Advocacy in Construction Arbitration

Introduction

A number of matters render construction arbitration different from its general commercial cousins, and that, therefore, require particular attention, rigour and strategic consideration to successfully prosecute and defend construction claims in an arbitration context.

Recognition of these differences on the part of both arbitrators and counsel is imperative, particularly given that construction-related disputes comprise a significant proportion of disputes referred to arbitration. In fact, construction/engineering and energy cases together regularly comprise approximately 40 per cent of the International Chamber of Commerce’s (ICC) caseload each year.^[2] This is unlikely to change any time soon, particularly given the challenges over recent years, which continue, arising from price escalation, new technologies and reduced margins in certain renewables projects, as well as shortage of labour and resolution of accumulated covid-19-related disputes that parties have otherwise been unable to settle amicably.

Outcomes are determined far in advance of the ‘advocacy’ conducted at any hearing. This is particularly true of construction-related disputes. The importance of written advocacy and detailed evidential preparation in the months or years leading to a substantive hearing should not be underestimated. Understanding, explanation and presentation of technical concepts and the evidential record in an accessible manner is key. Further, for the reasons set out in this chapter, the impact of orders made at the first case management conference (CMC) (and related issues, such as the selection of the tribunal making these orders) has far greater impact than simply setting the timetable for proceedings, particularly in complex disputes.

We are now also two years beyond the full impact of covid-19 (we hope) and therefore its influence on the prevalence of virtual or hybrid hearings. While arbitral institutions, arbitrators and practitioners may be more agile in relation to the use of technology for the purposes of arbitral hearings as a result of the pandemic, in our experience the overwhelming preference, in particular for large complex arbitrations, remains for hearings to take place in person, including as regards cross-examination of key factual and expert witnesses.

Why is advocacy in the context of construction arbitration different from any other complex commercial dispute?

The answer to the above question is not ‘lots of documents’. Claims in construction arbitrations address legal issues that often present themselves in other commercial arbitrations: breach of contract, tort, estoppel, mistake, good faith, the operation of indemnities, warranties. However, they tend to do so in combination with issues that are more specific to construction: the enforceability of liquidated damages and penalties, recovery of consequential or indirect losses, allocation of risk for concurrent delay, the scope and applicability of insurance cover, global claims, and the extent and allocation of liability and responsibility for design and interpretation of applicable engineering codes and standards.

Construction disputes can sometimes relate almost solely to issues of contractual interpretation (though there are often follow-on disputes to deal with the implications). Construction projects that lead to international arbitration involve many contracts, between many different parties. While liability between two particular parties is usually defined by the contractual relationship between them, that is rarely the end of the matter in a large-scale construction project. One must often have an eye on, for instance, how one arbitration might affect a subsequent or different claim against a different project party; for example, an insurer who has otherwise refused to cover damage, a specialist consultant who assisted on a particular scope of work or a subcontractor who allegedly remains unpaid. If the project has been financed by external lenders, is consent required for the action being taken? (It most certainly will be required for any form of settlement.)

However, the larger disputes tend to combine these key contractual issues with complicated questions of what precisely happened, and why, on a particular date during a project, and ultimately, what the consequence of that event or events was. Those questions are so complicated and difficult to unravel on large construction contracts because there is rarely, if ever, one activity happening on one day (there are more likely hundreds, if not thousands), and there will rarely be one party responsible for those activities – even in what are perceived as the most ‘one-sided’ contracts. The ability to assimilate the underlying details and present them in a logical and approachable manner without misleading the tribunal or disregarding the nuances of evidence and arguments, is core to the construction practitioner’s advocacy skills.

Expect assertive case management

The complexity and voluminous documentation of typically large construction cases requires assertive case management by tribunals to achieve an expeditious and cost-effective outcome, which most institutional rules prescribe, and end users want. An early case management conference to seek effective case management procedures is necessary, as is an early meeting with experts to identify methodologies and issues, well before experts’ reports and joint meetings. Redfern schedules should be directed for document requests rather than the old-fashioned common law listing of all documents. It is particularly important to direct joint statements on agreement and disagreement between experts of like disciplines, as properly implemented this can resolve a lot of expert issues. For pleadings, memorials and witness statements, succinct and focused is better than War and Peace. Guerrilla tactics by the respondent should be put down firmly, possibly by costs orders.

