The changing face of dispute resolution: is arbitration making a comeback?

Could the time have come for the revival of arbitration? It is clear that litigation, with its high court fees, the removal of the right to recover success fees on conditional fee agreements and its procedural meanderings, is only for the bold. Construction adjudication on the other hand has been a success, but it too is hedged in by complex case law, developed thanks to various challenges at enforcement. The inability to recover costs can weaken the cost-benefit analysis of making a referral in all but the most clear cut claims, and the decision is only temporarily binding pending any litigation or arbitration.  

True, the judiciary has introduced the Shorter and Flexible Trial Procedures Pilot Schemes, which aim to streamline litigation procedure, but they’re only for Rolls building users (i.e. the TCC ‘HQ’ in London), so they won’t help you when a disgruntled client or subbie issues a claim against you in the County Court Bulk Centre, even if it does end up in, say, Bristol TCC; let’s see if they’re rolled out nationwide when the pilots come to an end in 2017. However, even they may not be enough to achieve ‘proportionality’ in the cost of litigation, because Lord Justice Jackson’s proposals for fixed costs in civil litigation claims up to £250,000 will soon that mean something more radical will be necessary to resolve most disputes economically yet also with the benefit of professional advice.

Sensing the dissatisfaction, the RICS’ Dispute Resolution Service, has sought to breathe new life into arbitration, which has fallen into disfavour since the TCC got more responsive. This has been tried before, with the 2004 launch of a 100 day arbitration procedure by the Society of Construction Arbitrators, which was not widely adopted; perhaps the RICS’ Fast Track Arbitration scheme for claims up to £100,000 which launched in November 2015 will succeed where that failed? The Fast Track scheme rules run to just 5 pages, and is based on standard case management directions. The arbitrator will decide whether a final hearing is necessary, and he will decide whether any expert is to give oral testimony, and on what issues. The aim is to produce a final and binding award within 6 months of his appointment. The nomination fee is £350 and the arbitrator can charge no more than £175 per hour, capped at 60 hours (£10,500).  Recovery of the winner’s legal costs is capped at £5,000 or 20% of the value of the claim and any counterclaim combined, whichever is higher.

Before the parties decide whether to opt for arbitration in their contract, they might like to do a bit of forecasting and compare the RICS’ Fast Track scheme to Lord Justice Jackson’s series of bands of proposed recoverable costs. Using a £100,000 claim as an example, the court fee for starting a litigation case (£5,000) and a 50% share of arbitrator’s fees up to the £10,500 cap are roughly equal, and both are recoverable by the winning party. The successful claimant under the fixed costs in civil litigation regime would recover £30,000 of fixed costs, and under the RICS’ Fast Track scheme they would recover capped costs of £20,000, so on the face of it they could well be better off using litigation. However, the ability to obtain a final decision within 6 months is attractive, and it is to be hoped that the involvement of the arbitrator will limit the input of costly experts. The parties could opt for arbitration on a pragmatic ad-hoc basis if the nature of the dispute meant that was appropriate, although if the goodwill is there, it is probably worth trying some form of alternative dispute resolution e.g. mediation, first, in order to save costs.

I think the RICS Fast Track scheme could meet the need for an industry focussed procedure which can deliver finality with speed and at reasonable cost. We would recommend the scheme as a more attractive option than adjudication for resolving certain knotty final account disputes in a way that truly allows the parties to move on. 

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.