Most of you reading this blog are likely to have read a domestic main contract or sub-contract in the past few days (if not the past few minutes) under which a dispute has arisen. Many of you will also be saying to yourselves, “of course I know whether I can arbitrate my dispute under that contract you silly fool”, and will have already moved on to reading another blog (or possibly social media?).
However, some readers may have no experience of domestic construction arbitration. This may be because they qualified after the introduction of statutory adjudication in 1998 or because of the simultaneous improvements in the Technology and Construction Court (TCC), the combined effect of which has been a steep decline in the number of domestic construction arbitrations. If you fall into this category (or even if you don’t), you might want to read on.
There is no doubt about it, the number of domestic construction arbitrations is steadily creeping up again (and I recently wrote about the RICS’s new construction and engineering arbitration service). However, I’ve been asked a few questions recently which has made me realise that a lot of the knowledge that was built-up concerning domestic construction arbitration has been lost.
So, I thought I would start at the beginning…
Arbitration Act 1996
Before we start, I should make it clear that I’m not referring to international arbitration (and I include Scotland in that category), but only arbitrations where the “seat” of the arbitration is England, Wales or Northern Ireland. The “seat” determines the law governing the procedure of the arbitration, and in England, Wales and Northern Ireland the provisions of the Arbitration Act 1996 (AA 1996) apply.
The AA 1996 is the foundation of any domestic arbitration. It is excellently drafted and simply reading this clear and concise Act will give you a better understanding of the process of arbitration. The AA 1996 contains mandatory sections with which the parties must comply and non-mandatory sections that allow parties to make their own arrangements by agreement by providing rules which apply in the absence of any such agreement.
It sounds pretty obvious, but the parties must agree to arbitrate their dispute, rather than going to court, and that is done in the form of an arbitration agreement. The court may still have a role to play in matters such as securing the attendance of witnesses, determining preliminary points of law, granting stays and so on, but the substantive dispute will be decided by the arbitrator.
Sections 5 and 6 of the AA 1996 are mandatory sections concerning arbitration agreements and they make it clear that such agreements must be in writing. These agreements are often contained in the parties’ contract. For example, the following arbitration agreement is contained in the JCT Standard Form of Building Contract, 2011 Edition:
“Where Article 8 applies, then, subject to Article 7 and the exceptions set out below, any dispute or difference between the Parties of any kind whatsoever arising out of or in connection with this Contract shall be referred to arbitration in accordance with clauses 9.3 to 9.8 and the JCT 2011 edition of the Construction Industry Model Arbitration Rules (CIMAR).”
However, arbitration is not the default dispute resolution provision in JCT contracts, rather litigation is. Thus, the parties must expressly select arbitration. As Tony Bingham recently pointed out in Building magazine, perhaps it is time the JCT (and the other drafters of standard forms of contract) once again include arbitration as the default method of resolving disputes.
It is also important to note that under section 7 of the AA 1996, unless the parties have agreed otherwise, their arbitration agreement will be separable from the primary contract. Therefore, even if the primary contract is found to be invalid for some reason, the agreement to arbitrate will survive.
Ad-hoc arbitration agreement
Even if the parties do not have an arbitration agreement in their contract, there is nothing preventing them from agreeing to arbitrate at a later date in order to capitalise on some of the advantages that arbitration can offer over litigation. For example, the parties might not want their dispute to be public knowledge, and arbitration can offer them the privacy that litigation can’t. Alternatively, the dispute might be about a specific technical issue (for example, the integrity of bolts on a suspension bridge), and the parties may want an arbitrator who is an eminent structural engineer to decide it. I looked at other advantages in my recent blog on the RICS service.
I appreciate that once a dispute has arisen, parties often cannot agree on anything, but sometimes they might still see the benefit of arbitrating. Why not suggest it in future? All the parties have to do is record their agreement to arbitrate in writing, and the result will be an ad-hoc arbitration agreement.
The AA 1996 itself provides everything that the arbitrator and parties need for the arbitration to be run effectively, but nevertheless parties often like to adopt rules that put a bit more “meat on the bones” of the procedure. For example, JCT contracts refer to the CIMAR rules, and there are other alternatives such as the LCIA, ICC and the new CIArb rules.
RICS obviously wants parties involved in lower value disputes to choose their fast track arbitration rules. The parties may have expressly agreed to adopt these rules or, where no rules have been agreed, the arbitrator is free to impose them under his powers in section 34 of the AA 1996:
“It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter.”
But what if the parties have already agreed to use the another set of rules, for example the CIMAR rules? Could they still use the RICS fast track rules? The answer to that question is clearly yes, provided the parties agree and record that agreement in writing as an amended arbitration agreement.
As with adjudication, a dispute must have arisen in order to effectively start an arbitration. Jackson J (as he was then) summarised the requirements of a dispute in Amec Civil Engineering Ltd v Secretary of State for Transport. These can be summarised as follows:
- Notification of a claim does not automatically and immediately give rise to a dispute. A dispute does not arise until it emerges that the claim is not admitted.
- The circumstances in which a claim may not be admitted include:
- an express rejection;
- discussions from which it can be objectively said that a claim is not admitted;
- prevarication; or
- silence giving rise to a suggestion that a claim is not admitted.
- The period of time for which a party may remain silent depends on the facts of the case and the contract. Where the gist of the claim is well known, a short period may suffice. Where the claim is notified to an agent who has an independent duty to consider the claim, a longer period may be required.
- If a deadline is set for a response, it does not have the automatic effect of curtailing what would otherwise be a reasonable time for responding although the court should consider it.
- If a claim is so ill-defined that a party cannot sensibly respond to it, neither silence nor an express rejection is likely to give rise to a dispute.
Statutory limitation periods apply to arbitration. It is also worth bearing in mind that the parties’ contract or the chosen arbitration rules might impose a time limit for commencing arbitration proceedings. For example, the JCT suite of contracts provide for a final certificate to be conclusive regarding certain matters unless proceedings are started within a certain time. The AA 1996 provides the courts with limited discretion to extend such contractual time limits (section 12 AA 1996).
Notice of arbitration
There might be certain procedural steps that need to be followed before commencing an arbitration, for example it might be necessary to have mediated beforehand, or to have served a claim in a particular format. However, once any procedural steps have been followed, then an arbitration will be commenced on the service of a notice of arbitration (section 14 AA 1996). Even if there are no specific requirements for the notice of arbitration, it should:
- Comply with the requirements of section 14 of the AA 1996.
- Clarify what is required of the other party (for example, to agree the identity of the arbitrator).
- Specify all matters in dispute to be determined in the arbitration. It is advisable to draft the notice as widely as possible in order to incorporate all conceivable disputes.
- Follow any contractual requirements as to the form and content of the notice, as well as where and on whom it should be served, otherwise the arbitrator might not have jurisdiction.
If the parties cannot agree on the identity of the arbitrator, then they can apply to the appointing body specified in the contract (if there is one).
So there you have it. A brief summary of whether you can arbitrate your dispute and how to commence the arbitration. Or, as some of you might be thinking, a brief summary of how grandma is to suck eggs.