Is it common for construction disputes to be referred to arbitration? If so, how does arbitration compare with litigation through the national/federal courts?
In Angola, construction contracts usually include arbitration clauses if foreign companies are involved. Arbitration proceedings are more flexible than litigation through the courts and less time is required to obtain a resolution. Additionally, appointed arbitrators are often experts in the matters in dispute and, as such, the decisions are of higher quality. However, arbitration proceedings are sometimes more expensive than judicial proceedings.
Arbitration is regulated in each state in Australia by domestic arbitration legislation (known as the uniform Commercial Arbitration Acts). Arbitration is private – the outcome remains confidential and the awards which are handed down by an arbitrator are not published. This makes it an attractive form of dispute resolution to parties like government agencies or those involved in sensitive disputes.
Because the relevant court would otherwise have inherent jurisdiction over a dispute, parties must expressly agree to use arbitration as the means of resolving their dispute. This agreement usually takes the form of a clause in the project contract setting out an agreement to arbitrate any dispute which arises under the contract.
In Australia, domestic commercial arbitration is now usually conducted on a very similar basis to litigation, with similar procedures, legal representation, and costs. In addition to confidentiality, another significant difference between litigation and arbitration is that an arbitrator charges a fee to hear the claim and prepare the award. The arbitrator’s fees and room hire costs can be significant.
Arbitrators are often lawyers. In the construction industry experienced engineers, architects and other building professionals with arbitration expertise are also often used.
Critics of the arbitration process allege a lack of availability of good arbitrators, and the fact that the cost of and time expended in an arbitration is in many cases the same as for litigation. Historically, domestic arbitration has also tended to attract more collateral court proceedings than does international arbitration. This is partly due to the fact that the Australian courts arguably have wider powers to intervene in domestic arbitration procedure.
International arbitration is governed by the International Arbitration Act 1974 (Cth) (IAA). The IAA provides that an arbitration is international if any of the circumstances set out below apply:
Currently in Australia, the types of projects which tend to involve foreign contractors are mining and dredging and other civil infrastructure works.
In July 2010 the IAA was amended to incorporate the 2006 version of the UNCITRAL model arbitration law and to streamline and expedite procedures.
Sydney and Melbourne operate as centres for international arbitration. The Australian Centre for International Commercial Arbitration (ACICA) provides international arbitration services. The ACICA rules are based on the UNCITRAL arbitration rules. Other providers used by Australian parties are the International Court of Arbitration, the London Court of International Arbitration and the Singapore International Arbitration Centre.
International arbitrations are usually run on the following basis:
Construction disputes are predominantly brought before the courts. Although qualities such as speed, confidentiality, expertise and flexibility are often highlighted as advantages of arbitration in construction disputes, in practice, such advantages are often not seen as the primary benefits of arbitration due to the cost of the arbitration procedure in Belgium. Furthermore, Belgian construction contracts commonly contain a jurisdiction clause determining the competent (Belgian) court. Arbitration clauses are used less in construction contracts where the contracting parties are residing in different countries.
Some cases are referred to arbitration; however, most disputes are resolved through judicial procedures. Litigation through national courts is less costly. Both, the court’s and arbitration decisions are final and binding.
In order for a dispute to be referred to arbitration, the parties to the dispute must mutually agree to submit their dispute to arbitration. The parties may do so when the dispute arises, or, more likely, the parties will have provided in their contract that any dispute will be decided by binding arbitration. Parties to constructions contracts in Canada often use standardized contract forms prepared by the Canadian Construction Association or similar organizations, and virtually all such contracts include a multi-step dispute resolution procedure culminating in arbitration.
Arbitration and litigation are different in many respects. In arbitration, disputes are resolved in private; whereas in litigation, the procedure is public, as are the documents and evidence filed by each of the parties. In arbitration, the parties generally have a voice in selecting the arbitrator or panel of arbitrators. However, in the court system, judges are assigned randomly to cases without any input from the litigants.
Although not always the case, arbitration is intended to be a less formal and speedier process when compared to litigation. Absent a mutual agreement by the parties, the arbitration process does not carry with it a right of document discovery or examinations for discovery (the latter of which is sometimes referred to as “depositions” or “questioning”), although it is possible to apply to the arbitrator in advance of the hearing for a discretionary order including such procedures. Arbitral disputes generally can be resolved more quickly than court cases. Once the arbitrator renders his or her decision, there is generally no appeal to the courts except in extremely narrow circumstances, such as fraud, bias or conflicts of interest, or a decision rendered outside of the scope of the arbitrator’s jurisdiction. Courts encourage private resolution of disputes by parties, and so avoid setting aside decisions made by arbitrators.
An analysis of the cost of litigation as against arbitration depends on the size of the dispute and other facts. The fee for arbitration generally is a graduated percentage of the amount in dispute, plus an ongoing periodic administration fee; the court filing fee generally is nominal. The arbitrators are paid an hourly fee for preparation and study time, travel, attendance at the arbitration, and deciding and preparing the award. Judges, however, are not paid by the litigants. Lawyers charge the same hourly rates for arbitration as they do for court appearances. However, unless the arbitrator grants full document discovery and examinations for discovery rights, the arbitral proceedings will generally involve fewer steps, and therefore, less lawyer time may be required.
It is common for construction disputes to be referred to arbitration as, generally, standard form construction contracts include a clause requiring this.
In comparison to the courts, arbitration has the advantage of allowing for the appointment of a technically qualified arbitrator who has personal knowledge of the construction matters at the heart of the dispute.
It is common to agree on the competence of arbitration for construction contracts at it is far more time efficient and expert (provided an expert arbitrator has been appointed) than the regular courts.
The most important arbitration institution in the Czech Republic is the Arbitration Court attached to the Economic Chamber of the Czech Republic and the Agricultural Chamber of the Czech Republic. A dispute can only be brought before the Arbitration Court if there is a written arbitration agreement (or arbitration clause) to that effect. Arbitration proceedings before the Arbitration Court are usually conducted in accordance with its rules.
The advantages of arbitration are the following:
One of the disadvantages of the arbitration is unpredictability of the award.
An arbitration award is an enforceable right to initiate execution proceedings where the liable party fails to respect the tribunal's decision.
Arbitration agreements (or arbitration clauses) are binding to the extent that once the court, where the defendant has raised the argument, has found that the case should be dealt with in proceedings before arbitrators, it cannot decide the matter and therefore terminates the proceedings. However, the dispute will be heard if the parties declare that they do not wish to insist on arbitration proceedings. The court will hear the matter if the case cannot be subject to an arbitration agreement under the laws of the Czech Republic or, in the case of an invalid or void arbitration agreement, or if the arbitrators go beyond the powers granted to them by the contract, or if the tribunal refuses to deal with the case. Arbitration may be excluded where consumers are involved as party to the dispute.
It is common for construction disputes to be settled by The Building and Construction Arbitration Court.
Arbitration is more informal than traditional litigation. The Building and Construction Arbitration Court has a better understanding and competence when it comes to construction disputes as opposed to the national courts.
Unlike litigation, which can take years, arbitration can usually be completed within a set time frame.
Construction disputes are predominantly brought before the courts. Although some qualities such as speed, confidentiality, expertise and flexibility are often highlighted as advantages of arbitration in construction disputes, in practice, these advantages are often not seen as deciding factors in favour of arbitration due to the cost of the arbitration process in France. Furthermore, French construction contracts commonly contain a jurisdiction clause naming the competent (French) court. Arbitration clauses are more often used in construction contracts where the contracting parties reside in different countries.
Many construction contracts lay down rules for arbitration, some are specifically developed for the construction industry:
In international construction contracts the arbitration procedures which are common in the international environment (such as ICC and others) apply.
