Arbitration: You get what you pay for

The government is consulting on substantial increases to the fees paid by users of the civil courts for the service they receive. It aims to make the courts self-financing - in 2012/13 they received £500m in fees but incurred costs of £625m. The plan includes covering the costs of users who can’t pay by imposing extra fees on those who can.

Despite strong objections from senior judges in February, it is clear that it is a matter of how – not if – court fees are increased.

This is one of a number of moves that may make arbitration more tempting for some parties to construction contracts as the final way of resolving their disputes (although, naturally, most parties prefer to avoid either process wherever possible). Of course, for arbitration, parties pay the tribunal’s charges and hearing venue costs. However, higher court fees provide just one reason for parties to reconsider arbitration.

The other reasons, though, are less clear cut than pure cost and depend upon who is doing the perceiving. For instance, in most building contracts and consultants’ appointments the client (who usually has the strongest bargaining position) is the key perceiver. For a design-and-build contract, the client may be less concerned about the problem that arbitration often poses in multi-party disputes of multiple proceedings and inconsistent results, because he thinks it unlikely he will ever sue anyone other than the contractor. The contractor, though, with his many subcontractors, may prefer disputes under the subcontracts to be litigated, to allow for disputes that involve more than one subcontractor.

For many, arbitration offers an increasingly tempting alternative, with fewer rules that the parties cannot contract out of

Over the past 15 years or so, arbitration has nearly disappeared from UK construction contracts despite having previously been a popular alternative to litigation. A key month was May 1998. Not only was that when statutory adjudication began but the House of Lords reversed a rule denying courts the same powers as arbitrators to revise certificates.

In 2003, the JCT decided to start making litigation the default option in its standard forms. The NEC forms made the same change in 1995 but recommended the choice of arbitration, which remains the case now. This is ironic given the NEC-style measures that the courts have adopted, which one does not find in arbitration.

Since a major shake-up in court rules in 1999, we have seen greater proactive management of cases by the courts. Last year saw a new shake-up, with a zero tolerance approach to missing deadlines. If particular documents are not submitted on time, entitlements are more readily lost than before. This change was heralded in Andrew Mitchell MP’s “plebgate” defamation case. His solicitors filed a costs budget six days late. As a result, if he wins, The Sun will not be liable for more than nominal costs.

Costs budgeting is another recent change, which is akin to treating litigation as a project that requires cost management. It entails courts approving or amending each party’s detailed costs estimate early on, making directions for the case accordingly and holding parties to their budgets when they recover costs from their opponents. For cases worth under £2m (soon £10m) costs budgeting is mandatory, and for higher value cases the courts have a discretion to impose it.

Court rules also push parties into resolving their disputes outside of litigation. Before commencing proceedings, a pre-action protocol process, often lasting months, is gone through. After commencement the parties are pushed into settling, for example by mediation.

For many, arbitration offers an increasingly tempting alternative, with fewer rules that the parties cannot contract out of and fewer pressures that delay the making of a final and binding decision. This is appealing to some parties despite the downside that arbitration’s flexibility can make the process more costly and drawn out. Another downside is that because of arbitration’s confidentiality, awards are generally not published - so there is less development of construction law.

The old criticism of arbitration was that it became too much like litigation. However, now it is arbitration that fondly reminds a few people how litigation used to be. For others, arbitration has remained with us all along in a fast, mandatorily available, form with a temporarily binding result called adjudication.

Rupert Choat is a barrister, arbitrator and mediator at Atkin Chambers