ABOUT CONSTRUCTION

1. CONSTRUCTION ARBITRATION

In a globalized world and in particular in the common European market, large scale construction projects usually have an international dimension as various companies of different countries are involved. It is thus standard practice in such construction contracts to include arbitration clauses as it is can provide a flexible and efficient method of dispute resolution that also guarantees legal certainty.

In construction and engineering disputes of a multi-national character, the following aspects are very typical and require particular attention:

-Multi-party dispute: A construction or engineering project often involves different parties at different levels of the project. The employer regularly hires a general contractor who then assigns different parts of the project to various sub-contractors. Apart from these players, there might be suppliers, designers, financial institutions etc. who are substantially involved in the project and could claim rights to particular issues. The fact that various parties to the same project have various claims against each other and possibly involving different jurisdictions and different dispute resolution mechanisms renders the matter to become a “complex arbitration”.

-Multi-tier dispute resolution mechanism: Construction contracts often include dispute resolution clauses which do not only provide for one single forum, but multiple procedural steps resulting in arbitration or court litigation (thus also referred to as “escalation clauses”). The purpose behind such multi-tier clauses is to resolve smaller issues (“claims”) at an early stage of a (possible) dispute, often only by technical experts such as engineers or […] and without the need of intensive legal assessment. Such early phases where claims are decided are often known as adjudication (e.g. through various kinds of “dispute adjudication boards” or “dispute review boards”). In some matters, the parties also enter procedures of conciliation or mediation either because the dispute resolution clause so provides or because the parties voluntarily so agree with the intention to resolve their dispute before it “escalates” in legal terms before an arbitral tribunal or a state court.

-Intervention, joinder, consolidation and parallel proceedings: One of the main challenges in multi- party arbitration relates to the question whether a dispute which relates to various involved parties can be resolved in a single or consolidated arbitration or at least in parallel proceedings that run in co-ordination. A single or consolidated arbitration (i.e. where at least two arbitrations are consolidated in one arbitration) requires that the different arbitration clauses contained in the various contracts are compatible (in particular agreement on the same arbitral institution, on the same number of arbitrators and on the same place of arbitration). If parallel arbitration proceedings take place before different tribunals and/or under different arbitration rules, counsel have a particular duty to oversee and coordinate these proceedings. It is an even greater challenge if parallel proceedings take place both before arbitral tribunals and state courts. At times, if such proceedings (whether arbitration and/or litigation) take place in different jurisdictions, then a team of counsel of different jurisdictions must co-operate with each other. One legal challenge for both parties and their counsel is that there are currently no international treaties governing general questions of parallel proceedings and res iudicata between arbitrations or between arbitral tribunals and state courts.

-Appointment of arbitrators: The process of appointing arbitrators is rather sensitive in multi-party proceedings and should deserve particular attention by the parties and their counsel. Moreover, the time-frame for the appointment can be rather short taking into account that counsel must communicate with various stakeholders if multiple parties are involved. In particular, conflicts may arise if several parties on one side (i.e. claimant, respondent or a joining third party) are under a duty to jointly appoint one arbitrator, but have different expectations or interests. Institutional arbitration rules and national arbitration laws provide for different solutions in such a case. Once an arbitrator is appointed, it is – in principle – not possible to remove him/her unless he/she breaches the principles of independence and impartiality or his/her duties in a very serious way.

-Industry expertise: Some legal disputes involve “only”, albeit highly complex legal questions where the main legal question relates to the interpretation of a particular contractual clause or a statutory provision. However, resolving construction and engineering disputes will always require a thorough understanding of the industry itself as disputes rarely evolve only around legal questions.

-Expertise of counsel: As a consequence of the highly technical aspects of construction and engineering disputes, legal counsel must usually be acquainted with the industry knowledge either by relying on their own expertise or by retaining outside experts in order to understand the client’s business, needs and expectations.

-Experts in the proceedings: In addition, most construction and engineering arbitrations will have to involve experts who help the arbitral tribunal to decide the matter. This can be done either by party- hired experts (often preferred by the parties because they can present their view of the matter) or by one or more tribunal-appointed experts (often preferred by the arbitral tribunal because it can essentially rely on the conclusions of the expert in order to decide the dispute). In particular in the case of tribunal-appointed experts, it requires a particular sense and knowledge of procedural standards in order to safeguard the parties’ rights in a fair and transparent expert procedure and to ensure that it is the tribunal and not the tribunal-appointed expert that takes a particular decision on the merits.

-Standard forms: In construction and engineering projects, parties often rely on standard forms and conditions in their contracts. This usually provides efficiency in the execution of the contract, legal certainty and an international standard. The most well-known standard forms are the contract conditions of FIDIC (Federation Internationale des Ingenieurs Conseils) which provide contract conditions – inter alia – for a construction based on the employer’s design (the FIDIC “Red Book”), for design and build-contract (the FIDIC “Yellow Book”), for a turnkey-contract (the FIDIC “Silver Book”) or even for a design-build-operate-contract (the FIDIC “Gold Book”). Lawyers dealing with FIDIC conditions need to be aware that their origin lies with national British contract conditions. Hence, the contract terminology under FIDIC has its roots in the Common Law system, with only a few ideas adopted from the Civil Law system. In particular, these conditions put a heavy trust in the role of the (consulting) engineer and rely substantially on formal written notices and certificates.

-Claims management: One should never underestimate the importance of a well-organized and project-accompanied claims management: Construction contracts usually state a specific time- period for either party to inform the other party about events and/or circumstances giving them a contractual claim entitlement (e.g. the contractor’s obligation under sub-clause 20.1 of the FIDIC conditions to submit a formal claim notice within 28 days after the contractor has become or should have become aware of such event or circumstance). Such time-periods are usually designed as “cut-off-periods”, meaning that the other party shall be discharged from all liability in connection with the claim should the claiming party fail to submit its claim notice within the stipulated time-period. Hence, the work of claims management – such as monitoring of the claim events on-site, drafting and submitting of the claim notice (and subsequently of the fully detailed claim) within the contractual time-period and producing the relevant documentation and records for the claim – is an important factor for the proving of or the defending against claims and therefore crucial for the success in arbitration proceedings.

-Public authorities and entities: Large and complex construction and engineering projects are often commissioned by a state or a state entity such as a particular ministry on the national level or a local administrative authority. In addition, such projects regularly receive financial aid from a third party other than the contracting state entity, whether private or public (such as the European Commission or other financial institutions within the European Union framework or under other auspices such as that of the world bank). The involvement of such public entities (either as actual party or as involved third party) require a thorough understanding of procedural mechanisms and guarantees on the one hand and of the complex interplay of the applicable substantive designated by the parties and mandatory rules of public law on the other hand. Moreover, it is the public itself (citizens, politicians and media) that might have legitimate interests in the progress and the outcome of the arbitral proceedings. The issues of confidentiality and transparency deserve particular and sensitive attention in this respect.

THOMAS ANDERL

Partner

Wolf Theiss, Austria

+43 1 51510 5494

thomas.anderl@wolftheiss.com

VENUS VALENTINA WONG

Counsel

Wolf Theiss, Austria

+43 1 51510 5755

valentina.wong@wolftheiss.com