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The Guide to Construction Arbitration

Organisation of the Proceedings in Construction Arbitrations: General Considerations and Special Issues

Introduction

This chapter considers particular features of construction disputes that impact on the organisation of arbitral proceedings.

The first half of the chapter focuses on general issues that are common to most construction disputes. We then consider certain specific procedural issues - such as the interrelationship between arbitration and other forms of dispute resolution and the role that experts can play in construction arbitration.

The second half of the chapter focuses on specific evidential issues that can arise in construction disputes.

Special features of construction disputes

The first point to note is that arbitration is just one of many means of resolving construction disputes. Whereas most disputes are resolved either in litigation or arbitration, construction disputes can also be resolved via dispute boards, early neutral evaluation, adjudication and expert determination. Save for dispute boards (which are mentioned below), those forms of dispute resolution are outside the scope of this chapter but are important to note because they tend to offer a more informal means of resolving a dispute than arbitration and may, in certain circumstances, provide a means of avoiding some of the difficulties presented by the increasing formality of international arbitration.

The second point to note, as a general observation, is that construction arbitrations require very careful case management and a proactive approach from tribunals given the range of issues that can arise in one set of proceedings. For example, a claim for damages for delay by an employer can quickly give rise to competing factual and expert evidence about delay and disruption; calls on performance bonds; technical expert evidence; complicated quantum evidence concerning the final account; and management of voluminous contemporaneous documentation. This, in turn, can give rise to the need to consider certain preliminary issues early on in proceedings, along with heavy specific disclosure applications and repeated rounds of expert evidence. Hearings can become long and complex, and this explains why many international construction contracts provide for a form of adjudication to keep projects moving pending resolution of any major disputes.

The third point is that from the perspective of managing the proceedings the approach to expert evidence is perhaps the most important issue of all:

  • It requires tribunals to ensure that expert evidence is tailored to the needs of a particular case and also to ensure that the product of the experts' work is genuinely useful when it comes to determining the claim and drafting any award. This is especially important in construction disputes because of the technical and mechanical aspects of the disputes and because of the range of potential types of expert evidence.
  • The area that can cause tribunals the most trouble in terms of expert evidence is delayed evidence - whether in the context of an employer's claim for liquidated damages for costs or losses said to flow from a contractor's delay in completing works, or a contractor's claim for an extension of time or prolongation costs. These issues are addressed in detail below.

Fourth and finally, a further feature of construction disputes that can cause difficulties for both parties and arbitrators is the fact that there are often a number of parties involved in a dispute and yet arbitration does not generally lend itself well to multi-party disputes. For example, by contrast with litigation in domestic courts, it can be very difficult to join parties to ongoing proceedings and it can be very difficult (if not impossible) to consolidate separate sets of proceedings. This is clearly an issue that parties should address as a front-end matter; for example, employers and main contractors who have agreed to arbitrate any disputes should seek to ensure that sub-contractors or professional advisers enter into agreements that contain arbitration clauses allowing the parties to be joined into other arbitrations or that allow consolidation of proceedings. That can be achieved through a tailored or bespoke approach to dispute resolution clauses, or by ensuring that parties enter into a standard form contract that provides for joinder (such as certain variations of the Joint Contracts Tribunal form of contracts).

Despite these difficulties, arbitration continues to be the preferred means of resolving disputes between international parties.

Alternative forms of dispute resolution

As mentioned above, certain specialist forms of dispute resolution are outside the scope of this book (such as early neutral evaluation). However, there are a variety of forms of dispute resolution that one can encounter in the context of construction projects.

In this regard, the trends in relation to alternative procedures have varied over recent years. For example, as the editors of Keating on Construction Contracts note:

Whilst very unusual in recent years, the architect under the contract was in the frequently appointed arbitrator under an arbitration clause in the contract. As a result, a body of case law developed [in England] on the circumstances under which the architect might be disqualified from acting. It was said that this place the architect in a position ‘invoking and possibly involving on occasions considerable trouble.' As Lord Hoffmann observed, ‘the notion of what amounted to a conflict of interest was not then as well understood as it is now.' It is thought unlikely that parties will now appoint the architect (or engineer in an engineering contract) as arbitrator.[2],[3],[4]

The alternative forms of dispute resolution are all potentially important because of the manner in which they interrelate with arbitrations. However, from the perspective of international construction disputes, the most important is arguably the dispute board procedure.

