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CONSTRUCTION - COMMERCIAL - CONTRACT - ARBITRATION - ADJUDICATION - MEDIATION - CLAIMS

Mr Colin Tomlinson, Professional Graduate Engineer who has studied both the MSc in Construction Law and LLM in Commercial Law.A Fellow of the Institute of Commercial Management, Member of Institute’s of Electrical Engineers , Chartered Arbitrators , Paralegals , Cost Engineers , who now works as a consultant to global companies .

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INTRODUCTION

The Quest for

the Essence of

Arbitration

Web Site|

For a presentation at

Downing College

Cambridge

for the

Chartered Institute of Arbitrators

Summer Seminar

www.tomlinson-associates.com



THE ESSENCE OF ARBITRATION ?

Breaking News | Around 440 BC, Leucippus of Miletus and his pupil, Democritus originated the atom concept

What is the purpose of Arbitration?What is Arbitration

Arbitration, a form of alternative dispute resolution (ADR), is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons (the "arbitrators", "arbiters" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound

Wikipedia

Arbitration is generally used when all parties agree to the

process. Most commonly, it is used because there is an arbitration

clause in a commercial or consumer contract. Arbitration is

a formal process in which an impartial third party with

specialist background knowledge on the nature of your dispute hears all parties and makes a binding decision to resolve it.

Law Society

To resolve disputes

But how is it to perform that function



IN THE BEGINNING

Plato writing around 350BC describes for want of a better word the “essence” of Arbitration in the failure to fulfil a contract : If a man fails to fulfil an agreed contract … an action should be brought in the tribal courts if the parties have not previously been able to reconcile their differences before arbitrators (their neighbours that is).” Plato, The Laws, Translated by Saunders, Penguin books

In The Law Plato gives an example of the type of dispute that would be

Arbitrated around 350BC “But if any professional person sell any such

slave … (with some defect) … which most men would fail to notice, to a

layperson, the buyer may claim restitution. (The) … action shall be

tried before a bench of doctors nominated and chosen by the

parties.” …In this case Doctors were chosen because of their particular

skill to examine a slave but appointment was only by the

agreement of the parties.

Aristotle explains that the law in use is the Law of Equity, “It bids us remember ... to settle a dispute by negotiation and not by force; to prefer arbitration to litigation -- for an arbitrator goes by the equity of a case, a judge by the strict law, and arbitration was invented with the express purpose of securing full power for equity."” Aristotle Rhetoric 4th century BC



EQUITY

Breaking News |

The Romans started their invasion of Britain from around

55 BC and with it came two types of law, the first was the

Codified Law and secondly was Arbitration, the ability of the

parties to Arbitrate disputes in proceedings agreed between the

parties.

54 BC – Mrs Caesars little boy Julius decided on a three month holiday to Briton

Aristotle considered the nature of equity and its relationship to justice in his famous

passage from his work, Ethics. He concludes that equity’s role is to prevent

the law from adhering too rigidly to its own rules and principles when those rules and principles would produce a miscarriage or

injustice. Equity permits Arbitrators to depart from the legal principles to promote

justice or that was the original concept if Aristotle is to be believed

Cicero wrote "Nore would our ancestors permit to be a Judex even in the most trifling money matters, not to speak of offers concerning the dignity of a man, unless the offering parties were agreed upon him." I.e. to appoint a person that the parties agree upon, again it can be seen that the system worked on a version of the Law of Equity rather than State Law.



DEVELOPMENT OF THE LAW

Breaking News | The 100 Years' War was actually a series of conflicts between France and England that began in 1337 and ended in 1453

Through the thirteenth and fourteenth centuries the English Courts started to developed the Common Law and the system of assumpsit.

Pleading a case became very intricate with only certain avenues of address were open to the claimant.

Aggrieved persons found that legitimate complaints were

rejected for failure to comply with the technicalities of the

requirements for the submission of the pleadings

and if the complaint was not dismissed at first instance,

relief was in most case denied based on the lack of a controlling statute or

precedent.



DIFFERENT SYSTEMS

Breaking News | The 4 different Courts were at odds with each other, Ecclesiastical, Chancery , Common, Jus

The aggrieved plaintiffs therefore then looked to the king whom in turn referred requests for relief to the Chancery Court (defined as a “court with jurisdiction in equity”). The Chancery possessed the power to settle disputes according to their conscience with little or no regard to the Common Law hence the basis for the Law of Equity.

The Common Law and Law of Equity represented two opposing values in the English

Legal System. The Common Law was created independently from the Crown, whereas the

Chancery and its use of the Law of Equity developed as part of the duties firstly imposed by Edward I of England due to his annoyance at

the number of cases coming to him

The Chancery was seen as one of the four central

courts and the number of private cases had increased

dramatically. The reason for this was the only remedy

available to the Common Law Courts was the award

of damages, but the Chancery had the ability to

make an order of specific performance or an

injunction.



ISSUES BEFORE THE ACT

Breaking News | Mrs Shakespeare's little boy William wrote a few plays (1564 - 1616)

Had the parties entered in to a valid agreement to Arbitrate and if so agreed to be bound by the award?

