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The Guide to Construction Arbitration - Second Edition

Organisation of the Proceedings in Construction Arbitrations

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 the arbitration of construction disputes.

Special features of construction disputes

The first 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 lead to a 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 speed and cost, of course, remain of concern to parties. This explains why many international construction contracts provide for a form of adjudication, to keep projects moving pending resolution of any major disputes.

The second 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 crucial in construction disputes because of the technical and mechanical aspects and the range of potential types of expert evidence involved.
  • The area that can cause tribunals the most trouble in terms of expert evidence is delay 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, a contractor's claim for an extension of time or a claim for prolongation costs. These issues are addressed in more detail below.

Thirdly, 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 – reliant on the notion of consent – 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 very difficult (if not impossible) to consolidate separate sets of proceedings. In some jurisdictions the courts are empowered to order enforced consolidation, but this is relatively rare.2 This is clearly an issue, therefore, 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).

Evidence in construction disputes

General considerations

The following paragraphs address certain issues that tend to arise frequently in international arbitration of construction disputes.

One of the key advantages of international arbitration as a process is its flexibility. Further, quite deliberately, the principal institutional rules contain no detailed guidance on the preparation and presentation of evidence. This gives parties the freedom to agree specific provisions for evidence tailored to the dispute. It is, therefore, important to consider 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.

There is a growing body of guidance produced by arbitral institutions that addresses evidential issues. Examples include:

  • the UNCITRAL Rules on Organizing Arbitration Proceedings 2016. These focus primarily on tribunal-appointed experts;
  • the ICC Arbitration Commission Report on Techniques for Controlling Time and Cost in Arbitration, published in 2012. The Report addresses expert evidence as one area in which the costs of an arbitration can be reduced. It starts with the presumption that expert evidence will not be required and invites departure from that presumption only if the evidence will inform the tribunal on key issues in dispute;
  • the International Bar Association (IBA) Rules on the Taking of Evidence in International Arbitration (the IBA Rules), most recently updated in 2010. These offer the most detailed guidance as to how expert evidence may be presented and can be adopted on a mandatory basis. They are supplemented by a detailed Commentary; and3   
  • the Prague Rules – Inquisitorial Rules on the Taking of Evidence in International Arbitration (expected to be launched in December 2018). These rules are intended to provide an alternative to the IBA Rules. They aim to reduce the time and cost associated with evidentiary procedures in arbitration by providing for a more active role for the tribunal.

As the IBA Rules offer the most detailed guidance, they will be considered more fully in this part of the chapter. The IBA Rules 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 almost every construction dispute.4 In nearly every case, there are invariably documents in the possession of contractors and employers alike that will assist the other party and 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 with an eye on future disputes) 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.

In the majority of construction arbitrations, disclosure is by request (which is also the approach taken in the IBA Rules). The form of request (commonly known as a Redfern schedule) is set out in Article 3(3) of the IBA Rules. Importantly, the request for a document must be specific, the relevance of the document must be set out and the document requested 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 contain a procedure to determine whether disclosure requests should be granted. Where a party raises an objection to a request for documents, the Rules also provide that the tribunal may give the parties an opportunity to consult with each other in order to resolve the objection themselves (Article 3(6)). The aim of the process is to reduce the burden associated with disclosure, with a 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 deals with factual evidence before the hearing, while Article 8 deals with how witnesses are examined at the hearing. 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 submission of evidence to specific issues or phases of the hearing (see Articles 4(4) and 8(2) of the IBA Rules of Evidence).

Under Article 4 of the IBA Rules, the parties must identify any witnesses on whom they intend to rely. The tribunal normally orders each party to exchange witness statements and, once that statement has been served, a witness need only appear if requested by a party or the tribunal (Article 8(1)).

If attendance is required, the witness must attend the hearing in person unless otherwise ordered by the tribunal. The IBA Rules 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.'5

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. The different roles that may be played by the experts are considered below.

Party appointed experts

In the majority of construction arbitrations, experts are appointed by each party and will provide a written report to the tribunal prior to any hearing followed by oral testimony at the hearing. The IBA Rules require any expert evidence to be contained in a written report (Article 5(1)) and provide that if an expert is requested to attend a hearing, they must do so in order to render their report admissible (Article 5(5)).