Dispute boards have become increasingly popular ever since they were introduced into various standard forms of the  Fédération Internationale Des Ingénieurs-Conseils (FIDIC) contracts for international infrastructure projects. Again the editors of Keating explain:

FIDIC was encouraged in this step by the World Bank who considered that the DB [dispute board] procedure would, overall, be a cost-effective measure for reducing the sums spent on disputes arising from big projects with which it was concerned. In particular, international awareness and take up of the procedure has rapidly increased since it was inserted into the widely used FIDIC Red Book, 4th Edn (1992 Reprint with amendments) used for construction works designed by the employer, by way of a 1996 supplement.

     A true DB, known as a ‘standing dispute board' is one which is appointed at the outset of a project and remains in place until its completion. It is then able to fulfil a dual function: (a) to avoid disputes arising in the first place; and (b) if and when contracts do not provide for standing DBs but only for ‘ad hoc' DBs. These latter DBs only come into existence when a dispute arises and they are used to give a reasonably quick decision which the parties may or may not accept. Although an ad hoc DB is a cheaper procedure than a standing DB, it does not provide the parties with the possibility of avoiding disputes in the first place.[5]

In general, dispute boards, and other forms of resolving disputes, are encountered more frequently with construction disputes than with commercial disputes. This is primarily because of the complexity of construction projects and the need to manage the parties' relationship on a proactive basis. The key point, from the perspective of those managing disputes or those deciding them, is to be aware of the different possibilities under the relevant construction contract and the manner in which each dispute resolution procedure relates to the arbitration clause and to the management of the arbitration itself.

Tribunal-appointed experts

Before turning to specific evidential issues that impact on the organisation of construction arbitrations, it is worth noting the potential role of tribunal-appointed experts in arbitrations of construction disputes.

While most modern arbitration laws allow a tribunal to appoint an expert or legal adviser to report to it and the parties on technical or other matters,[6] the practice is not common and is generally limited to construction arbitrations (especially where the tribunal is largely comprised of civil lawyers). When a tribunal appoints an expert to carry out this role, the expert's fees will be treated as expenses of the tribunal.[7]

There are several potential advantages to having a tribunal-appointed expert. Above all, they help tribunals to understand the technical issues from the outset, and can help tribunals to avoid a situation where they end up with two discrete approaches to a particular issue (e.g., different types of delay analysis). A tribunal-appointed expert can also help to speed up the arbitral process.

Notwithstanding the potential advantages noted above, the appointment of experts by tribunals in major international construction arbitrations is a fairly rare occurrence. One reason for this could be the difficulty in finding an expert that both parties find acceptable.

In any event, any tribunal-appointed expert should maintain his or her distance from the tribunal and should in no circumstances be involved in the tribunal's deliberations.

Evidence in construction disputes

General considerations

This part of the chapter outlines some issues that commonly arise with evidence in construction arbitrations.

One of the key advantages of international arbitration as a process is its flexibility. Further, quite deliberately, the principal institutional and ad hoc rules contain no detailed guidance on the preparation and presentation of evidence. This gives parties the freedom to agree specific provisions for evidence to suit the dispute. It is, therefore, important to consider the required evidence at the start of the arbitration, as the terms of reference and first procedural order will normally dictate the evidence that will be permitted in the course of the dispute.

The strength associated with the flexibility of the process can, however, create problems as there are often considerable differences in expectation between parties from different jurisdictions as to what is required by way of evidence in an arbitration. The most obvious example is the difference in approach in civil law jurisdictions compared to common law jurisdictions, but this is by no means the only example.

In order to address this issue, the International Bar Association (IBA) produces rules on the taking of evidence in international arbitration, which were most recently updated in 2010 (the IBA Rules of Evidence). These rules are adopted either on a mandatory basis or as guidance in many construction arbitrations. The IBA Rules of Evidence contain provisions for:

  • the production of documents;
  • witnesses of fact; and
  • experts (both party- and tribunal-appointed).

