What Is Construction Arbitration?
Construction disputes are often complex, involving multiple parties, technical issues, and significant sums of money. Arbitration provides an alternative to court litigation, offering a private, flexible, and enforceable means of resolving such disputes.
What Is Arbitration?
Arbitration is a binding dispute resolution process in which the parties refer their dispute to an independent tribunal, rather than a judge in court. The arbitrator (or panel of arbitrators) reviews the evidence and makes a final decision, known as an award, which is legally enforceable.
Unlike litigation, arbitration is private and confidential, making it an attractive option for businesses that want to avoid public disputes. It also allows parties to choose arbitrators with specific expertise in construction law, engineering, or project management.
How Does Construction Arbitration Work?
The Arbitration Agreement
Arbitration is a contractual process, meaning both parties must agree in advance to resolve disputes through arbitration rather than court proceedings. This agreement is typically included as a clause in a construction contract or as a separate arbitration agreement after a dispute arises.
Selecting the Tribunal
The arbitration process is managed by an arbitral tribunal, which may consist of a single arbitrator or a panel. The parties can agree on the arbitrator(s), or a neutral appointing body (such as the London Court of International Arbitration (LCIA)) may appoint them.
The Arbitration Procedure
The process varies depending on the contract, the agreed rules, and the applicable law, but generally follows these steps:
commencing arbitration – one party submits a notice of arbitration to the other;
exchange of statements of case – each side presents its case, setting out the legal arguments, facts, and evidence in documents called statements of case;
hearing(s) - whilst some arbitrations are decided based on written submissions alone, most involve hearings where witnesses and experts give live oral evidence; and
the award – The tribunal issues a written decision, which is legally binding.
What Are the Advantages of Construction Arbitration?
expert decision-makers – arbitrators with construction expertise can better understand technical issues;
confidentiality – unlike court proceedings, arbitration is private, protecting commercial relationships and reputations;
flexibility – parties can agree on procedural rules, the seat of arbitration, and the language used;
finality – awards are difficult to challenge, reducing the risk of lengthy appeals; and
international enforceability – awards can be enforced in over 160 countries under the New York Convention.
Are There Any Disadvantages?
cost – while arbitration can be cheaper than litigation, tribunal fees and administrative costs can be high and so it has every potential to end up more expensive than litigation;
limited appeals – the scope for challenging an arbitration award is very narrow, which is an advantage if you win, but an obvious disadvantage if you lose; and
timeframe – arbitration can sometimes take as long (or longer) as court litigation, depending on the complexity of the dispute and the availability of the arbitrator(s)
Conclusion
Arbitration is a widely used and highly effective method of resolving construction disputes. It offers confidentiality, expert decision-making, and international enforceability, making it a preferred choice for many construction contracts.
If you are facing a construction dispute and want to explore whether arbitration is the right approach, seeking prompt legal advice from a specialist construction law firm can help you understand your options and the best strategy for your case from the outset.