Despite the ongoing disruption caused by the Covid-19 pandemic, the popularity of international arbitration continues to grow. Many of the leading arbitration centres have seen steady increases in referrals in recent years, with both the London Court of International Arbitration (‘LCIA’) and the Singapore International Arbitration Centre (‘SIAC’) reporting record numbers of cases in 2020. In this article, we provide a brief introduction to the benefits of using arbitration to resolve construction disputes and consider how technology is playing an increasingly important role within the international arbitration community.
Arbitration is a form of ‘alternative dispute resolution’, i.e., a way of resolving disputes without having to resort to litigation. Instead of using the traditional courts system, parties to an arbitration submit their dispute to an arbitral ‘tribunal’. Commonly, this tribunal is formed of 1 – 3 arbitrators, who have the power to issue a final and binding decision on the dispute in question. Unlike litigation, arbitration is usually based on terms that are negotiated between the parties themselves. Crucially, these negotiations will generally take place during the formation of the contract, as opposed to after a dispute has arisen. The resulting rights and obligations are set out in an ‘arbitration agreement’, which will form the basis on which the arbitration is conducted. However, in the context of an international arbitration, the arbitration agreement will often direct that the rules of a particular arbitration centre, such as the LCIA or SIAC, are followed.
Arbitration is often seen as a faster and more cost-effective way of resolving disputes when compared to litigation. This is because the consensual nature of arbitration means that the parties have a level of flexibility over how proceedings are conducted – each party will have had an input into the formation of the arbitration agreement. This is in contrast to litigation, where the courts decide the formalities governing the proceedings. In practice, where the rules of an arbitration centre are adopted the discretion of the parties will have its limits. However, any restrictions are unlikely to be more stringent than those that would otherwise be imposed by the courts system. From a construction industry standpoint, this flexibility can be particularly useful where it gives the parties the opportunity to take part in the selection of the arbitrator(s). This is because construction disputes are often complex and require detailed technical knowledge, so it is clearly beneficial if the parties can select an arbitrator (or arbitrators) that has expertise in the relevant area. This such choice is not usually available to parties that decide to pursue litigation, with decisions as to the presiding judge made by the courts. Construction companies may also prefer arbitration over litigation because it is generally a confidential process. This can help to protect commercial relationships, with disputes resolved away from public view.
However, arbitration is not without its downsides. Whilst arbitration might traditionally have been seen as a cheaper way to resolve disputes than litigation, that is not always the case in practice. Parties will often still face hefty legal bills for on-going support and representation at the arbitration, as well as potentially having to shoulder the burden of the arbitrator(s) fees. There are also ancillary costs, such as travel to and from the proceedings and the hiring of a venue. These costs can mount up quickly, particularly where parties are travelling from overseas to attend. In addition, arbitration doesn’t always lend itself to multi-party disputes, where there might be many different contracts to consider. These contracts could each have their own bespoke arbitration agreements within, or even no arbitration agreement at all. Untangling this contractual web to determine whether a particular party can be arbitrated against, as well as the limits of that arbitration, could require detailed analysis of the contract, as well as the rules of any relevant arbitration centre. This can bring added complexity to a dispute, and again impact on a party’s exposure to costs. Careful analysis will therefore be necessary to determine whether arbitration is right for the dispute in question.
As with almost every industry, arbitration has had to adapt due to the Covid-19 pandemic and its impact on international travel. However, it has shown itself to be particularly resilient in this regard, with many arbitration centres embracing the use of technology to ensure that disruption to both new and on-going proceedings is kept to a minimum. In some cases, arbitration centres have even updated their rules to help bring these changes into effect, with the LCIA adding new provisions to its rules to allow arbitral tribunals to determine that hearings can be conducted remotely and to enable the delivery of awards by electronic means. In addition to helping to ensure that proceedings can continue, these changes have the added benefit of cutting down on the need for parties to travel to / from arbitration centres. This can help to save time and money, particularly where proceedings are being conducted outside of the parties’ home jurisdiction(s). There is also the added benefit that this approach has for the environment, with less international travel helping to reduce greenhouse gas emissions. As lawyers and clients become increasingly technologically savvy and the climate continues to be an important part of corporate agendas, we therefore expect that the use of virtual hearings will continue to grow.