Each of these three stages is considered in turn.

Document production

Document production is required in the majority of construction disputes. Whether acting for contractors or employers, there are inevitably going to be documents in the possession of the other party that may assist the other party (and hence the tribunal) in determining the merits of individual claims. Examples include:

  • internal programmes and other correspondence relating to individual causes of delay;
  • documents relating to the informal instruction of variations in the scope of the works; and
  • investigations carried out at the time into the cause of defects.

In many cases, the documents that are of most assistance are not the formal project documents (which are often carefully drafted and will be readily available) but the correspondence that takes place at a lower level between those actually performing the work on-site. Obtaining an order for disclosure of these documents is often critical to the overall success or failure of a claim at arbitration.

In the majority of construction arbitrations, disclosure is by request (which is also the approach taken in the IBA Rules of Evidence). The form of request (commonly known as a Redfern schedule) is set out in Article 3(3) of the IBA Rules of Evidence. Importantly, the request for a document must be specific, the relevance of the document must be set out and it also must not be a document that is in the possession or control of the party making the request. The aim of the procedure is to limit document production by forcing a party seeking disclosure to identify precisely the documents that need to be disclosed. The IBA Rules of Evidence contain a procedure to determine whether disclosure requests should be granted. The aim of the process is to reduce the burden associated with disclosure, with corresponding reduction in the time taken to resolve a dispute (at a lower overall cost). In practice, it often fails to achieve this goal given the volume of documents that are generated in the course of a substantial construction project.

Factual evidence

In general, factual evidence will also be required in order to deal with a construction dispute. Article 4 of the IBA Rules of Evidence deals with factual evidence. Again, the process offers flexibility for the tribunal to control the extent of the factual evidence adduced by each party, and also gives the tribunal the power to limit the issue to specific issues (see Article 4(4) of the IBA Rules of Evidence).

The IBA Rules of Evidence also require each party to inform the tribunal of any witnesses they require to attend the hearing (Article 8(1)). If attendance is required, the witness must attend the hearing in person unless otherwise ordered by the tribunal. The IBA Rules of Evidence also permit the other parties to question a factual witness. There is no restriction of the scope of any such questions, save that the tribunal has the power to ‘limit or exclude any question to, answer by or appearance of a witness, if it considers such question, answer or appearance to be irrelevant, immaterial, unreasonably burdensome, duplicative or otherwise covered by a reason for objection set forth in Article 9.2.'[8]

Some practical issues regarding witness evidence that may arise in construction disputes include the following:

  • Factual evidence should focus on issues in dispute. There is a tendency in substantial matters to deal with extensive factual matters that are of peripheral relevance at best. Consideration should therefore be given to agreeing a list of factual issues to be addressed before statements are adduced.
  • Where factual evidence is required, it should be assumed that the witness will be required to attend the evidential hearing in person. This may require significant forward planning if the arbitration is being held in a different jurisdiction from the project (as is often the case).
  • Witnesses will often give evidence in a language other than the language of the arbitration. If this is the case, arrangements need to be made for translation of the evidence. Care needs to be taken when appointing a translator, as construction disputes may involve a large number of technical terms that may not be familiar to all translators. If there is a dominant language (for documents or witnesses) that is not the language of the arbitration, it may help the parties when selecting the tribunal if one of the tribunal members can speak both languages.
  • If a party wishes to use a video link for a witness, permission will need to be sought from the tribunal at the earliest possible opportunity.

Expert evidence

Expert evidence will almost invariably be required in any substantial disruption dispute. However, whenever expert evidence is required, there are a number of general principles that must be taken into account.

The first (and obvious) point is that the extent of the expert evidence is controlled by the tribunal. The IBA Rules of Evidence make this clear (Articles 5 and 9).

The IBA Rules of Evidence also contain provisions that are designed to ensure that the expert evidence consists of genuine opinions given by an expert who is independent from the parties. There is a positive obligation on experts to set out in any report both their independence and that the opinions are true in his or her professional opinion. The IBA Guidelines on Party Representation in International Arbitration 2013 (which can also be adopted by the parties and the tribunal) contain further safeguards to ensure the integrity of the process. In particular, Articles 18-25 address the interaction between counsel and experts. The guidelines expressly permit counsel and experts to assist expert witnesses in the preparation of their reports, but there is a positive obligation to ensure that the report sets out the expert's own analysis and opinion.

