Arbitration or the court – which would serve you best if things went wrong?
Disputes between architects and clients can be expensive and time consuming. Clauses in architects’ appointments should, therefore, use the most efficient and cost effective methods of dispute resolution.
Most appointments will be construction contracts for the purposes of the Housing Grants, Construction and Regeneration Act 1996. This means both architect and client have a statutory right to refer a dispute for adjudication at any time.
However, adjudicators’ decisions are only binding until the dispute is finally resolved by court proceedings, arbitration or agreement. An architect and a client may specify in the appointment whether any dispute should be finally resolved in court or by arbitration; otherwise, unless they agree to refer a dispute to arbitration after it has arisen, it will have to be resolved in court.
Advantages of arbitration
So should an architect choose in its appointments court or arbitration as the final form of dispute resolution?
Arbitration has five main advantages.
Where the parties are from different countries, it avoids the need to select a court system with which one party is far more familiar than the other, which can be difficult to resolve in negotiations.
Secondly, when abroad, it is generally easier to enforce an arbitrator’s award than an English court judgment. This might be important if the client’s assets are based abroad as the architect may need to enforce an award to pay its fees against them.
Unlike court proceedings, arbitration is private and confidential, so allegations of professional negligence are less likely to be publicised and so damage an architect’s reputation.
Fourthly, the parties can choose an arbitrator with relevant expertise. However, this is less important nowadays because most construction related disputes are dealt with in the Technology and Construction Court, which is staffed by highly experienced judges who specialise in complex construction cases.
Finally, arbitrators can in principle adopt a short and more cost effective procedure than a judge. However, in practice, judges often impose more cost effective procedures and tighter deadlines than arbitrators.
The main advantage of a court is that the fees are relatively modest when set against those of an arbitrator and its related cost of renting offices for hearings
The main advantage of a court is that the fees are relatively modest when set against those of an arbitrator and its related cost of renting offices for hearings.
In a court it is also far easier to ensure that disputes between more than two parties arising out of the same facts are dealt with in one set of proceedings. For example, if it is unclear whether a building’s defects are due to an architect’s inadequate design or a contractor’s inadequate workmanship, not only will the single proceeding be cheaper but separate claims carry the risk of conflicting decisions as to who is responsible, and could leave the client with a defective building and no compensation.
Overall, court proceedings are usually quicker and cheaper than arbitration, so are likely to be the best form of final dispute resolution for most architect’s appointments. However, arbitration can be a compelling alternative where confidentiality is particularly important, the architect and client are from different countries, or the client’s assets are based abroad.
Doug Wass is with Macfarlanes LLP
The Scheme for Construction Contracts requires two different types of notice to be served by the referring party in adjudication proceedings.
The first is the Notice of Adjudication. This starts proceedings and must set out the nature and a brief description of the dispute and of the parties involved, details of where and when the dispute has arisen, the nature of the remedy being sought (for example, an order to make a payment or a declaration as to the proper construction of the contract), and the names and addresses of the parties to the contract.
The second is the Referral Notice. This must be served within seven days of the date of the Notice of Adjudication and must set out full details of the factual, legal and technical basis of the claim. The Referral Notice must also attach copies of all the documents on which the referring party intends to rely, including the contract and any correspondence, witness statements and expert reports.