I counsel on arbitration vs. litigation dispUtes in the UK · University Dubai, where he teaches claims, FIDIC contracts and dispute resolution in the MSc in construction Project

I counsel on arbitration vs. litigation

dispUtes in the UK

MINI-ROUNDTABLE

MIN 1-ROUN DTABLE

RESOLVING CONSTRUCTION DISPUTES IN ASIA

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www.corporatedisputesmagazine.com CORPORATE DISPUTES ju/-Sep 2016 99


PANEL EXPERTS

wendy MacLaughlin

senior Vice President Hill International (UK) Ltd.

T: +44 7540 158 226

E: [email protected]

wendy MacLaughlin is a senior vice president at Hill International and co-head of International Expert Witness services. She is a world-class programming expert, with over 20 years of experience in design, construction and planning on major infrastructure projects. Ms MacLaughlin is highly regarded by the barristers and solicitors she has worked with. She has experience as a party-appointed expert and has given evidence to arbitral tribunals on numerous occasions in London, Dubai, Australia and Stockholm.

Muhammad Ehsan Che Munaaim senior consultant Hill International consulting, Inc.

T: +971 56 729 0281 E: muhammadehsanchemunaaim®hillintl. com

Muhammed Ehsan Che Munaaim is a senior consultant at Hill International with more than 10 years' experience in both industry and academia. His areas of expertise include claims analysis, contract administration, quantity surveying, and adjudication. He is also a (part-time) Teaching Fellow in construction Management and surveying at Heriot-Watt University Dubai, where he teaches claims, FIDIC contracts and dispute resolution in the MSc in construction Project Management and MSc in Quantity surveying programmes.

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Derek Nelson senior Vice President Hill Construction Consultancy Pte. Ltd.

T: +65 9182 9350 E: [email protected]

Derek Nelson is a senior vice president at Hill International, based in Singapore. He has 35 years of construction industry experience and specialises in the identification and management of contract and commercial risks, the preparation, negotiation and settlement of claims for disruption, acceleration and prolongation and in the investigation, assessment and settlement of such claims presented by others. Mr Nelson is an accredited and certified testifying expert witness, accredited expert determiner and certified mediator.

Simon Longley senior Vice President Hilllntemational consulting, Inc.

T: + 971 56 615 6437 E: [email protected]

Simon Longley is a senior vice president at Hill International, based in Dubai, United Arab Emirates. A chartered quantity surveyor and barrister, he has more than 30 years of experience in construction consulting with a focus on complex, infrastructure and energy megaprojects worldwide. Mr Longley specialises in the strategic leadership, turnaround and recovery of distressed projects, particularly with regard to contract and dispute management for dispute board and other tribunal proceedings.

www .corporatedispute.smagazine .com

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CD: How would you describe the construction dispute landscape in Asia? To what extent are these types of disputes becoming more prevalent in the region?

Maclaughlin: I would describe the construction dispute landscape as changing. We are seeing an increasing number of Singapore International Arbitration Centre (SIAC) arbitrations, particularly those arising from investment by Asian parties in resource and infrastructure projects in Australia. We expect to see disputes referred to adjudication increase over the next few years. as well as NEC3 arbitrations as that form of contract becomes prevalent in the region.

Munaaim: Yes, I agree. The construction dispute landscape in Asia is changing rapidly. We are seeing bigger, more expensive and complex disputes arising, which take much longer to resolve. I believe the reason for this change is simple - construction projects in Asia are growing, due to the continent's sustained advancement and infrastructure initiatives, and, as a consequence, these kinds of disputes are being generated. Some developing Asian countries like Malaysia and Indonesia are spending huge sums of money on ambitious infrastructure projects that contain huge contractual and delivery risks. The scale and complexity of these projects pose

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significant engineering challenges which push the boundaries of our technical capabilities; this often means that more risks are being passed to contractors who usually lack the ability to deal with them effectively and efficiently. This breakdown results in delays and cost overruns. which, in turn, if not properly addressed, can escalate into multimillion dollar mega disputes.

