Arbitration is a procedure whereby an impartial tribunal decides a dispute between the parties by issuing a final and binding award in accordance with the principles of natural justice.
The construction industry is more familiar with Arbitration than say other industry sectors as, historically, standard form building contracts have always provided for Arbitration as being the default dispute resolution method in the event of a dispute. As a result, they are regarded as self-contained contracts within the building contract itself.
It means that if parties have submitted to Arbitration proceedings as part of any contractual engagement, then if a party issues court proceedings, these will be stayed pending the resolution of the Arbitration, save in limited circumstances whereby the Court’s intervention is necessary for a procedural matter.
In standard building contracts referrals to Arbitration tend to be the final stage in a dispute escalation procedure between the parties.
Arbitration agreements will often incorporate institutional arbitration rules, and will determine the “seat” of the Arbitration. In England and Wales the Arbitration Act 1996 will apply where the seat of the Arbitration is in England, Wales or Northern Ireland.
For Arbitrations involving JCT contracts the default position is that Arbitrations are conducted under the Construction Industry Model Arbitration Rules (CIMAR), whilst for NEC3 the parties are left to decide which rules they want to operate under.
The main advantages for domestic Arbitrations is flexibility (subject to submitting to any institutional rules, the parties can decide how they want the process to operate), privacy (the parties have the confidence that any proceedings will remain confidential), and finality (the scope of appealing an Arbitration award is extremely limited).
It is fair to say that within the UK there has been a sharp decline in the number of domestic Arbitrations. This is partly due to the rise and success of alternative dispute resolution methods such as mediation and statutory adjudication.
In an attempt to address problems concerning both the cost of and slowness of Arbitrations, the Society of Construction Arbitrators introduced a 100 day Arbitration procedure. This is an ad-hoc Arbitration procedure (i.e. is not governed by any institutional rules) and contracting parties are always free to opt for this fast track Arbitration procedure, not forgetting that if the Housing Grants, Construction and Regeneration Act 1996 applies to the contract then any agreement to submit to Arbitration is always subject to a party’s right to have the matter adjudicated first.