In a globalized world and in particular in the common European market, large scale construction projectsusually have an international dimension as various companies of different countries are involved. It is thusstandard practice in such construction contracts to include arbitration clauses as it is can provide a flexibleand efficient method of dispute resolution that also guarantees legal certainty.
In construction and engineering disputes of a multi-national character, the following aspects are verytypical and require particular attention:
-Multi-party dispute: A construction or engineering project often involves different parties at differentlevels of the project. The employer regularly hires a general contractor who then assigns different partsof 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 particularissues. The fact that various parties to the same project have various claims against each other andpossibly involving different jurisdictions and different dispute resolution mechanisms renders the matterto become a “complex arbitration”.
-Multi-tier dispute resolution mechanism: Construction contracts often include dispute resolutionclauses which do not only provide for one single forum, but multiple procedural steps resulting inarbitration or court litigation (thus also referred to as “escalation clauses”). The purpose behind suchmulti-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 legalassessment. 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 resolutionclause so provides or because the parties voluntarily so agree with the intention to resolve theirdispute 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 partiescan be resolved in a single or consolidated arbitration or at least in parallel proceedings that run inco-ordination. A single or consolidated arbitration (i.e. where at least two arbitrations areconsolidated in one arbitration) requires that the different arbitration clauses contained in the variouscontracts are compatible (in particular agreement on the same arbitral institution, on the samenumber of arbitrators and on the same place of arbitration). If parallel arbitration proceedings takeplace before different tribunals and/or under different arbitration rules, counsel have a particular dutyto oversee and coordinate these proceedings. It is an even greater challenge if parallel proceedingstake place both before arbitral tribunals and state courts. At times, if such proceedings (whetherarbitration and/or litigation) take place in different jurisdictions, then a team of counsel of differentjurisdictions must co-operate with each other. One legal challenge for both parties and their counselis that there are currently no international treaties governing general questions of parallelproceedings 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-partyproceedings and should deserve particular attention by the parties and their counsel. Moreover, thetime-frame for the appointment can be rather short taking into account that counsel mustcommunicate with various stakeholders if multiple parties are involved. In particular, conflicts mayarise if several parties on one side (i.e. claimant, respondent or a joining third party) are under a dutyto jointly appoint one arbitrator, but have different expectations or interests. Institutional arbitrationrules and national arbitration laws provide for different solutions in such a case. Once an arbitrator isappointed, it is – in principle – not possible to remove him/her unless he/she breaches the principlesof 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 themain legal question relates to the interpretation of a particular contractual clause or a statutoryprovision. However, resolving construction and engineering disputes will always require a thoroughunderstanding 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 andengineering disputes, legal counsel must usually be acquainted with the industry knowledge eitherby relying on their own expertise or by retaining outside experts in order to understand the client’sbusiness, needs and expectations.
-Experts in the proceedings: In addition, most construction and engineering arbitrations will have toinvolve 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 byone or more tribunal-appointed experts (often preferred by the arbitral tribunal because it canessentially rely on the conclusions of the expert in order to decide the dispute). In particular in the caseof tribunal-appointed experts, it requires a particular sense and knowledge of procedural standards inorder to safeguard the parties’ rights in a fair and transparent expert procedure and to ensure that it isthe 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 andconditions in their contracts. This usually provides efficiency in the execution of the contract, legalcertainty and an international standard. The most well-known standard forms are the contractconditions of FIDIC (Federation Internationale des Ingenieurs Conseils) which provide contractconditions – 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 “SilverBook”) or even for a design-build-operate-contract (the FIDIC “Gold Book”). Lawyers dealing withFIDIC 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 afew ideas adopted from the Civil Law system. In particular, these conditions put a heavy trust in therole 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 andproject-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 acontractual claim entitlement (e.g. the contractor’s obligation under sub-clause 20.1 of the FIDICconditions to submit a formal claim notice within 28 days after the contractor has become or shouldhave 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 withthe 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, draftingand submitting of the claim notice (and subsequently of the fully detailed claim) within the contractualtime-period and producing the relevant documentation and records for the claim – is an importantfactor for the proving of or the defending against claims and therefore crucial for the success inarbitration proceedings.
-Public authorities and entities: Large and complex construction and engineering projects are oftencommissioned by a state or a state entity such as a particular ministry on the national level or a localadministrative authority. In addition, such projects regularly receive financial aid from a third party otherthan the contracting state entity, whether private or public (such as the European Commission or otherfinancial institutions within the European Union framework or under other auspices such as that of theworld 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 ofthe complex interplay of the applicable substantive designated by the parties and mandatory rules ofpublic law on the other hand. Moreover, it is the public itself (citizens, politicians and media) that mighthave legitimate interests in the progress and the outcome of the arbitral proceedings. The issues ofconfidentiality and transparency deserve particular and sensitive attention in this respect.