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Where a court decides that there has been a serious irregularity of the kind described, it will in most cases remit the award to the arbitrator for reconsideration. However, where the court is satisfied that this would be inappropriate, it may instead set aside all or part of the award, or declare all or part of it to be of no effect.
24.3LITIGATION
As a general principle, any dispute arising between the parties to a contract may be settled by an action in court. As to which court is appropriate, this will depend upon a number of factors including the size of the dispute, its nature and, in some cases, its location. The size of the dispute is relevant because claims up to a certain financial limit tend to go to a county court. Its nature is important because that will affect which division of the High Court is selected. Thirdly, the location may influence the choice of court since it may be tried locally in the relevant county court or by a circuit judge hearing High Court business.
In practice, building and civil engineering cases of significant size are tried in the Technology and Construction Court. This is a specialist sub-division of the Queen’s Bench Division of the High Court, which sits in separate premises in London and provincial locations. It is staffed by High Court and circuit judges, formerly known as ‘Official Referees’, who are almost all appointed from barristers who have specialized in construction disputes. Since some 80% of the business of the Technology and Construction Court is construction-based, it effectively constitutes a specialist court for the construction industry.
A litigant who is dissatisfied with a decision in the Technology and Construction Court may appeal to the Court of Appeal on a point of either law or fact. However, an appeal on fact is only possible if either the trial judge or the Court of Appeal gives leave. It seems that, in the interests of finality and certainty, leave should not be granted unless the court believes there is a real prospect of success.32
24.3.1Litigation procedure
Since 26 April 1999, all civil litigation has been governed by the Civil Procedure Rules (CPR) (SI 1998 No 3132). These rules are specifically intended to be a complete break from the old system, and the courts have confirmed that the old rules and case law are not to be relied upon, even as a guide. Instead, the CPR are to be developed by judges from the fundamental principles stated at Part 1.1:
1.These rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly.
2.Dealing with a case justly includes, so far as practicable:
a.ensuring that the parties are on an equal footing;
b.saving expense;
32 Hoskisson v Moody Homes Ltd (1989) CSW, 25 May, 69.
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c.dealing with the case in ways which are proportionate:
i.to the amount of money involved;
ii.to the importance of the case;
iii.to the complexity of the issues; and
iv.to the financial position of each party;
d.ensuring that it is dealt with expeditiously and fairly; and
e.allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases.
On 1 April 2013 changes to the CPR were introduced under the Civil Procedure (Amendment) Rules 2013.
24.3.2Useful remedies in construction cases
An important difference between arbitration and litigation is that parties whose dispute is heard in court may be able to invoke two very powerful legal remedies, which are not readily available at arbitration. First, in very clear-cut cases, there may be a power to obtain ‘summary judgment’ under Part 24 of the CPR. Where this is so, it means that the whole of a claim, or a particular issue, can be decided once and for all on the basis of affidavit evidence (written statements made on oath). This avoids the expense and delay of a full-scale trial, which can save up to 80% of the costs and up to two years of waiting.
Whether or not a claimant seeks summary judgment under Part 24 of the CPR, it may be appropriate to apply for ‘interim payment’ under Part 25. This is a procedure under which a claimant may, by satisfying the court that he or she is likely to be awarded a substantial sum of money, become entitled to payment in advance of a reasonable proportion of that money. However, this procedure does not operate as a final decision on the merits of the case and so, if the later proceedings do not confirm the award, then the money must be repaid.
Summary judgment under CPR Part 24
Summary judgment enables a court, either of its own volition or on the application of a party, to dispose of a claim, a defence or a particular issue without a full trial. This procedure, which can save a great deal of time and money, is available where two conditions are satisfied:
the court considers either that the claimant has no real prospect of success on the claim or issue, or that the defendant has no real prospect of success on the defence; and
there is no other reason why the case or issue should go to a full trial.
