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Arbitration
- PainSmith Solicitors Legal Update
by
Dr David Smith of Pain Smith Solicitors*
PainSmith
Solicitors Legal Advisor 
1st
April 2008
Many property professionals will be familiar with arbitration
clauses. In the past these used to be relatively popular but,
with the advent of Tenancy
Deposit Protection and the end of the TDSRA scheme their
usage has tended to fall away. This is unfortunate, as when
dealing with higher value claims a well crafted arbitration
clause can actually produce a quicker, cheaper and more effective
form of settlement for both sides.
Arbitration
is governed under the Arbitration Act 1996 which was designed
to set out a quick, effective, but thorough form of arbitration
to be used in the United Kingdom. The Act has been so effective
in so doing that its forms have been adopted by other countries
and it is the de facto standard for international arbitration.
There
is no purpose in arbitrating for sums under £5,000. In point
of fact the Arbitration Act makes it an unfair term under
the Unfair Terms and Consumer Contract Regulations for any
clause to be included in a contract which demands arbitration
for sums of less than £5,000. In practice, the existence of
the small claims track in the County Court system and its
relatively low cost makes it wholly unnecessary. Where arbitration
clauses truly come into their own however is for claims in
excess of £15,000. These claims would normally fall into the
multi track within the county court.
Since the recent alteration of the court fee structure these
claims are now relatively expensive and the court fees alone
will amount to in excess of £1500 for a claim that goes all
the way to a final hearing, with the consequent legal fees
to be added on top. It is also worth remembering that a case
in the small claims track will usually take in excess of 6
months to reach a final decision so it is not particularly
speedy. By contrast, an arbitrator will usually cost somewhere
in the order of £1,000 and he will often render a decision
within a month or two and he can therefore provide an economic
and timely solution.
It
is important not to confuse arbitration as provided for in
arbitration clauses with adjudication as is commonly used
by Tenancy Deposit Protection
schemes. Adjudication is designed to be a quick and cheap
interim settlement of a problem. It is not designed to give
a thorough, or necessarily final, decision. In fact adjudication
is not final and binding unless the parties specifically agreed
that it should be which is why all Tenancy Deposit Protection
schemes require that the parties agree that the adjudication
should be final and binding before they can resort to it.
Arbitration, by contrast, is designed to be final and binding
and the courts will recognise it as so. Indeed the courts
will not overturn an arbitration award unless it has been
so poorly conducted that there has been significant prejudice
to one or other of the parties, and the Arbitration Act sets
out the mechanism by which this should occur.
The
biggest downside with arbitration awards is that they are
not currently directly enforceable and if one or other party
absolutely refuses to abide by the award then it is necessary
to resort to the High Court. However, even then this is usually
better than following through the multi track of the County
Courts as any costs associated with resorting to High Court
enforcement will be met by the party refusing to abide by
the arbitration award. In addition arbitration awards are
internationally recognised and can often be easier to enforce
in foreign jurisdictions than Court judgments.
The
biggest downside with arbitration awards is that they are
not currently directly enforceable and if one or other party
absolutely refuses to abide by the award then it is necessary
to resort to the High Court. However, even then this is usually
better than following through the multi track of the County
Courts as any costs associated with resorting to High Court
enforcement will be met by the party refusing to abide by
the arbitration award. In addition arbitration awards are
internationally recognised and can often be easier to enforce
in foreign jurisdictions than Court judgments.
So
what does an Arbitration Clause need to set out. Most importantly
it needs to set out what sorts of dispute should be rendered
to an Arbitrator, and what should not. In particular for our
purposes it should certainly set out that only disputes in
excess of £15,000 should be rendered to an Arbitrator as it
will not be economic to do so for lesser value disputes. There
should also be an effort to set out the method by which the
arbitration will be commenced. For example, who is to be notified
of the dispute, in what detail they need to notified of it,
and how they should be notified. It is also important to set
out how the Arbitrator will be appointed. This can be done
in a number of ways. Either the parties can agree a list of
Arbitrators or one Arbitrator in advance who will be appointed
to arbitrate any dispute. Clearly, a list of Arbitrators is
preferable in the event that a single named Arbitrator has
retired or is unavailable for some other reason. Alternatively,
the parties might hope to agree an Arbitrator at the time
of a dispute however it would be unwise to rely on an agreement
being reached and some other provision should be included.
Usually this will involve asking an appropriate body to select
an Arbitrator from a panel.
The two most commonly used bodies in these circumstances are
the Royal Institute of Chartered Surveyors and the Chartered
Institute of Arbitrators. The President of one of these bodies
would be asked to select an Arbitrator from his panel and
the parties will then consent to that Arbitrator being appointed
to determine the dispute. It is important to realise that
if this method is going to be chosen that the President will
charge a fee, typically in the order of £300, for making that
selection and that it is therefore best wherever possible
to agree an Arbitrator in advance. Other issues which parties
may wish to agree in advance are timescales by which the arbitration
should be conducted, for example on submission of documents
and rendering a decision and also aspects of how the arbitration
is to be conducted for example is it to be conducted solely
on paper or is the Arbitrator to hold a hearing for which
both parties can submit full evidence.
