Arbitration is an increasingly popular alternative form of dispute resolution to litigation. In construction law, arbitration typically arises through a dispute resolution clause in the contract. Parties then agree to proceed to arbitration rather than litigation if an issue arises. Unlike other forms of ADR, arbitration has a regulatory framework contained the following Acts that parties must consider:
- Commercial Arbitration Act 1986 (ACT);
- Commercial Arbitration Act 2010 (NSW);
- Commercial Arbitration Act 2011 (SA);
- Commercial Arbitration Act 2011 (Vic);
- Commercial Arbitration (National Uniform Legislation) Act 2011 (NT);
- Commercial Arbitration Act 2011 (Tas);
- Commercial Arbitration Act 2012 (WA); and
- Commercial Arbitration Act 2013 (Qld).
The parties in dispute choose an appropriate independent third party (often a dispute resolution practitioner or former judicial officer) to listen to their arguments and then make a determination. Arbitration, unlike mediation and early neutral evaluation, is legally binding on the parties and so, resembles adjudicating the matter through court. Parties still, however, retain control by selecting the arbitrator with the required expertise and experience to hear the dispute.
What is the Process for Arbitration?
The construction contract along with the applicable Commercial Arbitration Act creates and defines the arbitrator’s powers as well as sets out the procedure. Where possible, parties should consider the likely dispute issues that can arise and ensure the arbitration clause is appropriately drafted.
The arbitrator will usually convene the parties in a meeting (or series of meetings), and conclude with a formal hearing that more often than not, follows the court procedures. This is despite the fact that the Commercial Arbitration Act 2010 (NSW) provides that the arbitration can be in such a manner as considered ‘appropriate’.
Under the regulatory regime, the arbitrator will present his or her decision in writing at which point it forms a legally binding decision (referred to as an Award). The Award is similar to a judgment parties can enforce (here is where arbitration significantly differs to other forms of ADR).
What Are The Advantages?
So, should parties still consider arbitration given it closely mirrors the court process and provides a binding outcome? In short, yes. Arbitration’s advantages include:
- Comparative informality to the proceedings meaning a decision is made quicker;
- Unlike court where proceedings become a matter of public record, arbitration is also private; and
- Like court judgments, parties can enforce the arbitrator’s Award.
What Should I be Wary Of?
Other ADR processes are designed to keep the commercial relationship open between the parties (where possible) and for both parties to reach an agreed compromised position. Also, the regulatory framework differs from state to state so you should obtain advice before signing your construction contract to ensure that you are including the appropriate Act in your agreement. Importantly, arbitration, unlike other ADR processes, is a binding award given to parties. Parties should understand that there are limited appeal rights if they are dissatisfied with the arbitrator’s decision.
Arbitration can be successfully used to resolve your construction or commercial dispute. There are definite advantages and the regulatory framework guides parties when considering and enforcing and award. If you need assistance drafting an ADR clause or navigating the arbitration process for your construction dispute, get in touch with our disputes team on 1300 544 755.