Since summary judgment effectively denies to a defendant the opportunity to argue the case in full, it follows that a court must feel very convinced that there is no arguable defence before making such an award. In cases decided on an earlier version of this procedure, the courts used such phrases as ‘indisputably due’, ‘as plain as could be’ and ‘beyond reasonable doubt’, which indicate that the onus of proof on the claimant is a heavy one. In the construction context, a contract administrator’s certificate has usually been regarded as sufficient evidence that a
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sum is due, except where the defendant has been able to challenge the certificate in some way. Where no such challenge has been possible, then vague allegations of defects or delay, without good supporting evidence, have not been enough to prevent the contractor from obtaining summary judgment.
Part 24 is intended to provide a speedy method of disposing of disputes to which in truth there can be only one answer. In consequence, the court should not allow such proceedings to escalate into a full-scale trial. However, if the defendant raises a point of law, which can be disposed of after a brief argument, the court can deal with it.
Interim payment under CPR Part 25
A claimant may apply for an order for interim payment on account of damages or other sums that a defendant may subsequently be held liable to pay. Such an order may only be made in three circumstances:
where the defendant has admitted liability;
where the defendant has already been held liable; or
where the court is satisfied that, if the matter went to trial, the claimant would be awarded a significant amount of damages.
If the court is satisfied on this, it may order the defendant to make an interim payment of such amount as it thinks just, not exceeding a reasonable proportion of the ultimate liability and taking into account any contributory negligence, set-off or counter-claim.
Declaration under CPR Part 8
A useful procedure available is to ask the court to hear an argument and decide on a limited point only. Under CPR Part 8 parties can seek a declaration on a point of law from a TCC judge. The procedure is reserved for both enforcement of adjudication decisions where no argument is available on the underlying facts, and in cases where the court is presented with either facts that are agreed, or assumed facts.
Part 8 applications for a declaration are attractive to parties for two reasons. First, such applications are heard in a very short period and at short notice, with cases being listed in less than 28 days. Indeed, the court has heard cases at just a few days’ notice during the course of adjudication in order to help parties proceed. Second, because hearings are short, it is possible for parties to contracts outside the UK to secure a declaration under English law without having to wait for a full trial.
24.4ARBITRATION OR LITIGATION?
The parties to a dispute are in principle free to choose a method of resolving it. Arbitration and litigation each offer certain advantages. Even where a contract contains a clause stating that disputes shall be settled by arbitration, the parties may agree to ignore this and instead go to court. However, the presence of an arbitration clause in the contract will normally mean that, unless both parties agree
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otherwise, disputes must be settled by arbitration. Of course, such a clause affects neither the statutory right of adjudication nor the option of finding a settlement through a form of amicable dispute resolution.
24.4.1Relative advantages and disadvantages
As to which procedure (arbitration or litigation) would be a more appropriate means of resolving a dispute, no definitive answer can be given, but there are various matters that may be taken into account in any particular case. In briefly noting these factors, one point should be borne in mind. Arbitration covers a much wider range of possible procedures but may be dependent on an agreement between the parties for any unconventional procedures to be adopted. Litigation, under the revised CPR rules, offers a wide range of procedures which might be introduced by the court in order for the case to be heard without delay. Thus, any comparison between litigation and arbitration inevitably raises the question of what kind of arbitration, or what kind of litigation, is being considered. The relative merits of the two forms of dispute resolution, which are described below, are largely based on the assumption of a large-scale construction arbitration involving complex arguments, legal representation and procedures similar to those in court.
Advantages of arbitration
The advantages traditionally claimed for arbitration were that it was heard by an experienced arbitrator familiar with construction and so should be cheaper and quicker than litigation, suitable for matters of technical complexity, convenient, private and commercially expedient. These points are discussed below:
Cost: It is often said that arbitration is cheaper than litigation. Unfortunately, while this can be true in simple cases, where a short informal procedure (for example without legal representation) is used, it tends not to be so in complex construction disputes. Indeed, in such cases, where the procedures adopted are similar to those of a court, arbitration is likely to be the more expensive option. This is because arbitration is not subject to the CPR rules and, specifically, active case management. There is a tendency for delays to the timetable to be tolerated more by arbitrators than by courts, and longer periods of involvement are more costly.
