The Arbitration Act 2025: Revitalising Arbitration in UK Construction Disputes?
Introduction
The landscape of construction dispute resolution in the United Kingdom has been dominated by statutory adjudication since the Housing Grants, Construction and Regeneration Act 1996 (HGCRA) introduced a rapid, interim-binding process to address cash-flow issues and maintain project momentum. Adjudication’s 28-day resolution timeline and statutory mandate have made it the default mechanism for payment disputes, sidelining arbitration, which was once a cornerstone of construction dispute resolution. However, the Arbitration Act 2025, enacted on February 24, 2025, introduces some significant reforms to modernise arbitration, aiming to enhance its efficiency, predictability, and responsiveness to the needs of the arbitration community, including the construction industry.
This article examines whether these reforms could revitalise domestic arbitration’s popularity in construction disputes and potentially replace some statutory adjudications. We review the Act’s key changes and consider their practical implications for construction disputes. The reforms signal a shift toward a more user-friendly arbitration process, raising the question of whether arbitration can reclaim ground lost to adjudication over the past three decades.
Historical Context: Arbitration and Adjudication in Construction
Arbitration’s Traditional Role
Arbitration has historically been valued in construction for its private, consensual nature, allowing parties to select arbitrators with expertise in technical matters like engineering or contract law. Its binding awards offer finality, and confidentiality protects sensitive commercial information. Arbitration’s enforceability under the New York Convention also makes it appealing for international projects. However, its drawbacks—high costs, lengthy proceedings, and limited urgency—have reduced its use in domestic construction disputes, where rapid resolution is often critical.
The Rise of Statutory Adjudication Under the HGCRA
The HGCRA introduced statutory adjudication to address cash-flow issues in construction by mandating a 28-day resolution process for disputes, particularly payment-related ones. Adjudication’s key features include:
Speed: Decisions within 28 days, extendable by agreement.
Cost-Effectiveness: Lower costs compared to arbitration or litigation.
Statutory Mandate: Most construction contracts must include adjudication clauses.
Interim Nature: Decisions are binding but can be challenged in arbitration or litigation.
Adjudication’s rapid, interim process has made it the default for payment disputes, ensuring projects continue without financial delays. Its success has marginalised arbitration, which is often reserved for complex disputes requiring finality. However, the use of adjudication has spread for beyond the initial justification of improving cash-flow, and is commonly used for complex final account disputes, to bring claims for professional negligence against architects, engineers and other advisors and for high-value disputes under PFI projects, including not just the underlying construction disputes but the consequent non-availability deduction mechanisms. Thus the original scope for which adjudication was envisaged has been stretched, perhaps to the point where, with hearings commonly being held on larger disputes, the distinction from arbitration is becoming somewhat blurred. The use of arbitration as an alternative to adjudication has been resisted in the past due to some of the perceived barriers of cost or the length of time to obtain a decision. It may be that the changes introduced by the Arbitration Act 2025 could reduce some of those barriers, and encourage its use as an alternative to adjudication, in the right context.
Key Changes in the Arbitration Act 2025
The Arbitration Act 2025 amends the Arbitration Act 1996 to address some of arbitration’s criticisms, introducing reforms to enhance its appeal for users. Some of the key changes are as follows:
Governing Law of Arbitration Agreements (Section 1)
Change: Unless expressly agreed otherwise, the arbitration agreement is governed by the law of the seat, defaulting to English law for domestic arbitrations in England and Wales, reversing the uncertainty from Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38 (which suggested that the law of the contract would govern the arbitration agreement).
Implication: This reform provides legal certainty, reducing disputes over applicable law, which is critical in construction contracts with complex jurisdictional elements, such as those involving international subcontractors or cross-border projects.
Power to Make Summary Awards (Section 7)
Change: Tribunals can dismiss claims or issues with “no real prospect” of success, akin to summary judgment in litigation.
Implication: This provision accelerates arbitration by eliminating frivolous claims early, addressing one of arbitration’s primary criticisms—prolonged proceedings. In construction, where disputes often involve multiple claims (e.g., variations, delays, defects), summary awards can save significant time and costs. For example, a subcontractor’s baseless claim for additional costs due to alleged employer instructions can be dismissed swiftly, reducing legal fees and expediting resolution. This efficiency makes arbitration more competitive with adjudication for disputes with clear outcomes, potentially attracting parties seeking cost-effective resolutions.
Framework for Jurisdiction Challenges (Section 5)
Change: The Act limits Section 67 challenges by restricting new evidence and rehearings unless justice requires, curbing tactical delays.
