Litigation: New year, new approaches?
The difficulties with court proceedings are becoming more pronounced as the courts struggle to deal with their backlog of cases. Although alternative options for determining disputes have been available for some time, the speed and potential quality of experience offered by these routes should make them increasingly attractive to those who cannot resolve their disputes through negotiation or mediation.
Here, we outline the pros and cons of pursuing arbitration or expert determination rather than litigation, and ask whether these alternatives are now more sensible for parties, even where the relevant lease or other contract does not compel their use.
When can parties use these alternative processes?
In some agreements, there may be a clause which gives either party the right to refer any disputes to arbitration and/or expert determination. Landlords and tenants are used to such clauses in their leases for determining rent reviews and perhaps in some other limited areas, such as service charge disputes, but any wider compulsion for resolving lease disagreements outside of the court process is surprisingly rare.
Nevertheless, there is no reason that parties cannot simply agree to use an alternative route for determining their dispute, even where there is no requirement to do so under the contract.
How do the processes work?
Whether appointed as arbitrator or expert, the relevant individual who decides on the dispute will be an independent third party. Their powers are derived from the terms of the particular appointment agreed between the parties, with some limited intervention by statute for arbitrations – principally by way of the Arbitration Act 1996.
Section 33 of the Act imposes a general duty on an arbitrator to act fairly and impartially between the parties, giving each party a reasonable opportunity of putting forward its case and dealing with that of its opponent. The arbitrator should also look to adopt procedures suitable to the circumstances of the case, avoiding unnecessary delay and expense, so as to provide a fair means for the resolution of the matter referred.
Despite many similarities between the processes of arbitration and expert determination, there are some important differences to bear in mind, including:
- Arbitrators act on the evidence and arguments put before them by the parties in the same way as a judge, whereas an expert is free to decide the issue(s) according to their own knowledge and experience, and they are not bound by the material presented by the parties.
- Experts’ powers and duties derive from the agreement by which they are appointed, and they are not subject to any statutory equivalent of the 1996 Act.
- There is no right of appeal against an expert’s determination (although the determination will not bind the parties if the expert has departed from their instructions to a material extent).
- An expert is liable to the parties for negligence, whereas an arbitrator is not.
Key benefits of arbitration and expert determination
While the processes of arbitration and expert determination have some similarities to litigation procedures under the Civil Procedure Rules, there are some important differences which allow parties greater control and flexibility.
The benefits of having a decision from a suitable specialist are not difficult to see where the dispute involves complex technical issues, eg mechanical, electrical or valuation matters. However, it is worth remembering that the appointed person can also be a suitably specialist lawyer – an option not always available from the courts, where valuable property disputes may sometimes be heard by a judge with no property law expertise. In contrast, the list of those lawyers currently available to act as arbitrator or expert include some former High Court judges and justices of the Supreme Court, as well as a number of barristers and solicitors with specialist legal expertise.
Where appropriate, an arbitrator or expert can appoint a suitable assessor to provide any additional expertise required. For example, a surveyor arbitrator could appoint a lawyer to assist, or a lawyer arbitrator or expert might appoint a surveyor as assessor.
This flexibility of the processes also extends to their remit and format. For example, an arbitrator or expert can be appointed to resolve a particular issue, or group of issues, rather than the entire claim. These could be questions on interpretation or other legal issues, as well as questions of fact or expert opinion. For example, parties in a dilapidations dispute might ask for a decision on the interpretation of a repairing obligation or the need for a substantial repair, so that they can then try to negotiate the remaining issues between them, such as the reasonableness of the costs involved and any valuation issues.
In terms of the format, arbitrations and expert determinations may be conducted wholly in writing, or there may be an oral hearing. The potential for parties to control the process can also extend to procedural matters, where directions as to the extent of evidence to be exchanged are often agreed between the parties themselves and can be more flexible than the court process. For example, parties might agree to exchange submissions on their case with relevant documents in support and then review further whether (and, if so, the extent to which) any disclosure or expert or witness evidence is needed.
Even where there is disagreement on a particular point of procedure requiring a decision from the arbitrator or expert, this is usually dealt with more efficiently than via the courts – potentially without a hearing. In addition, the specialist expertise of the third party tends to lead to more appropriate analysis of the extent of evidence required in a particular case, which can significantly reduce costs.
The result of this increased flexibility and control is that a dispute referred to arbitration or expert determination is likely to be resolved more speedily, or at least no less slowly, than via traditional litigation. That is partly because procedures can be streamlined to meet the requirements of the particular dispute, but also because the arbitrator or expert is, in general terms, at the parties’ disposal. Not only does this contrast with the public duties that a judge owes towards other litigants within the court process, but parties are also sure to save costs in not having to deal with the frequent inadequacies of the courts’ administrative functions. The overall result is that a case within the court process is unlikely to be tried within the timescale which could be achieved via arbitration or expert determination.
As a final key point for parties considering the benefits of these alternative processes, there is also the obvious attraction of the outcome being kept private to the parties – at least when the decision is initially circulated. This privacy may be lost if the decision requires enforcement via the courts in due course, but this should be rare.
One aspect of arbitration and expert determination which can dissuade parties from using these routes is the limited availability of an appeal. As mentioned above, there is little room for appeal against an expert determination. With arbitration, there is a limited right of appeal on questions of law arising out of an award, which can be excluded altogether by agreement. The court also has a limited supervisory role, allowing it to correct serious procedural irregularities (under section 68 of the 1996 Act).
Where disputes are centred on issues of fact or expert opinion, the restricted availability of an appeal process may be of less importance than in cases where there are legal disagreements. Nonetheless, parties may feel that they would prefer to have a suitable specialist make a decision swiftly at first instance rather than relying on the costly back-up option of pursuing an appeal process.
Another cause for concern can be the additional cost of the third party’s fees (compared with a “free” judge), plus those of any assessor appointed. With complex disputes, the additional costs involved may be quite considerable, and further costs may be incurred in hiring a suitable venue for any oral hearing required. There is little doubt that court fees will tend to be rather lower than these expenses, and so parties will need to assess whether the benefits available from using an alternative process justify the potential additional costs – although there may be costs savings resulting from a faster process and a more streamlined approach to evidence. The question of costs recovery as between the parties in any particular case will depend on the terms of the agreement between the parties.
A balance to be struck
Resolving disputes without court proceedings usually reduces costs and frustration for the parties involved, but the options of negotiation and mediation do not always succeed. Achieving a swift decision from a quality decision-maker with suitable expertise appointed as arbitrator or expert can help to preserve existing commercial relationships, as well as offering the benefit of privacy.
Given the issues frequently experienced with an over-burdened court system – and exacerbated by the coronavirus pandemic – parties should give serious thought to these alternative routes for achieving decisions on their disagreements.
This content was first published in Estate Gazette. For more information on the above, please contact Emma Humphreys or your usual Charles Russell Speechlys contact.