Speed: Again, while arbitration in simple cases is likely to be much quicker than litigation, this is dependent upon the parties’ willingness to adopt and agree upon a suitable procedure and for active case management by the arbitrator to limit delays pre-hearing. If what is required is effectively a trial, then litigation is likely to be quicker, since judges tend to direct the parties toward the trial with a view to maintaining planned trial dates without delay, enforce the prescribed time limits for the various procedural stages in refusing to give extensions of time and imposing cost sanctions for failure to comply with directions. This is not to say that arbitrators lack the necessary powers, rather that they do not always have the confidence to apply them or may defer readily to the parties’ proposals even if it results in substantial delay.
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Technical complexity: It may be that, where the legal issues in a case are relatively straightforward, but the factual questions are complicated (for example as to detailed matters of design loading), it is better to have the dispute heard by an arbitrator possessing relevant technical qualifications. However, where ‘complexity’ means only ‘construction industry practice’, this is well understood by the judges of the Technology and Construction Court, who spend most of their time hearing such cases.
Convenience: Arbitration can be arranged to suit the parties (and the arbitrator) and, for example, it may be possible to hold hearings in the evening or at a weekend or in convenient locations. But courts, too, are showing considerable flexibility also to accommodate parties.
Privacy: It is not easy to maintain complete confidentiality in large construction arbitrations, if only because so many prominent people within the construction industry and professions will be involved. However, what may quite legitimately be said is that litigation is officially in the public domain; the fact that one company is suing another will be known as soon as the writ is issued, and the general public has a right of access to court proceedings. Thus, there is likely to be more publicity attached to litigation than arbitration.
Commercial expediency: One other matter, which might influence a party in favour of arbitration, is that court-style procedures might be relaxed by agreement. This may be important where the parties’ contractual relationship is continuing.
Advantages of litigation
The perceived advantages of litigation include the ability to join third parties in the action, the availability of legal aid, the ability to deal with legal complexities and a more decisive approach by the decision-maker. These are expanded below:
Active case management: TCC judges are likely, particularly following the introduction of the revised CPR rules, to encourage parties to mediate and to prepare in advance for trial in order to ensure that trials are heard within the planned timetable. The encouragement towards mediation is very significant: some 80% of cases are said to settle this way, and this can be the most effective procedure available for cutting costs.
Third parties: The right to take a dispute to arbitration is conferred, not by law, but by the terms of a contract. In consequence, only the parties to that contract are bound. This means that where, as is often the case in construction disputes, more than two parties are involved, they can only be brought into the same arbitration proceedings if either they all agree or provision is made for this in all the relevant contracts. JCT SBC 11 and the accompanying sub-contract are drafted with the intention of enabling proceedings to be joined. However, the drafting is complex, and it is by no means certain that it achieves its object.
Legal aid: A private individual involved in a dispute may qualify for legal aid. If so, that person will almost certainly prefer litigation to arbitration, since legal aid is not available for the latter.
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Legal complexity: Where a dispute essentially turns on a point of law (which includes the meaning to be given to a term of the contract) it is probably better to have it decided by a judge rather than by an arbitrator without legal qualifications. Indeed, where a dispute can be narrowed down to being only on a point of law, it may be resolved by a judge on a CPR Part 8 application, a quick and simple procedure not involving a full scale court case.
Decisiveness: Whether it is justified or not, there is a belief among lawyers specializing in construction cases that arbitrators (particularly those are not practising lawyers) are instinctively reluctant to rule wholly in favour of one party or the other but prefer, to some degree at least, to ‘split the difference’. As a result, it is felt that a contractor who makes a wholly spurious claim against the employer is likely to come away from arbitration with at least something, whereas a judge would have less hesitation in denying the claim altogether. Consequently, a party who genuinely believes that a claim is 100% justified may, given the choice, prefer to litigate rather than to arbitrate.
24.4.2Staying proceedings
In some standard form contracts, such as those relating to insurance, it is common to find a clause which makes an arbitrator’s award a condition precedent to the right to bring an action in court. These are called Scott v Avery clauses, after the case in which their effectiveness was first recognized.33 Such clauses are rarely found in modern construction contracts. However, where a contract contains an arbitration clause, there is a procedure whereby one party may seek to prevent the other from outflanking that clause by starting proceedings in court. Under section 9 of the Arbitration Act 1996, a defendant in such circumstances may apply to have a legal action barred (‘stayed’ is the technical term) so that arbitration can take place.
