Arbitration - a Cost Effective Mechanism?

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rbitration is frequently criticised as being more expensive and only marginally quicker than court litigation. In this article Chris Binnington who is also chairman of the Association of Arbitrators (Southern Africa), looks at these criticisms and suggests mechanisms to make arbitration more cost effective.

Arbitration is the standard method of dispute resolution in the construction industry. As such it is regulated by the Arbitration Act, 42 of 1965, which provides that an arbitration decision shall be final and binding and is subject to remittal or setting aside on very narrow grounds. The procedures laid down in the Act are very vague and the parties are free to adopt their own rules and regulations. The Association of Arbitrators of Southern Africa has developed a set of rules which includes both standard and summary procedure rules, the latter for the simpler disputes. The Association has also developed a “Small Claims Arbitration Tribunal” or SCAT set of Rules for dispute under R60 000.

Unfortunately the trend in the construction industry is to appoint attorneys and counsel as representatives and invariably such representatives will move the process towards the traditional adversarial procedures practiced in court.

Consult an arbitrator, not your lawyer

If arbitration is to provide a cost-effective method of dispute resolution then the flexibility of the process must be implemented. The appropriate person to guide the parties in this regard is the arbitrator. The primary requirement for a successful (cost effective) arbitration is an arbitrator who is competent in the process of arbitration. This is far more important than being competent in the technical discipline involved in the dispute. Technicalities of the dispute can be explained to an arbitrator but the conduct of the proceedings cannot. If an arbitrator requires an explanation of the process then that arbitration is likely to be a disaster from a cost-effectiveness point of view.

One of the most wasteful procedures in arbitration is the leading evidence. Traditional rules of evidence dictate that a witness may not be lead by his representative.

Thus, having spent several days of preparation with a witness it is not permissible to ask leading question and a roundabout method of asking questions has had to be developed which can waste considerable time.

The cross examiner process is still one of the cornerstones of adversarial procedures and one of the best methods of testing the veracity of evidence. The cross examiner is expected to commence his questions immediately after evidence in chief is given and a cross examiner must spend considerable time preparing For Cross examination on topics which may be unnecessary.

The submission, in advance, of full written evidence of both witnesses of fact and of experts eliminates considerable time since it avoids the wasteful of aspects of leading evidence.

It also allows the cross examiner to focus on the key issues and to be properly prepared in advance thus limiting the time of the cross-examination. Where the arbitrator has specific technical expertise he should be allowed to make use of it and not allow witnesses to painfully explain technical problems which are within the arbitrator’s own expertise.

Relevance

Many arbitrators lose sight o the relevant issues and allow one party or the other to take up a significant amount of the tribunal’s time with irrelevant matter.

Arbitrators should be quick to intervene in a situation where one party is introducing evidence whether there is an objection from the other side or not.

Whilst an arbitrator should not step into the arena and argue either side’s case he has a duty to keep the parties focussed on the costs and by subtly asking certain questions can give an indication of how he feels about certain issues. The parties should watch out for such hints since early settlements will minimise casts.

Arbitrators are the managers of the process. In many situations they will be obliged to follow the wishes of the parties but this should not preclude them from offering cost effective suggestions through innovative procedures.

Beware FIDIC arbitration procedures

The use of ICC (International Chamber of Commerce) procedures, as stipulated in the FIDIC series of contracts, is not cost effective in the context of a domestic contract. Under ICC each party nominates an arbitrator and the ICC nominate a chairman. Each party will be required to lodge a deposit of, at least. US$50 000 before ICC will nominate a chairman. The ICC rules themselves are also cumbersome and lend themselves to “gamesmanship” by the parties.

Where FIDIC contracts are being used in the domestic environment it will be better to substitute a more user friendly process.

The Association of Arbitrators (Southern Africa) will be pleased to assist with the provision of suitable arbitration clauses and the nomination of appropriate arbitrators where the parties cannot agree.

Finally arbitrators owe it to the parties to hand down awards timeously after the conclusion of the hearing and to provide reasons for their awards. It is much easier for a losing party to accept the award if he understands the arbitrator’s reasoning.

If these suggestions are incorporated it is possible to have a cost effective arbitration. If however the process is run like a court procedure and the arbitrator sits back and listens without being proactive, the costs will frequently overtake the capital in dispute.

THE CIVIL ENGINEERING CONTRACTOR SEPTEMBER 2005