ARBITRATION and alternatives

We have in the past made various comments on these pages on contractual matters (see References below), the first of which referred to ADR or Alternative Dispute Resolution. This month we return to a subject with which ADR is associated, namely that of arbitration.

The Institution of Chemical Engineers has distinguished itself over the years by producing several model forms of contract for process plants. The term 'distinguished' is used deliberately since the IChemE's forms of contract stand head and shoulders above the alternatives. The latter include the versions produced by the IMechE, the ICE (especially the 'New Engineering Contract'), the Association of Cost Engineers, and FIDIC (which, in Costimator's opinion, should be avoided).

In October 1968, the IChemE published the original edition of the 'Model form of conditions of contract for process plants suitable for lump sum contracts in the United Kingdom' more commonly known as the 'Red Book'. Later in 1976 the IChemE launched the 'Green Book' which deals with reimbursable contracts. Subsequently, this was followed by the 'Yellow Book' for subcontracts and the 'Purple Book' which explains and enlarges on the first three.

The fairness to both parties contained in these books, and therefore their success, can be attributed at least in part to the committees involved, which consisted of a mixture of contractors and clients, thus achieving a balanced approach.

In 1996, the IChemE issued a temporary set of arbitration procedures to be used in the event of the arbitration clause in any of the 'Books' being invoked. Since then, the Arbitration Act has come into force and, in September 1997, a revised (second) edition of 'Arbitration procedures' the 'Pink Book' was published.

Before we comment on the 'Pink Book', however, first we would like readers to recall the earlier piece on ADR, alternative dispute resolution. In the UK, ADR is promoted by the Centre for Dispute Resolution (CEDR) which was launched, with the support of the CBI, in 1990. ADR mediation is a voluntary process that helps antagonists reach a binding agreement more quickly and more cheaply than by litigation. An 80-90 per cent success rate has been claimed for this procedure. Therefore, if possible, avoid arbitration by writing ADR into the contract. Even then, arbitration will usually be required as a fall-back position for one or both parties. Which thought brings us to our brief review of the 'Pink Book'.

The contents of 'Arbitration procedures' are comprehensive and reasonably standard. The stated rules are comprehensible and allow little room for doubt. Perhaps, however, the 'Definitions' in Rule 23 could be extended to cover more of the terms used in the body of the text. A further point which is not considered in the 'Pink Book' is the possibility of a recalcitrant party who may be at a distance and outside UK jurisdiction.

Costimator has always taken the view that good practice would be for both sides to deposit, in advance of proceedings, sums in escrow, under the control of the abitrator, of sufficient size to cover costs (including those of the arbitrator and expert witnesses) plus possible penalty awards ensuing from the arbitration. Such an approach would most certainly earn the concentration of the disputees. It would also add to the objective of obtaining 'the fair, speedy, economic and binding resolution of disputes'.

We heartily recommend that these procedures be adopted in whatever form of contract is used. Above all, avoid the common reference to the 'International Chamber of Commerce' in Paris or Geneva... with English as the language of the arbitration but, say, under Saudi law. Now there's a nice, expensive dog's dinner for you!

References

1. 'ADR solves your disputes, easily, quickly and cheaply' PE Jan 1994.

2. 'Liquidated damages, part 1 Cirrhosis of the contract' PE May 1994.

3. 'Liquidated damages, part 2 Practical treatment' PE June 1994.

4. 'Liquidated damages, part 3 Last rites' PE July 1994.