An application under section 9 must be made by the defendant before taking any step in the proceedings to answer the substantive claim made by the other party. Under previous statutory wording, defendants sometimes inadvertently lost their right to a stay by taking some fairly trivial procedural step in response to the issue of legal proceedings against them. The wording used in the 1996 Act means that this is much less of a danger and the Court of Appeal, in interpreting section 9, has shown itself very unwilling to deprive a defendant of the right to a stay on technical grounds.34
Under previous legislation (section 4 of the Arbitration Act 1950), the court had complete discretion over whether or not it would grant a stay of proceedings, and there was a substantial body of case law concerning the principles on which that discretion would be exercised. For example, it was normal for a stay to be refused in cases involving more than two parties, since such disputes are much more easily handled in court than by an arbitrator. However, the 1996 Act has removed the court’s discretion in this respect, by providing that the court must
33Scott v Avery (1856) 5 HLC 811.
34Patel v Patel [1999] BLR 227.
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order a stay of proceedings unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.
The way in which the courts have interpreted the 1996 Act has brought about another crucial change in this area. Under previous legislation it had been held that, where a claim was sufficiently ‘indisputable’ for a court to give summary judgment (see Section 24.3.2), there was by definition no ‘dispute’ to be arbitrated. Hence, the defendant would not be entitled to have the proceedings for summary judgment stayed. This line of argument is, it appears, no longer valid; however clear-cut a dispute may be, it is still a dispute and, if it falls within a valid arbitration clause, the defendant is entitled to have that dispute heard at arbitration.35
24.4.3Time limits in arbitration and litigation
The Limitation Act 1980, which requires every legal action to be commenced within a certain period, applies to arbitration as well as to litigation. If a case goes to court, the question is whether the claimant issued a claim form (formerly known as a writ) within the statutory period. If it goes to arbitration, the question is whether notice requiring arbitration was served on the other party within that time. What must be appreciated is that a claimant who satisfies one of these requirements is not automatically regarded as having satisfied the other. To avoid the danger of being out of time for one or other of these procedures, the claimant should both issue a claim form and serve notice of arbitration, while making clear which procedure the claimant really wishes to follow.
Quite apart from the Limitation Act 1980, construction contracts frequently contain their own provisions as to both the earliest and latest time in which disputes can be taken to arbitration. For example, JCT SBC 11 clause 1.10 makes the Final Certificate conclusive evidence of a number of matters in any proceedings commenced more than 28 days after its issue (see Section 18.2.1).
Such contractual time limits will not operate in cases of ‘deliberate concealment’ of a breach of contract.36 Furthermore, the courts have jurisdiction under section 12 of the Arbitration Act 1996 to extend time for the commencement of proceedings. However, this can only be done where unforeseen circumstances have arisen and it would be just to extend time, or where the conduct of one party means that it would be unjust to enforce the strict time limit against the other. This is clearly a more restrictive test than the general ‘hardship’ provision contained in the 1950 Act, and it seems that the courts will not seek to interpret it in a liberal way. Thus where, due to an administrative oversight, a contractor failed by a mere eight days to commence arbitration within the three-month period required by ICE 6 clause 66, the Court of Appeal held that there was no reason to extend time.37
Regarding the ICC 11 form, the parties can refer a dispute to arbitration directly, without a decision by the engineer. However, if an adjudicator has
35Halki Shipping Corp v Sopex Oils Ltd [1997] 3 All ER 833; Davies Middleton & Davies Ltd v Toyo Engineering Corporation (1997) 85 BLR 59.
36Crestar Ltd v Carr (1987) 37 BLR 113.
37Harbour and General Works Ltd v Environment Agency [1999] BLR 409.
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decided upon the dispute, the referral to arbitration has to be made within three months of the adjudicator’s decision (clause 66B(3)). Without a timely ‘notice to refer’ (to arbitration), the adjudicator’s decision becomes final and binding (to this issue see also Section 24.1.2).