ARBITRATION

What is arbitration?

Arbitration is similar to court proceedings but without the potentially quite long wait for a hearing date and usually with a simplified procedure[2].

What governs the arbitration?

Arbitration is governed by an agreement to arbitrate, usually found in the contract that is the subject of the arbitration together with the Arbitration Act 1996 (referred to as ‘AA 1996’ below).  A comprehensive arbitration provision sets out the following.

• The types of disputes that will go to arbitration.
• The number of arbitrators (usually one).
• The body who is to nominate the arbitrator[3] or less often named arbitrators.
• What institution’s rules apply, if any[4].
• The nationality of the ‘seat’ of arbitration, see below. The nationality of the seat of the arbitration dictates which arbitration statute applies to the arbitration.  If the seat is England or Wales AA 1996 applies[5].
• The arbitration provision does not need to state that the arbitration will be binding, because AA 1996 provides for that.

The only essential provision is an agreement to determine specified types of dispute by arbitration.  If any other provisions are lacking AA 1996 rides to the rescue allowing the courts to set the arbitration up and the arbitrator to do the rest[6].  Specifying the number of arbitrators, setting out the nominating body and providing for the seat of arbitration is sensible though, because needing to use the courts will add to the cost and delay the arbitration.

How long does arbitration take?

The quickest arbitration is probably a 100 day procedure[7].  This is comparable to expedited court proceedings, but can usually be commenced more quickly than court proceedings.

How expensive is arbitration?

The arbitrator is usually paid an hourly rate and overall an arbitration is probably slightly cheaper than court proceedings.

Is an arbitrator’s award binding?

If a contract contains an arbitration provision and a party tries to take the matter to court the court will stay proceedings.

An arbitrator’s decision must be in writing under AA 1996 and is called an award.  The subject matter of an award cannot be reheard by the courts.  It will be enforced by way of summary judgement unless a party can show one of the narrow grounds for non-enforcement set out in AA 1996.  These are the following.

That the award is incomplete in not addressing an issue in dispute, for example perhaps not addressing part of the defence’s case, or that it contains a clerical error or an ambiguity.
That the arbitrator did not have substantive jurisdiction, for example because they dealt with something other than the referred dispute or they were not nominated by the correct body.
That there was a serious irregularity in the arbitration, for example because the award was obtained by fraud or that proceedings were not conducted in accordance with a procedure set down by the arbitrator.

However in the party must generally raise these challenges in the arbitration itself at the earliest possible occasion and following the award there is only a 28 day window to raise further challenges.

Under AA 1996 an award cannot be challenged because it is wrong in law [8].

Are there other advantages to arbitration?

The award is confidential.  A court case is usually held in public and their order is not confidential.

EXPERT DETERMINATION

What is expert determination?

The procedure for expert determination is considerably less formal than arbitration.  It may simply consist of submissions to the expert by both parties, sometimes with a ‘right of reply’ and with the expert then issuing their determination.

What governs expert determination?

As with arbitration, expert determination is governed by the agreement to appoint them.  Here however neither AA 1996 nor any other Act rescues parties who have not put their minds to equipping the expert with everything that they need to make a binding determination.

The expert determination provision should contain all of the following:

• The types of disputes that will go to expert determination.
• An agreement that the expert is an expert not an arbitrator.
• The number of experts, usually one.
• The body who is to nominate the expert[9] or less often the named experts.
• A requirement that the expert provides a written determination, usually within an agreed timescale.
• A provision to deal with what happens if the expert dies or becomes incapable.
• Procedural rules (number of submissions, etc.) or a provision stating that the expert can dictate these.
• Requirements that the parties produce evidence for the expert.
• Agreement as to whether or not the expert can award interest or costs.
• An agreement that the expert’s determination will be final and binding, usually in the absence of manifest error or fraud, sometimes also in the absence of compliance with natural justice or provided that they act fairly.

If there is no ‘final and binding’ statement the expert’s determination will not be final and binding and either party is free to go to court for a full hearing of the case.  There may however be a costs penalty[10].  If there is no statement that the expert is not an arbitrator the courts are quite likely to find that the expert is an arbitrator with AA 1996 applying to them.

If there is a clear intention to specify an expert and not arbitrator for the dispute in question but other provisions are lacking the parties will have to go to court for a declaration of what provisions apply.  This is an expensive and uncertain process because there are no statutes and only very slender case law to assist them.

How long does expert determination take?

The expert’s determination can be issued very quickly, perhaps a week or two following the final parties’ submission.  This is a particularly attractive feature. 

How expensive is expert determination?

The expert will charge an hourly rate and given the simpler procedure costs will be lower than those of arbitration.  This is another attractive feature.

Is an expert’s determination binding?

If a contract contains a final and binding expert determination provision and a party tries to take the matter to court the court will stop the proceedings to allow the expert to proceed.

