Transnational Construction Arbitration

Key Themes in the Resolution of Construction Disputes

Renato Nazzini

• Editore: Informa Law from Routledge
• Anno: 2017
• ISBN:
  9781351984065
• Edizione: 1
• Argomento: Law
• Categoria: Law Theory & Practice

Transnational Construction Arbitration addresses topical issues in the field of dispute resolution in construction contracts from an international perspective. The book covers the role of arbitral institutions, arbitration and dispute resolution clauses, expert evidence, dispute adjudication boards and emergency arbitrator procedures, investment arbitration and the enforcement of arbitral awards. These topics are addressed by leading experts in the field, thus providing an insightful analysis that should be of interest for practitioners and academics alike.

Chapter 1
Introduction

Renato Nazzini

Objective

1.1 The resolution of disputes in the construction industry is a complex and ever current topic. This book focuses on key themes in the resolution of construction disputes from a transnational rather than purely domestic perspective.

1.2 In transnational projects, arbitration is, and is likely to continue to be, the method of choice for resolving disputes. Arbitration offers neutrality, flexibility, the possibility to select arbitrators experienced in the field, and widespread enforceability of the award under the New York Convention on the recognition and enforcement of foreign arbitral awards of 1958.

1.3 From a transnational perspective, neutrality is a particularly important consideration. A foreign contractor would prefer, if at all possible, not to subject itself to the jurisdiction of the courts of the host state. In a similar vein, contractors, subcontractors, suppliers, and consultants from different jurisdictions would be concerned about litigating disputes in the courts of the state of their opponent. Arbitration offers the possibility to choose a tribunal that may appear more impartial because of its international composition. Importantly, it also offers the parties the choice of a seat in a neutral jurisdiction with a well-established legal framework for the arbitration of disputes and whose courts can be expected to support and supervise the arbitral process effectively and impartially.

1.4 Procedural flexibility is another key advantage of arbitration. While construction disputes tend to be large, complex, and fact-intensive, they still vary significantly from simple disputes concerning the construction of a contractual term or a contested payment claim to multi-billion dollar cases bundling together multiple claims for damages, variations, delay and disruption, also potentially involving multiple parties. The arbitral procedure can be tailored to suit the particular dispute at hand more easily than the civil procedure rules in most jurisdictions. Furthermore, parties have much more control over the procedure than they would in litigation.

1.5 The choice of arbitrators with particular expertise in the field is a further factor that makes arbitration attractive in transnational projects. Arbitrators can be chosen for their knowledge and experience in construction and in the specific type of dispute and sector at hand. They can also bring to the tribunal an understanding of different legal traditions and approaches, which may be crucial in resolving transnational disputes in a way that is not only actually fair by the applicable legal standards, but is also clearly seen to be fair by parties from different jurisdictions.

1.6 Finally, the enforceability of arbitral awards under the New York Convention of 1958 is an unsurpassable benefit of arbitration. The right to have an award enforced, with minimum court supervision, in 157 countries by a predictable process cannot be underestimated.¹ This does not mean that the enforcement of arbitral awards is always and invariably problem-free. The award debtor has clearly an incentive to delay the process and the approach of courts around the world may vary in the degree to which it respects the party’s choice to have their disputes adjudicated on the merits by an arbitral tribunal rather than by national courts. And the potential involvement of two or more jurisdictions in post-award proceedings, including the supervisory courts at the seat and courts in one or more states where enforcement is sought, may give rise to forum shopping and divergent outcomes, resulting in delays or, worse, in the frustration of the arbitral process. But these instances are relatively rare and, importantly, the New York Convention provides the tools to avoid this. A transnational approach is also about looking for, and highlighting, solutions that work across jurisdictions to achieve consistency and predictability of process and outcomes alike.

1.7 Construction disputes are characterised by the potential use of several dispute resolution mechanisms, not necessarily mutually exclusive. The most prominent one is, probably, adjudication. From a transnational perspective, contractual adjudication, in particular under clause 20 of the FIDIC standard forms of contract, has given rise to several problems, including in relation to the enforcement of any decision made by a Dispute Adjudication Board (DAB). But contractual adjudication is not the only alternative dispute resolution method that is relevant to construction disputes. Mediation is of particular importance and can be combined with contractual, or indeed statutory, adjudication and arbitration (or, for that matter, litigation). However, arbitral tribunals can also grant provisional, interim relief. A significant development is the introduction, and use in construction disputes, of emergency arbitrator procedures in all the main institutional rules. Problems of coordination are arising and are bound to become more and more complex as well as practically relevant. It is important, therefore, that this book devotes considerable attention to such alternative methods of dispute resolution, without which any discussion of dispute resolution in the construction sector would be incomplete.

Structure

1.8 This book is divided into six parts. The first part covers issues concerning dispute resolution clauses, focusing on three key themes. Chapter 2 deals with the law applicable to the arbitration agreement. Chapter 3 examines multi-tier clauses. Chapter 4 discusses the choice of institutional arbitration and problems and challenges facing arbitral institutions in today’s global economy.

1.9 The second part deals with multi-party arbitration, a key feature of construction arbitration. Chapter 5 provides an analysis of the principles governing joinder and consolidation of additional parties in arbitration, whereas chapter 6 examines in detail the multi-party arbitration provisions in the ICC Rules.