The main difference between arbitration and court action is that arbitration is not public and there is no appeal. An arbitration award may not be challenged (except in extraordinary circumstances). In arbitration procedures you may choose your 'judges' to a certain extent and some think that this leads to more professional tribunals. The most compelling reason to opt for arbitration arises where an award needs to be enforced in a foreign country which is a member state of the New York convention. In this respect arbitration awards are much more easily enforced in foreign countries than court judgments.
Arbitral awards enjoy much greater international recognition than judgments of national courts. About 160 countries or places have adopted the New York Convention, which facilitates enforcement of awards in all contracting states including Hong Kong.
Judicial systems do not allow the parties to a dispute to choose their own judges. In contrast, arbitration enables the parties to have their disputes resolved by people who have specialized competence in the relevant field.
Arbitration is not public, and only the parties themselves receive copies of awards.
In arbitration, the arbitral award may be overturned only in very limited situations, other than default by the arbitrator or a defect in the process.
Unlike litigation, leave from courts is not required for serving documents out of jurisdiction (eg the People's Republic of China) in arbitration proceedings. It saves the parties to an arbitration a great deal of time and cost.
It is quite common in Hungary that construction disputes are referred to arbitration. The Court of Arbitration attached to the Hungarian Chamber of Commerce and Industry is a popular arbitration court. The use of arbitration is always based on the decision of the contracting parties and their choice must be included in the construction contract.
The advantage of the use of arbitration as a method of dispute resolution is that it is significantly faster than the ordinary litigation proceedings and, unlike the decision of an ordinary court, the decision of an arbitration court cannot be appealed. One drawback is that arbitration is considerably more expensive than litigation through the ordinary courts.
It is common for construction disputes to be referred to arbitration as all standard forms of construction contract provide for arbitration.
Arbitration is considered to be the best means of resolving complex construction disputes involving complex construction issues, for example, claims relating to design or valuation issues, where an architect/engineer is best placed to adjudicate.
However, where disputes arise as to contract interpretation, or where legal principle is involved, arbitration is not considered to be the best forum, especially under the standard forms of contract, which require the appointment of either an architect/engineer as arbitrator.
With reference to seeking straightforward awards in either arbitration or court, for example, for actions pertaining to the recovery of certified sums, the time difference in obtaining an award at arbitration or a court judgment does not differ substantially, with a period of six months being the norm for both. In more complex cases, the time periods involved for arbitration will generally be much less than court proceedings, the former can take up to 12 to 18 months, whereas the latter can take up to two to three years. However, for claims worth in excess of €1 million, claims can be made through the Irish Commercial Court. Judgment can be obtained in the Commercial Court within six months to a year of the proceedings being issued.
The costs involved in arbitration and court proceedings do not differ substantially, however, in arbitration, the unsuccessful party must pay the arbitrator's fees which can be substantial.
Where contracts contain an agreement to arbitrate disputes, courts are obliged by statute to stay proceedings to arbitration pursuant to article 8(1) of the Uncitral Model Law in schedule 2 of the Arbitration Act 2010.
Depending on the value of the building works, the construction contracts usually provide for an arbitration clause that may refer to either technical or legal disputes arising from the building works. With respect to litigation through the national courts, the arbitration procedure allows the parties to obtain a ruling in less time than litigation through the national courts. Please note however that the arbitration procedure involves the payment of higher legal expenses and fees to the arbitration panel.
The Construction Works Dispute Settlement Board (CWDSB) was established under the BSA, which provides for settlement of construction disputes through mediation (assen), conciliation (chotei) or arbitration (chusai). In domestic deals, the CWDSB is often used, and in CWDSB about 30% is settled through arbitration. There is an arbitration agreement form to submit disputes to the CWDSB prepared by the Contractors Association.
Arbitration is more flexible in procedures than litigation through the courts and less time is required to obtain a resolution. In addition, arbitrators are usually experts in construction matters.
The CWDSB's arbitration is not very expensive because reward of arbitrators is not paid by the parties in the dispute.
In the Netherlands, disputes arising from a construction contract can be brought before either a civil-law court or an arbitration board. In practice, parties often agree to settle any disputes by means of arbitration. In the Netherlands, construction-related disputes are often brought before a board forming part of the Court of Arbitration for the Building Industry (Raad van Arbitrage voor de Bouw (RvA)). Disputes arising from a design contract are more often brought before an arbitration board of the Royal Institution of Engineers (Koninklijk Instituut Van Ingenieurs (KIVI NIRIA)). Dispute resolution by means of arbitration must, however, be expressly agreed on by the parties (in writing).
Generally, incorporating general conditions in the relevant contract which provide for dispute resolution by means of arbitration, will suffice. Arbitration is usually preferred over civil-law court proceedings because of the expertise that arbitrators have and the speed of the proceedings. Conversely, arbitration is usually more expensive than civil-law court proceedings. In principle, an arbitration award cannot be appealed (but this does not apply to the Court of Arbitration for the Building Industry).
Most standard-form construction contracts in Nigeria provide for alternative dispute resolution by which the parties agree that any dispute between them shall first be settled amicably failing which the dispute shall be referred to arbitration or mediation for resolution. This avoids the costs and adversarial disadvantage of litigation. This is achieved by providing clause or agreement in the construction contract to refer to arbitration the resolution of disputes between the parties.
The Arbitration and Conciliation Act, Cap A18, Laws of the Federation of Nigeria, 2004 and other State’s Arbitration Laws make provisions for the processes and procedures for arbitral proceedings in Nigeria. The parties may agree on the specific locations and laws to govern and apply to them and generally awards from foreign arbitral proceedings are enforceable in Nigeria.
In comparison to litigation in the High Courts, arbitration is a much faster and less cumbersome procedure of dispute resolution affording the parties a less formal, speedy and flexible mechanism for resolution of their disputes. Generally, litigation involves a more complex and time-consuming process.
Construction disputes are often referred to arbitration, particularly where the dispute has a high economic value.
In addition, some of the standard documents provide for different methods of resolving a dispute depending upon the economic value in question. Cases of a certain level of economic value are resolved by arbitration, whereas cases where the claim value is lower are heard by the ordinary courts.
Arbitration hearings are governed by the Law on Arbitration of 2004. It is not possible to appeal arbitration decisions. However, it is possible to have the decision declared invalid on the grounds of a procedural error. In order to do so, legal action must be brought before the ordinary courts.
In Poland it is common for construction disputes to be referred to arbitration. The most popular arbitration court is the Court of Arbitration at the Polish Chamber of Commerce in Warsaw.
According to Polish Civil Proceedings Code submission of the dispute to be resolved by arbitration requires the agreement of the parties, in which the subject-matter of the dispute or the legal relationship from which the dispute may arise or has arisen should be mentioned (arbitration agreement). The provisions of the arbitration agreement are ineffective if they infringe the principle of equality of the parties, in particular entitling only one of the parties to file a request for arbitration or a statement of claim before a court. An arbitration agreement may indicate an arbitration institution as having jurisdiction. Unless otherwise agreed by the parties, they are bound by the rules of the arbitration institution in force at the time of conclusion of the arbitration agreement.
If court proceedings are brought in a matter relating to a dispute which is subject to an arbitration agreement, the court shall reject the statement of claim or application to start proceedings if the respondent or participant of the non-trial proceedings makes a plea that there is an arbitration agreement before submitting his first statement on the substance of the dispute.
Bringing an action in the courts does not prevent the arbitration tribunal from proceeding with the case. Submission of a dispute for resolution by arbitration does not exclude the possibility of being granted an interim injunction by the court in respect of claims pursued before the arbitration tribunal.
The advantages of arbitration as compared to state court proceedings are, in general, lower fees and faster proceedings.
Yes. Construction contracts usually include arbitration clauses, particularly if foreign companies are involved. In Portugal, arbitration is considered to be more flexible than litigation through the courts. Arbitration is generally a quicker process than litigation, particularly as the parties are entitled to waive their rights of appeal. It is also a private process; this means that the parties are able to avoid disclosing trade secrets and to keep information confidential. The parties are also entitled to choose their arbitrators; appointed arbitrators are often lawyers with experience of matters such as those in dispute.
