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Arbitration has had a bad press in recent years. The complaints have
been directed mainly towards the length of time taken by arbitration proceedings
and their cost, two areas in which arbitration was supposed to have an
advantage over litigation in the courts.
Although at one time this advantage was real, it has largely been lost
due to the take-over of the proceedings by lawyers who have applied court
procedures in all their rigour and complexity. So much, indeed, that in
their book Buying Goods and Services, published by CIPS, the
authors Allwright and Oliver state that “this book has been written
in the firm conviction that arbitration clauses should not be included
in UK contracts”.
However, despite the criticisms and this recommendation, arbitration clauses
are still widely used in contracts for the supply of goods and services
and for carrying out construction works. But this seems to be more from
habit than from a conscious decision on which method to adopt to resolve
a dispute.
The only genuine advantage that arbitration currently has over litigation,
in commercial contracts for the supply of goods and services, is that
it is conducted in private and so the affairs of businessmen and women
are not exposed to the publicity that court litigation can attract. An
added advantage in construction contracts is that, unless all parties
agree otherwise, a court does not have an arbitrator’s wide powers
to open up, review and revise the certificates issued by the engineer
or architect.
The new Arbitration Act 1996, which came into force in January, will give
the parties involved the opportunity to make arbitration what it was originally
intended to be - a relatively cheap, straightforward and quick means of
reaching a decision on a dispute which the parties have themselves been
unable to resolve.
A change of attitude
Unusually, the act begins by stating its basic principles:
- “the object of arbitration is to obtain the fair resolution of
disputes by an impartial tribunal without unnecessary delay or expense;
- “the parties should be free to agree how their disputes are to
be resolved subject only to such safeguards as are necessary in the
public interest;
- “the court should not intervene except as provided for in the
act”.
There can be no quarrel with the first principle, and the tribunal has
wide powers to control those more interested in winning by any means than
in securing a “fair” resolution.
The act develops the second principle by allowing the parties to agree
on all procedural and evidential matters. If they cannot, the tribunal
itself can decide on matters such as the documents to be produced, the
questions allowed, whether to apply the strict rules of evidence and whether
the tribunal should itself take the initiative in ascertaining matters
of fact and law.
The establishment by statute that the parties, or the tribunal itself,
can decide on these procedural matters, removes one of the lawyers’
principal arguments for insisting on court procedures: namely, that if
they did not do so the arbitrator’s award could be set aside for
misconduct. (Since lawyers by nature tend to be conservative, it will
fall to the parties themselves to take full advantage of this freedom.)
But the major innovation is that parties - or, in default, the tribunal
- can make the procedure inquisitorial rather than adversarial. In a primarily
technical dispute, this may help shorten the length of the proceedings.
Essentially, provided the tribunal acts fairly and impartially and allows
each party to state its case and answer the other’s, the parties
or tribunal can agree to virtually any procedure they consider appropriate.
Again, provided the parties seize the opportunity they have been given,
and do not allow their lawyers to continue in the bad old way, there is
every possibility of reducing both time and costs.
Moving beyond specific legal systems
There are some other benefits of the act. These include:
- a further reduction of the right of appeal to the courts, although
some right of appeal on a point of law remains, as many arbitrators
are not legally qualified;
- both the arbitrators themselves and any arbitral institutions whose
rules they follow have statutory immunity unless it can be shown they
acted in bad faith;
- the time limits for making an appeal on the grounds of the arbitrators’
lack of jurisdiction have been tightened, largely closing a legal loophole
that has been seriously misused in the past;
- if they wish, the parties may decide to have the dispute settled,
not according to a specific legal system, but ex aequo et bono,
with the arbitrator acting as an “amiable compositeur” as
in some international contracts.
The act both simplifies the law of arbitration and substantially improves
it by bringing it all into one statute. Perhaps above all, the act is
readable, having been written in plain English with a refreshing minimum
of legal jargon and cross-referencing. The ball is now firmly in the hands
of the parties and the tribunal to make the act work in the way it was
intended. It is sincerely to be hoped they will do so and put an end to
what has been referred to as “wigless litigation”.
The moral for buyers is therefore clear. If you have to refer a dispute
with your supplier to arbitration, make sure you are fully involved in
setting the rules for its conduct - don’t just leave these to be
settled by the lawyers.
SM
Peter Marsh and Frank Griffiths are associates at project strategy and
contract management consultancy FGA Ltd (0116 279 3383)
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