Arbitration in Construction contracts

Alternative Dispute Resolution – ADR

ADR has been introduced to resolve disputes in construction contracts outside the Court system. It has come to play a very significant role in resolving disputes today.

What does ADR mean? Any method of resolving disputes, other than those adopted by the courts of law as part of the system of justice established and administered by the State.

The term includes all forms of alternative dispute resolution which involve the participation of a third-party neutral, whether in a determinative or non-determinative capacity.

• ADR mechanisms come in as many forms as can be thought up by the parties.
• It is difficult to generalize such methods.
• They have widely different meanings depending on their context of use or the judicial tradition within which they have developed.
• Several standard methods have now become part of popular usage. They all have one or more of the basic features set out above.

Forms of ADR

• Arbitration
• Conciliation 
• Mediation
• Negotiation
• Adjudication
• Dispute Resolution Boards

The Key Difference between Arbitration and other forms of ADR

Traditionally, the distinction between the two was drawn on the basis that in an arbitration the tribunal must act judicially whereas in other forms of ADR, an expert/neutral 3^rd party decides according to his expertise or helps resolve the dispute by enabling the disputing parties to reach a mutually acceptable solution.

Arbitration

• Arbitration is an established method of determining commercial disputes.
• Arbitration is a private method of dispute resolution, chosen by the parties themselves as an effective way of putting an end to disputes between them without recourse to the Courts of law.

What is arbitration?

• Halsbury’s Laws of England – ‘The process by which a dispute or difference between two or more parties as to their mutual legal rights and liabilities is referred to and determined judicially and with binding effect by the application of the law by one or more persons (the arbitral tribunal) instead of a court of law’
• Black’s Law Dictionary – ‘A process of dispute resolution in which a neutral party renders a decision after a hearing at which both parties have an opportunity to be heard. Where arbitration is voluntary, the disputing parties select the arbitrator who has the power to render a binding decision’

Characteristics of arbitration

• It is an alternative to litigation.
• A private mechanism for dispute resolution. It is voluntary between the parties.
• It is selected and controlled by the parties – Party autonomy.
• The decision of the arbitrators is final and is binding on the parties.

Advantages of arbitration

• Disputes can be resolved faster than through Courts.
• Speed reduces the cost.
• Control over the process and procedures.
• Ability to choose arbitrators who are experts in the area of dispute.
• Confidentiality.

Key Features of Arbitration

• Arbitration is a feature of the contract, in that the parties must agree in writing to arbitration.
• The contractual basis of arbitration means that it can be structured by the parties to meet the specific needs of their relationship.
• The parties can set out the powers of the arbitrators, their jurisdiction, their qualifications, and any other matters the parties feel are relevant to their contractual relationship.
• Arbitration provides for confidentiality, choice of language, and choice of site for the arbitration.
• The parties can choose a neutral site or a site where the witnesses and documents are available or a convenient location.
• The binding nature of the award means that the parties must honour the award.

Agreement to arbitrate

• If the parties to a contract have agreed in writing that disputes in relation to that contract shall be referred to arbitration, then such disputes shall be settled by arbitration.
• Thus, to invoke the arbitral process, the contract between the parties must have a clause whereby the parties have agreed to refer their disputes for resolution by arbitration.
• In the alternative, there can be a separate agreement between the parties where they have agreed that any dispute between them arising under another contract shall be referred for arbitration.
• An agreement to arbitrate is the foundation stone of commercial arbitration.
• It serves to evidence the consent of the parties to submit to arbitration. This consent is indispensable to the process of settling a dispute, which depends on the agreement of the parties for its very existence.
• The arbitration agreement establishes the jurisdiction of the arbitral tribunal.
• An agreement to arbitrate shows that the parties have consented to resolve their disputes by arbitration.
• The element of consent is essential.
• Once the parties have consented to arbitration, this consent cannot be unilaterally withdrawn.
• Even if the Contract between the parties comes to an end, the obligation to arbitrate survives – the severability of the arbitration clause.

What is an arbitration agreement?

• An arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them.
• An Arbitration Agreement may be in the form of an arbitration clause in a contract or the form of a separate contract.

The arbitration clause

When drafting an arbitration clause/agreement, care needs to be taken to ensure that it is appropriate for the particular circumstances of the case.

One of the briefest arbitration agreements to be reported merely stated: ‘Arbitration to be settled in London’- Tritonia Shipping Inc vs South Nelson Forest Products Corporation (1966 

What is an Ad hoc arbitration 

Ad hoc arbitration is one which is not administered by an institution.

Institutional arbitration 

An institutional arbitration is one in which a specialized institution with a permanent character intervenes and assumes the functions of aiding and administering the arbitral process, as provided by the rules of that institution.