Arbitration vs litigation in construction disputes

If there has been a breach of contract or there is a tortious issue in construction proceedings (i.e. professional negligence) then the innocent party will normally wish to commence proceedings to obtain a remedy for any loss they have suffered as a result. There are numerous means through which construction disputes can be resolved – two of the principles means are, however, litigation through Her Majesty’s Court and Tribunal Service (HMCTS) or arbitration. Arbitration is a private forum in which an independent contractor is contracted to make a decision on the dispute. The outcome of the arbitration process is binding and final on both parties. Both litigation and arbitration have their various advantages and disadvantages. This post will therefore look at these relative advantages and disadvantages and examine the circumstances in which it may be appropriate to issue a claim in one forum rather than the other.

The first thing to consider in an examination of whether litigation or arbitration is appropriate is whether there is an “arbitration clause” in the contract between the parties engaged in the dispute. If there is such a clause then the parties must use the arbitration process rather than litigate through the courts, unless they agree otherwise. If there is no “arbitration clause” then the parties are free to choose which method they deem suitable in the circumstances. Should an “arbitration clause” exist then if one party attempts to issue in Court rather than resort to arbitration the other party can make an application to stay the claim so that arbitration can take place. Under s.9 of the Arbitration Act 1996 the Court must stay the process if it is satisfied that there is such an “arbitration clause” (if specific circumstances do not exist that prevent the matter being stayed).

Secondly, it is difficult to make a direct comparison between arbitration and litigation as there are many forms of arbitration. The form of arbitration appropriate in the circumstances will therefore change the relative advantages or disadvantages of both processes.

The advantages and disadvantages of both are discussed below:

Cost

Litigation can be an expensive process. Lawyer’s fees, court fees, and expert witness reports can quickly rack up the costs – not to mention the cost of a trial itself. Arbitration can potentially offer a cheaper way of resolving a legal dispute, for example in a short informal process without a formal hearing. However, if the matter is complex then it can potentially be far more expensive than the court process as the parties must pay for the arbitrator’s time and hiring the venue.

Speed

Litigation can potentially be a laborious, time-consuming and elongated process, particularly in factually complex cases. Arbitration offers a potentially quicker means of resolving a construction dispute. However, whether it is in fact quicker depends upon the particular facts of the case, the willingness of the parties to adhere the set timetable, and the character of the arbitrator. If the parties regularly miss deadlines and the arbitrator is unwilling to take measures to enforce compliance then it can unnecessarily elongate the process. Judges are generally more likely to be ruthless in enforcing case timetables through the case management process.

Complexity

Arbitration is suitable for construction disputes that are more technically complex as the arbitrator will (normally) be extremely experienced and have the requisite technical qualifications to make a considered decision. A Judge may not possess the necessary skill to make decisions of fact in the circumstances (although Judges in the TCC do have plenty of experience in sitting on construction disputes).

However, where disputes do turn on a point of law rather than an issue of technical expertise then it may be preferable to have the matter determined by a legally qualified Judge.

Decisiveness

It is a common perception (justified or not) that arbitrators tend to “split the difference” in cases rather than coming to a more “extreme” conclusion. If your client therefore believes that they are 100% justified in their case it may be preferable to pursue the matter through the normal Court process than through arbitration.

Joining 3^rd parties

In arbitration, only the parties to the relevant contract are bound in the event of a legal dispute (although some construction contracts – e.g. JCT SBC 05 – do include provisions for enabling proceedings to be joined).

Convenience

Arbitration can be arranged to be convenient for both parties – for example holding hearings at the weekend or in the evenings. However, this convenience is often nullified if there are lawyers and experts working for both parties. Convenience is therefore only really of relevance in simple construction disputes.

Privacy

It is not easy to avoid publicity in large commercial arbitrations. However, litigation is likely to involve a greater risk of publicity, adverse or otherwise. Arbitration generally therefore is the better option if parties wish to keep their dispute private.

Expediency

Arbitration is generally less confrontational than litigation. If the parties have a continuing contractual (or otherwise professional) relationship then it will be preferable to resolve the construction dispute without further acrimony.