Don't bring back arbitration

Arbitration was the default final dispute resolution forum in older standard form contracts. Tony Bingham has made an appeal for it to be restored to that position. Tony is right to raise this issue now because the new Construction Act will require some re-drafting of dispute resolution provisions.

Tony argues that it was a “mistake” to make litigation the default forum and that the arbitration clause needs to be “put back”. He also suggests that arbitration would result in quicker, more economical construction dispute resolution by the industry’s peers. It is not clear what empirical evidence there is for this. Nor is it fair to suggest that an arbitration clause needs to be put back: most forms provide for the parties to opt into arbitration if they choose. As to the suggestion that arbitrators are the industry’s peers, it doesn’t wash. Few arbitrators come from an employer or contractor background - there are some architects, engineers and quantity surveyors who are arbitrators, true, but there are many more lawyers.

Moreover, recent reports based on research conducted by the School of International Arbitration at Queen Mary University London say businesses are disappointed with the performance of arbitrators at the international level. The research found that parties felt disputes were being decided by arbitrators lacking industry knowledge. It also highlighted bad decisions, delays, lack of independence, bias and excessive fees as problems. Against this background why would anyone advocate reverting to arbitration domestically? Arbitration may be appropriate for resolving some disputes, but there is a strong case against arbitration that deserves a hearing. Here are some reasons why the drafting committees of the standard forms should not change the status quo …

Arbitration can be more expensive than litigation. A simple dispute between two parties involves the parties’ costs and the costs of the arbitrator - and arbitrators don’t come cheap.

Unlike judges, arbitrators have a vested interest in disputes remaining undecided for as long as possible, which can make them reluctant to take control.

Arbitrators lack the powers courts have - for example, to award injunctive relief, coerce reluctant witnesses, strike out bad cases and give summary judgment. This prolongs arbitrations and reinforces arbitral reluctance to control (let alone expedite) the process.

The lack of powers, combined with arbitration’s tendency to procedural flexibility, can create a counter-productive informality. For example, arbitration is less rigid in applying rules of evidence. This only benefits unscrupulous lawyers and parties.

Unlike judges, arbitrators have a vested financial interest in disputes remaining undecided for as long as possible, which can make them reluctant to take control

Unless the contract contains special provisions, arbitration is no good at dealing with multiparty disputes. This is particularly difficult for those faced with having to resolve disputes where liability often turns on complex questions of causation.

Unless the parties agree on an arbitrator, it’s a lottery who will decide the dispute

Arbitrators’ awards often take a long time to be published. They are also less well reasoned than court judgments because arbitrators don’t have the same experience of crafting judgments as judges do.

Enforcement of arbitral awards is another issue: it can be more complicated and slower than enforcing a court judgment.

So at every turn there are good reasons why arbitration might not be the best way to resolve disputes. The fact is, adjudication has made arbitration all but obsolete for domestic disputes. It has also relieved the Technology and Construction Court’s schedule so that it can deal more quickly and effectively with disputes than ever before. Why, then, re-route disputes to arbitrators when the court now has the timetable and the teeth to provide what is arguably the best construction dispute resolution service in the world? If the drafting committees were to wave their wands and make Tony’s dream come true, the result would be longer, more expensive, less open and less predictable dispute resolution for the industry.

Nick Lane is a partner in the construction group at Olswang