Arbitration in the construction industry

Construction disputes and arbitration

Many construction disputes are settled by arbitration. Arbitration is a specific form of administration of justice, with an impartial arbitrator or arbitrators giving a binding decision on the dispute in question. This decision is called an arbitral award and has the same force of law as a judgment given by the ordinary (civil) court.

Why arbitration?

The most important reason why many parties in the construction industry opt for arbitration is the option of submitting their dispute to arbitrators who have technical knowledge and experience of construction. Particularly in complex cases, submitting a dispute to an arbitral tribunal with the proper know-how may be inducive to the quality of dispute settlement (and with it the acceptability of the award for the parties): thanks to their professional structural knowledge, arbitrators see more often than an ordinary court where things have gone wrong during construction.

Deposit and costs

In some cases, arbitration may be cheaper than litigating at the ordinary court, but this is usually not the case. The claimant will have to pay a deposit before the proceedings are instituted. This deposit will be used to pay the costs incurred by the Arbitration Board for the Building Industry and the fee of the arbitrators and the secretary. In the end, these costs will be borne by the party that is found against. Though representation by counsel is not obligatory in arbitration, the parties often are represented by counsel, especially if the dispute concerns a major financial interest.

Arbitration Board for the Building Industry

The major part of the disputes that are subject to arbitration in the construction industry are dealt with by the Arbitration Board for the Building Industry (abbreviated to RvA in Dutch). In fact, the RvA functions as a secretariat that helps the parties and the arbitrators in inter alia matters such as the appointment of the arbitrators, coordination and organisation of the proceedings, and the administration of all relevant documents. The dispute itself is not assessed by the RvA, but by arbitrators that are on a list kept by the RvA.

Arbitration agreement

If the parties wish to submit their dispute to arbitration, they will have to refer to this in an arbitration agreement (also called an arbitration clause). The choice for arbitration at the Arbitration Board for the Building Industry is usually made in the purchase or building contract, the general terms and conditions declared applicable to this, or another contract document. By agreeing on arbitration, the parties exclude the competence of the ordinary court. The dispute must therefore be submitted to the RvA (save for some exceptions). The arbitration agreement may also be included in a separate document of a later date, even after the dispute has arisen (this is called ad hoc arbitration).

Lack of jurisdiction of the RvA

If no choice was made in writing for arbitration, but a party brings a claim before the Arbitration Board, the Board in principle does not have jurisdiction. In that case, the claimant does not have a cause of action. The defendant in the proceedings has to invoke this lack of jurisdiction, because the Board will not review this of its own motion. If, however, the jurisdiction of the Arbitration Board for the Building Industry is contested, the arbitration agreement can only be proven by means of a written document.

Litigating at the Board of Arbitration for the Building Industry

Proceedings at the Board of Arbitration are instituted in writing through a Statement of Claim or a Petition. There are several types of proceedings: proceedings on the merits, expedited proceedings on the merits, and preliminary relief proceedings. The course of the proceedings is the same as in case of normal court proceedings. The defendant is given the opportunity to answer. This is usually followed by an oral hearing.

Appointment of arbitrators

The parties are free to appoint the arbitral tribunal themselves. They can do this by means of a joint request. If they omit to do so, the RvA will appoint the arbitrators. Usually, one arbitrator is appointed for simple disputes, and three arbitrators for more complex disputes.

Arbitral award is binding

The judgment given by the RvA is called arbitral award and is equally binding on the parties as a regular judgment. To enforce the judgment, the party found for will have to ask the court for leave to enforce first. As a rule, this “exequatur procedure” is only a formal procedure. The court only tests the judgment for reasonableness and will not review the case.