Construction arbitration: Crucial factors in drafting arbitration agreements beyond the basics

  • Toolkits and guides

    19 March 2024

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Navigating the intricacies of arbitration requires a thorough understanding of its foundational components, which significantly influence the trajectory and outcome of dispute resolution processes. In our previous article, we explored the fundamental elements of an arbitration agreement and important factors such as its suitability and enforceability. In this article, we outline the crucial aspects surrounding the constitution of the tribunal, qualifications of arbitrators, and the pivotal choice between institutional and ad hoc arbitration. 

Unlike traditional litigation, arbitration affords parties the freedom to handpick their arbitrator(s) and tailor the procedural framework to suit their unique needs. From selecting the number of arbitrators to delineating their qualifications, every decision holds considerable weight in shaping the arbitration process. 

Furthermore, the dichotomy between institutional and ad hoc arbitration introduces distinct considerations, each carrying its own set of advantages and complexities. 

The constitution of the tribunal
Number of arbitrators 

Unlike in litigation, the parties are free to select their arbitrator or arbitrators.[1] Parties may choose a single arbitrator or a panel of multiple arbitrators (typically comprising three arbitrators [2]) (also referred to as a tribunal). The appointment of a sole arbitrator is common in most construction arbitrations in New Zealand. That being said, the ability to appoint a tribunal of multiple arbitrators to determine a dispute, and the additional rigor that this approach introduces to the dispute resolution process, can be attractive to parties involved in complicated, high value disputes. Where the parties elect to appoint a tribunal of multiple arbitrators, standard practice is for each party to select one ‘party appointed’ arbitrator each, with the third to be agreed between the parties or selected using an institutional process.[3] 

Qualifications of arbitrators 

The ability to select your own arbitrator (or multiple arbitrators) is one of the most significant differences from litigation and is one of the most important decisions that parties to arbitration must make. 

One approach to the appointment of arbitrators is for the parties to seek to nominate an arbitrator (or arbitrators) within their arbitration agreement. The benefit of this approach is certainty however, in the case of a large multi-year project, this approach can present issues if the nominated arbitrator is not available at the time of a dispute.   

In circumstances where the parties have not nominated an arbitrator within their arbitration agreement, it is open to them to prescribe a process for appointment (either through a nominating arbitral institution or otherwise) and to specify the qualifications that appropriate nominees must possess.[4]  

In all cases arbitrators must be impartial and independent.[5] In addition, the parties can also agree other qualifications and attributes that the arbitrator(s) must possess. Common examples include, specifying that the arbitrator(s) must come from a particular professional background. Former judges and lawyers are a popular choice.  

Where a dispute concerns a complex or technical project (for example, a power plant or a mineral processing facility) it is not unusual for parties to require arbitrators to possess a specific technical background or industry knowledge (i.e. engineering qualifications or other relevant industry experience). Where a tribunal is comprised of multiple arbitrators, this provides the parties with an opportunity to appoint a tribunal with a balance of legal and technical experience, as appropriate. To ensure a robust and well considered award, particularly when dealing with complicated technical projects, it is important for parties to consider what attributes and qualifications they want an arbitrator (or arbitrators) to possess and ensure that this is reflected within the arbitration agreement.   

Institutional vs ‘ad hoc’ arbitration 
The differences 

Institutional arbitration is overseen and administered by a particular arbitration body and conducted subject to that institution’s rules and procedures which provide a framework for the conduct of the arbitration. Examples include, the International Chamber of Commerce (ICC), the London Court of International Arbitration (LCIA) and, domestically, the Arbitrators’ & Mediators’ Institute of New Zealand (AMINZ) and the New Zealand International Arbitration Centre (NZIAC). The institutional body is typically specified within the arbitration agreement. 

Ad hoc arbitration is less formal and is conducted by the appointed arbitrator(s) subject to rules and procedures agreed by the parties and/or the applicable legislation (in New Zealand, the Arbitration Act 1996).       

We explore the differences between the various common arbitration institutions in further detail later in this series of articles. Below, we provide some preliminary comments on key considerations when deciding between institutional and ad hoc arbitration. 

Choosing between institutional or ad-hoc arbitration

Institutional arbitration tends to cost more than ad hoc arbitration – arbitral institutes may charge a fixed fee, an hourly rate, a percentage of the value of the dispute, or a combination, for their oversight and administration of the arbitration. That said, there are various advantages to institutional arbitration, including: 

  • Institutional arbitration provides additional certainty in relation to the rules and processes that will apply to the arbitration.  This can save time and costs that might otherwise be required to negotiate these matters in an ad hoc arbitration. 
  • Use of the arbitral institution’s facilities for hearings. 
  • The established structure of institutional arbitration can assist with the timely and smooth conduct of proceedings and can help manage a recalcitrant counterparty.   
  • Institutional arbitration provides a tried and tested format for arbitration. In addition, certain institutions will scrutinise and approve arbitral awards before release to ensure that the award is enforceable, error free and compliant with minimum standards of procedural fairness.[6]
  • Institutions provide a pool of experienced arbitrators and will assist with the appointment process. 
  • Some institutions provide for simplified fast-track processes in order to expedite the arbitral process.[7]

Ad hoc arbitrations are not administered by an institution. Therefore, it is open to the parties to determine all aspects of the arbitration themselves (subject to applicable laws). The efficient conduct of arbitration can be challenging, particularly if the parties are not experienced in arbitration or adopt an uncooperative approach to proceedings.   

That said, if the parties approach the arbitration on a cooperative and pragmatic basis, ad hoc arbitration can have a number of advantages, including: 

  • Ad hoc proceedings are more flexible.
  • Ad hoc proceedings can be faster and cheaper (including, because there are no administrative fees that would apply in an institutional arbitration and arbitrator’s fees can be negotiated directly by the parties). 
  • A well drafted arbitration agreement can address a number of the common issues that might otherwise delay an ad hoc arbitration (e.g. arbitrator appointing procedures, seat of arbitration, language and applicable laws etc.).
  • The Arbitration Act 1996, which incorporates the UNCITRAL Model Law, provides a comprehensive framework for the conduct of arbitrations in New Zealand.

Ultimately, the right approach will depend on the circumstances and nature of the project that the parties are contemplating. Both ad hoc and institutional arbitration have advantages and disadvantages and there is typically not a ‘one size fits all’ approach for all projects or disputes.  

MinterEllisonRuddWatts' Construction and Infrastructure team is New Zealand’s leading construction, infrastructure and engineering disputes practice. We have significant experience advising and acting for clients in all forms of domestic and international arbitration. This includes under the New Zealand Arbitration Act 1996 (and related jurisdictional issues) and a wide range of institutional arbitration rules, such as ICC, LCIA, DIAC, AMINZ, SIAC, the UNCITRAL Rules, and others. Please contact an expert in our team to discuss how we can assist you.


[1] Arbitration Act 1996, sch 1 art 10(1).
[2] In the case of international arbitration, the Arbitration Act 1996 prescribes that a tribunal must comprise three arbitrators (unless the parties have agreed a different number). See sch 1 art 10(2).  
[3] See for example section 3.3 of the AMINZ Arbitration Protocol which contemplates the President of AMINZ appointing the arbitral tribunal in circumstances where the parties cannot agree. 
[4] Arbitration Act 1996, sch 1 art 11. 
[5] Arbitration Act 1996, sch 1 art 12. 
[6] For example, the ICC Court.
[7] For example, the ICC offers ‘expedited procedure provisions’.


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