REUTERS | REUTERS/ Amir Cohen

Can international construction arbitration adapt to be more affordable for lower value disputes?

Last week I headed to Dublin to attend the SCL’s annual lunch where Marion Smith QC was speaking. Just by coincidence, on my flight over there, I was reading the latest International Arbitration Survey: Driving Efficiency in International Construction Disputes, produced by the School of International Arbitration at Queen Mary, University of London (QMUL) (where Marion is a visiting senior lecturer) and Pinsent Masons.

After Brexit, it is fair to say that even Dublin will be more “international” than many of us have become accustomed to, but I digress. Back to the construction arbitration survey.

Survey’s main points

The aim of the survey was to better understand how international construction disputes can be resolved more efficiently (that is quicker and cheaper to you and me), since there is a perception (if not a reality) that construction arbitrations take longer and cost more than they should to pursue to a final award. One of the key questions was, what can be done to improve the process to meet the needs and concerns of the global construction industry?

The survey’s 52 questions covered a broad range of topics and the report’s authors had the data from 646 completed questionnaires and 66 interviews to process. That is a considerable amount of data, coming from various parts of the world (33% from Europe, 26% from the Middle East and 13% from Asia-Pacific, with the remainder from North America, Latin America, Sub-Saharan Africa and Oceania). Respondents’ experience covered disputes in a variety of markets, including transport (51%), process plants (31%), pipelines (28%) and renewable energy (27%), among others.

Some of the results were revealing, for example the five most defining features of international construction arbitration were:

  • Technical complexity (73%).
  • Large amounts of evidence involved (66%).
  • Multiple claims and/or multiple parties (49%).
  • Large sums in dispute (41%).
  • Range of related issues (31%).

I’m sure those of us involved in construction disputes on a daily basis are unsurprised by any of those findings.

I was also interested to see that London was the most common seat (46%), following by Paris (35%), Dubai (26%) and Singapore (22%). Equally interesting was the fact that 71% of respondents had used the International Chamber of Commerce (ICC) arbitration, with 32% for the London Court of International Arbitration (LCIA). That ad hoc arbitration was used in nearly a third of arbitrations was also something I didn’t expect in an international context.

The arbitrator

As someone was sits as an arbitrator and has a technical background, but is also legally qualified, I was particularly interested in the finding that when it came to arbitrator appointments, the vast majority of respondents valued the arbitrator’s experience in construction and technical matters above all other attributes. The most preferred characteristic was having experience of international construction arbitration (76%), followed by a balance of legal and technical expertise (60%) and construction industry experience (57%). This was reflected in the fact that 38% had experience of technical experts as arbitrators. However, respondents still valued legal expertise as part of the arbitral tribunal and looked for a balance of both within the tribunal.

Perhaps unsurprisingly, respondents were inclined to appoint a technical expert as an arbitrator if the dispute was technical in nature (53%) or there was a range of matters in dispute within the arbitrator’s technical expertise (34%). Having legal qualifications certainly helps, as 41% of respondents would be encouraged to appoint those of us with both. However, this was unlikely in single-member tribunals, where only 7% would consider it. The odds of appointment for technical arbitrators improved for three-member tribunals (33%) and where there was a balance with lawyers (24%).

When it came to the main characteristics respondents looked for in an efficient international arbitrator, the top attribute was issuing an award within a reasonable period of time (70%), followed by being willing to make difficult decisions (including on procedural issues) (68%), possessing case and counsel management skills (68%) and having technical knowledge of construction (63%). This chimes with the other findings I’ve highlighted regarding selection of an arbitrator for an international construction dispute.

Anecdotally, you often hear about delays in issuing awards as being a problem, and this was highlighted by respondents as a recurring issue. It is a problem that arbitrators and the arbitral institutions must address.

Value of international construction disputes

I found it interesting that, although the majority of respondents (42%) considered the minimum threshold for pursuing a dispute through international arbitration was between US$1 to US$10 million, what was considered to be commercially sensible depended on who the respondent was. For example, when it came to in-house counsel (that is, the users of international arbitration who report to their boards on its cost effectiveness), the threshold was much higher, at between US$11 and US$25 million.

I’m sure it also has something to do with the nature of the users of international construction arbitration. At one end of the spectrum, 11% thought disputes under US$1 million were commercially sensible to pursue, whereas at the other end, 4% thought only disputes over US$ 100 million were worthwhile.

Making international construction arbitration more efficient

I think that it is essential that the international arbitration community addresses these concerns, but how can it be done?

For starters, addressing the inefficiencies identified in the survey would be a start. When respondents were asked about perceived causes of inefficiencies in international construction arbitration, top of the list came party tactics (53%), closely followed by perceived poor case management by arbitrators (51%). Respondents referred to “due process paranoia” as a reason why arbitrators may not take an active approach to case management.

But perhaps it is time to be more radical, for example is it time to consider abandoning the need for three arbitrators on “lower value” international arbitration disputes?

There are many top quality arbitrators who are very capable of dealing with such disputes without the assistance of co-arbitrators. Provided parties have confidence in the panels maintained by institutions or are sensible about who to appoint by agreement, they should have no concerns in a sole arbitrator being appointed. Indeed, there are plenty of such “lower value” disputes dealt with by High Court judges in the TCC without any problems. Take for example the case of Imperial Chemical Industries Ltd v Merit Merrell Technology Ltd, which concerned a £10 million dispute about a paint manufacturing facility. This was a heavy-weight piece of litigation with separate liability and quantum trials, and involved complex technical matters, as well as issues of law. All of the trials were very ably dealt with by a sole High Court judge (Mr Justice Fraser) and, if he had been acting as a sole arbitrator, I fail to see how having two co-arbitrators would have assisted him. Furthermore, having a sole arbitrator is more likely to result in the process proceeding in accordance with the anticipated time scales as it doesn’t rely on three arbitrators’ diaries aligning like the stars.

Secondly, is there a need for such intensive involvement by the institutions in these “lower value” disputes, particularly post the appointment of the arbitrator? Again, there is no such intensive involvement by the High Court, but that doesn’t distract from the service provided.

Finally, would it be prudent to move to a more streamlined system of disclosure, rather than the costly full disclosure that often seems to add significant cost, but sometimes little benefit, in arbitrations?

Indeed, when respondents were asked what due process elements they would forego to save time and money, 33% said they would forego disclosure. Depending on the applicable rules, when acting as arbitrator my preference is to limit disclosure to specific disclosure, rather than general disclosure and, in my experience, it works very well.

Conclusion

I have only touched the surface of the survey’s findings, but I’d recommend it to all those involved in construction disputes. It is useful and thought-provoking and, I suspect, similar findings would also be echoed in other areas of resolving construction disputes. After all, we aren’t all like Donald Trump, who famously once said:

“I don’t hire a lot of number-crunchers, and I don’t trust fancy marketing surveys. I do my own surveys and draw my own conclusions.”

 

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