Implication: Jurisdiction challenges have historically delayed arbitration, increasing costs and disrupting the certainty which ought to be provided by a final arbitral award. By streamlining this process, the Act ensures faster proceedings, which is crucial for disputes involving time-sensitive issues like project delays or payment disputes. For instance, a contractor challenging an arbitrator’s jurisdiction over a multi-party dispute can no longer exploit procedural loopholes to delay proceedings, making arbitration more reliable. This reform aligns arbitration closer to adjudication’s efficiency in handling jurisdictional objections.
Enforceable Powers for Emergency Arbitrators (Section 8)
Change: Emergency arbitrators can issue enforceable orders, such as interim measures, unlike their previous non-binding recommendations, with enforceability under the New York Convention now more certain.
Implication: This reform is a potential game-changer for construction disputes requiring urgent relief, such as preventing a contractor from abandoning a site or securing critical evidence like defective materials. For example, if a payment dispute threatens to halt a major infrastructure project, an emergency arbitrator can order interim measures to maintain operations, offering a faster alternative to court applications. This capability enhances arbitration’s practicality, potentially reducing reliance on adjudication for urgent matters and appealing to parties needing immediate, enforceable outcomes. Whilst similar emergency measures can be obtained from the courts, the confidential nature of arbitration, together with this reform and the international applicability, may make arbitration a more attractive choice.
Arbitrator Duties and Immunity (Sections 2 and 4)
Change: The Act codifies arbitrators’ duty to disclose circumstances that might raise doubts about impartiality both before and after accepting appointment and extends to circumstances the arbitrator “ought reasonably to be aware of”. As a counter, the Act extends arbitrator immunity from costs to resignations or court removal, except if unreasonable or in cases of bad faith.
Implication: These changes bolster trust in arbitration by ensuring transparency and protecting arbitrators from undue liability. This should provide greater comfort for both parties and arbitrators and make disclosure a more straightforward process. The Act codifies practice which was already present in various rules or policies including those of the LCIA and CIArb.
Clarification of Section 44 Powers
Change: The Act confirms courts can grant orders against third parties in support of arbitration, such as for evidence preservation or document production.
Implication: Construction disputes often involve multiple parties—main contractors, subcontractors, suppliers—making third-party involvement critical. This reform allows parties to ensure tribunals have access to third-party documents (e.g., supplier records for defective materials) without derailing the arbitration process. This enhancement reinforces arbitration’s procedural utility, particularly for multi-party disputes common in large infrastructure projects.
Enhanced Use of Technology
Change: The Act encourages virtual hearings and bespoke procedural frameworks, aligning with post-pandemic practices and the rules of most of the arbitral institutions.
Implication: Virtual hearings reduce costs and logistical challenges, enabling faster scheduling for construction disputes involving geographically dispersed parties. This reflects what is now common practice: case management hearings are held virtually with a final hearing in person, although often with some virtual attendance. These changes, whilst not mandatory but rather by way of encouragement, have the potential to reduce cost and encourage tribunals to adapt to a more hybrid way of working, where they have not already done so.
The reforms introduced by the 2025 Act should, collectively, make arbitration faster, more predictable, and better equipped to handle the diverse needs of construction disputes, potentially challenging adjudication’s dominance.
Impact on Construction Disputes
The Arbitration Act 2025’s reforms enhance arbitration’s suitability for construction disputes by addressing its traditional drawbacks—cost, delay, and lack of urgency.
Efficiency and Cost Reduction
Summary Awards: The ability to dismiss unmeritorious claims early could be transformative for construction disputes, where parties often raise multiple claims, some speculative. For example, a subcontractor claiming additional costs for unauthorised variations can have their claim dismissed summarily, saving legal fees and expediting resolution. This efficiency reduces the financial burden of prolonged proceedings, making arbitration more competitive with adjudication for disputes with clear outcomes.
Streamlined Jurisdiction Challenges: By limiting tactical delays, the Act ensures arbitration proceedings align with project timelines and means decisions could be reached concurrently, rather than long after the project ends.
Urgent Relief
Emergency Arbitrators: Enforceable orders address urgent construction needs, such as preventing site abandonment or preserving evidence. For example, if a contractor threatens to halt work due to a payment dispute, an emergency arbitrator can order interim payments within days, maintaining project progress. This capability bypasses slower court processes, which can take weeks, and offers a binding alternative to adjudication’s interim relief. The enforceability under the New York Convention also ensures compliance, even in cross-border disputes, enhancing arbitration’s appeal for international construction projects.
Predictability and Expertise
Governing Law Clarity: The Act’s rule that arbitration agreements follow the seat’s law provides stability, reducing legal wrangling over applicable law. For domestic projects, this ensures English law governs, simplifying contract drafting. In international projects, it minimizes jurisdictional disputes, encouraging arbitration clauses in contracts like FIDIC.