– David Bateson, 39 Essex Chambers

The great debate regarding disclosure

Different lawyers from different legal systems (and dependent on their perceived position of their clients’ position on the merits) may take different views as to the extent of disclosure properly to be expected in arbitration. However, it is the authors’ experience that some form of disclosure is ordered regardless of governing law, seat or domicile of the parties. There is simply no other way to determine ‘what happened’ without contemporaneous documentary evidence. To allow parties to present only what supports their case in a complex construction case with thousands of activities ongoing in parallel on a daily basis (comprising the various components of offshore procurement, offshore design, site works) to determine what truly caused the loss being claimed – on either side – would render an already hugely challenging task for a tribunal, almost impossible.

We have also seen parties attempt to limit the number of requests that each party may make in their respective Redfern schedules at the CMC stage. These proposals are arbitrary. They are usually transparently made only to reduce costs or unreasonably accelerate the timetable. Regardless of the detail in which a party thinks they know about a dispute, they do not know all of the issues until they see the other side’s pleading. We have never seen a tribunal accede to these types of proposals.

Unfortunately, the volume of key documents will often necessarily be significant, in particular concerning the analysis of technical experts, which itself is central. That is often what troubles parties in respect of construction arbitration. This can make proceedings lengthier and more expensive for many reasons. There is a balance to be had in managing the extent of disclosure with what is necessary to properly examine the case. Specifications, drawings, programmes, etc., will impact an expert’s view as to what did or did not happen or should or should not reasonably have, or could have, been done.

Take, for example, an allegation that the owner terminated a contractor for accumulated poor performance during the course of a project. That, in turn, creates a large number of allegations of failure on the contractor’s part, one of which is the late installation of a crucial piece of equipment that prevented the start-up of the facility and earning of substantial revenue for several weeks or months. It is not simply a question of whether the piece of equipment in question was in fact late on site. The owner could have, in parallel, delayed approval of the design of an equally important part of the works, without which the project could not be completed. In turn, that may raise a technical question as to whether the design was adequate.

Only if a party has a mastery of the underlying documents and a deep understanding of the evidence and technical issues can the above approach be adequately dealt with. This is critical in large construction cases if they are not to descend into merely a battle of poorly evidenced assertion.

Selection of arbitrators

The key question when it comes to selecting arbitrators in construction arbitration is whether the arbitrators (or some of them, if a panel of three) should have at least some expertise in construction law, whether as previous arbitrators, judges or experienced practitioners. There is much to be said for this approach, for the benefit of both the parties and the tribunal members themselves.^[3] Choice of arbitrators is a key determining factor in the outcome of the dispute. Some in-house counsel consider it the most important factor. However, one should not be too quick to assume outcomes based on whether or not they obtain their ideal tribunal. Arbitrators are, for the most part, very much aware of their duty to assess the case on its merits and wish to do so diligently. It is the role of the legal teams to assist them in doing so. The best thing advocates can possibly do for their clients is present concepts clearly and directly, and be regarded by the tribunal as diligent, reasonable, forthright and the party best able to answer their questions, albeit that they will do so in a persuasive manner designed to favour their own client’s interests.

Build your case around the evidence, not the other way around

It is important that a party’s case is thought through from the outset of the arbitration, especially in disputes involving a large volume of facts and technical evidence, such as typically in construction disputes. This requires that delay experts, for example, are engaged at the outset of the arbitration to provide an objective and as detailed as possible assessment of the existing evidence that can enable a party to construct a solid case. The main thrust of the case should be built around the existing evidence and not on evidence that counsel assume will be taken in the course of the arbitration. It is often the case that counsel have to change the whole narrative and supporting basis of their parties’ case, or drop some of the claims in the course of the arbitration when they realise that the evidence that was eventually procured does not support the parties’ original claims, or at least the full extent of their original claims. When this happens, counsel risk losing credibility with the tribunal in relation to the entire case. Importantly, too, tribunals may be minded to take haphazard handling of evidence into account at the allocation of costs, especially when dropping claims or changing the narrative of a case has resulted in unnecessary delays and expenses.

