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Expert sceptical of success of fast arbitration service for construction and engineering

The Royal Institution of Chartered Surveyors (RICS) has launched an arbitration service for construction and engineering disputes that aims to encourage the use of arbitration by speeding up the process.09 Oct 2015

However, arbitration expert Gurmukh Riyat of Pinsent Masons, the law firm behind Out-Law.com has reservations about the likely success of a fast-track arbitration service.

There has been a decline in the use of arbitration to resolve disputes in the construction and engineering since the 1990s, and this can in part be attributed to a failure to resolve disputes quickly and effectively, RICS said in a statement.

In the 1990s, arbitration would often take two or three years to reach a decision, RICS said. The new service will commit to concluding arbitration within a set period of time: six months for straightforward matters and 12 months for complex disputes.

The introduction of contractual adjudication in 1998, through the Housing Grants Construction and Regeneration Act, also contributed to the decline in arbitration. However, while adjudication is useful in straightforward cases, the speed of the process can lead to "rough justice … even injustice" in more complex and higher cost issues, RICS said.

"Big value, complex disputes need greater deliberation and they do not lend themselves to a rapid process like adjudication," it said.

The Technology and Construction Court (TCC), the construction division of the High Court, has also become more modern and sophisticated, and so attracts more disputes, RICS said.

However, recent changes to civil litigation procedures make it a less attractive process in some cases, and have led to a rise in interest in arbitration, it said.

"There is growing demand for more comprehensive deliberation of issues. The highly technical nature of construction and engineering disputes, and demands for commercially focused outcomes, rather than legal positioning, means parties are increasingly keen to refer to decision-makers who have genuine technical expertise and subject matter knowledge," RICS said.

"There is evidence parties are once again seeing arbitration, by arbitrators who are highly experienced construction and/or engineering professionals, as the best way to resolve disputes," it said.

Riyat said: "Over the last two decades, construction arbitration in the UK has suffered at the hands of adjudication. Domestic arbitration in particular suffered from a reputation of being particularly slow and expensive in the way that it was conducted and managed by parties and arbitrators alike. Although adjudication has established its suitability in resolving payment disputes in a period of days rather than years, its flaws have over time become more and more apparent. A common criticism of adjudication has been that it adopts a ‘one size fits all’ approach and is not suitable for resolving more complex and high value disputes given the time constraints involved. This approach often results in decisions which are rushed and of questionable quality," he said.

"While the RICS arbitration service is obviously aimed at offering parties a ‘middle ground’ between a prolonged arbitration and a quick-fire adjudication, the service is by no means new or revolutionary," he said. "Over a decade ago, the Society of Construction Arbitrators introduced a 100 day arbitration procedure with the very same aims. That procedure has not found widespread favour within the construction sector."

"Similarly, while various arbitration rules in theory allow parties to conduct ‘fast track’ arbitrations, in practice these arbitrations are the exception rather than the norm. In the overwhelming majority of cases, evidence suggests that parties are unwilling, for commercial and tactical reasons, to voluntarily stick to short timescales. If history is anything to go by, the success of RICS arbitration service is anything but guaranteed," Riyat said.

The new service will be faster and cheaper than going through the courts, RICS said, while allowing a detailed examination of the issues and resulting in decisions that are "commercially sensible, and better value than judgments from the courts".

A panel of arbitrators will be put together from a range of professions and will be assessed to ensure they are up to date with relevant law and practice, RICS said.