If the expert’s determination is stated as final and binding without more it can only be challenged on the following, very narrow grounds:

• Fraud or collusion.
• Partiality which leads to a real danger or injustice (as opposed to merely apparent or technical lack of independence).
• Material departure from instructions, obviously including ‘answering the wrong question’.

Qualifying ‘final and binding’ by ‘save in the case of manifest error’ adds a further ground, but the error must be wholly manifest such as an incorrect addition, not just a mistake in the law.
Qualifying ‘final and binding’ with ‘save where the expert has not complied with natural justice’ or ‘save where the expert has acted unfairly’ adds a more useful ground, for example potentially quashing a determination where an expert does not provide a party with a right of reply.

However the overall problem with expert determination is the very limited right to challenge and uncertainty of success because of limited case law.

Are there other advantages to expert determination?

An expert’s determination is also confidential.

Are there any alternative dispute resolution procedures?

There are limited alternatives.

Some contracts contain contractual Construction Act adjudication provisions, see our piece on Using the Construction Act to Enforce or Resist Payment[11] and many contracts with consumers contain industry specific adjudication provisions[12].  Contractual adjudication provisions are generally enforceable as if they were an arbitration agreement governed by AA 1996 and if a party ignores the adjudication procedures by going straight to court the court will probably stay proceedings.

Many contracts require initial mediation[13].  Contractual mediation is not enforceable, but a party failing to use it prior to going to court will probably be penalised by the court on costs[14].

Arbitration or expert determination – which is most appropriate?

When choosing between arbitration and expert determination you get what you pay for and you are stuck with the consequences.

Arbitration may give you a better quality process and decision, with support from AA 1996 when things go wrong.  It does however take time and will be more expensive.  Arbitration is suitable for disputes where the evidence is less straight forward or legal issues are more complex.
An expert’s determination is quick and cheap but might be wrong and perverse.  It all comes down to the quality of expert and the parties need to focus on appointing an appropriate expert.  Expert’s decisions are very useful in determining disputes where there is a single issue which a particular professional is well qualified to determine.

Drafting the provisions

Having made your choice, you need our firm or other solicitors well-versed in alternative dispute provisions to draft the provisions agreeing to this.

The parties need to put their minds to what disputes will be settled with going to court.  ‘Any dispute or claim arising out of or relating to this contract’ means what it says – everything relating to the contract.  The parties might not in fact want that because some contractual issues might have to be dealt with by the courts[15].
Provisions relating to expert determination need to be comprehensive and sufficiently tailored to deal with the dispute in question.

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[1] We are dealing with domestic and not international arbitration here.  International arbitration follows different rules under AA 1996 and is of a different character.

[2] A simple arbitration would consist of a meeting to set out the procedure and timescales, a statement of case, a statement of defence, a reply to defence and counterclaim perhaps with a site visit with the parties and usually with a hearing following that.

[3] There are very many nominating bodies, for particular industries, such as the Royal Institute of British Architects to bodies with more general commercial scope, such as the Chartered Institute of Arbitrators.

[4] For example, the LCIA rules – http://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2014.aspx.

[5] For the avoidance of doubt the ‘seat’ is where the arbitration is ‘rooted’.  The substantive law of the arbitration may be that of a different country as may the place where the arbitration actually takes place.

[6] AA 1996 also provides the arbitrator with powers to obtain evidence, call witnesses, award interest and costs, etc. and deals with problems in the progress of the arbitration, such as the death of the arbitrator.

[7] The procedure in the Society of Construction Arbitrators 100 day arbitration is set out in https://www.constructionarbitrators.org/rules/100-day.            

[8] AA 1996 does in fact allow challenges on points of law but as a matter policy the courts will only allow this if there is an overriding public interest in challenging an award.

[9] There are very many nominating bodies, for particular industries, such as the Royal Institute of British Architects to bodies with more general commercial scope, such as the Chartered Institute of Arbitrators.

[10] This is particularly the case now that the courts are seeking to encourage alternative dispute resolution, even where there are no contractual provisions requiring it.

[11] For example the JCT Homeowners Contract and contractual Construction Act adjudication provisions are also common where there is likely to be an underlying dispute between a party and a contractor who is statutorily entitled to refer the dispute to Construction Act adjudication.

[12] For example, adjudication to settle disputes with the British Association of Removers http://www.bar.co.uk/index.php/newsletter/issue-148/.

[13] For example, by way or senior staff working for the parties or by way of an independent mediator trying to settle the dispute.  Some long term construction projects, Crossrail perhaps, set up permanent dispute resolution boards which seek to identify and resolve disputes as they arise.

[14] This is particularly the case now that the courts are seeking to encourage alternative dispute resolution, even where there are no contractual provisions requiring it.

[15] Common examples of these are umbrella arbitration provisions favoured by some landlords in leases, presumably because they think that they will make dispute resolution quicker.  Given the statutory need for court orders, for example in the case of forfeiture, an umbrella arbitration clause does not assist speed.  It could in fact be a significant clog.