Trends in construction disputes | White & Case LLP International Law Firm, Global Law Practice
Trends in construction disputes

Trends in construction disputes

This article was previously published in Construction Law Review 2018-2019, Trends in construction disputes.

 

The Evolution of International Arbitration is the title of the 2018 International Arbitration Survey undertaken in partnership between the School of International Arbitration at Queen Mary University of London and White & Case LLP. The survey is the result of views being sought from a wide range of arbitration users globally, including academics; arbitrators; experts; in-house counsel; lawyers in private practice; representatives of arbitral institutions; and third party funders.

 

The use of international arbitration in construction projects

International arbitration has long been one of the most commonly used forms of final dispute resolution for international construction and engineering projects. The survey considered the reasons for the popularity of international arbitration. The two characteristics considered the most valuable by respondents are first, the enforceability of awards, and second, the avoidance of specific legal systems and national courts.

In an industry with as many inherent risks as construction, contracting parties from different geographical locations and cultural backgrounds value those aspects of arbitration which make it a more reliable form of dispute resolution than domestic litigation in courts, where they may have little or no previous experience. The United Nations 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards provides an established enforcement regime for international arbitration awards. The New York Convention currently has in excess of 155 signatories. For some parties, the combination of these two factors justifies, or even makes possible, a commercial decision to do business in a new jurisdiction.

The third and fourth most valuable characteristics of international arbitration, according to survey participants, are flexibility and the ability to select arbitrators. Parties may adopt a procedure tailored to the point in dispute, and appoint arbitrators with industry specific expertise, qualifications and experience.

A number of trends in international arbitration were highlighted by the survey. This article focuses on three in particular which are most relevant to the construction industry; alternative dispute resolution, industry-specific measures; and the use of technology.

 

Alternative dispute resolution

One significant change that emerged between the 2018 survey, and its immediate predecessor carried out in 2015, is the increased popularity of alternative dispute resolution (ADR) being used in combination with international arbitration. In 2015, only 34% of respondents stated a preference for the use of ADR in combination with international arbitration. In the 2018 survey, this percentage has increased to 49%.

The interviews conducted with 2018 survey participants revealed that the majority of those using ADR in combination with international arbitration were doing so as a result of a contractually agreed multi-tiered dispute resolution clause. Such clauses are commonly adopted in construction contracts, with the aim of narrowing the scope and number of disputes being finally referred to arbitration. Such clauses can be particularly beneficial to the projects giving rise to disputes, since cash flow and continued co-operation between the parties are key factors in their continuation and completion.

This adoption of multi-tiered dispute resolution clauses can be seen in standard form construction contracts across the globe. The 2017 Fédération Internationale des Ingénieurs-Conseils (FIDIC) rainbow suite of contracts, for example, stipulates the referral of disputes to a dispute avoidance/adjudication board, followed by a 28-day period for 'amicable settlement' discussions, before the parties may resort to commencing arbitration proceedings.

The views of those interviewed for the 2018 survey on multi-tiered clauses fell broadly into two camps. At one end of the spectrum are those who argue in favour of such provisions for the potential benefits outlined above. At the other end are those who consider such processes as an expensive and time-consuming precursor to inevitable arbitration proceedings. The views of participants will be indicative of their own experiences. Taking the increasingly popular use of dispute boards, for example, when utilised effectively, they can be a valuable tool in resolving disputes promptly and with minimum interference with an ongoing project. If, however, a dispute board process is overly 'lawyer-ised' it can easily become the equivalent of an arbitration, complete with legal submissions, witnesses, experts and hearings.

 

Industry-specific measures and rules

82% of survey respondents thought it likely that the use of international arbitration for resolving cross-border disputes in the construction and infrastructure industries will increase in the future. When those respondents were asked what innovations they thought would make arbitration better suited to resolve disputes in the sector, the two most popular answers were "wider and faster recourse to interim and conservatory measures" and "more industry/sector- specialised arbitral rules."

The motivations behind the first of these answers are likely to be similar to those on both sides of the multi-tiered dispute resolution clause debate; in short, cash flow. For high-value disputes arising during the course of any ongoing project, their potential financial impact can be damaging to the successful completion of that project. Interim measures that would allow, say, an award for any uncontested element of a claim, are valuable tools on large and complicated projects and the disputes they can give rise to. However, it is not clear to what extent the perceived problem here is a lack of familiarity with some of the measures already available, rather than inadequate provision for them. For example, the four most popular arbitral institutions identified by the 2018 survey are the International Chamber of Commerce, London Court of International Arbitration, Singapore International Arbitration Centre and Hong Kong International Arbitration Centre; and the current rules for all of these institutions already contain provision for interim and conservatory measures.

The reference to more industry specific arbitral rules is interesting for its contradiction with ‘flexibility’ being one of the most valued characteristics of arbitration as stated in the survey; the more specific the rules, the less potential there is for flexibility. 77% of survey respondents thought that existing sets of arbitration rules contained the right level of prescription, and only 5% that the rules are not prescriptive enough. This suggests that further particularity may tip the balance in the wrong direction away from the flexibility so appreciated by the users of arbitration.

Given that parties already in dispute may find it harder to agree on any tailored or non- standard approaches to the arbitral process, perhaps what would be more useful is a menu of suggested alternatives which the parties may consider. Inspiration may be sought from the UK Joint Contracts Tribunal (JCT) Construction Industry Model Arbitration Rules (2016) which provide three alternative procedures; a short hearing, documents only, or full procedure – the route being determined by the arbitrator.

 

Technology

More than half the respondents to the 2018 survey (61%) were of the view that "increased efficiency, including through technology" is a factor that would likely have a significant impact on the future evolution of international arbitration. The survey looked more closely at the views of participants on certain technology tools; videoconferencing, hearing room technologies, cloud based storage, artificial intelligence, and virtual hearing rooms. Hearing room technologies, such as real time electronic transcripts, are the most well-known, with 73% of respondents reporting that they always or frequently used these tools. The next most known tools on the sample list were videoconferencing and cloud based storage (with 60% and 54% respectively reporting them as either always or frequently used).

 

Conclusion

The 2018 survey has confirmed the continuing popularity of arbitration, with an overwhelming 99% of respondents stating that they would recommend international arbitration to resolve cross-border disputes in future. For disputes arising out of construction projects, the key trends emerging are of parties looking for ways to refine and develop the dispute resolution process to meet their needs, be that through the combination of arbitration with other forms of ADR, or through alternative methods of structuring the arbitration procedure, allowing it to be managed more effectively.

 

SEE ALSO
2018 International Arbitration Survey: The Evolution of International Arbitration

 

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