Nelson: The dispute landscape in Asia has become much more stratified. A number of jurisdictions either have, or intend to, introduce statutory adjudication for construction payment disputes that are seeing a significant reduction in parties arbitrating subcontractor-contractor payment disputes during and at the end of a project in those jurisdictions. There has been a significant rise in contractor-employer Construction Industry Payment and Adjudication Act (CIPAA) claims at final account stage in Malaysia, which is likely to impact numbers further in that jurisdiction. That said, with the significant increase in investment in, for example, power and infrastructure projects across the region drawing together multinational parties to deliver technically complex and challenging projects often in constrained timeframes, the number and value of international arbitrations has increased significantly across the main centres in Asia. There has been a marked increase in foreign contractors entering certain markets and that is breaking the natural reticence of local contractors pursuing formal action

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for recovery. Additionally. large government linked companies and employer organisations are facing organisations which are less swayed by concerns over future opportunity and more focused on losses today. That has contributed to the increase in the number of large value international arbitrations across the region.

Longley: The Asia market is picking up with more large-scale and complex infrastructure, power and transportation projects being taken forward across the region. Such developments, however, bring with them an increased level of claims and disputes, for a number of reasons. Where project participants have insufficient capacity and experience of tendering for and delivering such projects, allied with multinational joint ventures as contracting parties, the diversity of risks that need to be identified and managed for a project to be successful multiply greatly. And if project staff on both sides are not experienced in the administration of complex projects, issues can quickly escalate into claims or disputes. When disputes do arise, project staff may have limited experience of dispute boards, arbitration or local courts to resolve disputes efficiently and effectively. So throughout the construction process there is a huge learning curve to be had by project participants. The challenge is to learn quickly to avoid claims and disputes.

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CD: What are the main dispute resolution methods that are usually adopted in Asia and how are these generally applied to the construction sector? can you highlight any recent, high-profile cases which demonstrate how these methods have been applied?

Maclaughlin: In my experience, traditionally negotiation has been effective enough to negate the need for expensive dispute resolution processes. If a dispute is referred to arbitration, the negotiation process will often carry on in parallel with arbitration proceedings which often leads to the matter getting resolved before the substantive hearing, but at a point in time where the parties have a better understanding of the merits of their respective positions.

Munaaim: The trinity of dispute resolution in Asia is made up of, in ascending order, negotiation, mediation and arbitration, based on recent construction projects in India and Malaysia. Here, there still exists an ingrained culture of nonconfrontation between employers and contractors, and in most situations both parties want to negotiate to resolve their disputes amicably because they know how damaging disputes can be to ongoing business relationships. If negotiation fails, a neutral third-party mediator is used to facilitate their



discussions to reach an amicable settlement. Arbitration is only used as a last resort, once all non-confrontational avenues are exhausted. Although, I must say, the trend is slowly moving toward confrontational dispute resolution methods, likely because of the large

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in Singapore through Singapore Mediation Centre (SMC) have increased by 120 percent between 2012 and 2015. An international mediation centre (SIMC) was opened in November 2014 and introduced

amounts of money at stake. Adjudication is also coming to the forefront, which will eventually be an intervening mechanism between mediation and arbitration.

"'Traditionally negotiation has been effective enough to negate the need for expensive dispute resolution processes."

Nelson: Negotiation is the natural first step to settlement. Understanding, presentation and substantiation of entitlement and the consequences of those issues in terms of time and money is often poor, which does not aid consensus and

settlement. There is a marked increase in facilitated settlement through mediation, neutral evaluation and expert determination on key issues. That can help parties get to a negotiated position. Access to statutory adjudication in selected jurisdictions and to dispute adjudication or review boards more widely on large international projects can also act to focus the parties in reaching agreement before referral. A recent survey showed that international arbitration remains the preferred final dispute resolution mechanism for 90 percent of users. A particular feature of dispute resolution in Asia is the use of mediation, either on its own or the midst of other formal dispute resolution processes. Mediation cases