Arbitrator Impartiality: Codified disclosure duties ensure arbitrators are unbiased, attracting experts in construction fields. In disputes involving technical issues, such as liability for structural defects, an arbitrator with engineering expertise can be invaluable for swiftly grasping the complexities underlying disputes. This expertise enhances arbitration’s appeal for complex disputes, where precise technical understanding is critical.
Comparison with Adjudication
Adjudication, mandated by the HGCRA, excels in speed (28-day resolutions) and cost, making it ideal for payment disputes critical to cash flow. Its statutory backing ensures universal access, and its simplicity appeals to smaller contractors. However, its interim nature means decisions can be revisited, lacking the finality needed for high-stakes disputes. The Arbitration Act 2025 bridges this gap by enhancing arbitration’s speed and urgency while retaining finality. Arbitration may be preferred for:
Complex Disputes: Issues like contractual interpretation or technical defects benefit from arbitration’s expertise and binding awards. Further, the more comprehensive rules of arbitral institutions (as opposed to the Scheme for Construction Contracts) ensure that parties enter any dispute with greater clarity as to the process, for example in how to deal with evidence. This should enable arbitral tribunals to make assessments based on the full range of evidence, something that is not always possible in the constrained timetable of an adjudication. Large infrastructure or PPP projects involving multiple stakeholders benefit from arbitration’s ability to consolidate claims. Unlike adjudication, which is limited by privity, arbitration can join subcontractors and suppliers, streamlining resolution.
High-Value Disputes: Disputes involving significant sums, such as multimillion-pound contract breaches, warrant arbitration to avoid further proceedings. The finality and enforceability of arbitration reduce the likelihood of drawn-out enforcement proceedings for an adjudication decision, or the possibility of it being overturned at a later juncture.
Urgent Non-Payment Disputes: Emergency orders address issues like site access, complementing adjudication’s payment focus. Whilst the courts can, of course, also provide injunctive relief, the powers to do so via an arbitral tribunal
Cost: One key difference between adjudication and arbitration that is not addressed in the 2025 Act is the cost of arbitration. In adjudication the parties will typically bear their own costs, and in arbitration the default is that costs follow the event. S60 of the Arbitration Act 1996 provides that an agreement that one party bears all or part of the costs of the arbitration irrespective of outcome will be unenforceable unless made after the dispute has arisen. This therefore prevents parties from agreeing beforehand that they will each bear their own costs in any arbitration. The position is unchanged by the 2025 Act. For swift dispute resolution without the threat of cost sanction for the losing party adjudication is likely to therefore remain the preferred choice for most construction disputes.
Challenges and Limitations
Despite its promise, the Arbitration Act 2025 faces challenges in revitalising arbitration for construction disputes:
Cost Concerns: Arbitration’s tribunal fees and legal costs remain significantly higher than adjudication’s, potentially deterring smaller contractors. While summary awards reduce costs, the perception of expense persists.
Cultural Inertia: The construction industry’s entrenched preference for adjudication, reinforced by three decades of HGCRA practice, may slow arbitration’s adoption. Smaller firms, accustomed to adjudication’s simplicity, may resist arbitration’s perceived formality.
Complexity Risks: Arbitration’s procedural flexibility, while an asset, can invite strategic delays or over-lawyering, particularly in high-stakes disputes. Parties may exploit procedural options to prolong proceedings, undermining efficiency gains.
Institutional Support Needs: The success of reforms like emergency arbitrators and summary awards depends on arbitration institutions (e.g., LCIA, CIArb) promoting their use. Limited awareness or inconsistent adoption could hinder uptake, especially among smaller firms unfamiliar with arbitration processes.
Conclusion
The Arbitration Act 2025 brings welcome clarity and modernisation to England’s arbitration regime. For construction disputes, it introduces features—summary disposal, emergency arbitrators, streamlined challenges—that could make arbitration more attractive for domestic users.
However, it is unlikely to displace adjudication as the primary mechanism in the short term. Instead, arbitration may increasingly be used as an alternative where finality, complexity, or procedural robustness outweigh adjudication’s speed. It may also serve as a preferred final forum post-adjudication.
Ultimately, the reforms signal a shift towards a more user-friendly, efficient arbitration process. Whether this leads to a revival in domestic construction arbitration will depend not only on the legal framework but on how practitioners, institutions, and parties respond. If arbitration can deliver finality with the same agility as adjudication, it may indeed reclaim some of the ground it has lost over the past three decades.
The two mechanisms are poised to coexist, with parties increasingly adopting tiered dispute resolution clauses that leverage adjudication’s speed for interim relief and arbitration’s expertise for definitive resolutions. The Act’s reforms mean that parties should once again consider including domestic arbitration as the default final dispute resolution stage in their construction contacts.