As the FIDIC agreements (which recommend arbitration proceedings) are commonly used and because of the reduced time and costs involved, parties usually include arbitration clauses in construction agreements. Arbitrators in disputes should be independent and impartial and cannot be representatives of the parties. Arbitrators must maintain full confidentiality regarding the facts in their knowledge, even after the proceedings are finished.
It is not common practice in Russia to refer construction disputes to arbitration (tretejsky sud) as, in order to be enforced, arbitration decisions need to be recognized and approved by a state arbitrazh (commercial) court.
In short, the difference between arbitration and state arbitrazh courts is as follows:
Arbitration as a form of alternative dispute resolution in Slovakia is governed by the Act on Arbitration Proceedings. The basic presumption is the conclusion of a written arbitration agreement or clause by the contractual parties, which shall stipulate:
In Slovakia, it is not common for parties to use arbitration as a form of dispute resolution in relation to construction agreements. However, generally, arbitration proceedings are considered to be a faster form of dispute resolution in comparison to court litigation. In addition, the arbitration courts are formed according to the various fields of practice and therefore the arbitration judges have a higher level of specialization in the particular issue.
Another advantage of arbitration relates to the arbitral awards. These can be directly enforced by the parties, ie in case of non-fulfilment of the obligation by the obliged party, the entitled party may seek the help of an executor without the need for any further procedure of recognition of the arbitral award. However, there are very limited remedies available as a result of arbitration – a party to such proceedings is only allowed to request the annulment of the decision before the ordinary court exclusively on the basis of the grounds laid down by the Arbitration Proceeding Act.
In Spain, in accordance with the Arbitration Act, construction matters can be resolved by arbitration proceedings. Please note that although the Spanish Building Act does not refer to arbitration or mediation in construction matters, it is common for these matters to be referred to arbitration.
Arbitral institutions to which disputes are commonly referred in Spain include:
Arbitration proceedings are less formal than judicial proceedings in Spain and less time is required to obtain a resolution (an arbitration award). Notwithstanding this, however, arbitration proceedings are sometimes more expensive than judicial proceedings.
Yes, it is common for construction disputes to be referred to arbitration.
Disputes referred to arbitration are often solved more quickly than in a federal court. The court of arbitration often involves people with greater expertise due to the fact that the parties have a right to choose the members of the court. However, it is more expensive for the parties to resolve the dispute in this way.
Construction contracts commonly contain an arbitration clause for the settlement of disputes arising from the construction contract. The arbitration system allows the parties to appoint specialist arbitrators. Arbitration proceedings are normally faster than litigation proceedings through the judicial system, and arbitration offers confidentiality to the parties. The Arbitration Act B.E. 2545(2002) stipulates arbitration procedures under Thai law.
Commercially, arbitration is the preferred method of dispute resolution because court proceedings are before non-specialist judges and in Arabic only (for many construction contracts the common project language is English). Most government entities prefer arbitration through the local Abu Dhabi Commercial Conciliation and Arbitration Centre, although their Rules are less familiar to international arbitration practitioners.
The United Arab Emirates is a signatory to the New York Convention on the Enforcement of Arbitral Awards which allows the enforcement of foreign arbitration awards in the UAE.
Private arbitration is used as an alternative to litigation.
Commercially, in contracts with international contractors, arbitration is the preferred method of dispute resolution. Further, the Rules of the International Chamber of Commerce (ICC) are preferred over submitting the dispute to the local Dubai arbitration body.
The United Arab Emirates is a signatory to the New York Convention on the Enforcement of Arbitral Awards which allows the enforcement of arbitration awards in the UAE.
The leading institutions for construction arbitration are the Dubai International Arbitration Centre and the DIFC-LCIA (Dubai International Financial Centre – London Court of International Arbitration) Centre and it is common for construction contracts to provide that in the case of a dispute, the matter is first to be referred to DIFC-LCIA before being referred to the courts.