It
is worth remembering that an arbitration agreement can equally
require that other means of dispute resolution are to be used
before arbitration. So, for example, an arbitration agreement
could require that the parties seek adjudication - a cheap
interim remedy of a dispute - first with the option of taking
the result of the adjudication onto arbitration if either
party was dissatisfied with it. Alternatively the parties
might wish to seek mediation of their agreement and attempt
to settle their dispute more amicably before resorting to
a more formal arbitration process.
Once
an Arbitrator has been appointed he has full authority to
decide how he will conduct the arbitration unless the arbitration
agreement already sets out how he is to operate. The Arbitrator
is also empowered under the Arbitration Act to decide as to
whether he has been properly appointed and whether the arbitration
has been properly commenced. In these respects his powers
are very similar to those of the Court. Finally, the Arbitrator
will have power to make a decision on the merits of the parties'
cases and also, assuming the arbitration agreement allows
them to do so, to decide who should pay the cost of the arbitration.
The
use of arbitration does not necessarily avoid the use of lawyers
altogether. It would usually be advisable to instruct solicitors
and possibly barristers to represent parties and assist them
in drawing up arbitration papers and representing them at
any arbitration hearing if one should be used. It may of course
also be necessary to instruct lawyers in respect of enforcement
of arbitration. However, the need to utilise lawyers should
not be seen as a disadvantage of arbitration as they would
certainly be required in respect of any multi-track claim
and time which is spent preparing for arbitration should be
far less than that required to pursue any case through the
courts.
In
all, while arbitration is certainly not cheap, for higher
value claims it is a far superior alternative to the use of
the court system and will often provide an answer much more
quickly. A sample agreement which can be incorporated into
a tenancy agreement to allow for arbitration on the terms
set out in this article is included below although it should
be recognised that this is for illustrative purposes only
and anyone wishing to place an arbitration clause of this
sort into an agreement is strongly advised to seek legal advice.
Sample
arbitration agreement:
- The
parties agree that any dispute arising out of or in connection
with the tenancy created by this agreement save for disputes
relating to its existence, validity, or termination where
the sum in dispute exceeds £15,000 (fifteen thousand pounds
sterling) shall be submitted to arbitration by a single
arbitrator to be agreed between the parties.
- Should
the parties be unable to agree an arbitrator within 28 days
of wither party requesting arbitration then either party
may apply to the President for the time being of the Royal
Institute of Chartered Surveyors/Chartered Institute of
Arbitrators to ask them to appoint a suitable arbitrator.
- The
seat of the arbitration shall be London, United Kingdom
and the law of the arbitration shall be that of England
and Wales.
- The
Arbitration Act 1996 will apply to the arbitration.
- The
notification of arbitration will be deemed delivered on
the second working day after posting to the landlord if
it is sent by first class post to the landlord (or to one
of the landlords if there are more than one) or his agent
at the address given for landlord or agent in the tenancy
agreement or such address as has been notified to the tenant
during the term of the tenancy if different.
- The
notification of arbitration will be deemed delivered on
the second working day after posting to the tenant if it
is sent by first class post to the tenant (or to one of
the tenants if there are more than one) at the property
address or such other address as the tenant(s) may have
provided or if it is sent care of the tenant's agent if
one has been appointed.
- The
arbitrator will have full authority to determine how the
costs of the arbitration shall be apportioned including
all legal costs and expenses, any expert fees and witness
expenses, the arbitrator's fees, and any costs or fees associated
with the appointment of the arbitrator.
*Dr
David Smith is a trainee solicitor with PainSmith Solicitors,
a niche practice specialising in residential landlord and
tenant law.
PainSmith
Solicitors Legal Advisors are provided for information only
and are not legal advice. If you do have a legal problem,
you should talk to a lawyer or adviser before making a decision
about what to do.
You
may wish to use the CLS/CDS Directory (www.justask.org.uk/public/en/directory)
to locate an adviser. The information provided here is written
for people resident in, or affected by, the laws of England
and Wales only.
You
should note that date given in the update and be aware that
the information given may become inaccurate due to changes
in the law or its implementation.
See
also:
________________________________
*See
also Section 13 Notices and Is the deal closed? The
use of the 'Subject to Contract' formula- For
full article Click
Here
________________________________
*See
also Safety Glass and Defective Premises Act - The
Information on a Court of Appeal decision (7th February 2007)
regarding the Defective Premises Act 1972 For full article
Click
Here
________________________________
*See
also Implementation of the Regulatory Reform (Fire Safety)
England & wales) Order 2005 Click
Here
________________________________
*See
also Understanding
Business Tenancies June 2007 Click
Here
________________________________
*See
also Duty of Landlords To Mitigate Loss Click
Here
_________________________
*See
also Energy Performance Certificates
in Let Property - 29
January 2008 Click
Here
________________________________
*See
also Commercial
Rent Arrears Recovery
1 April 2008 Click
Here
*
Articles
courtesy of PainSmith
Solicitors are a niche practice specialising in Landlord and
Tenant Law. Based in Medstead in Hampshire, they are ideally
situated to provide an efficient service to clients nationwide
as well as those based in Central London and the Home Counties.
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