– Stavros Brekoulakis, 3 Verulam Buildings

In any event, arbitrator selection will be determinative of how the arbitration itself is run, by way of timetable and form, potentially over the course of many years.

Arbitrators with relevant experience understand and are familiar with the legal and technical concepts that arise, as well as the contractual frameworks that operate in large projects. In addition, they are used to managing issues that present evidential challenges in construction cases, such as complicated delay analyses – and the manner in which to examine global claims and causation – and disclosure. These individuals also appreciate and expect the intensive and substantial workload (often taking place over a number of years) that may be required from them in the course of numerous lengthy substantive hearings. In that context, they can also be more realistic in their assessment of the necessary timing of future procedural steps.

However, in some cases we have seen a disturbing trend, by even seasoned arbitrators, of setting unachievable timetables regardless of the complexity of the issues involved, the number of experts or witnesses or the size of the claim. The bases for these decisions are unfortunately never clearly articulated but seem to proceed on the understanding that arbitration should be ‘efficient’. This renders the need for parties to be as on top of the details of the dispute as soon and early as possible – well in advance of the CMC – all the more important. It is challenging for arbitrators to understand precisely why what a party proposes is unreasonable without tangible and precise examples to help them understand this. The procedural timetable can quickly get away from parties without this detail at the very early stages. Once hearings are put in diaries, tribunals are famously reticent to move them without clear risk of rendering an award that will be subject to challenge for procedural unfairness.

The nomination of specialist arbitrators brings with it the issue of what is, relatively speaking, a limited pool of arbitrators that might have the requisite expertise, particularly in dealing with the largest and most complex construction disputes. It also, therefore, gives rise to the potential repeated appointments of particular arbitrators by a party or its counsel or other long-standing relationships between candidates and counsel (whether due to prior work as co-counsel or otherwise) and the potential for arbitrators to have been appointed on related matters or disputes on one project. In recent years we have seen increasing instances of arbitral institutions refusing to confirm nominations where there is any doubt over an arbitrator’s impartiality and independence. Rightly or wrongly, in practical terms the application of the standard of perceived partiality appears to be different, and more conservative, at the time of nomination than it is further into proceedings. It is easier and less contentious to decline confirmation of a nomination than to remove an arbitrator who knows the case and has been involved in making orders. In particular, we see increasing instances of institutions declining to confirm arbitrators due to a lack of disclosure that, if made initially, perhaps would not have warranted removal. There are differing schools of thought on these matters. Some take the view that if an arbitrator discloses absolutely everything, it will lead to numerous unmeritorious challenges. However, lack of disclosure can lead to increased disruption where parties ask for further clarification before finally submitting challenges that ultimately succeed.

Procedure and timing in construction arbitration

Good arbitrators are often very busy people who rarely have convenient substantial windows in their diaries waiting to be filled. This being so, it is not unusual to see construction arbitrations broken into phases to enable particular issues or groups of issues to be dealt with in stages over several years. As with other arbitration, thought must be given at an early stage to how that might most sensibly be approached and managed, and which course is the most beneficial to one’s case.^[4] There are many factors that feed into this question.

However, caution must be exercised. While this course provides parties some welcome, though perhaps limited, relief from the burden of preparing an all-consuming case, it can present problems later. Regard must be had as to whether, if the case is split in a particular way, it will allow a party simply to revisit an argument that should have been disposed of previously. In addition, it is not particularly useful for a claimant to win issues of liability and then learn that the documentary evidence of loss (whether proof of the reasonableness of monies expended in settling claims with other parties, or simply evidence of paid invoices) is inadequate. In practice, many cases settle following a liability determination; however, that cannot be assumed.

Again, the experience of the tribunal will be central. It is essential that arbitrations, including, in particular, large complex disputes that may otherwise spiral out of control, be carefully and rigorously case managed. Proceeding on the basis that the arbitration must be finished within a defined period, that there will be one substantive hearing only, and setting hearing dates in a manner that allows for little to no flexibility, is counter-productive and quite possibly leads to an unsafe procedure and, therefore, award.

