Introduction
Competitive bidding environments, cash flow constraints and global mega-projects have ensured a high level of construction disputes over the last 18 months. Whilst a diverse range of issues have come to the fore in different jurisdictions, general trends reflect the continuing pressure from parties for more efficient and cost effective dispute resolution procedures: there has been a general movement in favor of ADR; statutory security of payment regimes continue to find favor in common law jurisdictions; international commercial courts are gaining ground; and increasing competition between arbitral institutions has resulted in amendments to rules which focus on expedited processes. At the same time, shifts in global economics combined with arbitration-friendly legal reforms are driving further diversification in arbitral seats as governments and national companies increasingly challenge the default selection of the traditional European options.
Dispute avoidance, dispute boards and mediation
Although parties are embracing collaborative working methods in theory, changes in practice have been limited so far to increased interest in the NEC family of contracts and a small number of long-term alliances. Whether these will deliver cooperative win-win relationships and better value remains to be seen. What is clear is that parties are more interested in implementing risk management procedures and more willing to participate in ADR, particularly mediation.
Given the vast number of overseas infrastructure projects that Chinese contractors have undertaken and invested in, this trend is partly driven by positive experiences on major government funded projects in China such as the Shanxi Wanjiazhai Yellow River Diversion project and the new Beijing International Airport. Other factors include: positive experiences on other major projects; the high success rates reported by ADR service providers; the promotion of ADR in legislation and standard form contracts such as the pre-action protocols in England, the new Danish standard contract AB 18, the recent revisions of the Norwegian standard forms of contract for offshore construction, and the new FIDIC Yellow Book and Silver Book contract forms; the development of major projects in jurisdictions such as Nigeria and Uganda where some form of mediation or conciliation procedure is mandatory in civil litigation processes and therefore well understood; the lengthy time, high cost, inflexibility and risks associated with formal proceedings; and the difficult economic conditions faced by many contractors.
As mediation gains popularity at the expense of more formal proceedings there are hints parties will seek a more evaluative approach, as has already been seen in the US. However, it is too early to confirm whether this will emerge as a trend in international construction disputes and whether mediators will be prepared to accede to such requests without requiring procedural changes that result in the mediation becoming akin to adjudication.
Statutory adjudication
Statutory adjudication has been
hugely successful in addressing cashflow
delays and high litigation costs.
It has also transformed the timeline
within which construction disputes
are resolved, with the vast majority of
adjudicated disputes never making
it into the court system. Since its
introduction in the UK in 1996, statutory
adjudication regimes for construction
disputes have been introduced in a
number of common law jurisdictions
including Australia, New Zealand,
Singapore, South Africa, Malaysia and
Ontario, Canada where the procedures
are due to come into effect later this year.
It is expected that a statutory
adjudication framework which falls
somewhere between the UK model and
the approaches taken in Singapore and
New South Wales will be introduced
in Hong Kong in the foreseeable
future. Assuming the results in Ontario
resemble those seen elsewhere, it is
likely that other Canadian jurisdictions
will follow suit. Hopefully lessons will
be learnt from Australia where a key
theme over the last year has been the
need to increase the payment protection
afforded to contractors by improving
the consistency of the different rules
in force across the Australian states
and territories. Either way, once this
legislation is in force and is applicable,
experience suggests that adjudication
will quickly gain popularity and that
it has the potential to become the
primary mechanism for the resolution
of construction disputes.
In contrast to the spread of statutory
adjudication across common law
jurisdictions, hopes that Germany might
become the first civil jurisdiction to
implement a statutory regime for
construction disputes following the
2008 and 2010 recommendations of
Deutscher Baugerichtstag e.V. appear to
have come to nothing. It was not included
in the January 1, 2018 amendments to
the German Civil Code and it now seems
unlikely that any such framework will be
introduced in the near future.
In the UK, adjudication continues to
become ever more sophisticated (and
consequently expensive) as the body
of applicable case law grows and
the scale and complexity of disputes
referred increases. The turbulence in
the construction sector following the
collapse of Carillion, and uncertainties
surrounding Brexit and the delivery of
existing and future projects, have also
resulted in parties being less inclined to
expend significant resources challenging
adjudicator decisions. Instead (and
consistent with the general increase
in ADR), parties are more likely to
reach a negotiated settlement after the
adjudicator’s decision has been issued,
often wrapping up not only the dispute
referred but other outstanding issues
between the parties.
Commercial courts
A desire to gain the confidence of foreign
investors and the need to provide
efficient services for business litigants
has led to an increase in the number of
commercial courts set up over
the past few years, often utilizing the
expertise of an international panel of
judges. With Brexit on the horizon, we
are also now seeing the introduction
of measures aimed at challenging the
pre-eminence of the English Commercial
Court (and the TCC) as the venue for
international disputes. Special chambers
for international commercial disputes
where hearings can be conducted in
English have already been established
in Frankfurt, Hamburg, Amsterdam and
Paris (where there is also the potential
for other languages to be selected), and
the Brussels International Business
Court (BIBC) is expected to become
operational this year. We have not
seen any movement in favor of these
courts yet, and it seems doubtful that
the measures introduced so far will
be sufficient to convince international
companies to jump ship. However,
having committed to this path, it is
likely further initiatives will follow and
we should expect increased rivalry
between London and the other European
commercial centres.
