REUTERS | David Mercado

Building a case: controlling time and cost in construction arbitrations

One must only look to the ICC’s annual case load statistics to see the ever-growing prevalence of construction and engineering disputes in international arbitration. Construction, engineering and energy disputes made up approximately 40% of the ICC’s new caseload in the most recent statistics from 2018, with 224 new cases arising from the construction sector. This trend is expected to continue, particularly as a multitude of disputes will inevitably arise on the large-scale energy, road, rail, and telecommunications infrastructure projects coming to fruition under China’s Belt and Road Initiative.

Construction disputes tend to have certain characteristics which set them apart from other commercial disputes. Chief amongst these are the complexity of claims, which often involve technical and multifaceted engineering concepts, and the factual density of the evidence, which can be extensive and involve vast amounts of project documentation necessary to establish matters of liability, causation and quantum. These inherent attributes of construction disputes give rise to unique challenges, not least of which is to conduct the proceedings efficiently and cost effectively.

As the preferred arbitral institution for the resolution of international construction and engineering disputes, the ICC has taken a special interest in the topic of effectively managing construction arbitrations. Last year, the ICC Commission on Arbitration and ADR published an updated version of its report titled Construction Industry Arbitrations: Recommended Tools and Techniques for Effective Management of Arbitrations. The report featured some major recommendations which are key considerations for all practitioners planning and managing complex construction arbitrations.

Tribunal composition

One of the foremost advantages of resolving construction disputes by arbitration rather than litigation is the parties’ ability to appoint arbitrators with specific technical or industry expertise. However, it is critical to balance this expertise with one or more tribunal members who possess strong case management abilities and have the confidence to make difficult procedural decisions.

Parties should not shy away from making detailed enquiries about their potential arbitrators’ availability and, frankly, interest in carefully studying lengthy submissions and witness evidence, and comprehending technical expert reports, drawings and other data. To this end, parties should consider opting for lesser known but nonetheless well qualified arbitrators, who may have more availability and willingness to “roll up their sleeves”. It also helps to appoint arbitrators who are somewhat IT savvy, and comfortable with receiving and managing electronic submissions and hearing bundles, all of which will arguably keep costs down.

Procedural flexibility

Large scale construction arbitrations can evolve and expand as the arbitration unfolds over several years. This is because parties are often unable to properly crystallise their case until a vast amount of documentary, witness and expert evidence is gathered, reviewed, considered and compared. Efforts should be made to engage with witnesses and experts as early as possible. This is so that the parties can come to grips with the main issues and merits of the case, and begin to shape a suitable procedure for effectively resolving their dispute. However, parties should remain open to adapting the procedure as the proceedings progress.

A vital step is to agree a realistic timetable at the outset, with “float” to allow for procedural flexibility and possibly settlement negotiations. Although it may seem counter-intuitive, an overly ambitious timetable may result in a less efficient and more costly proceeding, particularly if hearing dates end up being “blown out” because the timetable could not accommodate additional steps or applications.

Case management

The procedural timetable should provide for regular case management conferences to ensure that the parties and tribunal maintain an open dialogue about procedure and progress. This way, procedures can be adapted or substituted as needed, as issues and claims develop throughout the proceeding. Construction disputes are often particularly well suited for bifurcation of issues, with discrete claims being heard in different phases, or liability being determined prior to a subsequent quantum phase. Although in many cases the decision to bifurcate is best made once the parties have presented at least their first round of pleadings or submissions, this is not always the case. Parties should continue to assess whether, at any time during the arbitration, bifurcation of issues would result in a more efficient and cost effective resolution of the dispute. Thought should also be given to whether all claims require the same level of evidentiary detail, as more minor or fewer complex claims may be more appropriately dealt with through the use of Scott Schedules.

Management of experts

The engagement of engineering, programming and quantum experts is often a costly but crucial aspect of resolving construction disputes. Experts should be carefully instructed and managed to ensure that their expert reports assist the tribunal to narrow and determine key issues, rather than resulting in expert opinions that pass like “ships in the night”. One option is to issue common instructions to experts of like disciplines, possibly with input from the tribunal, in order to ensure that expert reports address relevant and comparable issues.

Expert conferrals (on a without prejudice basis) and joint expert statements can also be immensely helpful tools. To ensure that the exercise is productive, parties should consider seeking guidance from the tribunal regarding the format, scope and content of joint statements, and directions that limit the input and involvement of legal counsel.

Document disclosure and management

For the most part, the idea of having no (or very little) document disclosure in construction arbitrations is simply unrealistic. This is because parties often need to rely on contemporaneous project documents, such as meeting minutes, daily reports, schedules, emails, labour records and accounting data, to establish the facts necessary to prove their claims. Parties should therefore engage early and regularly to agree procedures and protocols for the disclosure of electronic documents, for example, by agreeing how metadata is managed, and whether agreed search terms or predictive coding are to be used. Open communications between the parties and the tribunal during the document disclosure phase may help to decrease the need for ongoing and costly skirmishes over disclosure.

Conclusions

The intrinsic complexity of construction disputes requires strong case management skills from both the tribunal and the parties. Rather than blindly rolling out a stock standard approach, parties should make the most of the innate adaptability of arbitral proceedings in a continuing, proactive effort to achieve the most efficient and cost effective resolution possible.

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