Expert evidence

The best construction advocates know how to present technical concepts and arguments to a tribunal in an accessible manner. These advocates spend many hours with the experts, understanding the concepts and, in turn, determining how best to articulate and therefore translate them into written and oral form. Further, while expert evidence is central in construction arbitrations, it is counsel who are responsible for the analysis and development of their client’s case. Counsel must understand precisely what analysis is being conducted by any experts, and why; and counsel are responsible for undertaking the relevant factual and legal investigations that inform the scope of the expert analysis.

Cases should not be driven by experts. There are numerous articles, and cases, in the construction context, and otherwise, that illustrate the pitfalls of failing to properly manage the expert process.^[5]

Of particular concern in the context of construction arbitration is the unfortunate but seemingly regular engagement of experts who clearly act as advocates for their clients rather than being someone engaged to provide the tribunal with an independent view. This practice continues to this day, regardless of the value of the dispute or the governing law or seat. Most surprising is perhaps the assumption that this approach is desirable before an intelligent and sophisticated tribunal.

While confidentiality in arbitration is of course an advantage, it can provide a cloak of anonymity and unaccountability for many experts who suffer trenchant criticism from tribunals, yet simply move on to the next engagement. This emphasises the need for a careful selection process in respect of experts, regardless of an individual’s discipline and experience of testifying.

Preparation for and advocacy at the hearing (virtual or otherwise)

Any advocate will spend hours with relevant experts preparing cross-examination of their opposite number. However, in construction disputes, there are often several (sometimes more than 10) expert disciplines and, therefore, experts. How that is to be dealt with requires early and realistic consideration.

Preparation time should not be underestimated, particularly in the case of solicitor advocates juggling a busy practice of multiple cases. Construction disputes are won and lost on the detail. All disputes practitioners know that developments across issues can, and often do, occur during hearings, and therefore need to be addressed urgently. This can only be tackled with a deep understanding of the subject matter and underlying evidence.

Preparation must also be such as to allow the advocate to be agile during submissions and cross-examination. If a document in the bundle would demonstrate that the witness is being untruthful, it is of little use if the advocate is unaware of its existence or a team member has failed to appreciate its importance. Assessment as to what should be asked and what responses are likely to be given is a matter of judgement and experience.

One must, therefore, give thought to the formation of the team assisting and their scope and extent of responsibility both during hearing preparation and at the hearing itself. A pure ‘divide and conquer’ approach is also unlikely to be satisfactory. Counsel are presenting a case theory to the tribunal in its totality.

Of all matters, precision in construction arbitration advocacy is key. It is key in answering the tribunal’s questions, key in preparing witnesses for cross-examination, key (perhaps most importantly) in conducting cross-examination. It is the habit of some advocates to ask questions in a deliberately vague manner, seeking to seduce the witness into agreeing seemingly uncontroversial propositions. It is the responsibility, again, of counsel to ensure that witnesses are prepared for these tactics. This approach to cross-examination is unlikely to gain much headway with an experienced tribunal, particularly if the advocate is overly relaxed as to what does and does not need to be put to a witness to test his or her evidence.

One must always give thought to what else is most helpful to the tribunal by way of presentation of evidence that numbers in the thousands of pages. There are various tools that can be deployed – graphics, flow charts, road maps, brief summaries of key events, chronologies, full sets of photographs collated into a chronological run. Lawyers often think only in words. In general, however, this presentation at the hearing can be an obvious weakness in lawyers who have been entrenched in a matter for so long that they understand every detail but struggle to stand in the shoes of an arbitrator who is (compared to counsel) unfamiliar with the dispute.

The ability of experts to provide lengthy introductory presentations prior to being cross-examined (which seems to be specific to arbitration rather than litigation) appears also to be increasing in prevalence to the point of standard practice. There are issues arising from this approach that counsel must bear in mind. It may be helpful to the tribunal for an expert briefly to set out certain introductory conceptual matters that should be uncontroversial. However, what if an opinion is expressed that does not appear in a written report – how can opposing counsel fairly prepare for cross-examination on this type of matter? The potential for an argument of procedural unfairness increases in this circumstance.

Virtual hearings – yay or nay?

Where there has traditionally been resistance to anything other than fully in-person hearings, particularly for the purposes of ensuring that cross-examination has maximum impact, there will be cases where the parties or the tribunal will now deem it disproportionate to do so.