Wendy MacLaughlin, Hill International (UK) Ltd.

integrated arbitration-mediation-arbitration services in collaboration with SIAC, a model particularly suited to Asian sensibilities and one that found favour with 78 percent of users of international arbitration. The numbers of cases being referred

to arbitration across the main centres in Asia over the last 10 years have increased significantly. That seems reflective of the significant levels of investment across Asia and the draw of international organisations now delivering large complex projects in the region. Particularly significant are the number of China International Economic and Trade Arbitration Commission (CIETAC) arbitrations in China and the numbers through Hong Kong International Arbitration Centre (HKIAC), both of


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which peaked in 2008/2009 but have since found favour in particular with Russian organisations. Numbers through SIAC have shown a steady rise as it finds favour with parties contracting internationally.

Longley: For the bigger projects the main dispute resolution mechanisms, often in tiered dispute resolution procedures, are expert determination, dispute boards and arbitration. In addition, in certain jurisdictions, such as Malaysia and Singapore, there is

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CD: At the outset of a construction project, what considerations should be made with regard to potential future disputes? What components of the contract , such as pre-tender and post contract advice, risk assessments and delay analysis, should parties evaluate?

statutory adjudication for payment disputes. Singapore is the centre of dispute resolution in the region for arbitration. In addition, Singapore has recently established an International

"The construction industry is a fertile ground for disputes, given its unique characteristics."

Commercial Court. Dispute boards are the core feature of FIDIC-based contracts and will likely continue to grow in popularity and usage. However, unless experienced DAB practitioners are appointed, there is the potential for poor decisions. In this regard, the Persero case, decided in the Singapore courts, considered the issue of enforcement of a DAB decision and ruled that there is an 'inherent premise' that a DAB decision can be enforced by a partial award in arbitration, a ruling that has been subject to much comment and criticism by commentators in other jurisdictions.

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I Muhammad Ehsan Che Munaaim, Hill International Consulting, Inc.

Macl aughlin: The contractual dispute resolution clause should suit the manner in which the parties wish to deal with disputes that may arise during the execution of the project. This could be using tiers of dispute resolution that may include any senior management meetings, early neutral evaluation, the use of a project ORB, or a direct referral to arbitration or the courts. Pre-tender advice on those provisions is essential for the parties to understand


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the options available and to agree the process that best suits how their organisation, both at project and corporate levels, wishes to deal with disputes. In relation to delay, the parties should consider

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with any likely dispute that would arise under their

contract.

Nelson: The practice of putting large carefully the effect of any strict notice requirements infrastructure projects out to 12 contractors to and their ability to comply with these in the fast track tender at a cost of over US$1 m each is astonishingly project environment, the appropriate level of project wasteful. Two-stage selective tendering with a controls on cost and schedule that will stand them requirement for detailed planning, programming in good stead in the event that the effect of a delay and risk assessment up front would leverage event has to be demonstrated for the purposes of off the contractors' expertise coupled with early securing extensions of time. contractor involvement to collaboratively identify

Munaaim: The construction industry is a ferti le ground for disputes, given its unique characteristics. The best way to deal with future disputes is to prepare early, although sometimes at considerable initial cost. This, however, can save future cost and time when disputes are eventually referred to for formal resolution under the contract. Contractors should establish a contract and commercial department at the outset, wh ich during construction, is responsible for monitoring potential events which may escalate into disputes, collating records and preparing documents for submission for resolution under the contract. Employers should appoint a contract administrator in the beginn ing whose main role is to monitor events to prevent them from escalating into disputes during construction. Both parties must also ensure that their dispute resolution provisions are appropriately drafted in accordance


principal constraints and issues together with their proposed solutions and management. Identifying those matters early and aligning the project delivery across all parties to clearly manage those sensitivities would give transparency and assist in the active resolution of the same before they have the potential to generate potential future disputes. Ensuring that the contract structure is appropriate is a given. Applying a project oversight function, whether through a ORB mechanism or a project neutral function which regularly reviews issues as the project progresses, and gives an independent opinion, or if necessary a decision, is an effective approach to assisting the parties in addressing matters when they arise.

