With the change of seasons upon us, we consider whether the winds of change are also set to affect the choice of dispute resolution forum in construction and engineering disputes.
Adjudication is the mainstay for construction disputes and that is unlikely to change. For the last few years we have seen the tendency for final determination through the courts with domestic arbitration suffering as a result. This primarily stems from the effectiveness and efficiency of the Technology and Construction Court (TCC) and the realisation by many users that arbitration was not the cheaper alternative as had been assumed. But the world is changing with the result that arbitration may once again be finding favour in the domestic market.
What is the impact of Brexit?
No one really knows what a post-Brexit world will look like. The Government is currently keeping tight lipped on its plans so many are considering how to "future proof" dispute resolution provisions in their contracts.
A big question mark is over the status of the English Courts in a post-Brexit Europe and, in particular, the enforceability of their judgments once key EU legislation (such as the Brussels Regulation) regarding jurisdiction and reciprocal enforcement of judgments ceases to apply. Whilst it is likely that the Government will negotiate specific terms with the EU and/or seek to sign up to one of the existing international enforcement conventions, the current uncertainty creates a vacuum that is not welcome when the parties are negotiating contractual terms today.
A key attraction of arbitration is that, regardless of Brexit, the UK will remain a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (the New York Convention) which will leave arbitration immune from post-Brexit uncertainties over enforceability of awards in Europe.
Therefore, coupled with the prevalence of European consultants and contractors in the UK market, it is more likely that parties will view arbitration as the "safer" option to ensure an enforceable and final determination should a dispute arise between them in the future.
Cost of litigation
The cost of litigation may also spur parties to look to arbitration as an alternative. Court fees have increased and are likely to keep rising as the MoJ struggles to balance its budgets. This makes even the issue of a claim a difficult (and expensive) decision for some parties (the current issue fee is £10,000 for claims valued over £200,000). The cost of applications during the proceedings has also jumped up in recent years.
Costs are obviously something that the courts are grappling with. However, whilst the introduction of costs budgeting is meant to deliver a more proportionate and cost-effective system, it can also result in increased costs to the parties in preparing the necessary documentation. This may ultimately lead to a greater exposure to irrecoverable costs which fall outside the approved budget. That is not to say that costs budgeting is not required to deal with the spiralling costs of litigation – it can certainly be a useful costs management tool – but it adds additional administration and risk into the process for the parties. It is therefore a development that some may be keen to avoid entirely through the more informal approach of arbitration.
We predict that adjudication will continue to dominate dispute resolution in construction disputes and even start to grow outside of the usual Construction Act domain. The "best" choice of forum for final determination will inevitably turn on the particular circumstances of each project. However, whilst the TCC has enjoyed a steady period of growth over the last 5 to 10 years, whether it is the uncertainty over Brexit, court fees or costs budgeting requirements or the added benefit of confidentiality in some of the more politically charged projects, domestic arbitration looks in prime position for a resurgence.