Construction

Construction arbitration – a snapshot

Arbitration remains one of the most popular ways to resolve construction disputes, especially those arising out of transnational projects or where the participants come from different jurisdictions.

The last few months have seen the publication of a number of studies into arbitration. At the same time, with the postponement of the United Kingdom’s departure from the European Union, it is a good time to consider the general direction of international dispute resolution for London as a hub of construction disputes.

The challenges of construction arbitration

This year, the International Chamber of Commerce (ICC) revised its report, Construction Industry Arbitrations: Recommended Tools and Techniques for Effective Management. While noting that there is no single correct way to conduct a construction arbitration, it sets out suggested procedures, as well as issues for parties and arbitrators to take into account. The report confirms that construction arbitrations are frequently more complex than other international commercial arbitrations, with difficult points of law and procedure relating to the specialised contract forms that are typically encountered in projects of any size.

One point that emerges strongly from the revised report is that arbitrators and parties should be alive to the challenges posed to dispute resolution by modern procurement strategies and project management. It is noted that it is likely that a main contractor will conduct itself more as a manager of the project, as between subcontractors as well as specialised consultants. “Nowadays disputes concerning large sums are no longer confined to those between client(s) and contractor(s) but increasingly occur between contractor(s) and sub-contractor(s). In addition, some disputes will involve governments and governmental agencies, private capital and development banks, and will generate disputes that call for consideration of public, social and environmental issues.”[1] At the same time, the greater adoption of BIM, modularisation, and the increasingly technical and complex nature of disputes may mean that traditional (or, perhaps, poorly drafted) construction contracts will give insufficient consideration to the proper allocation of risk, as well as posing their own particular challenges, such as the use of intellectual property and data consent.

As Redfern and Hunter on International Arbitration sets out, “A major international construction project is likely to involve not only the employer and the main contractor (which itself may be a consortium of companies), but also a host of specialised suppliers and subcontractors. Each of these parties will be operating under a different contract, often with different choice-of-law and arbitration clauses—and yet any dispute between, say, the employer and the main contractor is likely to involve one or more of the suppliers or subcontractors.”[2] The English courts have traditionally been alive to the difficulties that multi-party arbitrations raise.[3] Most arbitration rules now provide for multi-party arbitration.[4] The LCIA 2018 Annual Casework Report reported that in 2018, 29% of arbitrations commenced under the LCIA Rules involved more than two parties, and 2% of arbitrations involved ten or more parties; 11% of cases commenced in 2018 involved disputes arising under more than one agreement.[5] Modern procurement pathways are therefore likely to see an increasing number of multi-party arbitrations.

Case management

The ICC Report on Construction Arbitration is a very useful aide memoire for the conduct of construction arbitrations. The following three points are striking.

  • The Report emphasises the need to give careful consideration to the selection of arbitrators. They should be familiar with the industry, the relevant law and legal traditions, and possess strong case management skills.
  • The Report recommends the preparation of lists of issues from the outset, even if they are initially provisional prior to being refined at the case management conference. The first case management conference is a very important event, whose importance “cannot be over-emphasised.”[6] The use of working documents and schedules is recommended.
  • One interesting issue that emerges comes from the case management of delay and disruption claims. The Report recommends the early identification, from the party seeking an extension of time, the method adopted to determine the cause of delay or disruption. The Report also commends the Society of Construction Law’s Delay and Disruption Protocol (2nd edition, 2017), while also regarding the Standard ASCE 67-17 Schedule Delay Analysis (2017, American Society of Civil Engineers) and the  AACE International Recommended Practice No. 29R-03 Forensic Schedule Analysis (2011, Association for the Advancement of Cost Engineering) as helpful.

The emergency arbitrator

As the ICC Report on Construction Arbitration remarks, interim remedies can be very important in construction disputes.[7] Since their introduction, the use of ‘the emergency arbitrator’ and the expedited formation of tribunals has acquired some traction. The LCIA 2018 Annual Casework Report noted that in 2018 that there were a total of 23 applications for expedited appointment of a tribunal under Article 9A of the LCIA Rules 2014, together with 3 applications for the appointment of an emergency arbitrator under Article 9B (two of which were granted; the third was withdrawn).[8] In April 2019, the ICC Commission published an extensive report on emergency arbitrator proceedings. It recorded that by 30 April 2018, six years after the Emergency Arbitrator provisions were introduced in the 2012 revision of the ICC Arbitration Rules, 80 ICC Applications for Emergency Measures had been filed.[9]

 

The key finding of the ICC Report on emergency arbitrator proceedings was that there was no universal approach to emergency arbitrator proceedings. This, it is suggested, leaves the emergency arbitrator a “considerable degree of discretion and flexibility”.[10] In its country by country analysis, the United Kingdom is regarded as generally supportive of emergency arbitrator proceedings. Although the case is not directly cited, regard is had to Leggatt J’s judgment (as he then was) in Gerald Metals S.A. v Timis [2016] EWHC 2327 (Ch) (a case involving the LCIA 2014 rules), where he held in his postscript at [7] – [10] that section 44 of the Arbitration Act 1996 would not allow the court to make interim orders where an emergency arbitrator could be appointed or an arbitral tribunal could act quickly: “only in cases where those powers [i.e. Articles 9A and 9B], as well as the powers of a tribunal constituted in the ordinary way, are inadequate, or where the practical ability is lacking to exercise those powers, that the court may act under section 44” (postscript, [8]). It should be noted that where, however, the arbitral proceedings are not rapid enough or would otherwise be ineffectual (for example, because they will not bind a third party), section 44 of the 1996 Act is a powerful instrument that allows the English courts to make interim orders.

The future – construction, Brexit and London

82% of respondents to the Queen Mary University of London / White & Case 2018 International Arbitration Survey opined that it was ‘likely’ that the use of international arbitration would increase in relation to construction and infrastructure. Overall, the survey indicated that the enforceability of awards, the avoidance of specific legal systems or national courts, and the flexibility of international arbitration were its most valuable characteristics. As for its worst characteristics, the most cited examples were its cost, lack of effective sanctions during the arbitral process and lack of power in relation to third parties.

One of the questions for the future is the likely impact of the United Kingdom leaving the European Union. The survey reported that More than half of the respondents think that Brexit will have no impact on the use of London as a seat. It was reported that the three most important factors were, “The English legal system will continued to be perceived as neutral and impartial”, “The legislative framework applicable to arbitration and the English courts will continue to be supportive of arbitration”, and “The UK will continue to be a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards”. This tallies with the Bar Council’s Brexit Papers, which reported that London’s position as a leading seat for the resolution of international disputes had been achieved as a result “in part because of the supportive legislative and judicial environment, in part because of the high quality of the legal services market in London and in part because of the (relative) ease of access to the market”.[11]

The Queen Mary / Pinsent Masons International Arbitration Survey: International Construction Disputes is now open. Loukas A. Mistelis and Alexander Ferguson of Queen Mary have written a pithy and insightful blog posting about the survey. They comment that, “Whilst arbitration remains popular, to serve its current and likely expanding user base effectively, it is clear that changes will need to be made.”[12] They raise not only the go-to issues of time and expense, but also the role of arbitration in supporting pre-arbitral dispute resolution (such as through a dispute board) and the possibility of parallel proceedings as challenges to its future growth.

Conclusion

Construction arbitration, and arbitration with London as a seat more generally, has a strong future. The nature of construction disputes is evolving, however, with new procurement strategies and contract management. Practitioners need to be alive to the changing needs of their clients and the marketplace.

 

 

DAVID SAWTELL MA (Cantab) MPhil (Cantab) MSc (KCL) MCIArb, Barrister-at-Law

DavidSawtell@lambchambers.co.uk

 

David is head of the construction group at Lamb Chambers, with experience of arbitration in both construction and real estate disputes, as well as international litigation and domestic adjudication and mediation. Having achieved a distinction in the MSc in Construction Law at King’s College, London, winning a number of awards, he is now researching construction and property law part-time for his PhD at the University of Cambridge. He is a Member of the Chartered Institute of Arbitrators.

 

Lamb Chambers boasts two QCs with extensive experience of construction arbitration, both as arbitrators and as advocates, together with a number of juniors with considerable expertise in both international and domestic arbitration and litigation.

[1] Report of the ICC Commission on Arbitration and ADR on Construction Industry Arbitrations: Recommended Tools and Techniques for Effective Management (ICC, Paris, 2019), p8, para 1.2.
[2] Redfern and Hunter on International Arbitration (6th edition, OUP), para 2.218.
[3] Abu Dhabi Gas Liquefaction Co. Ltd v Eastern Bechtel Corporation [1982] 2 Lloyd’s Rep 425 (CA), at 427 per Lord Denning.
[4] See, for example, the ICC Rules of Arbitration 2017, articles 7 to 10; the LCIA Arbitration Rules, Article 8.
[5] LCIA 2018 Annual Casework Report, p17.
[6] Fn1, p13, para 8.1
[7] Fn1, p25, para 20.1.
[8] Fn5, p16.
[9] ICC Commission Report: Emergency Arbitrator Proceedings (ICC, Paris, 2019), p3.
[10] Fn9, p4, para 7.
[11] The Brexit Papers, Bar Council Brexit Working Group (2016), p30, para 4.
[12] Loukas A. Mistelis and Alexander Ferguson, ‘Efficiently Resolving International Construction Disputes’, Kluwer Arbitration Blog, 31 May 2019. Available at http://arbitrationblog.kluwerarbitration.com/2019/05/31/efficiently-resolving-international-construction-disputes/ (Accessed 5 June 2019).

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