Longley: Large and complex projects are now being undertaken in the region but the market in some jurisdictions is presently not sophisticated or experienced enough to deal with them. Tender


documents are sometimes incomplete or contain errors and omissions. Employers may seek to have contractors assume risks that should normally be carried by the employer. Contractors often give insufficient consideration to contract terms and conditions, sometimes leading to the fai lure to recognise the greater risk transfers, the introduction of time-bars - or more usually reducing the time period for the giving of notice. We also see the introduction of complex procedural steps to become entitled to time and or money, among other issues. Therefore, a first step is for contractors to properly

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and fully assess tenders from all aspects - technical, commercial, contractual, legal, time, cost, and so on - as well as more specific issues, including cultural, local legal customs and requirements, worker and visa rules and regulations, importation requirements and the like. However, in my experience, contractors frequently do not sufficiently consider and risk assess all such issues, instead pricing the work but leaving contractual considerations and dispute resolution procedures way down the list of items to check and risk assess.

CD: Have any recent regulatory and legislative changes had an impact on dispute resolution practices within Asia's construction sector?

Munaaim: Some interesting regulatory and legislative changes have recently taken place in Asia with respect to dispute resolution. The introduction of statutory adjudication in Malaysia by way of security of payment legislation has provided an avenue for swift and cost-effective dispute resolution. Hong Kong has also shown

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interest in statutory adjudication, with a government consultation document issued recently. As for international arbitration, legislation was recently amended to permit foreign arbitrators and lawyers to enter Malaysia and participate in arbitral proceedings without a work permit. With its common law tradition, low costs, geographical location and transportation links, Kuala Lumpur will be an attractive alternative seat for international arbitration. As for mediation, Singapore introduced its IMC in 2014 to provide mediation services aimed at resolving cross-border commercial disputes,


which complements its international arbitration centre and increases its dispute resolution offerings to international parties.

Nelson: The sea change legislation introduced into Singapore and Malaysia, with interest being expressed elsewhere, is statutory adjudication. After a slow start in Singapore, that has had the effect of changing the local dispute landscape in both Singapore and Malaysia with a marked increase in the numbers and value of disputes being referred. Established in January 2015, the Singapore International Commercial Court, with 27 'international judges' on its bench, is hearing its first case, which includes a construction dispute, between an Australian and an Indonesian party in Singapore. This is the first of its type and it will be interesting to see how that develops. The ICC Court of Arbitration announced that it will publish the names of arbitrators and who the chairman is; that provides transparency and may affect who parties choose for their case. In addition, the ICC announced that it will reduce the fees paid to tribunals that fail to submit a draft award within three months of the last substantive hearing or post-hearing submission. Tardy arbitrators may see their fees reduced from 5 percent to 20 percent or higher, depending on the length of delay. There is no indication that decisions on whether to reduce fees will be made public but the policy does seek to address a particular issue for parties, an approach which is thought likely to


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spread to other institutions. A recent decision in Singapore's Court of Appeal, PT Perusahaan Gas Negara (Persero) TBK vs. CRW Joint Operation, that a tribunal's interim or partial award on a respondent's obligation to promptly pay the sums in a DAB

decision under the FIDIC Conditions of Contract for Plant and Design-Build 1999 is immediately enforceable under the Singapore International Arbitration Act is set to have a marked impact on the dispute resolution process for construction and infrastructure projects where FIDIC is the default form in use. A claimant can seek enforcement of the DAB decision through an interim arbitral award pending final resolution of the merits of the underlying dispute, which markedly reduces cash flow issues stemming from a potentially long and drawn-out arbitration. While the case is only binding in arbitrations seated in Singapore, the decision is likely to be persuasive elsewhere.