The courts of England and Wales are supportive of private arbitration as an acceptable alternative to litigation. The Arbitration Act 1996 resulted from extensive consultation with both arbitration users and practitioners and introduced an improved regime for arbitration under English law. For the first time, the powers and duties of the tribunal, the court and the parties themselves were made clear in a single document.
That said, the use of arbitration as the principal method of dispute resolution in relation to construction contracts has diminished since 1998. Two developments can be linked to this:
The new rules also introduced a new protocol to govern pre-action conduct and is specific to construction disputes. It aims to encourage an early and full exchange of information about the prospective claim, to enable parties to avoid litigation by agreeing a settlement of the claim (before the actual court proceedings are commenced) and, where litigation cannot be avoided, to support the efficient management of proceedings.
Until the mid‑late 1990s, arbitration was the favoured form of dispute resolution in the construction industry in Scotland, largely because it allowed industry experts to decide disputes. The coming into force of the Housing Grants, Construction and Regeneration Act 1996 resulted in a shift away from arbitration towards adjudication.
The Arbitration (Scotland) Act 2010 modernized and codified the law in statute to bring it into line with up to date arbitral practices in other jurisdictions. The Scottish Government hopes that the Act will lead to a revival of arbitration as a method of resolving construction disputes.
Generally, construction disputes in Ukraine are resolved in state courts (commercial courts and courts of general jurisdiction) or in arbitration courts (if the parties have included an arbitration clause in the construction contract). As a rule, arbitration secures faster and sometimes a more objective settlement of disputes in comparison with the courts of general jurisdiction. Notwithstanding this, in order to enforce the arbitration decision, the party must refer to the local court of general jurisdiction.
In order for a dispute to be referred to arbitration, the parties to the dispute must mutually agree to submit their dispute to arbitration. The parties may do so when the dispute arises, or, more likely, the parties will have provided in their contract that any dispute will be decided by binding arbitration.
Arbitration and litigation are different in many respects. In arbitration, disputes are resolved in private; in litigation, the procedure is public, as are the documents and evidence filed by each of the parties. In arbitration, the parties generally have a voice in selecting the arbitrator or panel of arbitrators. However, in the court system, judges are assigned randomly to cases without any input from the litigants; in some jurisdictions, a litigant may (but may not) have the ability to strike one judge without a reason.
Although not always the case, arbitration is intended to be an informal and speedier process when compared to litigation. Absent a mutual agreement by the parties, arbitration does not involve discovery – no interrogatories are submitted to the other side, no depositions are taken, and the rules of evidence are not applicable. Because of this, disputes generally can be resolved more quickly. However, once the arbitrator renders its decision, there is no appeal to a higher authority except under extremely narrow circumstances, such as fraud or conflicts of interest. Courts encourage private resolution of dispute by parties and so avoid setting aside decisions made by arbitrators. Although laws vary among states, arbitration decisions generally can be set aside only for a ‘manifest disregard of the law’ or if a party can prove the arbitrator was biased.
An analysis of the cost of litigation as against arbitration depends on the size of the dispute and other facts. The fee for arbitration generally is a graduated percentage of the amount in dispute; the court filing fee generally is nominal. The arbitrators are paid an hourly fee for preparation and study time, travel, attendance at the arbitration, and deciding and preparing the award. The judges, however, are not paid by the litigants. Lawyers’ fees may be less in an arbitration, depending on the nature of the dispute. Because the process is quicker, less lawyer time may be required.
Commercial disputes are ordinarily referred to the Commercial Arbitration Centre in Harare, or recently, the African Institute of Mediation and Arbitration (IAMA). This process is faster and the decision of the arbitrator is final and binding. Review of the decision of the arbitrator may be made to the High Court on public policy grounds or procedural grounds as set out in the Arbitration Act [Chapter 7:15]. The Arbitration Act does not provide for appeals.