Expedited procedures in institutional arbitration
As projects continue to grow in scale
and complexity, and rely on a network
of global contractors, international
arbitration has become an increasingly
common forum for the final resolution of
large construction projects worldwide.
Increased competition among arbitral
institutions and consistent feedback
from users concerning the need to
increase the efficiency and reduce
the cost of arbitration has led many
institutions including the Stockholm
Chamber of Commerce (SCC), Singapore
International Arbitration Centre (SIAC),
Hong Kong International Arbitration
Centre (HKIAC), and International
Chamber of Commerce (ICC) to introduce
(or in the case of the ICC to confirm the
availability of) expedited procedures
and summary determination. Whilst
there is some uncertainty and even
controversy surrounding the application
of such provisions, their introduction
has been welcomed as a step in the right
direction by parties frustrated by the
seeming reticence of tribunals to dismiss
unmeritorious claims at an early stage.
We expect that these changes, plus the
further innovations that can be expected
as competition between institutions
intensifies in the future, will contribute
to the broader popularity that arbitration
is gaining in European jurisdictions
where litigation has traditionally been
favored (such as Belgium where detailed
arbitration provisions were added to the
judicial code in December 2016), bolster
the shift from ad hoc to institutional
arbitration that we are seeing in certain
sectors (such as Norwegian offshore
construction), and generally strengthen
the position of arbitration in the global
dispute resolution marketplace.
The proliferation of arbitral seats and institutions
The desire in emerging markets to
attract foreign investment in order to
exploit natural resources and develop
infrastructure has resulted in the
propagation of arbitration-friendly laws
and new local arbitration centres and
institutions in these jurisdictions. For
example: the introduction of Cambodia’s
Commercial Arbitration Law in 2006
was followed by establishment of
the National Commercial Arbitration
Centre of the Kingdom of Cambodia
(NCAC) in 2013; the Rwandan Law
on Arbitration and Conciliation in
Commercial Matters in 2008 was
followed by the establishment of the
Kigali International Arbitration Centre
in 2011; Kenya, after amending its
Arbitration Act in 2009, carried out a
number of reforms culminating in the
establishment of the Nairobi Centre
for International Arbitration (NCIA) in
2013; and Myanmar, which enacted new
arbitration and investment laws in 2016,
has touted plans to establish a Myanmar
International Arbitration and Mediation
Centre (MIAMC).
The extent to which international parties
are prepared to resolve their disputes in
these new local jurisdictions depends on
bargaining power, the degree to which
reliable and consistent practices and
procedures have been developed, the
availability of qualified arbitrators, and
the extent to which the local judiciary
are perceived as actively supporting (or
at least not likely to interfere with) the
arbitral process.
Asia-based institutions such as SIAC,
HKIAC and the China International
Economic and Trade Arbitration
Commission (CIETAC) continue to go
from strength to strength. In April
2018, the ICC also opened a regional
office in Singapore after reporting that
there had been an increase of over 40
per cent in the number of ICC cases
where Singaporean law was chosen as
the applicable governing law between
2016 and 2017. Meanwhile the Badan
Arbitrase Nasional Indonesia (BANI) is often a contentious
choice and reports from August last
year suggested that only 11 cases had
been filed with NCAC since it became
operational in 2014.
Following the
amendment of the California Code
of Civil Procedure in July 2018, one
trend that we might expect to see going
forward is an increase in the popularity
of California as an arbitral seat for
infrastructure and construction disputes
between US and Asian parties.
In Africa, the dispute resolution
landscape varies very significantly from
one jurisdiction to another. Despite the
well-established arbitration centres in
several African countries, an increase
in the number of African arbitrators
being appointed to sit on international
arbitration tribunals, and a steady
number of arbitration cases involving
African parties, comparatively few
international construction arbitrations
are heard on African soil. The
establishment of the China Africa Joint
Arbitration Centre (CAJAC) to resolve
commercial disputes between Chinese
and African parties in 2015 was a major
achievement. Taking into account
the scale of Chinese investment in
Africa, the opening of CAJAC centres in
Johannesburg, Nairobi and potentially
Lagos, the OHADA countries and Egypt
should have a significant impact on
the reluctance of foreign investors to
arbitrate in Africa. At the same time,
African companies and governments are
increasingly in a position to insist on
African seats and utilisation of Africabased
arbitration centres. The number of
construction arbitrations seated in cities
such as Johannesburg, Nairobi, Lagos
and Port Louis will continue to grow.