WROTTING v ALGOR (1405) Coram Rege Roll 575

BLOUNDELL v AKELEY (1471) YB 10 Edw IV

One of the problems was that any party could revoke the Arbitrators authority before the published award

There are several reported cases where a losing party refused to acknowledge that an arbitration

took place.

ASSER v BRADMOR (1405) Coram Rege Roll 575

An alternative to the losing party was an attempt to upset

the award. Claims that the award had not been published,

or that it was incomplete may be found

FANE v PRIOR OF TONBRIDGE (1522) CP Apr

ANON (1522 or 1523)

One way round this was the introduction of the Arbitration Bond which meant that if the loser did not honour the award the other party would call for the bond, and example is SCOTT v BERACRE (1313) YB 6 & 7 Edw II where an award of £15 was not honoured. ‘ S’ sued on a bond of £30 which the parties had entered into to give effect to the award.



TYPICAL 15TH CENTURY EXAMPLES

Breaking News | The Houses of York and Lancashire fight The War of the Roses 1455 - 1485

in Wrotting v Algor (1405) the sheriff was directed to secure a jury at Westminster to enquire whether the parties had agreed to Arbitrate and if so had the parties agreed to be bound by the award of the Arbitrator

In Bloundell v Akeley (1471) a similar direction was given so the jury could enquire into the validity of an obligation under seal to refer to arbitration and

whether an award had actually been published

In 1484 rivalry between the two guilds erupted into violence during the Mayor of London’s river

procession, both guilds were in the habit of racing each other and on this day the race got out of hand

with the result of injury and death.

The parties agreed to Arbitration and the Arbitrator’s decision (Robert Billesdon) resolved

the issue by deciding that the Barges should alternate between sixth and seventh place each year, an equitable decision and giving rise to the

saying “all at sixes and sevens.



17TH CENTURY THREE WAY OF DEALING

Breaking News | Change is afoot with the introduction of the Arbitration Act 1698

The first was an arbitration commenced at Common Law without the Court's involvement. This was the traditional method of Arbitration whereby the parties agreed on an Arbitrator who then proceeded to determine the issues privately between the parties without recourse to the Court. Whilst the procedure was a judicial process in that, in very limited and ill defined circumstances, the parties could invoke the aid of the Court by way of a Bill in Equity, it was not subject to systematic Court regulation or assistance.

The second form of Arbitration was a reference by the Court in a pending suit. Since medieval times the Court had recognised that Arbitration had a role to play in the resolution

of disputes.

This procedure had the advantages of, on the one hand, enabling the parties to select the

tribunal best qualified to decide the dispute, or part of it, while nevertheless retaining the

sanction of the Court for a party's refusal to

proceed with the arbitration.

The third method comprised reference to Arbitration pursuant to

statute. The success of referrals to Arbitration in a pending action

culminated in an Act of 1698 which enabled parties to make the reference

a rule of Court. That is, the parties could effectively register their

Arbitration agreement with the Court; and their agreement thereby

became subject to a similar sanction for non-observance as obtained in

suits commenced in Court and subsequently referred to Arbitration

The acts main objective of the act was to render an award more effective, and this can be seen in the Act 1698:

“whereas it hath been found by experience, that reference made by rule of court have contributed much to the ease of the subject, in determining of Controversies, because the parties become thereby obliged to submit to the award of the arbitrator, under the penalty of imprisonment for their contempt in case they refuse Submission



JUDICIAL INTERFERENCE

Breaking News |

The second basis for judicial review of errors of law was in

the form of a special case procedure, which empowered Arbitrators to state a case on a

point of law for the Court’s opinion. While grounded in

Common Law, the special case procedure was given limited

recognition in the 1854 Act and subsequently codified in the

Arbitration Act of 1950

The first real attack come in 1802

In 1802, English Courts claimed the right to interfere with an Arbitration Award for error of law on the face of the award; up to that point, the decisions of Arbitrators on questions of law had been conclusive, barring fraud or a similar allegation

The wide degree of judicial oversight was unpopular with Arbitrators and led to the

practice of Arbitrators detailing their reasons for the award, hoping to avoid judicial review;

however, the reasons were stated in a separate, confidential document which

prevented them from being shared with a court for the purpose of a substantive appeal



NEXT 200 YEARS

Breaking News | What have we done ???.

In 1854 Common Law Procedures Act incorporated into statute a Common Law remedy that had been available for some time. Before the 1854 Act the Arbitrator was able to ask the Court’s opinion on a point of law as a Common Law right, the 1854 Act empowered the Arbitrator to state a case on a point of law for the Court’s opinion and held the Arbitrator duty bound to issues a valid award.

The 1889 Arbitration Act repealed all previous legislation in Arbitration and reintroduced additional provisions encapsulated into the

1889 Arbitration Act as all encompassing, for the first time making provisions for the

appointment of Arbitrators by Courts, setting out the terms and conditions to be universally

implied into every arbitration agreement

The Arbitration Act 1950 repealed all previous statue. An important development was the

codification of the special procedures rule at section 21,

providing that, following a party’s request, an Arbitrator could state an award (or part thereof) in the

form of a special case for the consideration of the High Court; if

the Arbitrator refused the High Court could order him to do so

the Courts upheld the right to state a special case.