Longley: Malaysia and Singapore now have statutory adjudication that addresses payment disputes, and Singapore has recently established an International Commercial Court. This latter innovation could have far reaching effects if it proves successful in handing down speedy and authoritative rulings. International contracting parties desire certainty in the interpretation and application of provisions, such as contained in the FIDIC suite of contracts, across jurisdictions. Because arbitration proceedings remain private, there is no corpus of



decisions that provides contracting parties with the certainty they desire. If the International Commercial Court can fil l this void, not only will contracting parties be able to enter into contracts with greater certainty as to the interpretation, application and effect of contract provisions, but the decisions and awards handed down by dispute boards and arbitral panels will be also become more consistent.

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may hamper its use. DRBs should be used in large construction projects and are ideally constituted at the start of the project in order for the panel to become accustomed to the characteristics of the project and the parties involved. Early implementation allows parties to utilise the full benefit of the DRB process.

co: In your opinion, how effective are expert panels and dispute review boards (ORB) at resolving construction disputes in Asia? In what circumstances can a well-run ORB assist a construction project?

"The International Commercial Court could have far reaching effects if it proves successful in handing down speedy and authoritative rulings."

Munaaim: The Asian manner of resolving disputes provides a perfect platform for the use of DRBs, a type of nonconfrontational dispute resolution. The Ertan Hydroelectric project is testament to that - 40 disputes were resolved at the DRB stage without further reference to arbitration. There is evidence to suggest that DRBs are gaining momentum and are used in Asia, to some extent, especially in large construction projects. However we have seen, in some cases, parties still prefer domestic, standard forms of contract that simply do not provide for the DRB as a mechanism of dispute resolution and this


Simon Longley, Hill International Consulting, Inc.

Nelson: DRBs, and similar third-party expert oversight, are very effective in providing guidance, opinion or decisions that focus the parties and allow them to resolve issues early and remain focused on the delivery of parties' respective obligations. In light of the Singapore Court of Appeal's decision in the Persero case concerning the enforcement of a DAB decision through an interim arbitral award, where that approach finds favour with other tribunals, that certainty has the potential to underscore DABs


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as a quick and interim dispute mechanism with

enforcement teeth.

Longley: In our experience. dispute boards are very effective at resolving disputes finally, cheaply and quickly, often meaning contracting parties can implement decisions during the currency of a contract - unlike in arbitration where awards often follow the completion of the project and therefore cannot affect ongoing project progress. However. such outcomes are critically dependent on the parties being able to operate the DAB procedures effectively and, more importantly, the DAB members being experienced, qualified and competent to hand down decisions that parties' recognise as being bona fide.

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CD: What general advice can you offer to parties embroiled in a construction dispute in Asia, in terms of managing the process and reaching a timely resolution?

Macl aughlin: Understand the merits of your dispute, the drivers of each of the parties' business decisions in relation to the dispute. and the strength of the records upon which you are reliant. These are the key factors in my experience that will influence how quickly a dispute can be resolved cost

effectively.

Any shortcomings in these dependencies can impair the quality of DAB decisions and give rise to later arbitrations and court cases. such as in the Persero cases. Clearly, parties obtaining training, advice

11Disputes are expensive and represent a tnajor distraction from the party's core businesses."

and support in DAB procedures and in appointing experienced and qualified DAB members would go a long way to addressing these sorts of concerns. Another factor worth bearing in mind is that effective dispute boards are also able to play a dispute avoidance role by giving opinions on issues that could otherwise become disputes.

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Derek Nelson. Hill Construction Consultancy Pte. Ltd.

Munaaim: Disputes can take months. if not years. to be resolved, and it is to both parties' benefit to avoid disputes if possible. Clients should avoid going down the formal dispute resolution route,


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RESOLVING CONSTRUCTION DISPUTES IN ASIA MINI-ROUNDTABLE

but this is not always possible. I think the involved - either direct employment or consultant. Advice on parties have to take a step back from the front line dispute board members, procedures or other ADR to be able to examine the situation objectively. They mechanisms could also be provided, in addition to should obtain advice from lawyers and construction wider training, advisory and expert service offerings. consultants to know where they stand contractually and commercially, so that they will have an idea of CD: How do you envisage the outlook the possible outcomes of their dispute resolution. for construction disputes in Asia? What From there, they can manage their expectations, trends and developments do you expect participate knowledgeably in the process, and work to see in the months and years ahead?

toward the resolution.

