The Arbitration Act 2025 (opens a new window) received royal assent on 24 February, introducing a series of changes intended to make arbitration fairer, more efficient and cheaper. Construction professionals will have to weigh up these benefits carefully when choosing a route for dispute resolution, and when considering the contractual terms governing the dispute resolution.
What is arbitration?
Arbitration is a form of alternative dispute resolution (ADR), a means of resolving disputes that doesn’t involve going to court. In arbitration, an independent third party will consider the facts and take a decision that is often binding on one or both parties.
There are many advantages to the arbitration process. It is typically quicker than litigation and may also be cheaper depending on the facts of the case. Unlike litigation, arbitration proceedings are not in the public domain and the decision is confidential, granting privacy to those involved. Arbitration also affords the parties more flexibility on the timetable and process, rather than being held to a court-imposed timetable.
Arbitration differs from other forms of ADR, including adjudication and mediation. The former is quicker but does not produce a final and binding outcome – and may be challenged by arbitration or litigation. Mediation, by contrast, is an entirely voluntary process that requires both parties to agree to a compromise. A failed mediation may be a preliminary to court proceedings.
All parties must agree to arbitration. This is often set out in contract. A contract can specify how the parties would like the arbitration to be conducted.
What’s new in the Arbitration Act 2025?
The changes introduced by the Arbitration Act aim to make arbitration fairer, more efficient and cheaper. There are six headline changes:
Clarification regarding the governing law in arbitration (section 6A). Where a choice of law is not stated in the arbitration agreement, the default position is now that the law applicable to the arbitration will be the same as the seat of arbitration.
New power to make a summary dismissal of claims and defences that have no real prospect of success (section 39A). This should ensure meritless claims and defences can be set aside quickly, reducing costs and delays. However, this section can be contracted out.
Duty of disclosure for arbitrators relating to the arbitrator’s impartiality (section 23A). An arbitrator now has a duty to disclose any information of which they are, reasonably should be, or may become aware, that might reasonably give rise to justifiable doubts as to their impartiality.
Strengthened powers for emergency arbitrators (section 41A). Unless the parties agree otherwise, an emergency arbitrator may make a peremptory order (an instruction that cannot be challenged) if a party, without showing sufficient cause, fails to comply with any order or directions. The emergency arbitrator may decide on the appropriate time for compliance. By strengthening the power of emergency arbitrators, this enhances the effectiveness of arbitration as a resolution mechanism.
Additional protections for arbitrators (sections 24 & 29). Arbitrators will not be liable for their resignation unless it is shown that the resignation was unreasonable. Where an arbitrator has been removed, the court may not order the arbitrator to pay costs in proceedings unless the arbitrator is shown to have acted in bad faith. These changes are intended to encourage impartial decision making in arbitration.
Simplified procedure for challenging arbitral jurisdiction (section 67). If an arbitration tribunal has already ruled against an argument that it lacks jurisdiction, then the parties can only bring a challenge provided it contains no new evidence or new grounds (unless, at the time the applicant took part in the proceedings, the applicant did not know and could not with reasonable diligence have discovered the ground) or any evidence already raised in the tribunal. The changes intend to reinforce finality of arbitration and prevent multiple unnecessary hearings.
Is arbitration preferable to litigation?
Construction professionals will frequently see references to arbitration within contracts, with anecdotal evidence showing a rise in usage of arbitration over litigation. Professionals may also see reference to arbitration as a frequent dispute resolution mechanism under insurance policies such as Professional Indemnity Insurance (PII).
PII claims may be well-suited to arbitration, as they involve allegations of negligent services or poor advice which could have reputational repercussions for the insured party. The confidentiality afforded by arbitration may offer a means to minimise this reputational risk.
By streamlining the arbitration process and reducing legal costs, the changes are likely to make arbitration an even more tempting alternative to litigation. Professional body drafted agreements such as those by RIBA, RICS & JCT already include options for arbitration as the final dispute resolution mechanism, and we may see more standardised contracts using arbitration by default. However, whether arbitration is a suitable option for a given dispute will depend on the facts of the individual case.
Likewise, although arbitration is likely to be cheaper than litigation, this will not always be the case. More so than litigation, arbitration tends toward the front loading of costs; with litigation there can be more opportunity to resolve the case via mediation/settlement prior to trial, thereby avoiding an element of cost.
From the PII perspective, clarity and reductions in legal costs are always favoured, where savings across the market can be passed down to insured firms.
Recommendations:
Consider whether arbitration is an appropriate form of dispute resolution for potential problems with the project/contract.
Take care when reviewing dispute resolution provisions in contract. Litigation and arbitration should be mutually exclusive. Arbitration should not be confused with adjudication. Adjudication should be an option that provides the parties with an interim decision pending a final resolution by arbitration/litigation (if needed, should either party be unsatisfied with the adjudicated outcome).
Be mindful of notification conditions under your PII policy, be it in relation to claims, circumstances and notices of intention to arbitrate or adjudicate.
Seek insurer approval before incurring costs or starting any process, whether litigation or a form of ADR.
For further information, reach out to a member of our team.
