There is currently a debate in the industry regarding the best form of dispute resolution procedures in construction disputes. Some leading commentators are calling for arbitration to be restored to its former glory, while others argue in response that litigation should be preferred.
The first question you must ask is whether privacy is a requirement when settling a dispute? If it is, then arbitration is of course the route to follow. The second consideration is whether enforcement is likely to be required in a foreign jurisdiction (other than the EU)? If so then an arbitration award may well be easier to enforce than a court judgement in the particular jurisdiction.
If privacy or enforcement leaves you with no choice but arbitration, the key is then to make sure that the arbitrator has the correct skills and experience. Commentators pro-arbitration argue that arbitration allows the parties to influence who will decide the dispute and that arbitrators are often architects, quantity surveyors or engineers, the only people properly qualified to hear technical construction disputes.
The problem, however, arises where legal issues form part of the mix, which in most cases they do. Is an architect going to make the correct legal decision upon which the technical facts are then decided? A possible solution is to follow the model of the London City Disputes Panel (where in the case of financial disputes) arbitration is usually decided by a chairman with a legal background and 2 arbitrators with financial backgrounds. If your dispute is decided by a panel consisting of a legally qualified chairman and two construction professionals with technical qualifications, not only is the danger of bias dealt with, but so is the danger of gaps in knowledge.
The pro-arbitration camp also argues that arbitrators have, under the current Act, flexibility to decide on the procedures and timetable that best save time and money. For example, an arbitrator has the power to order early disclosure. That is correct, but there is a realm of case law regarding whether or not arbitrators acted fairly and in most cases if an arbitrator does not give the other side the ability to make its full case, he is found to be unfair. As a result, an arbitrator/panel of arbitrators, in our opinion, is going to err on the side of giving extensions of time to agreed timetables and allowing late submissions, to avoid a challenge to his/her decision later. It is the rare arbitrator who will put his/her foot down firmly and finally when being faced with strong arguments as to why further submissions must be made. The result is that unless there is a clear and strict set of rules requiring a decision within a fixed time period, the arbitration period is likely to get longer as the dispute progresses with a corresponding increase in costs. Again the London City Disputes Panel offers a good model for a solution, the parties can agree to a rapid decision procedure on a tight timetable.
What about the cost? Well, that depends on how long it takes. A judge and court room are free (unless one counts the cost of issuing proceedings). However an arbitrator generally comes at a high price (as he/ she is an experienced expert). A panel of three arbitrators will be even more costly. Often the venue must be paid for. This must increase the cost. If the arbitration is dealt with swiftly and without fuss, it could be less expensive, of course. To guarantee this, time must be taken to draft a set of rules which guarantees a swift process.
If privacy is not imperative and you have the choice of arbitration or litigation, what about the quality of the decision? The Technology and Construction Court judges are widely regarded as giving competent decisions and being well versed in construction law and the technical issues related thereto. Although, there is no doubt that if the dispute is extremely technical, there can be no better arbitrator than a panel with members who have legal and technical qualifications. Surprisingly, recent research (carried out by the Queen Mary University of London report) stated that businesses say they are disappointed by arbitrator's performance at an international level. A further reason to prefer a panel to an individual arbitrator.
The parties are, however, usually arguing about legal issues, like non-disclosure, materiality, levels of skill and care and reasonableness. Case law informs these decisions which naturally points one in the direction of a judge with technical knowledge, rather than a technician with legal knowledge.
In conclusion, unless there is an issue of privacy, or unless you want to force a decision within a short period of six months or less, which carefully drafted arbitration rules would allow, there seems little incentive for contracting parties to choose arbitration for a domestic dispute.
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