1.10 The third part addresses the important topic of expert evidence by discussing the role of expert witnesses in construction arbitration and focusing on delay and disruption and quantum issues (chapter 7).

1.11 The fourth part deals with investment arbitration, which can give significant additional remedies to a contractor in a transnational project. Chapter 8 examines the circumstances in which construction contracts can be considered ‘investments’ for the purposes of investment arbitration. Chapter 9 addresses the question of when state interference with contractual rights may amount to ‘expropriation’, thus entitling the expropriated party to a remedy against the host state.

1.12 The fifth part covers the most relevant issues concerning the enforcement of arbitral awards. Chapter 10 focuses on the mechanics of the New York Convention and the key issues that have emerged in relation to the enforcement of foreign arbitral awards under the Convention, including the enforcement of awards annulled at the seat, public policy, and whether DAB decisions may be enforceable under the Convention. Chapter 11 provides an example of a regional approach as it deals with recognition and enforcement of domestic and foreign arbitral awards in the Middle East. Chapter 12 examines the topic of estoppel in enforcement proceedings as a means of achieving more convergence and limiting forum shopping internationally once an award has been rendered and enforcement is sought.

1.13 The sixth part covers issues concerning summary justice in the construction sector. Chapter 13 provides an analysis of the law and practice of Dispute Boards (DBs) internationally. Chapter 14 examines the thorny issue of the enforceability of DAB decisions. Chapter 15 discusses the interaction of emergency arbitrator procedures with other pre-arbitral mechanisms, including, for example, mediation or DAB provisions.

Approach

1.14 The focus of the book is on transnational rather than domestic issues. By ‘trans-national’, we mean any issue that involves, potentially, more than one legal system or jurisdiction. This may be the case when the construction project itself comprises several countries but also when the project is localised in one country only but the parties to the various contracts relating to the project come from different jurisdictions.

1.15 When a project involves, potentially, multiple jurisdictions, a transnational approach may, or some argue should, apply to the resolution of the disputes arising from the project. Such a transnational approach may take various forms.

1.16 Firstly, the matter may be governed by an international instrument or an instrument of international origin, such as the New York Convention or a domestic enactment of the UNCITRAL Model Law on international commercial arbitration, so that an internationally convergent construction and application of rules is called for.

1.17 Secondly, the matter may be governed by a contractual provision that was designed to operate transnationally either in a standard form contract or in a bespoke contract. While the contract will, in all likelihood, be governed by a national law that will apply to determine its validity, construction, and remedies for breach, there may be a tendency to construe and apply the contract in light of transnational principles to take into account its transnational nature as enshrined by the will of the parties. There may also be a tendency to consider that a standard term should be construed consistently regardless of the law governing the contract, although this approach is by no means uncontroversial. The same can be said of contractual provisions governing the procedure of the arbitration rather than the main contract, such as provisions contained in institutional arbitration rules.

1.18 Thirdly, if the matter is governed purely by national law, national law may nevertheless adapt to take into consideration the transnational nature of the dispute, also in light of solutions adopted in other jurisdictions. This can be achieved through different techniques. For example, a legal system may apply different rules to disputes involving a transnational element than it does to purely domestic disputes. Or, more subtly, courts may apply national rules differently than they would in a purely domestic setting.

1.19 The focus on transnational issues does not mean that domestic law is irrelevant. Quite the contrary. Transnational dispute resolution requires, generally, the application of one or more domestic law regimes. The arbitrators themselves will have to apply one or more national laws (potentially different) governing, for example, the arbitration agreement, the capacity of the parties, the contract, and the procedure. Furthermore, the choice of arbitration by no means guarantees that national courts will not be involved in the process. The case law of national courts plays, therefore, an important part in supporting arbitration and supervising the procedure and the award in light of the three pillars of jurisdiction, natural justice, and public policy. National courts will generally apply one or more national law systems, identified by the application of national conflict of laws rules, to the issues that they need to determine. This book does, therefore, discuss domestic law, whether in the context of a comparative analysis of how different legal systems solve a given problem, or as an example of how a given problem can be solved internationally, or to demonstrate how national law ‘mutates’, so to speak, to take into account the transnational context of the dispute.

1.20 Ultimately, a transnational approach does not mean doing away with national laws, but understanding and applying national laws in a way that is consistent with parties’ expectations and that duly takes into account the transnational nature of the dispute. Convergence, or considered divergence, will arise and consolidate over time by a constant interaction between party autonomy, manifesting itself particularly, but not exclusively, in the use of standard form contracts and institutional arbitration rules, arbitral practice, international instruments, and national legal frameworks and case law. This book aims at enabling those studying and practising construction dispute resolution on an international scale to navigate this complex web of law and practice with an understanding of the problems and the best tools available to address them.

Note

1 See <www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html> accessed on 9 June 2017.

Chapter 2
The law governing the arbitration agreement: a transnational solution?

Renato Nazzini¹

Introduction

2.1 Parties rarely choose the law applicable to the arbitration agreement. This frequently gives rise to complexities. The obvious solution, but one that, for some reason, is not yet prevalent, is for arbitration clauses to make an express choice of the law applicable to the clause itself, rather than to the matrix contract of which the clause is an element. It is impossible not to endorse this solution. If the parties choose the law applicable to the arbitration agreement, in all but rare cases such a choice will be given effect by arbitrators and courts. The determination of the law applicable to the arbitration agreement will not be problematic. And this is the end of the matter....