Construction Disputes - a viable alternative? Part two

8 minute read
02 November 2015

Parties to construction contracts require quicker, less expensive resolution services for finally determining their disputes than have historically been provided by litigation and arbitration. In recognition of this, the courts and arbitration bodies are offering new streamlined procedures.

In October, the courts introduced two pilot schemes for shorter and more flexible trials - the Shorter Trials Scheme and the Flexible Trial Scheme - (as considered in our alert dated 10 September 2015 - Construction Disputes - a viable alternative?).

Hot on the heels of these court pilot schemes, the Royal Institution of Chartered Surveyors (RICS) is launching a new Arbitration Service for Construction and Engineering Disputes (the RICS Arbitration Scheme), with two levels, depending on the value of the dispute:

  • the Fast Track Arbitration Service for claims of £100,000 or less; and
  • the Select Arbitration Service for disputes where the value of the claim exceeds £100,000.

The Fast Track Arbitration Service

The Fast Track Arbitration Service is intended to be an alternative to the county court and adjudication. The aim of this service is to achieve an award within six months of the arbitrator being appointed.

Notably, arbitrators have a maximum hourly rate and a maximum number of hours for which they can charge. The parties' recoverable costs are also capped.

The rules for the Fast Track Arbitration Service have been published. The key points are:

  • Statements of case: all statements of evidence, expert witness reports and documents relied on are to be served with a party's statement of case.
  • Hearing: the default position is that there will be no hearing but either party may (providing reasons) request a hearing.
  • Experts: At least 28 days before the hearing, the arbitrator will provide a list of issues to be addressed by the experts who will then produce a joint report within fourteen days.
  • Expert evidence at hearing: by default, there will be no expert evidence given orally at the hearing. If expert evidence is required by the arbitrator, the expert will only be asked questions by the arbitrator with no provision for examination and cross-examination. The arbitrator will invite the parties to ask questions to seek clarification of the expert's responses.

The Select Arbitration Service

The Select Arbitration Service is intended to be an alternative to the Technology and Construction Court (TCC) for high value and complex disputes. Arbitrators will be required to provide an estimate of their fees at the outset and update the estimate throughout the course of the process as appropriate. The aim of this service is to produce an award within 12 months of the arbitrator being appointed.

The rules for the Select Arbitration Service have not yet been published.

RICS Arbitration Scheme v adjudication

Since the introduction of the Housing Grants, Construction and Regeneration Act 1996 and statutory adjudication, parties to construction contracts will often refer their disputes to adjudication because it is much quicker and less costly than litigation or arbitration.

The following points may make the RICS Arbitration Scheme a viable alternative.

  • While adjudication itself is quick, the adjudicator's decision is only temporarily binding so adjudication often becomes a pre-cursor to a more long and drawn out resolution process. Contrast this to the RICS Arbitration Scheme, where the parties will have the certainty of a final and binding award within six to 12 months.
  • Where complex disputes are adjudicated, there may be insufficient time to test fully the evidence and legal arguments whereas the RICS Arbitration Scheme timescales arguably include provision for a more in depth analysis of the issues.
  • In arbitration, costs usually follow the event whereas in adjudication, the successful party will not usually be able to recover its legal costs.

RICS Arbitration Scheme v TCC

Over recent years, unless there are issues of confidentiality, the TCC has tended to be the preferred forum for the resolution of disputes in the construction industry. As a result, the final resolution mechanism provided for in most construction contracts has been litigation rather than arbitration. A decision by the TCC has the following perceived advantages:

  • specialist judges with a sound background in construction and engineering law
  • proactive case management
  • certainty of procedure - in particular, Part 60 of the CPR and the TCC Guide.
  • prescribed court fees which effectively cover the judge, administration facilities and venue costs.

Details of the panel of arbitrators behind the new scheme are awaited but the RICS has stated that the arbitrators are experienced construction and/or engineering professionals (including surveyors, lawyers, engineers and architects). Certainly in terms of the success of the RICS Arbitration Scheme, much will turn on the composition of that panel.

The impact of the Jackson reforms and the possible uncertainty that this brings with regards to costs, together with the recent hike in court fees, may make arbitration more appealing than the TCC, even though the venue and arbitrator's costs are likely to be significantly higher than court fees in high value disputes. As mentioned above, the rules for the Select Arbitration Service have not yet been published - details of the process will obviously be relevant when choosing a forum and considering costs.

Parties will also continue to favour arbitration over litigation where they wish to keep disputes out of the public domain. Courts are largely open to the public (including the press) and non-parties can potentially access statements of case filed at court.

Watch this space

In addition to the composition of the panel of arbitrators, the key to the success of the RICS Arbitration Scheme is likely to be the extent to which parties are attracted to use the services on an ad hoc basis at the time a substantive dispute arises. As we all know however, by this point, positions are often entrenched and the adjudication and litigation processes that are available "as of right" may appear more viable than seeking to obtain an agreement to arbitrate.

Undoubtedly however, the RICS Arbitration Scheme together with the new shorter and more flexible procedures offered by the court pilot schemes give parties more options for dispute resolution. The success of the RICS Arbitration Scheme and the current impetus generally for streamlining and simplifying construction resolution services will depend on whether the promised commercial benefits (in terms of reducing costs and delay whilst delivering quality decisions) are realised.

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