Construction arbitration offers a structured alternative to litigation for resolving disputes and provides fertile ground for achieving fair settlements through negotiated agreements.
In the complex world of construction, arbitration offers a structured alternative to litigation for resolving disputes. While arbitration aims for a binding decision, it also provides fertile ground for achieving fair settlements through negotiated agreements.
Under standard FIDIC construction contracts, a binding arbitral award serves as a binding resolution mechanism when negotiations fail to resolve the dispute(s) amicably and/or the Dispute Adjudication Board has been unsuccessful in delivering a satisfactory ruling. While the DAB may issue a provisional ruling to keep projects moving, parties dissatisfied with that outcome may refer the matter to arbitration under formal rules—typically those of the International Chamber of Commerce (ICC).
Unlike informal negotiation or mediation, arbitration results in an enforceable award, ensuring legal certainty and finality for both parties. Construction arbitration offers a pragmatic and often superior pathway to resolution, which imposes a resolution dictated by the arbitrator, whilst a negotiated or mediated settlement empowers both parties to craft solutions that directly address their specific needs and concerns.
This collaborative element fosters a greater sense of ownership over the outcome, enhancing the likelihood of long-term compliance and potentially preserving valuable business relationships. So, the question then becomes how to prioritise a fair settlement over more one-sided outcomes.
The role of the arbitrator is more than a neutral adjudicator; they can act as a catalyst for settlement. A skilled arbitrator understands that facilitating dialogue and exploring common ground can often lead to a more efficient and mutually agreeable resolution. They may subtly encourage negotiation, reminding parties of their autonomy in reaching a settlement at any stage of the proceedings. In more proactive instances, arbitrators might suggest or even formally direct the parties to engage in mediation, a complementary process that focuses specifically on facilitated negotiation.
Under certain circumstances, and with the explicit consent of the parties, an arbitrator can also offer preliminary, non-binding views on the merits of the case. By illuminating the potential risks and rewards of proceeding with full arbitration, these preliminary insights can break down entrenched positions and pave the way for constructive dialogue. Arbitrators can also strategically schedule dedicated settlement conferences or create "without prejudice" environments where open and honest discussions about potential resolutions can occur without fear of these discussions being used against a party later in the arbitration.
All this being said, the impetus for settlement doesn't solely rest with the arbitrator. The active and good-faith participation of the disputing parties is paramount. Maintaining open lines of communication, even amidst disagreement, is crucial. Parties should approach settlement discussions with a willingness to compromise and a commitment to presenting realistic offers that reflect a balanced evaluation of their position. Engaging constructively in any parallel mediation efforts can present an opportunity to explore creative and mutually beneficial solutions.
Ensuring fairness throughout the settlement process is non-negotiable. The arbitrator must maintain an impartial and independent stance, avoiding any actions that could be perceived as an apprehension of bias, favouring one party over the other during settlement discussions. Private, ex-parte communications regarding settlement should be strictly avoided to preserve the integrity of the process. Any settlement reached out of the arbitral proceedings must be the product of the parties' voluntary agreement, free from undue pressure or coercion from the arbitrator.
For a settlement to be truly fair, both parties must be equipped to make informed decisions. In many instances, the arbitration process reveals or provides during its proceedings additional information or sufficient clarity regarding the factual and legal landscape of the dispute. This may encourage the parties to settle their disputes amicably, prior to award, based on a clear understanding of rights, obligations, and the potential outcomes of a continued arbitration.
The advantages of achieving settlement prior to award within construction arbitration are manifold. Perhaps the most immediate benefit is the significant cost savings realised by avoiding the protracted and often expensive process of a full arbitration hearing. Arbitrator fees, legal expenses, and the costs associated with expert witnesses can quickly escalate, making settlement a financially prudent choice.
Beyond cost, settlement offers substantial time efficiency. Resolving a dispute through negotiation invariably leads to a much faster conclusion than waiting for a final arbitral award. This expedited resolution minimises project delays, alleviates financial strain, and allows parties to redirect resources and attention back to their core business activities.
Crucially, settlement also empowers the parties to retain control over the outcome. Unlike a binding arbitral award, which imposes a decision from an external source, a negotiated agreement allows the parties to craft bespoke solutions that directly address their unique circumstances and interests, not just their rights and obligations. This element of control often leads to more creative and commercially viable resolutions that might not be achievable through a purely legalistic determination.
Furthermore, a negotiated settlement is far more conducive to preserving business relationships. The adversarial nature of a fully contested arbitration can strain and even sever ties between parties. A mutually agreed-upon resolution, however, fosters a sense of compromise and can lay the groundwork for future collaboration.
The inherent confidentiality of the arbitration process extends to any settlements reached within it, providing a level of privacy that is often absent in public litigation. This can be particularly important in the construction industry, where reputational concerns are significant.
Finally, settlement offers a degree of certainty that is absent in the unpredictable nature of arbitration. By reaching an agreement, parties eliminate the risk of an unfavourable or uncertain arbitral award, securing a defined outcome and allowing for more effective future planning.
Pursuing fair settlements prior to award during construction arbitration offers a valuable pathway to resolving disputes efficiently and preserving crucial business relationships. By understanding the strategic advantages of negotiation and the pivotal role of the arbitrator in facilitating dialogue, directly or indirectly, parties can often achieve mutually agreeable outcomes.
For expert support in navigating the complexities during construction arbitration, and/or for maximising the potential for successful settlements, look to DG Jones & Partners. Our experienced professionals may provide impartial third-party advice and a comprehensive suite of dispute resolution services, empowering clients to achieve their ultimate objectives.
Want more detailed insights into the DG Jones approach to construction arbitration and our range of services? Speak to one of our experts in your region today.
