News and Insights
28 September 2016
Arbitration clauses appear regularly in all kinds of documents.
If you read a commercial lease (for a warehouse or shop for example) then it is likely to include an arbitration clause. Broadly it will say that in the event of a dispute between the landlord and the tenant the dispute will be referred to an arbitrator for determination. Similar clauses appear in building contracts. A builder will be commissioned to build a house, for example, and in the event of dispute with the customer it will be referred to arbitration.
What does this mean? Who is an arbitrator and what will he do?
Arbitration is part of a process called alternative dispute resolution (ADR) – a means to resolve a dispute outside of Court. It is a private judicial dispute resolution determined by an independent third party.
The advantages of ADR include:
- Speed – it is usually much less formal than Court proceedings and therefore faster. As a result it is often cheaper.
- Confidentiality – Court proceedings are public; decisions by an arbitrator are issued to the parties involved but are not necessarily public.
- Expertise – depending on the subject matter of the dispute, the arbitrator appointed by the parties may have a qualification in that field e.g. an architect in the case of a building dispute.
The disadvantages of ADR can be:
- Arbitration is often expressed to be mandatory and binding in the agreement.
- There are few avenues for appeal.
- Interim orders prior to the main determination; to restrain breach of an agreement for example, may be difficult to achieve.
The provision within a lease will usually say that if there is a dispute between the landlord and the tenant, they will be referred to an arbitrator for determination and there is no alternative option.
The experience of arbitration
Viberts has been involved with several arbitration proceedings in the last 18 months. The experience was not plain sailing. They all involved disputes with builders: the standard of work; and the sums charged.
One matter was settled long in advance of a scheduled hearing before the arbitrator. The parties then had to unite to defend the charges of the arbitrator, which they both believed to be excessive. Another involved a dispute over charges for the building of a garage, where the builder contracted to complete the work at one price and then half way through demanded another. The arbitrator determined that the builder had entered a contract to build at a price without qualification and therefore had to stick to what he agreed. Another dispute involved funds retained and the quality of work. The sum was not insubstantial and the arbitrator reached a decision that both parties had a valid argument. The money was divided accordingly.
Recent case law
There have been two cases at the Royal Court so far this year which dealt with appeals from the decision of an arbitrator:
- The power station
- Public vs JEC was an appeal against the decision of an arbitrator on the rent to be levied for the land at La Collette where the power station is sited. The public owns the land and the JEC lease it. It was originally let for a sum of £1,000 per annum in 1967 but there was a rent review clause at various trigger dates, subject to arbitration in the event of dispute. The clause went further and said that the decision of the arbitrator was final and without appeal. The public and the JEC then agreed provisions in relation to a determination by an arbitrator which the court found cancelled the prohibition upon appeals.
- When examining the arbitrator’s decision, the Court then ruled that the arbitrator had erred in law and his decision was based on the false assumption that the new revised rental should be equivalent to the old rental of £1,000 per annum. As a consequence, leave was granted to appeal against his decision.
- Foreign arbitration awards
- Tepe vs Boru was a dispute linked to contracts for the construction of an oil pipeline. A preliminary point was the enforceability of an arbitrator’s award in relation to the contract. The Royal Court referred to the Convention on the Execution of Foreign Arbitral Awards. The convention provides that countries which are signatory to the convention may only refuse to enforce such awards on specific grounds. They must otherwise be implemented. The Royal Court concluded that the procedures followed by the arbitrator did not breach any rules and there was no reason why his award ought not to be enforced.
The aim of arbitration is to provide a swift determination of a dispute. On public policy grounds it is desirable to conclude disputes quickly; for better or for worse. It may be difficult to challenge an arbitrator’s decision, so make sure that the proceedings before the arbitrator are carefully prepared and presented.
The best advice however, is to avoid the dispute in the first place. Disputes are often evidence of a break down in communication. If it can be maintained then parties will often negotiate a solution. Keep talking and avoid a row.