August 2013: Adjudicators determination not final and binding; Quo Vadis?
|In this article Chris Binnington examines the process of arbitration which would usually follow a failed adjudication outcome.
Adjudication is promoted internationally as being a cost effective and speedy mechanism for the resolution of construction disputes and a number of (mainly Commonwealth Countries) have promulgated legislation requiring parties to a construction contract to use the adjudication process as the first stage for the resolution of construction disputes. If the adjudication process does not become final and binding as a result of one or perhaps both parties filing Notices of Dissatisfaction, then the standard mechanism for the final resolution of the dispute, as provided in most construction contracts, is arbitration. Can arbitration in the Construction Industry provide a cost-effective mechanism?
Although no statistics are published in South Africa, or indeed internationally, in regard to the percentage of adjudications which proceed on to arbitration, I would offer an informed guess that perhaps 15% to 25% of all adjudications end up in arbitration.
Arbitration is frequently criticised as being more expensive and only marginally quicker than court litigation. In this article I will examine these criticisms and suggest mechanisms to make arbitration more cost effective.
Arbitration has, historically, been the standard method of formal dispute resolution in the construction industry. As such it is regulated by the Arbitration Act, 42 of 1965, which provides that an arbitrator’s decision shall be final and binding and is only subject to remittal or setting aside on very narrow grounds (sections 32 and 33 of the Act). The procedures laid down in the Act for the conduct of the arbitration itself are deliberately left 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. 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 practised in court together with the adoption of the High Court Rules, which are not well suited to the arbitral process. In fact I would go as far as to state that the High Court Rules should be avoided, in arbitrations, at all costs.
If arbitration is to provide a cost-effective method of dispute resolution then the flexibility which is available under the arbitration process, and the use of techniques which would not find favour in the Courts, 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 time-wasteful procedures in arbitration is the leading of evidence of witnesses (evidence in chief). 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 questions in order to solicit the answer which the representative knows the witness will give (hopefully!) and thus a roundabout method of asking questions has had to be developed which is itself a time wasting exercise.
The cross examination process is still one of the cornerstones of adversarial procedures and one of the best methods of testing the veracity of evidence. It is thus an essential part of the process. However, 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. This is not only wasteful of time during preparation but ultimately inflates the costs of the dispute process.
The submission, in advance, of full written evidence by way of statements of both witnesses of fact and of expert witnesses eliminates considerable time since it avoids the wasteful aspects of the leading of evidence. It also allows the cross-examiner to focus on the key issues and allows the cross examiner to be properly prepared in advance thus limiting the time of the cross examination.
Where the arbitrator has specific technical expertise he should make use of it and not allow witnesses to painfully explain technical matters which are within the arbitrator=s own expertise. I was once party to an arbitration where the witness for the contractor, claimant in the arbitration, was lead for more than three hours on the process of excavating a foundation for a wall, fixing the reinforcing steel and thereafter casting the foundation! All of this before a civil engineer as arbitrator! The arbitrator should immediately have intervened when he saw the direction the evidence was taking and advised counsel for the claimant that it was unnecessary to lead the witness through the process unless there was something in particular, of relevance to the claimant’s case, which needed to be highlighted.
Relevance: Many arbitrators lose sight of 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 irrelevant evidence whether there is an objection from the other side or not.
Whilst an arbitrator should not step into the arena and argue either sides= 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 costs.
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.
Parties to a dispute which is proceeding to arbitration invariably have the opportunity under most standard forms of contracts to mutually agree upon the arbitrator. This allows the parties to select someone who has a track record and thus a reputation as a competent arbitrator. Leaving the selection process to a nominating body, frequently because one party has suggested certain possible names as arbitrator, which names are then viewed with suspicion by the opposing party, deprives the parties of one of the benefits of the process itself.
Since the arbitration award will be final and binding as soon as it is handed down there will not usually be an appeal procedure unless the parties agree to such an appeal. Where the amount in dispute is significant it may well be worth considering an arbitration tribunal comprised of three individuals even where the contract refers to only a single arbitrator being used. Three heads are definitely better than one and where no appeal has been agreed then both parties should want the best possible outcome.
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 pro-active, the costs will frequently overtake the capital in dispute.
Chris D Binnington