Arbitration or Adjudication?

© Daniel Atkinson

Arbitration has a long history of being the preferred method of resolving construction disputes.  It is usually adopted as an alternative to bringing an action in courts of law. The arbitration process is frequently expensive and lengthy and simply mimics litigation.  It need not be so. The success of adjudication in the UK points the way that arbitration should develop.Arbitration is a method of settling disputes by referring the issue to a tribunal of one or more persons appointed for that purpose by the agreement of the parties.  The tribunal’s decision is final and binding on all the parties.  The origins of this system can be traced back to the ancient Greeks and was refined by the Romans.  It developed in England as a means for merchants and traders to avoid the courts.  The emphasis was on speed, simple procedures and privacy.  The arbitrator chosen was usually a respected merchant familiar with trading practices and with a reputation for fairness.Does this sound familiar?  The above could easily be a description of Adjudication as it has developed in UK today.  It is perhaps an indication of the failings of modern arbitration in the UK construction industry that adjudication is now necessary and has re-invented arbitration of old.Traditionally the Courts have not looked favourably on arbitration, and various enactments have attempted to regulate the process.  The rise of international arbitration has seen a more enlightened approach in modern times.  It was seen that international arbitrations had a major commercial advantage as a uniform process largely independent of the local legal systems. The United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (the ‘New York Convention’) has been adopted by many countries and is free from the intervention of any State. It is a consensus document and therefore represents a common standard.  The New York Convention creates the structure for international arbitration and is said by commentators to be the most effective instance of international legislation in the history of commercial law.

The effect can be seen in England in the Arbitration Act 1996.  The Act is a significant departure from previous enactments and recognises the developments in international arbitration.  Section 1 sets out the principles which apply and states the object of arbitration as

“..fair resolution of disputes by an impartial tribunal without unnecessary delay and expense

Section 34(2) allows the Tribunal to decide the procedure to be adopted.  The Tribunal is allowed to decide whether there are to be written statements of claim and defence, production of a party’s documents for inspection or cross-examination.  The Tribunal even has the power to decide whether the strict rules of evidence apply and whether it will take the initiative in ascertaining the facts and the law.

Unfortunately the possibilities created by the Arbitration Act 1996 have not been realised.  Tribunals have been reluctant to take the initiative in construction disputes.

The way forward is shown by the success of adjudication under the Housing Grants Construction and Regeneration Act 1996.  The courts have developed adjudication law so that the process could easily be considered as arbitration under the Arbitration Act 1996.  So for instance, the rules of natural justice apply, the Adjudicator must be impartial and act fairly and he can ascertain for himself the facts and law.  The major difference with arbitration is that the timescales are set down for the Adjudicator’s decision and the parties meet their own costs unless they agree otherwise.  There is no reason why tight timescales should not be adopted in arbitration since the avoidance of unnecessary delay is one of the primary objectives under the Arbitration Act.  As to costs, Section 63(1) allows that parties to agree what costs of the arbitration are recoverable.

I suggest that it is time for the various Institutions which publish Rules of Procedure adopted as standard in many arbitrations, to take a more robust and innovative approach and re-draft their rules taking into account the experiences of adjudication.  The parties can themselves, of course agree procedures either on formation of contract or later and do not need to wait for the Institutions.

The one significant difference between adjudication and arbitration is that the arbitration award is final and binding, unless agreed otherwise by the parties (Section 58(1) of the Arbitration Act 1966).  Adjudication by contrast is binding only until the dispute is finally determined by legal proceedings or arbitration as appropriate (Section 108(3) of HGCR Act 1996).  The parties may agree otherwise since Section 108(3) of HGCR Act 1996 also allows the parties to agree to accept the decision of the adjudicator as finally determining the dispute.

It is possible therefore for the parties in the UK construction industry to achieve the objectives set out in the Arbitration Act 1996 without recourse to arbitration at all, but by adopting suitable Adjudication Procedures and by operation of the agreement under Section 108(3) of the HGCR Act 1996.  Indeed many parties have gone through the process of adjudication and concluded that an arbitration Tribunal would not give a significantly different answer, even after a lengthy arbitration.  They then simply accept the Adjudicator’s decision as final and take no further action.

The Adjudication process has superseded arbitration as the construction industry’s preferred method of resolving disputes since it is true to the roots of arbitration.  This development can be consolidated by agreements making the Adjudicator’s decision final and binding.  The Arbitration process still has a part to play in resolving commercial disputes, but it must develop.  The opportunities presented in the Arbitration Act 1996 allow the experience gained in Adjudication to be immediately put into effect by adopting procedures closer to the principles and objectives stated in Section 1 of the Arbitration Act.

Written by D. Atkinson on 21st Aug 2001