Our APC experts show you how to tackle those difficult questions
This week’s question focuses on dispute resolution procedures (A015 Conflict Avoidance, Management and Dispute Resolution Procedures), what different procedures entail and why the latest JTC2005 suite of documents has omitted arbitration in favour of litigation. As with previous topics, the question could be answered at level 1, 2 or 3. The question does not cover the whole competency and is challenging in that at level 3 it calls for knowledge of why industry preferences on dispute resolution have changed over time. To demonstrate this, the candidate will need to have been alert to developments in this area over a number of years.
Question Can you explain to me what you understand by arbitration as opposed to other forms of dispute resolution procedures?
The candidate should seek to demonstrate a basic understanding of the key dispute resolution procedures including:
- Negotiation The parties may through an informal private or facilitated negotiation process agree to settle the dispute either at a high level or in detail and agree to be bound by this settlement
- Mediation and conciliation Mediation involves a neutral mediator finding middle ground between the parties with the aim of achieving a negotiated settlement. Conciliation is similar but the conciliator will be empowered or required to express his views of the case or issues.
- Adjudication Adjudication is a UK statutory dispute resolution procedure. It is a relatively quick process of 28-42 days from submission of referral and it is binding until the dispute is finally determined by litigation, arbitration or by agreement. It is not dissimilar to a simplified arbitration process and hence has taken away some of the advantages of arbitration.
- Independent expert determination An independent third party is employed to decide the dispute between the parties. The expert’s decision will generally be binding on the parties.
- Arbitration Arbitration is a private dispute resolution process that baring serious irregularity or error of law is binding with no appeal to the courts.
- Litigation Resolution of disputes in public courts following statutory procedure.
Question Can you explain in greater detail the key differences between arbitration and litigation procedures?
At the next level the candidate needs to demonstrate a greater level of detailed knowledge of each procedure and be able to put together a reasoned comparison of the two.
Arbitration Arbitration has a long history in the UK and traditionally was always the forum for disputes where the issues involved specialist or technical knowledge. There is a vast amount of law associated with arbitration but the most important legislation is the Arbitration Act 1996. In order to arbitrate there must be an agreement by both parties to arbitrate. The arbitrator/s and the parties have a wide degree of discretion as to the way in which the proceedings are conducted, generally though it follows a procedure much like that in litigation i.e. formal submissions by the parties, expert evidence, hearings and then a decision by the arbitrator. Key advantages of arbitration over litigation are:
- It is a private process and therefore confidentiality is preserved
- It utilises a specialist arbitrator selected for their competence in the areas that form the core of the dispute
- The arbitrator and the parties have some flexibility over the procedure
- Arbitration awards are generally easier to enforce, particularly overseas
Litigation Litigation involves the presentation of the respective arguments in the courts. It is a public process and therefore there is a lack of confidentiality. The process must follow the statutory procedure which in the Civil Courts is known as the Civil Procedure Rules (CPR). Key advantages of litigation over arbitration are:
- The parties do not pay for the judge or court
- The process can deal with multi-party disputes
- The Civil Procedure Rules aim for accessibility, speed and efficiency in resolution of disputes
Question Why to you think the JTC2005 suite of documents has dropped arbitration in favour of litigation as a form of dispute resolution?
Arbitration is intended to have several advantages over litigation, namely it is private, and arbitrators can be and would generally have practical experience of construction or construction law. It is also meant to be cheaper, but as the parties have to pay for the arbitrator/s and the venue (the court and judges would be free in litigation), it rarely works out cheaper in practice. Despite the well-drafted and clear Arbitration Act 1996, over recent years the arbitration procedure has been getting more and more like litigation with arbitrators following the Civil Procedure Rules even closer.
Over these years litigation has also improved. Judges at the construction courts (the TCC) are often construction specialists (coming from construction law background) or have become familiar with construction by working at the TCC. Sweeping changes to the rules of courts following recommendations from the Woolf Report – called the Civil Procedure Rules (CPR) – have improved the speed of litigation, reduced the cost and improved the chances of early settlements, particularly with the encouraged use of mediation. The increased use of the adjudication process has also meant that not so many cases reach the courts and hence the TCC has capacity to hear trials with less delay (it used to take months or years to book a slot). Adjudication is not dissimilar to a simplified arbitration process and hence has further taken away some of the advantages of arbitration.
The improvements in the litigation process and the increased use of adjudication have eroded the benefits of arbitration and resulted in a gradual reduction in its selection as a form of dispute resolution. The use of the JCT amounts to well over 50% of all standard forms and is a major driver in the use of particular disputes resolution procedures. Although it is still possible to select arbitration in favour of litigation (litigation is the default procedure not the only procedure) most contracts are largely un-amended and hence litigation is increasingly selected. It should, however, be noted that JCT is largely a UK contract. Arbitration is still widely used and can often be the best solution internationally, particularly in parts of the world without a reliable legal or court system.
Building's APC advice is intended as a guideline only and should not replace your own study.