process of arbitration. But then you might find that the local court, who have to enforce the award, may be unwilling to do so. There are certain scenarios under which courts are able to reject an arbitration decision. This tends to be a challenge in some international jurisdictions.

Who gets involved?

Some of the usual suspects will be there. Solicitors for each party, almost always, barristers (advocates) for each party, there are likely to be expert witnesses and witnesses of fact. Other consultants may also assist.

Most significantly, there will usually be an arbitrator or arbitrators. Often, there will be a panel of arbitrators. This is usually an odd number, to avoid issues where there is a difference in the opinion of one or more of the arbitrators. The arbitrator(s) will decide the outcome of the dispute.

How much does it cost?

This is a good question – isn’t it always?! Unlike adjudication, it is far harder to put a price of any sort on an arbitration. Much will depend on:

  • The quality of available records.
  • The size and scale of the dispute.
  • The nature of the project.
  • How many people get involved – solicitors, barristers, experts, etc.

The ICC have a calculator for arbitrator costs here.

Law firm Reed Smith also recently published a similar calculator, which is available on an app (very 21st Century!).

Conclusions and what’s new?

Recent innovations in arbitration are often linked to attempts to reduce the cost and time taken in arbitrations. Certain bodies such as the RICS have looked to do this through the use of ‘fast track’ or ‘expedited’ arbitrations. The aim perhaps being to compete with adjudication, but retain a process more suited to larger disputes.

The use of arbitration should normally be cheaper than going to court, but that’s not guaranteed. The process is still much more expensive as a rule, than adjudication, but then adjudication is not designed to be used in the same way as arbitration. Arbitration is more suited to larger, final account disputes, rather than decisions that will keep a project moving and cash flowing.

As always, if you need help with resolving a dispute or tackling a difficult final account, get in touch today. We will be happy to help you with the best route forward.