Memorials, please, not pleadings

Because of their complexity, construction arbitrations will usually benefit from the parties undertaking as early as possible during the process, and certainly by the date of the hearing, to do as much as they can to define clearly and precisely for the tribunal the nature and scope of the issues that divide the parties. In my experience, two tools are particularly useful in this regard. The first, which has been commonplace in international arbitrations conducted in many jurisdictions, but to some extent less so in common law jurisdictions such as England, is to jettison the English practice of exchanging pleadings in advance of producing the evidence upon which the parties rely and to adopt instead the continental practice of memorial-style pleading in which the memorials are accompanied by all the evidence upon which the parties respectively rely. This helps to ensure that each party knows as early as possible the case that it is required to meet and avoids tiresome debates between the parties, and before the tribunal, as to whether the pleadings have been sufficiently particularised or effectively amended by evidence subsequently submitted.

Second, early and frequent consultation between the parties’ expert witnesses in the disciplines for which they have been retained – leading to the production of one or more joint reports summarising areas of agreement and disagreement between them – is invaluable. This is a practice that is today the norm in some jurisdictions, such as England, but, unfortunately, insufficiently adopted in much of the rest of the world, where experts all too frequently meet each other for the first time at the hearing. Parties and counsel in many parts of the world are reluctant to accept expert witness conferencing of this kind out of fear as to where it might lead. But where it usually leads is to a narrowing of the dispute and, accordingly, greater efficiency, which is ultimately beneficial to the process and very helpful to, and much appreciated by, the tribunal.

– Eric Schwartz, Schwartz Arbitration

Some caution should be (and is) exercised by tribunals, however, particularly in cases involving highly contentious evidence or otherwise key factual or expert witnesses. It is too early at this stage (before the full impact of procedural orders or measures is felt) to determine the prevalence of parties seeking to challenge an award on the basis that they did not have a proper opportunity to present their case as they would have wished at the hearing, due to an order that the hearing or part thereof was virtual against their protestations. Many institutional rules now allow specifically for virtual hearings. Accordingly, parties will need to consider the potential of their deemed agreement on that course depending on their arbitration agreement.

The increase of virtual hearings has certainly not decreased the administrative time spent organising hearing logistics. The parties and tribunal may require protocols to be agreed, various tests to be conducted to verify connections and an acceptable set-up to be established, including ensuring visibility of witnesses (e.g., to ensure that they do not have their own notes and that they have no one else with them in the room (except for any agreed neutral observer)). During the pandemic we saw at least one instance of an arbitrator requiring multiple ‘trial’ runs of the technology, often of several hours each, to be used in a two-day hearing on a dispute of limited value. All lawyers and experts had to attend those trials, protocols were agreed, and the minutes of those trials were circulated and agreed. That is an extreme example from towards the beginning of the pandemic where the technology in conducting hearings was less tested and familiar. A great deal of cooperation between opposing solicitors and the various technical providers is required, along with rigorous attention to detail. Further, technology is yet to cure international time differences. Few want an exhausted arbitrator sitting through a lengthy hearing for which they have had to rise each day at 5am to cater for time differences with their co-arbitrators and the parties and counsel.

Concluding remarks

Early and detailed evidence review is required to identify and refine key arguments and case theory. Investigation should not be driven or limited by an assumption that there will be one short substantive hearing. Rather, the investigations and their outcome should drive identification of the most appropriate procedural course.

Selection and management of expert evidence is crucial. An expert who has clearly undertaken a thorough and independent expert analysis is always to be preferred over one who acts as an advocate for the client and indiscriminately accepts their own clients’ evidence.

Even a tribunal fully comprised of construction specialists will need substantial assistance from the parties in the translation of the vast and detailed evidence and documentary record. Written documentation and presentation at the hearing must take account of this.

The best advocacy results from a detailed and deep understanding of the factual, technical and documentary evidence. That is the best tool not only for persuasively responding to assertion from the opposition, but also for assisting the tribunal throughout the proceedings and at the hearing in particular.

Parties should always, but in current times are forced to, consider the most efficient, user-friendly and clear ways of presenting their position to the tribunal.

Notes