Nelson: Disputes are expensive and represent a major distraction from the party's core businesses. Seeking an early independent opinion or evaluation can be invaluable. Parties may find themselves in dispute for years, expending an inordinate amount of time, effort and money trying to resolve the issues between them, which in effect only entrenches their positions. In such cases, an independent review might reveal that a far lower value of the claim is capable of support, allowing the matter to be settled

within weeks.

Munaaim: I predict that multi-million dollar disputes will continue to rise. Given its economic diversification and social infrastructure, many more megaprojects will be introduced in Asia. Existing and future megaprojects will generate bigger and more expensive and complex disputes that simply will not allow parties to negotiate, and because of this,

I foresee that international arbitration will become a common feature in dispute resolution in Asia, given the transnational nature of these projects. 1 also envisage other countries, especially those with common law roots, dipping their toes into statutory adjudication, which would be a positive

Longley: Obtain early independent advice on the development. Adjudication would filter out disputes merits of the issue. Is there a reasonable prospect of leaving those which are not suited for resolution success or not? All too often, a contractor pursues a through a rigid scheme, to be referred to arbitration. weak case, ultimately to the detriment of the project, Hong Kong and Singapore will likely continue to be management time and expense and potential the preferred seats for arbitration in Asia, and Kuala relationships and further work opportunities. If an Lumpur will be waiting in the wings as a rival for issue has merits, then engage professional expertise these seats. to draft a robust claim or dispute submission

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RESOLVING CONSTRUCTION DISPUTES IN ASIA MINI-ROUNDTABLE

Nelson: One size does not fit all. Having a range cancellation and termination of projects is fertile of mechanisms appropriate to addressing the nature ground for disputes. and complexity of the issues between parties will remain key to successfully solving the various business problems faced by parties on projects. Those solutions need to be pragmatic. 1 see an increase in the use of tiered resolution mechanisms in more complex projects. Having bid a project, often against stiff competition, international contractors are increasingly being squeezed between GLC employers and a local procurement chain. How they deal with each is quite different and there is a real danger that they are left holding liability in the middle. In certain sectors, dispute avoidance behaviour is being driven by the oil price and a lack of cash in the sector, which is unlikely to change in the near future; conversely, the postponement,


Longley: I suspect that until the wider Asian market has gained experience in the tendering, award and delivery of major projects there will be multitudes of disputes that will end up in dispute boards, arbitration or court for resolution. Far-sighted parties will seek to improve its chances by obtaining independent expert advice and support, engaging in focused training initiatives and undertaking research in the wider disputes market. However, economic pressures are likely to mean parties persist with unrealistic and overly-optimistic expectations and thus provide the basis for an extensive disputes market. "D


EDITORIAL PARTNER

Hill International

Hill International is a world leader in providing construction claims and consulting services. Public- and private-sector clients have engaged us on some of the world's largest and most complex engineering and construction projects. Over the past four decades, Hill has participated in over 50,000 disputes valued in excess of US$100bn. Today, we are the largest construction claims practice with the most experience and the greatest depth of resources and capabilities in the world. We hire the best professionals, understand our clients' needs and objectives, and make a full commitment to each and every project in which we are involved.


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EDITORIAL PARTNERS

111ll Hi II International

www.hillintl.com

wendy Maclaughlin

senior Vice President London, UK

T: +44 7540 158 226

E: [email protected]

David Merritt

senior Vice President

Oubai, UAE

T: +971 50 265 8664

E: davidmerritt®hillintl.com

Derek Nelson

sen1orVice President

Singapore

T: +65 9182 9350

E: derel<nelson®hillintl.com


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I counsel on arbitration vs. litigation dispUtes in the UK · University Dubai, where he teaches claims, FIDIC contracts and dispute resolution in the MSc in construction Project