The tribunal will normally control the extent of any expert evidence in an arbitration. Article 5, for example, allows the tribunal to control the timing of expert reports and to order the experts to meet. There are also specific provisions in Article 6 of the IBA Rules regulating the role of tribunal-appointed experts.

Whenever expert evidence is required, there are a number of mechanisms commonly used in construction arbitrations that are designed to identify and narrow 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 (see Article 5(4) of the IBA Rules). 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.6

The tribunal may also seek to identify and resolve issues in dispute by ordering that experts in similar disciplines give evidence at the same time. This technique (known as 'hot-tubbing') may lead to valuable debate that crystallises the issues in dispute quickly, but may depend on tribunals having enough understanding of the underlying issues to be able to probe the experts critically.

Finally, most arbitral rules contain a requirement that the experts be independent from the parties. The IBA Rules place 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.7 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.

Tribunal-appointed experts

In some disputes, the Tribunal may appoint an expert directly. 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.8 When a tribunal appoints an expert to carry out this role, it may do so instead of or in addition to the parties appointing experts themselves, and the expert's fees will be treated as expenses of the tribunal.9

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 guide tribunals in reconciling differences between discrete approaches to particular issues (e.g., different types of delay analysis), ensuring that the technical elements of any final determination are accurate. A tribunal-appointed expert can also help to speed up the arbitral process, although 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.

Notwithstanding the potential advantages noted above, the appointment of experts by tribunals in major international construction arbitrations is a fairly rare occurrence. It can happen in construction arbitrations that raise highly technical issues, especially where the tribunal is largely comprised of civil lawyers who are more accustomed to the practice than those from common law backgrounds. Reasons why this may be unusual include:

difficulty in finding an expert that both parties find acceptable (and is conflict free);

the additional expense incurred in having a further expert instructed, as in any substantial dispute the parties will doubtless also wish to have the benefit of their own expert; and

the perceived lack of control and transparency over the expert evidence if the expert is advising the Tribunal directly.

That said, in smaller construction disputes, there may be considerable advantages to having a tribunal-appointed expert rather than a jointly instructed expert or party appointed expert.

Shadow experts

Finally, mention should be made of 'shadow' experts. Unlike experts who are appointed to give impartial evidence to the tribunal, shadow experts advise the parties confidentially and are rarely visible to other parties in an arbitration. They can help parties to present a technically coherent case from the outset, or point out potentially obscured or misrepresented claims in an opposing party's case. They can also help to define the terms of engagement of any expert who will be relied on to give evidence to the tribunal. While this type of assistance can be very helpful for a party involved in a high-value or complex dispute (or, possibly, if there is a tribunal-appointed expert) it can be difficult to recover the costs of such experts.

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: a dispute that could only be resolved by expert evidence.

Many disputes involve multiple defects. In order to deal with such disputes, tribunals often order that the parties prepare a Scott Schedule11 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 role of Scott Schedules should be 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 reference to a 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 Law12 (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 occur 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.


Footnotes

1 Tim Chelmick and George Spalton are barristers at 4 New Square. The authors extend their thanks to Hannah Daly and Ian McDonald, also barristers at 4 New Square, for their assistance with this chapter.

2 The Netherlands is one example. In England and Wales, the drafters of the Arbitration Act 1996 initially proposed a provision allowing for court-ordered consolidation, but the proposal was not followed owing to fears it would negate the principle of party autonomy. See Redfern & Hunter, Law and Practice of International Commercial Arbitration, 6th edition, OUP, 2.238–2.242.

4 Under Article 3(1) of the IBA Rules, each party is required to submit all documents upon which they rely and that are available to them.

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

6 This is the usual practice of the Technology and Construction Court in England and Wales.

7 See in particular Articles 5 and 6. The issues of partisan expert evidence and requirement for independence were considered more recently in the Technology and Construction Court in England and Wales in Imperial Chemical Industries Limited v. Merit Merrell Technology Limited [2018] EWHC 1577 (TCC) at [236]–[237] per HHJ Fraser. Although the relevant principles were discussed in the context of Part 35 of the English Civil Procedure Rules, they refer to the similar requirement under English law that experts should be independent.

8 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.

9 See, for example, the Arbitration Act 1996, Section 37(2).

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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