Should you choose arbitration or High Court for your dispute resolution clause? Steep rises in court fees have made the choice trickier
The dispute resolution clause rarely features high on the list of key issues to be negotiated before contracts are signed. Should disputes go to High Court or to arbitration? Many contract managers will yawn and move onto more pressing issues. Yet the choice of one or the other can have important consequences. And since March there has been a new factor to consider, namely the steep rises in court issue fees.
Arbitration has had a tough time for many years, on the domestic front at least. It has always been seen as having the advantage of confidentiality. People also used to see it as quick and cheap. Then, 17 years ago, adjudication arrived, to show everyone what quick and cheap really meant. At the same time, the High Court – the Technology and Construction Court (TCC) in particular – got its act together to promote case management, pre-action protocols and semi-compulsory mediation. Now it also provides for costs budgeting. In 2005, the JCT acknowledged the decline in arbitration by changing its contracts so that it was no longer the default choice.
Meanwhile, arbitrators themselves have not always covered themselves in glory. In Wicketts vs Brine Builders and Another (2001) a quantity surveyor-arbitrator was removed by the court for failing properly to conduct the proceedings. He had ordered both parties to provide substantial security for the others’ costs of the arbitration (and for his own fees, into the bargain). This was despite the fact that neither party had actually applied for any such orders. The judge said that he had a “pitifully inadequate comprehension” of his function as an arbitrator.
The increases in court fees were implemented largely to subsidise the loss-making Family Division of the High Court, though it is not clear why commercial litigants should pay for that
In another case (Norbrook Laboratories Limited, 2006), an engineer-arbitrator telephoned three witnesses direct to take statements from them. Unfortunately, he failed to keep any notes of his telephone conversations with those witnesses. The court held that he had not conducted the proceedings fairly, and removed him. Recently (Sierra Fishing Co vs Farran and Others, 2015), the court removed a non-UK lawyer-arbitrator because of potential partiality. His father’s law firm had been an adviser to one of the parties, yet the arbitrator thought that it was not up to him to make full disclosure of all of the relevant circumstances.
However, the High Court has certainly shot itself in the foot with the large hikes in issue fees that came into force in March. It now costs £10,000 to start any claim in excess of £200,000 – which is a fairly small claim by TCC standards. The fee rises were controversial, even among many of the judiciary. The increases were implemented largely to subsidise the loss-making Family Division of the High Court, though it is not clear why commercial litigants should pay for that. The fees will be a substantial up-front cost, especially for smaller companies. The previous argument for litigation – that the courts are very cheap, whereas arbitrators have to be paid – now applies with less force than previously.
In its favour, arbitration can boast a certain ease and informality. The parties are generally free to adopt whatever procedure they want. Some arbitration rules provide for the whole arbitration to be “documents only” if certain criteria are satisfied. Procedural applications to arbitrators can often be made by email and dealt with promptly in writing. And, despite the horror stories mentioned above, most arbitrators manage to get to the stage of publishing their award without being removed.
If domestic arbitration is to return to its earlier position of pre-eminence, however, there is one other problem that it may find difficult to surmount. That is the problem of multi-party proceedings.
If a contractor blames the design team for inadequate or late information, and the design team blames the contractor for misinterpreting the information, an employer can always join both parties to the same High Court action, so that it does not end up falling between two stools. This is not possible with arbitration, unless the building contract and all the professional appointments contain mechanisms for joint arbitration. In practice, it is tricky to draft this to cover all eventualities. So going to court would need the agreement of all parties.
So which is the best option to choose? Litigation probably still has the edge, but the new court fees may help to persuade the undecided to try arbitration instead.
Ian Yule is a partner in Weightmans