The complexities of international construction arbitrations, compared to other international commercial arbitrations, often make the resolution of the former more costly than the latter. Construction disputes frequently involve difficult points of law, a large volume of documents, expert witnesses and specialized arbitrators with construction expertise, to help bring clarity to the facts and issues in dispute.
In recognition of these complexities, in 2001, the International Chamber of Commerce’s (“ICC”) Commission on International Arbitration published Final Report on Construction Industry Arbitrations – the commission’s first report on how to successfully, and cost-effectively, manage the arbitration of international construction disputes.
In 2019, the ICC released its update titled Construction Industry Arbitrations: Recommended Tools and Techniques for Effective Management (“2019 Report”). The 2019 update offers practitioners and arbitrators practical advice to ensure the cost-effective management of construction industry arbitrations. Below is a summary of the key takeaways from the 2019 Report:
Importance of Early Stages, including Terms of Reference and Early Case Management
Selection of Arbitrators
The selection of arbitrators directly impacts whether the management of a dispute is done cost-effectively or not. Parties to a construction arbitration should, to the extent possible, make inquiries of an arbitrator candidate’s case management skills. This may prove as important or more so than an arbitrator’s construction bona fides.
Availability is also an important, yet often overlooked component as part of the tribunal selection process. Due to the duration of international construction arbitrations, any potential arbitrator must be available to hear the case.
Terms of Reference
The Terms of Reference (“ToR”) describe the nature of the dispute, establish the duties of the tribunal and set out the administrative factors relating to the dispute including the names and backgrounds of the parties and the place of arbitration. The ToR will also contain a summary of the parties’ claims and the relief sought, and a list of issues that need to be determined. Per Article 23(2) of the ICC Rules, the tribunal must draft the ToR within a thirty-day time limit from when the tribunal first receives the file from the Secretariat. Good ToR set the pace of the arbitral proceedings and facilitates fast and efficient progression.
The Case Management Conference and Procedural Timetable
Under Article 22(2) of the ICC Rules, a case management conference (“CMC”) results in the first procedural order and procedural timetable. In essence, a CMC formalizes the process of organizing and setting out the arbitral proceedings. Matters which require the consent of parties will be included in either the ToR or the procedural timetable. Some of the matters that require consent include site visits, the use of material produced for a party’s own purposes and the use of sealed offers. In any such case, it is prudent and recommended that the tribunal establish the parameters of what is being consented to in order to ensure the strict enforcement of the procedural timetable. Early CMCs are desirable as they help to narrow issues, ensure the timetable is followed and establish costs as an important consideration throughout the proceedings.
Importance of Timetables, Balancing Efficiency and Costs in Construction Disputes
Article 24(2) of the ICC Rules provide that during or following the first CMC, the tribunal must establish the procedural timetable for the conduct of the arbitration. The need to control costs throughout the arbitral process requires that the procedural timetable be strictly adhered to. Given the complexity of international construction arbitrations, the tribunal should closely consider each party’s financial position, as well as the resources at their disposal to ensure that all parties are able to satisfy the timetable’s deadlines. When creating the procedural timetable, the tribunal should allow for “float” or flexibility. Procedural timetables must set out the parties’ earliest practical dates of hearing(s) on the merits and should allow for the possibility for settlement discussions to take place.
International construction arbitrations often involve parties from different legal backgrounds. The first CMC is an opportunity for the tribunal to both assess whether the parties’ different jurisdictions (if applicable) mandate lex fori requirements and to understand the parties’ expectations regarding the procedure of the arbitration. The tribunal should adopt a procedure that conforms to the parties’ agreed upon expectations and is cost-effective pursuant to Article 22(1) of the ICC Rules. This will require the tribunal to consult the parties throughout the arbitral process, identify issues as they arise and guide the parties to address these issues.
Use of Schedules
Just prior to, or even just after, the execution of the ToR, parties should submit documents to the tribunal outlining the key persons involved, the chronology of events and a glossary of terms. The report encourages parties to create and use a working document, in the form of a schedule, as a concise way to maintain and present the key issues to the tribunal. A schedule should identify the allegations in dispute and the claims admitted, identify which claims must be proved, and set out the parties’ position on quantum for each claim. In this respect, schedules require parties to adopt a constructive approach and cooperate with the tribunal and with each other to identify the scope of the claims and gaps between the parties. Schedules are not a substitute for submissions, but are an excellent case management tool that, when prepared correctly, can help save time and reduce costs.
Critical Path Network Methodology and Analyses
Construction disputes frequently involve claims for delay and disruption. To properly assess these claims, the triggering events causing the delay and disruption must be identified by the tribunal. Experts are usually required to evaluate such claims. Parties should be encouraged to agree on a baseline methodology for claim evaluation.
Critical path networks (“CPN”) have become the common project planning methodology to manage and monitor construction. The nature of CPN programming, specifically the need to make assumptions about the progression throughout the phases of the construction project, makes CPN a helpful means to present a party’s claims only when CPN is the methodology adopted to oversee and manage the construction project at the core of the dispute. CPN software is therefore unhelpful if the methodology is meant to account for a project retroactively, or after construction has ended. Parties should agree to a program or methodology prior to embarking on substantiating their claims for delay and disruption and should choose a methodology that matches or aligns with the methodology adopted by the project management on the construction project at issue.