If expert evidence is required, there are a number of mechanisms commonly used in construction arbitrations that are designed to identify the areas of agreement and disagreement. The most obvious is for the tribunal to order that there be a meeting of experts followed by a joint statement identifying areas of agreement and disagreement. Although uncommon in arbitration, there are often procedural advantages if this meeting takes place before any reports are prepared as this avoids time and money being spent on issues that are not in dispute.[9]

The tribunal also has considerable scope to control oral evidence at any hearing. One common technique used in construction arbitration is for experts in similar disciplines to give evidence at the same time (known as ‘hot tubbing'). This allows the tribunal to hear from both experts at the same time on specific issues, with each expert being able to respond to points made by the other expert. This often crystallises disputes regarding expert evidence quickly.

Defects claims

Many construction claims involve issues of defective work. In order to establish that work is defective, it will be necessary to establish:

  • the original specification of the work;
  • the actual condition of the work carried out; and
  • the differences between the specification and the work carried out.

The first (and often overlooked) issue is that it is necessary to establish the actual condition of the works as built. This may not be problematic if the defect is identified when the contractor (or subcontractor) remains on site. However, many defects are latent and so are only identified after construction is complete.

There are a number of procedural devices that can be used in construction arbitrations to deal with issues regarding the actual state of the works. The most obvious is that the tribunal can order a joint inspection of the works by either party-appointed experts or tribunal-appointed experts. The experts can then be directed to agree the condition of the works (or identify areas of disagreement). This has the potential to avoid the tribunal having to resolve disputes as to the true condition of the work by reference to factual evidence.

However, further issues arise if the alleged defects are identified after termination (or partial termination) of a contractor's scope of works by an employer, especially if the defective work package was not complete as at the date of termination. In such circumstances, if the actual condition of the work as at the date of termination cannot be established, any claim by an employer for defective work carried out prior to termination may be difficult to prove. It is, therefore, critical that the condition of the work as at the date of termination is established. Ideally, an independent inspection of the work should be carried out (preferably instructed on a joint basis). If this is not possible, it will be necessary for the party taking over the works to record the state of the works at the date of takeover. Photographic and video evidence may well be the best evidence available in such circumstances.

Having established the state of the work, it is next necessary to establish whether the work carried out is defective. In many cases, the defects will be obvious. However, this is not always the case. One obvious example is where the dispute is over the design life of a structure. It will not necessarily be obvious on inspection that the design life of a structure is less than the specification. Expert evidence would be required to establish the defect.

Finally, even if the defect has been established, the extent of the damage suffered by the defect needs to be assessed. Even if the defect is obvious (or is admitted), disputes may nevertheless arise regarding the extent and necessity of the required remedial work. One recent example of precisely such a dispute in the UK is Costain Limited v. Tarmac Holdings Limited,[10] a case involving the supply of concrete to be used in the construction of a concrete safety barrier on a motorway. It was admitted that the concrete supplied was defective. The only dispute was whether the concrete could be repaired or whether complete replacement of the barrier was required. This is a dispute that could only be resolved by obtaining expert evidence.

Many disputes involve multiple defects. In order to deal with such disputes, tribunals often order that the parties prepare a Scott Schedule[11] listing the defects and allowing each party to identify the issues that arise in respect of each defect, along with the evidence relied upon for each defect.

The use of a Scott Schedule is a matter that is usefully addressed at the first procedural meeting in a claim involving a significant number of defects. Once the Scott Schedule has been completed, the tribunal can assess how best to deal with the claims. In a claim involving a large number of small defects, it may be possible for the tribunal to deal with only some of the defects (normally those with the highest value). This could either be done by way of preliminary issue or by sample from which the overall financial outcome can be assessed by way of extrapolation.

Delay and disruption claims

Special considerations may apply for delay and disruption disputes. Again, there is no standard procedure in construction arbitration to deal with such disputes, but the parties are free to design a suitable process.

Useful guidance for dealing with delay and disruption disputes can be found in the recently updated Delay and Disruption protocol published by the Society of Construction Law[12] (the Protocol). While the Protocol is aimed at UK projects and those governed by English law, the guidance is nevertheless useful for international construction projects. In particular, the Core Principles are of general application.

The starting point for any delay or disruption claim is the project records. Absent clear records, it is difficult for a party (or its expert) to establish the true cause of any delay. Core Principle 1 of the Protocol recommends that parties agree on the type of records that need to be kept in order to establish a valid claim for delay or disruption. This may or may not have been done by the time the matter proceeds to a dispute, but illustrates the importance of document production in claims for delay and disruption. Where project records are lacking, it may be necessary to adduce factual evidence to plug the gaps. However, such evidence is necessarily subject to challenge if (as is common) the arbitration takes place many years after the event. It is, therefore, no replacement for detailed project records.

Any claim for delay or disruption (which are conceptually different claims even if delay and disruption often occurs at the same time) is inevitably supported by expert evidence. There are common procedural issues that arise in all claims involving delay experts.

The critical record for the purposes of any delay and disruption dispute is the project programme (which is almost always in electronic format, using accessible and commercially available software). Most accepted methods of delay analysis require an original plan and an as-built programme. From these two programmes, a critical path (anticipated and as built) can be established. Given the fundamental importance of the programme to claims of delay and disruption, in construction arbitrations, tribunals may order that the appointed experts meet in order to agree the base programmes and critical paths. If the building blocks are agreed, the areas for disagreement between the experts are substantially reduced. It is, self-evidently, necessary to consider all delays when reaching a conclusion regarding the criticality of any delay event. An early meeting to discuss delay events prevents experts giving options based on incomplete factual evidence that would render any report meaningless.

In certain cases, it may also be possible for the experts to agree on the delay methodology that should be adopted. However, that is significantly more controversial, not least as the appropriate delay analysis is a matter of expert judgment and as different methods of considering the delay may give rise to different outcomes regarding the critical delay events.

Finally, it is important to note that wherever possible the impact of individual delays needs to be considered. Merely identifying delay events and asserting that these cause delay without identifying how (the ‘global claim') is to be avoided if at all possible (see Principle 17 of the Protocol). While global claims do, on occasion, succeed before tribunals, the tribunal would need to be satisfied that it was impossible to demonstrate causation. In all but the most complicated case, while establishing the impact of a delay may be difficult, it is not impossible. Advancing a global claim, therefore, immediately decreases the prospect of the claim succeeding.

Notes


[1]    Tim Chelmick and George Spalton are barristers at 4 New Square.

[2]    Citing Lord Shaw of Dunfermline in Bristol Corp v. Aird [1913] AC 241 at 252, HL.

[3]    Beaufort Developments (NI) Ltd v. Gilbert-Ash (NI) Ltd [1999] 1 AC 266 at 276, HL.

[4]    Keating on Construction Contracts, 10th Edition, Sweet & Maxwell, pp. 17-1048.

[5]    Keating on Construction Contracts, 10th Edition, Sweet & Maxwell, pp. 17-174.

[6]    See, for example, the Arbitration Act 1996, Section 37(1)(a) for the relevant law in the UK. See also (by way of example) the IBA Rules on Taking of Evidence (Article 6); the LCIA Rules (Article 21); the ICC Rules (Article 25.3); Article 29 of the UNCITRAL Arbitration Rules and the UNCITRAL Model Law Article 26; and also Article 25 of the AAA/ICDR Rules.

[7]    See, for example, the Arbitration Act 1996, Section 37(2).

[8]    Article 9.2 of the IBA Rules of Evidence contains the general power of a tribunal to control the admissibility of any evidence.

[9]    This is the usual practice of the Technology and Construction Court in England and Wales.

[10]   [2017] EWHC 319 (TCC). The case also provides valuable guidance as to the circumstances in which the English Court will refuse to grant a stay in support of arbitration if the arbitration agreement is null and void or inoperative (in accordance with Section 9(4) of the Arbitration Act 1996).

[12]   Second Edition, published February 2017.

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