“Arbitrators, unless expressly authorised, have to apply the laws of England. When they are persons untrained in law, and especially when as in this case they allow persons trained in law to address them on legal points, there is every probability of their going wrong, and for that reason parliament has provided in the Arbitration Act (1950) that, not only may they ask the courts for guidance and the solution of their legal problems in special cases… but that the court may require them, even if unwilling, to state cases for the opinion of the court on the application of [a] party to the arbitration if the court thinks it proper”.



1979 – 1996

Breaking News | In the late Autumn of 1994 Lord justice Saville assumed Chairmanship of the DAC and stated

The Arbitration Act (1979) abolished the general power of the Courts to review a case for an error in law on both the face of the award and by means of a special review. After a judicial review it was believed that the primary purpose of Arbitration (namely, an efficient and final award by a chosen decision maker) was effectively thwarted by excessive judicial intervention. As such, the 1979 Act limited the powers of judicial review for an error of law

It was asserted that one of the reasons for the introduction of the 1979 Arbitration Act was

to dispel the fear that the Courts were interfering too much, but this approach did no work and it was held that Court interference in Arbitration was unacceptable, hence when the

first draft of the new Arbitration Act was produced in1994 such was the chorus of

disapproval that the whole act was redrafted.

The intervention of the courts in arbitration had to be tackled if

England was to regain it success as the world leader for Arbitration.

International parties do not want or require the intervention of the English

Courts in multi national disputes.

Commercial parties to disputes see that excessive court involvement

defeats the purpose of the party’s initial decision to arbitrate in the first place, there is a loss of confidentiality

and addition cost of the Court

“What I was faced with was the fact that competing nations had gone a long way towards improving their own arbitral procedures in the light of the UNICTRAL model law, while here (UK) no progress was apparent despite the years that had passed by. In these circumstance it seemed to me that while what had to be done was obvious, it had to be done as fast as possible.”



THE LAW OF ARBITRATION

Mr. Justice Denning (as he then was) asserted, “ There is not one law for arbitrators and another for the Courts. There is one law for all, and arbitrators are bound by it just as much as the Courts. ”

Lord Justice Singleton said

“ The duty of an arbitrator is to decide the questions

submitted to him according to the legal rights of the

parties and not according to what he may consider fair and reasonable under the

circumstances”

We are here to provide a service that meets the requirements of our own times.

Commercial men require not only speed, economy, and consideration in the

procedures that we adopt: they also require, and expect to have the benefit of

fair judgment, based on common sense and commercial reality. In a word, they expect that we shall apply “ natural justice” in the

dispensing of our judgment, in the same way that we apply “ natural justice” in our

procedures.



HGCRA 1996

Breaking News | What is to stop us ruining the process again

Statutory Adjudication was introduced on the 1st May 1998 and incorporated into the Housing Grants Construction and

Regeneration Act 1996 (HGCRA).

WHY???

During the late 60’s, 70’s, and 80’s we saw Arbitration fail on a number of points:

•Legalised •Expensive •Stopped being quick •Damage and reputation destroyed

Assertion of Blame

Nobody played fair

Pay when Paid clauses in contracts

Industry practises in 80s



INITIAL DESCRIPTION

100 DAY Arbitration

AdjudicateThere was initial opposition to Adjudication

•Adjudication is not suitable for all types of cases•Protracted and costly•Uncertain outcome•Adjudicators fees have increased disproportionately•Interim not final•Problems with enforcement•An expensive way to flip a coin’

This presentation was one of many in the late 90’s that went on to insist that

Adjudication would be costly .

Adjudicator unlikely to have legal/ procedural training???



THE LAST 12 YEARS

Costs to contractor estimated at approx. £40k

Tecsa £1750/Day

CEDR On appointment

AICA Dependant

JCT/RISC £100 / Hr

Reasons for challenges in court

•Lack of jurisdiction•No dispute •Contract not in writing•Breach of Natural Justice•Bias •Service of notice

Rupert Jackson, when in charge of the Technology and Construction Court has raised questions as to thesuitability of adjudication for large complex final account claims and professional negligence claims. The increasing view is that to attempt to squeeze a complex ‘quart’ of a case into a ‘pint pot’ of the adjudication procedure gives a result that is unfair and therefore unenforceable

The last 14 years have seen a multitude of cases have been put before the courts, and

most areas have been challenged.

But some of the issues are the same.

Costs

Challenges

Reasoned awards



SUMMARY

Should we look at adopting the UNCITRAL model of

arbitration ?

Is the 100 day Arbitration model of any advantage

compared to Adjudication?

Arbitration started life as an equitable solution to a dispute, we have seen that through judicial interference this process has changed and with the direct interference during 19th and 20th century the demise of the English Arbitration system with the estimated loses in the 1960’s of £500 million.

John Riches recently talk was entitled “ We lost Arbitration are we losing Adjudication “

What is the correct law for Arbitration or Adjudication ?

By using Judges’ Law are we in breach of the laws of natural justice?

Why do we allow judicial interference?

Is the skill base correct for Adjudication?

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