Documents and Document Control
Article 24 of the ICC Rules require the tribunal to cost-effectively manage and control e-disclosure and the tribunal should address these issues early on with the parties. The 2019 report recommends that the tribunal direct the parties to organize documents electronically using a common numbering system to make the documents easily identifiable and accessible.
Deciding which issues are relevant and necessary to a dispute is important for effective case management. When producing principal documents, parties should state the relevance and necessity of each document being produced. In particular, a party should state what points at issue each document is intending to prove. Bundling a group of documents that are intended to prove a particular issue is a helpful method in this regard. Hyperlinked documents are a handy tool that are quickly becoming standard practice in construction arbitration practice.
Witness Statements and Witness Panels
The use of witness statements is now standard practice in international construction arbitrations and helps to reduce hearing time. While it is cost-effective for counsel to help in the preparation of witness statements, some jurisdictions disallow this practice. A CMC should address: 1) consensus on the role and content of witness statements; 2) define the number of rounds and timing of witness statements; and 3) maintain only relevant witness testimonials and statements. While a witness can be heard, the instances in which a witness will be required to attend for questioning are limited. Tribunals also have the ability to limit the time available to question a witness.
In addition to witness statements and hearing witnesses, witness panels are another tool to effectively manage hearing time. Witness panels can help to expedite complex cases where many fact witnesses are involved to provide evidence on the same subject. By placing a particular emphasis on the key facts in dispute, witness panels can streamline the hearing time by limiting the repetition of evidence that can occur with a one-witness-at-a-time approach.
Use of Hearing Time and Chess Clocks
The tribunal decides the order the issues are to be heard and should do so as early in the proceedings as possible. In addition to determining the order, the tribunal should decide which issues are to be decided by partial award prior to hearing other issues. At this early stage, the tribunal often attempts to achieve an agreement amongst the parties on which issues are to be decided through written submissions and evidence only. Importantly, the parties are not obligated to follow the tribunal’s suggestions.
Before a hearing starts, submissions should be made in writing, be full and exhaustive, be numbered or organized to match the other party’s submissions and should be delivered at the earliest time possible. Using written material, rather than oral, reduces hearing time which in turn expedites the proceedings and reduces costs.
Article 22(4) of the ICC Rules requires the tribunal to treat both parties fairly and impartially and to ensure that each party has a reasonable chance to present its case. In this respect, the tribunal requires the parties to decide how hearing time should be allocated. Although the basis when allocating time is equality, fairness may require adjustments in the split. If parties are unable to agree to the time allocation, the tribunal retains the authority to allocate the time as they deem appropriate.
A common approach to time allocation is the use of a “chess clock” whereby the parties collectively decide how much time to devote to contesting the other party. The entire duration of the hearing, excluding breaks, is then determined in terms of number of hours, which are split in terms of the agreed upon allocation. During a party’s submissions, the party’s “chess clock” would tick off the hours and minutes until the allocated time limit is reached. Overruns, or time that exceeds the limit, may be addressed by extending the total daily hearing time or strictly enforcing it.
At the pre-hearing stage, the parties should agree on the documents needed at the hearing, which online platforms will be used to store and exchange documents, and the process of accessing and presenting documents at the hearing. Timing issues often arise when parties attempt to submit documents and bring in new evidence just prior to the hearing. The risk of this impacting the schedule and increasing costs can be reduced by the parties agreeing on a cut-off date for the submission of evidence.
At the hearing stage, it is becoming more common for fact witnesses to be heard before experts. This procedural modification is gaining support as it allows the expert to gain a better grasp of the case/issues which can lead them to change or withdraw their opinions. As previously mentioned, experts or witnesses that tender evidence on the same topic should be questioned together to address and bring clarity to any misunderstandings between them. A suggested order of witness appearances is: 1) factual witnesses; 2) technical experts; 3) delay and disruption experts; 4) quantum experts; and 5) legal experts.
In terms of closing submissions, these are often best presented in writing shortly after the conclusion of the hearing. Post-hearing briefs are the norm and, pursuant to Article 38 of the ICC Rules, post-hearing submissions are often required on issues of costs and cost allocation. The tribunal should set the deadline to deliver written closing submissions well before the hearing on the merits. Parties must be aware of this deadline as no further submissions are to be considered once the deadline has passed. Article 27 of the ICC Rules states that once the arbitral proceedings are closed, no new facts or opinions may be submitted, unless specifically requested and authorized. Where a party submits new facts or opinions past the deadline under the belief that they were authorized but were never so, the tribunal will disregard and send back the submissions.
The resolution of international construction arbitrations remains complex and costly. By offering techniques, tools and recommended practices, the 2019 Report serves as a useful practical guide for arbitrators and parties to help facilitate timely and cost-effective resolution of construction disputes. Ultimately, the tools and techniques set out by the 2019 Report are only suggestions, and arbitrators will take their cue from the parties and counsel. Therefore, it remains the responsibility of conscientious arbitration lawyers to work together with arbitrators to craft a process to fit the dispute.
The full 2019 Report can be downloaded from the link below: