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8/3/2015 Print preview http://www.kluwerarbitration.com.nlud.remotexs.in/CommonUI/print.aspx 1/230 Source Acknowledgement to the Second Edition in Jane Jenkins , International Construction Arbitration Law (Second Edition), Arbitration in Context Series, Volume 3 (© Jane Jenkins; Kluwer Law International 2013) pp. xvii xviii Simon Stebbings my coauthor of the first edition having retired from Freshfields Bruckhaus Deringer, I have taken forward the task of updating the book to produce this second edition. I would like to thank the members of the Freshfields' Engineering and Construction team who helped including (in no particular order) Elizabeth Wilson, Jane Davies Evans (of Counsel), Kim Rosenberg, Deepa Khandhia, Tom Hutchison, Vanessa Medina and Julia Horbach in London, Dr Martin Eimer based in Munich and colleagues in New York and MENA. Thanks also to my PA Debbie Rhoden and the document specialists in London for producing the text. The second edition updates the first to reflect revisions to arbitral rules, standard form contracts and key legal decisions. As with the first edition the aim is not to attempt a comprehensive legal analysis but instead to provide a practical guide to international construction arbitration law. Indeed given the international nature of construction and engineering projects it would not be possible to produce a comprehensive text without conducting a comparative review of different legal systems and how they approach key substantive and procedural issues. Such an exercise is outside the scope of this book. Illustrations, however, have been provided under English, German and other systems of law by way of example of the differing results that may arise under different governing laws and different local laws. The reader will appreciate that it is dangerous to assume that an identical contract under one system of law will have the same effect when governed by another system of law for a project executed in a different location. Local law advice is always essential as is a proper appreciation of the impact of choice of the governing law of the contract and of the seat of the arbitration. Annexes which appeared in the first edition which are readily available on the Internet have been removed from the second edition and replaced by flowcharts to show the stages in standard form contract dispute resolution procedures, the procedural stages of arbitrations under the ICC, LCIA and UNCITRAL rules and to provide some outline example documents. The latter are provided as illustrations only and are not a substitute for legal advice in the context of any specific project or dispute. page "xvii" Simon and I were very pleased by the success of the first edition and I hope that the second edition provides a useful update and valuable guide for those encountering the subject for the first time. Jane Jenkins London, September 2013 Source Chapter 1: Introduction in Jane Jenkins , International Construction Arbitration Law (Second Edition), Arbitration in Context Series, Volume 3 (© Jane Jenkins; Kluwer Law International 2013) pp. 1 12 §1.01. What Is Special about International Construction Disputes? Why is a book devoted to construction arbitration required? What differentiates construction contracts from any other commercial agreements? In essence, why are international construction disputes special? We suggest that a number of issues differentiate construction disputes from others and have given rise to particular practices being adopted to assist in the resolution of such disputes. First, construction disputes are frequently technically complex, requiring fact intensive investigations which necessitate efficient management of the claims process. Guidance has been developed by arbitral institutions focused specifically on suitable procedures for construction disputes. For example, the ICC has published a Report on Construction Industry Arbitrations, recognising that particular practices and procedures assist in the effective case management of such disputes. In the authors' view, it is helpful to focus at the stage of contract drafting on the means to facilitate the early resolution of disputes and efficient contract administration. In the event that the parties are unable to settle a dispute in advance of arbitration, efficient contract administration can only help in presenting evidence before the arbitral tribunal. A second relevant feature is that construction disputes invariably Acknowledgement to the Second Edition Chapter 1: Introduction

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Acknowledgement tothe Second Edition inJane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. xvii ­ xviii

Simon Stebbings my co­author of the first edition having retiredfrom Freshfields Bruckhaus Deringer, I have taken forward the taskof updating the book to produce this second edition. I would like tothank the members of the Freshfields' Engineering and Constructionteam who helped including (in no particular order) Elizabeth Wilson,Jane Davies Evans (of Counsel), Kim Rosenberg, Deepa Khandhia,Tom Hutchison, Vanessa Medina and Julia Horbach in London, DrMartin Eimer based in Munich and colleagues in New York andMENA. Thanks also to my PA Debbie Rhoden and the documentspecialists in London for producing the text.

The second edition updates the first to reflect revisions to arbitralrules, standard form contracts and key legal decisions. As with thefirst edition the aim is not to attempt a comprehensive legalanalysis but instead to provide a practical guide to internationalconstruction arbitration law. Indeed given the international nature ofconstruction and engineering projects it would not be possible toproduce a comprehensive text without conducting a comparativereview of different legal systems and how they approach keysubstantive and procedural issues. Such an exercise is outside thescope of this book.

Illustrations, however, have been provided under English, Germanand other systems of law by way of example of the differing resultsthat may arise under different governing laws and different locallaws. The reader will appreciate that it is dangerous to assume thatan identical contract under one system of law will have the sameeffect when governed by another system of law for a projectexecuted in a different location. Local law advice is alwaysessential as is a proper appreciation of the impact of choice of thegoverning law of the contract and of the seat of the arbitration.

Annexes which appeared in the first edition which are readilyavailable on the Internet have been removed from the secondedition and replaced by flowcharts to show the stages in standardform contract dispute resolution procedures, the procedural stagesof arbitrations under the ICC, LCIA and UNCITRAL rules and toprovide some outline example documents. The latter are providedas illustrations only and are not a substitute for legal advice in thecontext of any specific project or dispute.

page "xvii"

Simon and I were very pleased by the success of the first editionand I hope that the second edition provides a useful update andvaluable guide for those encountering the subject for the first time.

Jane Jenkins

London, September 2013

Source

Chapter 1: Introductionin Jane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 1 ­ 12

§1.01. What Is Special about International ConstructionDisputes?

Why is a book devoted to construction arbitration required? Whatdifferentiates construction contracts from any other commercialagreements? In essence, why are international constructiondisputes special? We suggest that a number of issues differentiateconstruction disputes from others and have given rise to particularpractices being adopted to assist in the resolution of such disputes.

First, construction disputes are frequently technically complex,requiring fact intensive investigations which necessitate efficientmanagement of the claims process. Guidance has been developedby arbitral institutions focused specifically on suitable proceduresfor construction disputes. For example, the ICC has published aReport on Construction Industry Arbitrations, recognising thatparticular practices and procedures assist in the effective casemanagement of such disputes. In the authors' view, it is helpful tofocus at the stage of contract drafting on the means to facilitate theearly resolution of disputes and efficient contract administration. Inthe event that the parties are unable to settle a dispute in advanceof arbitration, efficient contract administration can only help inpresenting evidence before the arbitral tribunal.

A second relevant feature is that construction disputes invariably

Acknowledgement to the Second Edition

Chapter 1: Introduction

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necessitate a rapid, if temporary, decision in order to permit work toprogress on the project. It is in the interests of all parties thatcompletion should be achieved on time or at least at the earliestpossible opportunity and recourse to a lengthy arbitration to decidequestions necessary for completion of the works, such as thecorrect technical solution to overcome design problems, is clearlynot practical. This has given rise to the increasingly important roleof dispute review boards in resolving disputes at the first instance.

A further complicating factor is that construction projects invariablyinvolve many parties. The method of procurement adopted mayintroduce a fragmentation of responsibilities, for example, for designand fabrication of particular equipment. Even page "1" where aturnkey arrangement is adopted with one contractor accepting singlepoint responsibility for design and construction of the project, therewill be subcontractors and suppliers involved in chain contractsbelow the turnkey contract. The methods for resolving disputes willideally contemplate joinder or consolidation of related proceedingsand the management of the interfaces between the contracts is animportant role for a contract administrator. The use of projectfinance on international projects introduces an added layer ofcomplexity, as the interests of lenders and other credit providershave to be taken into account. Lenders may, for example, have theopportunity to step into a project in the event of threatenedtermination of the principal project agreements. There will no doubtbe reporting requirements to lenders and also insurers as to thestatus of disputes and they may be entitled to dictate or influencethe manner in which claims are presented and pursued.

A related issue is the involvement on major internationalconstruction projects of parties from different jurisdictions withdifferent cultural approaches, and indeed with different legalsystems. They will come to a project with different expectationsperhaps both as to the effect of their substantive rights under thecontract and also as to the treatment of disputes as and when theyarise. These are aspects that anyone dealing with disputes needs tobe aware of, and that will be of particular relevance in any formaldispute resolution procedure where, for example, the contrastingapproaches of civil and common law jurisdictions to proceduralissues may give rise to difficulties if not effectively managed.

Another factor to bear in mind when approaching constructiondisputes is the influence of the widespread use of standard forms inthe industry. Parties may choose to use a standard form, typicallymaking amendments to tailor the form to the project in question, orthey may use the standard form as the starting point for drafting abespoke contract.

Some standard forms have been in use for many years and havebeen litigated from time to time. Certain provisions may thereforehave a well­settled meaning under the governing law of the contractin question. For instance, English courts have ruled on the meaningof ‘contemporary records' in clause 53 of the FIDIC Conditions ofContract for Works of Civil Engineering Construction (4th Edition),(1)on the employer's power of forfeiture under clause 63 of the FIDICConditions of Contract for Works of Civil Engineering Construction(2nd Edition),(2) on the liability of the employer's engineer to thecontractor under clauses 60 and 67 of the FIDIC Conditions ofContract for Works of Civil Engineering Construction (2nd Edition),(3)on valuations for extra work under clause 52(1)(b) of the ICEConditions of Contract (6th Edition),(4) and on the scope ofunforeseen physical conditions falling within clause 12 of the ICEConditions of Contract (5th Edition).(5)

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Any such interpretations however, may not apply where thegoverning law is other than English law or a legal system derivedfrom English law. It is not uncommon for parties to negotiate acontract on the assumption that, say English law will be thegoverning law only to change the governing law provision in the finalstages of negotiation. It is critical then to reassess the meaning ofthe contract under the new choice of law.

In addition, arbitral decisions, although not binding precedent, mayalso provide a useful guide to interpretation. Summaries or extractsfrom ICC awards are published on a no­names basis in specialistjournals including the ICC International Court of Arbitration Bulletin,Yearbook of Commercial Arbitration, Journal du droit internationaland Revista de Derecho Internacional y del Mercosur.(6)

Major contractors and clients have considered applying the samesystem of law to all of their projects irrespective of the place ofexecution to achieve uniformity in the assessment and evaluation ofkey risks and administration of the contracts. This approach whileappearing superficially attractive has its drawbacks.

First there will almost certainly be local laws that will apply to thecontract execution the effect of which have to be assessed on aproject specific basis, for example, health and safety, planning andpermitting. Such regulatory issues are frequently, in the authors'experience, significant causes of delay to the project. This isparticularly the case where a regulatory system is untested, suchas in nuclear new build projects where there remain significantdifferences between the regulatory regimes for the grant of designand construction permits.

Second the very terminology used in the contract may have a

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different meaning under different legal systems. Examples includethe meaning of consequential loss under English and German law –discussed further in Chapter 2. The German courts indeed haveconcluded that the choice of English language to write the contracteven where the governing law is German law may have the effect ofimporting English law concepts into the contract depending on allthe circumstances.(7)

Third the latitude for strict enforcement of contractual rights differsunder common and civil law. Taking German law as an example acontractor must be given the right to repair defects before damagesmay be claimed. There is no such obligation on an employer underEnglish law although it is very common, of course, to grant theemployer the right under a construction contract to require thecontractor to return to the site to make good defects during thedefects liability period. Another example is the ability for a thirdparty to enforce a contract made for its benefit which gives rise tothe thorny doctrine of privity of contract which has been onlypartially reformed by the Contracts (Rights of Third Parties) Act1999. The inflexibility of English law in this regard can come as ashock to civil lawyers who may assume contracts made, forexample, by parent companies can be enforced by subsidiaries.

Equally important are pre­contractual obligations and remedies. Theparties may agree heads of terms or a letter of intent but thennegotiations may not lead to final page "3" agreement on thedetailed contract terms and conditions. The general position underEnglish law is that an agreement to agree is unenforceable and thecourts or arbitral tribunal will not fill gaps or police the negotiationsby the parties. By contrast under German law, for example, aremedy in damages may be available if a party has a legitimateexpectation that a contract will be concluded.

In the authors' experience of advising on the negotiation ofcontracts, it is important to check the parties fully understand theimplications of adopting a particular system of law and do notproceed on the assumption that because the contract has the samewritten terms and conditions it must have the same meaning andeffect irrespective of the chosen governing law. This is a dangerousassumption and one that time and time again results inmisunderstandings in the administration and execution of thecontract which may lead to expensive and protracted disputes.

Another feature differentiating construction contracts from othercommercial agreements is the impact of sector­specific legislation,which addresses particular practices relevant to the constructionindustry. An example is the UK Housing Grants Construction andRegeneration Act 1996 (the UK Construction Act 1996) whichoutlaws pay­when­paid provisions, introduces a right to stop workfor non­payment and a right for disputes under constructioncontracts to be referred to fast­track adjudication. Similar legislationhas recently been adopted in Singapore – the Building andConstruction Industry Security of Payment Act 2004.

A hostile local environment may give rise to legal as well astechnical challenges. The absence of a sophisticated legal systemmay undermine legal devices adopted readily in other jurisdictions,such as the means of providing security to lenders, presenting theneed for novel techniques to be adopted. These may provide afertile source of disputes when projects run into difficulties.

The factors addressed above appear and reappear throughout thisbook, providing the rationale for practices adopted for effectivedispute resolution or, perhaps, the reason disputes arise in the firstplace. They demonstrate why construction disputes justify, andindeed require, a particular treatment that differentiates them fromother commercial and contractual disputes.

§1.02. The Aims of This Book and Its Scope

This book is designed to provide a practical guide to disputeresolution under construction contracts. The majority of its focus ison arbitration as a means of resolving construction disputes. As astarting point, however, Chapter 2 provides a basic introduction tothe key features of a construction contract, with a view to settingthe scene and identifying the issues which commonly give rise todisputes. Examples of standard form provisions are given by way ofillustration.

In Chapter 3 the issue of dispute avoidance and dispute resolutionis addressed, looking at the different techniques available forresolving disputes. In every project the client will want to see thework delivered on time and within budget. The client's financiers,whether lending to the client or to the project (in the case of public­private partnerships and project­financed projects) have a similarinterest, often with the page "4" additional concern of ensuringthat the project generates the anticipated revenues within the periodover which the finance is to be repaid. Contractors, particularlywhere they are involved only as contractors and not also as equityparticipants (as is commonly the case in project­financed projects),are looking to maximise cash flow and the profit to be earned in theconstruction of the project. All have a keen interest in seeingdisputes resolved swiftly so as not to disrupt or delay theconstruction process, to improve cash flow and maximise returns.

However, it may be that swift solutions to disputes are at theexpense of a comprehensive and rigorous review of all relevantcircumstances and the consequences flowing from the events in

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question. This lack of rigour may be acceptable for low valuedisputes but will not usually be suitable for larger and moreimportant disputes. It is common, therefore, to see a tieredapproach to dispute resolution, with the parties agreeing to a seriesof fast track procedures which are either non­binding or which haveonly interim effect. Arbitration or litigation is then the last step in theprocess leading to a final and binding decision if the parties fail toachieve an acceptable resolution to their problem.

Increasingly, the approach taken by standard form contracts in useinternationally is to incorporate multi­tiered dispute resolutionprovisions providing for intermediate stages with arbitration as thefinal tier.

Negotiations at a senior level may be expressly provided for as acondition precedent to service of any formal notice of dispute.Thereafter dispute review boards, being essentially a panel ofexperts, have taken the place in many cases of the engineer inresolving disputes at first instance. Typically, the decision of adispute review board is binding unless and until challenged inarbitration or, rarely in international projects, litigation. Multi­tiereddispute resolution provisions are considered in Chapter 3, along withthe advantages and disadvantages of arbitration and litigation (withthe balance falling fairly decisively in favour of arbitration as thefinal tier of dispute resolution on international projects).

In the authors' view, it seemed important also to cover the effectiveadministration of construction contracts and claims management.Tools for effective contract administration and claims managementare therefore addressed in Chapter 4, including suggestedprovisions to include in contracts in order to facilitate claimshandling. This chapter also considers partnering and alliancingtechniques, which are proving increasingly popular as a means ofestablishing joint working between clients, contractors and supplierswith a view to solving disputes at the project level without the needfor recourse to formal dispute resolution.

Chapter 5 focuses on proceedings before dispute review boards orexpert panels. As noted above, these are now commonly seen instandard form construction contracts as the first tier of bindingdispute resolution techniques, being binding only on an interim basisunless and until revised by arbitration. Typical procedures beforedispute review boards are considered and the relevant proceduralrules compared. The chapter also comments on how to approachthe preparation of references tactically.

The decisions of dispute review boards or expert panels will not beenforceable in the same way as an arbitral award. Instead, they arebinding only on the basis of the parties' contractual agreement.Accordingly, in the event of default in compliance by a page"5" losing party a claim for breach of contract would have to bepursued – a more cumbersome and costly process thanenforcement of arbitral awards. In the context of attempts to enforcethe decisions of dispute review boards, we look at grounds forattack of such decisions, an issue of great significance in the eventthat the parties have agreed in advance that certain decisions shallbe final.

Chapter 6 considers mediation, conciliation and other forms ofalternative dispute resolution. Such techniques for alternativedispute resolution are becoming increasingly popular, certainly incommon law jurisdictions. Cost orders may be made by courts inthe US or the UK for example, against parties who have refused toparticipate in such proceedings. The impetus behind thisdevelopment is to avoid the costs and delay associated with thehearing of a complex construction dispute. Perhaps it is becauseprocedures in civil law systems are more streamlined that mediationis not seen so often in such jurisdictions. In international projects,however, in the authors' experience, it is increasingly being usedand with reasonable success.

Chapter 7 then turns to arbitration and the steps for commencementof arbitration proceedings. First, we look at the selection of thetribunal and the procedure for agreeing on a sole arbitrator or theappointment of two nominated arbitrators and a third to act aschairman. Where institutional arbitration has been selected by theparties, Chapter 7 looks at the role that the institutions play in theappointment of the tribunal. It also considers the duties ofarbitrators and grounds for challenge on the basis of impartiality orconflict of interest. The need for joinder of related disputes(involving third parties) is considered, together with consolidation(where the same parties are involved in related disputes which maypotentially be heard before different tribunals). The aim, obviously,is to try to avoid multiplicity of proceedings and to bring the sameissues before the same tribunal to avoid the risk of increased costsand inconsistent decisions. While the domestic courts in mostsophisticated legal systems will have powers to order joinder of thirdparties to proceedings and consolidation of existing proceedings,this is not the case in arbitration. As arbitration is a consensualprocess based on the agreement of the parties, any sucharrangements need to be by consent, either by including appropriateprovisions in the contract from the outset or by achieving consentas and when disputes arise (which may be more difficult if joinder isperceived not to be in the interests of one or more of the relevantparties at such time).

Chapter 7 then addresses the form of a typical request forarbitration. It considers the basic information to be included in such

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a document having regard, where relevant, to the rules of the widelyused institutions. The chapter then considers the early selection ofthe parties' lawyers.

In Chapter 8 we consider the importance of effective casemanagement in the arbitration, addressing the powers of the tribunalto control the proceedings in default of, or sometimes as an adjunctto, the agreement of the parties. Reference is made to theUNCITRAL, ICC, LCIA and AAA arbitration rules and also to theUNCITRAL Model Law. Examples are also given from selectedjurisdictions in relation to the role of the domestic courts insupporting the arbitral process in default of agreement by theparties.

page "6"

Chapters 9 and 10 look at the preparation and collection ofevidence. Chapter 9 provides a general summary, looking at thevalue of a chronology, document management, technical evidence,the use of so­called Scott schedules (which essentially set out allrelevant particulars of a claim in tabular form) and the evidencerequired for common construction claims, including possibleapproaches to the quantification of claims. Chapter 10 then focusesspecifically on programme analysis, looking at the role of theprogramme, critical path analysis, questions of concurrent delayand the issue of ownership of ‘float’ in the programme.

Procedural issues are then addressed in Chapter 11. A topic ofgreat interest to arbitrators over recent years is the‘internationalisation’ of arbitration: the coming together of the mostuseful elements of civil and common law procedural approaches.These issues are addressed in the context of the preparation ofevidence, cross­examination of witnesses, expert reports and theextent of document disclosure. Typical procedural directions arethen addressed, with suggestions as to additional issues that maybe relevant, including identification of any preliminary issuessuitable for early determination, security for costs, interim measuresand site visits.

In Chapter 12 we consider the conduct of the hearing, including thelikely timing, the division of issues, the presentation of submissionsand the taking of evidence, as well as essential logisticalconsiderations.

Chapter 13 addresses the effect of the award, potential grounds forchallenge and enforcement of the award.

Chapter 14 is a new chapter in the second edition of the book whichdevelops a topic touched on in the first edition but which isbecoming increasingly important, that is, the role played byinvestment treaties in international construction projects. Oftenoverlooked, such treaties (be they multilateral or bilateral) provideparties with recourse to arbitration against a host nation stateabsent a contractual arbitration agreement. They provide a valuablemeans of investor protection and are a useful adjunct to contractualremedies.

Finally we sum up and present some conclusions, with commentson possible future developments in construction contracting anddispute resolution.

§1.03. The Intended Audience

It will perhaps be apparent from the above introduction that thiswork is designed to provide guidance to those unfamiliar orinexperienced in the workings of construction contracts and meansof dispute resolution. It is aimed at in­house lawyers who may havemany years experience as commercial contract negotiators buthave not had to live through a construction dispute nor manage aconstruction contract during the life of a project. We hope thatlawyers in private practice embarking on a construction dispute forthe first time will also find this book of value.

page "7"

§1.04. A Practical Guide

The aim in drafting this book is to provide a practical guide. Whererelevant, checklists and executive summaries of key points aregiven. Annexes provide relevant supporting material includingoutline example documents for use in arbitration.

This work is intended for an international audience. Its authors areboth English trained lawyers but who work on internationalconstruction projects. Increasingly in our experience techniques fordispute resolution are becoming ‘internationalised’ although, ofcourse, parties must always beware the idiosyncrasies of thegoverning law and local law. Local law, for example, may restrict theparties' freedom to agree dispute resolution procedures of theirchoice. It may instead impose compulsory adjudication as the firsttier of dispute resolution for certain types of construction contracts.It comes as a surprise to many international participants inconstruction projects taking place in England, Wales and Scotland,that there is legislation imposing mandatory fast­track adjudicationfor disputes arising under construction contracts (see furtherChapter 5). This work does not and cannot attempt to address allsuch regimes that may apply on international projects: examples of

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English law procedures and rules are provided as examples only, toflag up the sometimes surprising results of choice of governing law,seat of arbitration or location of the project in question.

Standard form contracts used on international constructioncontracts are cited, again to provide illustrations and examples.Those referred to most frequently are the standard forms publishedby the Fédération Internationale des Ingénieurs­Conseils (FIDIC),the Engineering Advancement Association of Japan (ENAA), theInstitution of Civil Engineers ICE and the American Institute ofArchitects (AIA). Each of these is briefly addressed below.

[A]. FIDIC Conditions of Contract

FIDIC was created in 1913 by Belgium, France and Switzerland andrepresents national associations of consulting engineers. The UKbecame in a member in 1949 and the US followed in 1958. FIDIC'smembership is currently drawn from ninety­four countries acrossfive continents. Recent joiners whose membership was ratified atthe General Assembly meeting in Seoul, South Korea in September2012 include Chile, Columbia, Peru, The Dominican Republic andThailand. In addition, various organisations representing non­engineering/construction professionals, such as lawyers andinsurers, who nevertheless have an interest in the field, haveaffiliated member status. FIDIC maintains its secretariat in Geneva,Switzerland.

FIDIC published its first standard form in 1957, the Conditions ofContract for Works of Civil Engineering Construction (old RedBook). The Conditions of Contract for Electrical and MechanicalWorks (old Yellow Book) followed in 1963. In 1995, the Conditionsof Contract For Design­Build and Turnkey (Orange Book) wasreleased.

From the start, FIDIC's standard forms were intended for use onprojects with an international dimension. For example, the old RedBook was based on UK standard conditions of contract and was foruse on the various development projects being page"8" undertaken by British and other engineers in the Commonwealthas well as other jurisdictions.(8)

In the late 1990s, FIDIC carried out a major overhaul of all of itsstandard forms and released a suite of four contracts in 1999 toreplace the previous contracts. The new suite of contractsconsisted of three standard forms for major works and one for minorworks:

– Conditions of Contract for Building and Engineering WorksDesigned by the Employer (Red Book).

– Conditions of Contract for Plant and Design­Build for Electricaland Mechanical Plant, and for Building and Engineering WorksDesigned by the Contractor (Yellow Book).

– Conditions of Contract for EPC/Turnkey Projects (Silver Book).– Short Form of Contract (Green Book).

The Red Book replaces the old Red Book and is for use on all typesof projects where the main responsibility for design lies with theemployer. Today, FIDIC's Red Book, albeit an amended version,remains the first choice of all major international development banksand agencies for use as general conditions of contract on aconstruction project financed by them.(9) These institutions includethe Asian Development Bank (ADB), African Development Bank(AfDB), Caribbean Development Bank (CDB), Commission of theEuropean Communities (CEC), European Bank for Reconstructionand Development (EBRD), European Investment Bank (EIB), Inter­American Development Bank (IDB), International Bank forReconstruction and Development (IBRD) and the United NationsDevelopment Programme (UNDP).

The Yellow Book is based on the old Yellow Book and Orange Bookand is intended to replace both.

The Silver Book is a relatively new standard form added to theFIDIC contract suite and is meant to cater for the growing trend inthe international market for projects where the contractor bearsmore risk (at extra cost to the employer) and a more definite finalprice and completion time is agreed from the outset.

The Green Book is another new standard form from FIDIC and isdesigned for use on non­complex international projects such as ruralroads, water supply, sewage disposal, and electricity transmissionin developing countries. The Green Book can be used irrespectiveof whether the employer or contractor is carrying out design orwhether payment is on a lump sum or other basis.(10)

page "9"

[B]. ENAA Model Forms

ENAA is a non­profit making organisation, established in August1978, supported by the Ministry of International Trade and Industry(MITI) of Japan and various other national and local governmentagencies, universities and research organisations. The Associationhas the support of over 1,500 specialists from member companies,as well as various experts in their respective fields.

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In 1986, the ENAA developed a turnkey style contract designedspecifically for process plant construction called the Model FormInternational Contract for Process Plant Construction. The modelform was subsequently revised and a third edition was published inMarch 2010 (ENAA Process Plant Model Form 2010). The formconsists of five volumes: Form of Agreement and GeneralConditions (Volume 1, 2010 ed.), Guide Notes, Samples ofAppendices to the Agreement (Volume 2, 1992 ed.), WorkProcedures (Volume 4, 1992 ed.) and Alternative Form for IndustrialPlant – Without Process License (Volume 5, 1992 ed.). The formcontract is meant for use in connection with the design andconstruction of process plants using the turnkey approach.(11)

In 1996 the ENAA published the Model Form International Contractfor Power Plant Construction (ENAA Power Plant Model Form1996),a turnkey contract for the construction of power plants. The 1996model form consists of three volumes: Form of Agreement andGeneral Conditions (Volume 1), Samples of Appendices to theAgreement (Volume 2) and Guide Notes (Volume 3).

[C]. ICE Standard Forms

The ICE was established in 1818 and is based in the UK. The ICEdraws its membership from over 70,000 professionally qualified civilengineers in the UK, China, Russia, India and 140 other countries.The ICE publishes the New Engineering Contract (NEC) and (until2011) published the ICE Conditions of Contract.(12)

[1]. The New Engineering Contract

The New Engineering Contract was first published by the ICE in1993 and was subsequently renamed as the Engineering andConstruction Contract (ECC). A third edition (NEC3) was publishedin 2005 and was recently revised in April 2013. The term ‘NEC3' isnow used to refer to the whole suite of contracts which includes theECC as well as a subcontract, a professional services contract, anadjudicator's contract, a page "10" short contract, a shortsubcontract and the NEC partnering option. The ECC is the relevantcontract for international construction projects. The ECC isdesigned for use in:

­ engineering and construction work whether civil, electrical,mechanical or building work;

­ projects whether the contractor has full, partial or no designresponsibility; and

­ UK and international projects.

The ECC also allows a choice for a choice of six contractstrategies: Option A – Priced contract with activity schedule; Option– B Priced contract with bill of quantities; Option C – Targetcontract with activity schedule; Option D – Target contract with billof quantities; Option E – Cost reimbursable contract; and Option F –Management contract.

[2]. The ICE Conditions of Contract

The ICE Conditions of Contract are standard forms drafted by theConditions of Contract Standing Joint Committee (CCSJC) for useon civil engineering works. The CCSJC comprises representativesfrom the ICE, the Civil Engineering Contractors Association (CECA)and the Association of Consulting Engineers (ACE). The suiteconsists of:

­ Measurement Version 7th Edition.­ Design & Construct 2nd Edition.­ Term Version 1st Edition.­ Minor Works 3rd Edition.­ Partnering Addendum.­ Tendering for Civil Engineering Contracts.­ Agreement for Consultancy Work in Respect of Domestic orSmall Works.

The ICE Design & Construction Conditions of Contract (ICE D&C) isthe most relevant to international construction projects.

[D]. AIA Standard Forms

The AIA is a national association of architects founded in 1857. TheAIA has over 125 years of experience creating standard forms,publishing its first uniform contract for use between an owner and acontractor in 1888. In 1911, the AIA published its first standardgeneral conditions for construction, the precursor of the A201­2007General Conditions of the Contract for Construction discussed inmore detail below. The AIA contracts are now a standard in theconstruction industry of the United States. The A141­2004Agreement between Owner and Design­Builder and A201­2007General Conditions of the Contract for Construction are the twomain standard forms used on construction projects.

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[1]. A141­2004 Agreement between Owner and Design­Builder

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The A141­2004 Agreement between Owner and Design/Builder(A141) is intended for use where the employer contracts directlywith one entity for both design and construction services. It is atwo­part agreement, evolving the project and the design through twoseparate contracts, one for preliminary design and budgeting andone for final design and construction. The first is used to map outthe design and pricing of the project, while the second providesconstruction arrangements where the employer decides to moveforward with the project.

[2]. A201­2007 General Conditions of the Contract forConstruction

The A201­2007 General Conditions of the Contract for Construction(A201) is for use where the design responsibility belongs to thearchitect, as distinct from the contractor. The A201 sets out therights and obligations of the employer, contractor and architect.Though the architect is not a party to the construction contract, henevertheless participates in the preparation of the contractdocuments and performs certain construction phase duties andresponsibilities described in detail in the A201. Supplementaryconditions are usually added to amend or supplement portions ofthe A201 as required by the exigencies of a particular project.

1 Attorney General for the Falkland Islands v. Gordon ForbesConstruction (Falklands) Ltd (No. 2) [2003] BLR 280.2 Mvita Construction Co Ltd v. Tanzania Harbours Authority [1989]46 BLR 19.3 Pacific Associates Inc. v. Baxter [1988] 44 BLR 33.4 Henry Boot Construction Ltd v. Alstom Combined Cycles Ltd[2000] BLR 247.5 Humber Oil Terminal Trustee Ltd v. Harbour and General Works(Stevin) Ltd [1991] 59 BLR 1.6 Comprehensive annual lists of ICC awards published, the namesof journals and various languages of publication are available at: http://www.iccdrl.com/ (accessed 10 Sep. 2013).7 Federal Supreme Court, decision of 2 Dec.1991, file no.11ZR274/90 (NJW­RR 1992, 423 seq).8 See Chris Wade, An Overview of FIDIC Contracts, notes frompresentation at an ICC­FIDIC conference in Paris (April 2004).9 For example, see the World Bank's Standard Bidding Documentfor Procurement of Works (March 2012) available at: http://siteresources.worldbank.org/INTPROCUREMENT/Resources/Works­EN­22­March12_Rev5.pdf (accessed 10 Sep. 2013).10 See Wade, Overview of FIDIC Contracts.11 Eng. Advancement Ass. Japan, Model Form InternationalContract for Process Plant Construction vol. 3, 1 (2d ed. ENAA1992).12 The ICE officially withdrew from the ICE Conditions of Contractin August 2011 and this form of contract has been replaced by theInfrastructure Conditions of Contract. Although we understand thatthe ICE Conditions of Contract is still in use, we anticipate that theuse of this contract will become increasingly rare.

Source

Chapter 2: KeyFeatures ofConstruction Contractsin Jane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 13 ­ 48

§2.01. Introduction

The aim of this chapter is to provide an introduction to the shapeand structure of a construction contract, with particular attentionpaid to those features that commonly give rise to disputes. Itfocuses on the key players and key provisions that constructioncontracts usually contain. It also considers the role of ancillarydocuments such as bonds and guarantees which, if they do not playa central role, are often an important part of the background facts ormotivation for a dispute. Demands may trigger commencement ofan arbitration either to prove entitlement to claim security wherebonds are conditional or to recover sums paid under on­demandinstruments.

§2.02. Key Players

The obvious starting point is the client, who is sometimes referredto in construction contracts as the ‘employer’ (or the ‘principal’ or‘owner’). The employer may be, for example, a developer, agovernment or state entity, an investor or an end­user.

Next there is the ‘contractor’ who builds and possibly designs, ormanages, the construction process. These various roles arediscussed later in this chapter.

Chapter 2: Key Features of ConstructionContracts

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The main or prime contractor typically subcontracts some or all ofits work to ‘subcontractors' (either chosen by the contractor ornominated by the employer). It may also enter into contracts with‘suppliers' for the supply of equipment or materials.

There will also be a design team, the membership of which willdepend upon the type of project.

§2.03. Key Documents in a Construction Contract

Construction contracts are often voluminous and consist of manydocuments of different origin, authorship and development. Thestandard documents forming a construction contract are: page"13"

­ Articles of agreement – These are usually only a few pages longand set out the names of the parties with a brief description of theproject. The articles incorporate the conditions of contract uponwhich the parties are to carry out the project. Sometimes thearticles of agreement (or also ‘contract agreement’) and the‘conditions of contract’ may form a single document.

­ Conditions of contract – These contain the bulk of thesubstantive clauses of the contract. Their content depends uponthe contractual structure chosen for the project. Typicalstructures are addressed in the next section of this chapter.

­ Specification – The specification sets out the projectrequirements. Specifications fall into two main categories,although a single document may contain elements of both. A‘technical specification’ sets out the actual technical criteria ofthe project (methods of construction etc). This type ofspecification often accompanies the contract drawings. It canusually be found in a ‘build­only’ contract where the design of theproject is largely complete before the contract is entered into. Theother form of specification is a ‘performance specification’, whichusually forms part of a ‘turnkey’ contract as it sets out thestandard of outputs that the constructed project must achieve.

­ Drawings – In an ideal world the drawings incorporated in a ‘build­only’ contract should be the construction stage or ‘as forconstruction’ drawings which means that the contractor can buildthe project straight from the drawings supplemented by moredetailed elaboration produced by the contractor or itssubcontractors and suppliers. Quite often, however, the contractdrawings even in a build­only contract are not at such anadvanced stage and therefore subsequent revisions are issued.Each time a drawing is issued there is usually something toindicate that it is a revision and the relevant amendment is notedeither in a box on the drawing or on the drawing itself (e.g., by acircle around the affected area). In turnkey and constructionmanagement contracts, any contract drawings will usually showonly an outline design as the detailed design is carried outpursuant to the contract.

­ Bill of Quantities – This document is more common in smallprojects, however it may also appear in large internationalprojects, for example, as a tool to value variations. It identifiesthe quantity of each item of material that is required in order toconstruct the project. Sometimes a contract may refer to anapproximate bill of quantities if the design is far from finalised atthe time the contract is entered into. A bill of quantities usuallycontains a section called the preliminaries where the siteconditions and restrictions under which the works are to becarried out will be set out. These may not appear anywhere elsein the contract documentation but can be critical limitations onthe contractor's manner of performance.

­ Contract Price Analysis – Some form of breakdown of the price isusually also found in lump sum turnkey contracts for largeinternational projects. It is to be distinguished from a bill ofquantities in that it merely provides a tool for the employer todouble­check whether or not the contractor's calculation of theprice is broadly in line with anticipated project costs. This ‘sanitycheck’ also is an important aspect in lenders' assessment of theproject's risks and page "14" ‘bankability’ that is to providecomfort that completion can be achieved within the debt to equityfunding ratios. Other than a bill of quantities a contract priceanalysis or breakdown does not, however, have any bindingeffect on the pricing where actual quantities exceed those initiallycontemplated or additional works are instructed unless agreedotherwise by the parties.

Given the different origin, authorship and development of thesedocuments, it is not uncommon to find that a construction contractis internally inconsistent (or ambiguous) and, in the absence of awell­drafted precedence clause, disputes frequently involveresolution of competing clauses. For example, a common problemis where a technical specification prepared early in the life of aproject by a consultant engineer contains substantive clauses thatcontradict the conditions of contract prepared much later, based ona standard form or by a lawyer who is never shown the technicalspecification. Another is where the specification envisagesprocedures for design development that are inconsistent with theconditions of contract. Of course such inconsistencies shouldideally be addressed and removed or reconciled before the contractis executed. Best practice is for lawyers to work with the technicalexperts, project managers and contract administrators to ensure theschedules and terms and conditions are compatible and reflectprocedures which are practical and workable for the supervision and

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management of the works. Experience tells that this practice is notuniformly adopted and hence disputes arise during project executionand thereafter where liabilities of the parties have to be addressedby reference to competing provisions.

Another frequent source of disputes is the question which party isresponsible for the correctness and completeness of documents,data and information that form part of the construction contract.Especially in large projects tenderers often receive comprehensivetechnical and other background information on the project whichfinds its way into the contract documents and serves as the basisof the contractor's performance (e.g., preliminary design works,feasibility studies, ground surveys, environmental conditions etc.).The parties are free to determine to what extent the employer isliable for information provided to the contractor and to what extentthe contractor ought to have reviewed and discoveredinconsistencies or is even deemed to be satisfied with the quality ofsuch information. In the absence of a precise agreement to thateffect there often is significant room for argument on both sides.Liability for unknown conditions such as ground conditions is oftendetermined by reference to a benchmark of conditions anexperienced contractor acting with due skill and care would haveidentified requiring expert evidence to establish such standards.

§2.04. Forms of Contractual Structure

Construction contracts come in various different forms dependingon the particular needs of the project. The most commonlyencountered forms on major projects are:

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[A]. Design­Bid­Build or ‘Build Only’

This is the most traditional model of construction contract. Thedesign stage involves the employer appointing its own design teamto design the proposed project. Usually, when the outline design iscompleted, this is followed by tendering for construction of theworks only, by a single contractor or in work ‘packages' by anumber of contractors. Finalisation of the detailed design forconstruction can be carried out in tandem with the negotiation of theconstruction contracts, so allowing for resolution of any conflictingdesign and construction issues. There is significant flexibility in thetiming of the letting of the construction packages. For example, civilworks may be let at an early stage of the project with a series ofM&E (mechanical and electrical) packages divided into specialistactivities, such as ventilation, power supply and communicationsbeing let at a later stage. Alternatively, specialty work packages,such as signalling, track works and station infrastructure packages,may be let early in the life of a rail project.

The employer is not directly linked to subcontractors or suppliersalthough the employer may create a direct contractual relationshipwith subcontractors/suppliers by entering into collateral warranties(or ‘direct agreements') enabling the employer to pursue thesubcontractors/suppliers for breach of contract and possiblyallowing the employer to ‘step in to the contractor's shoes' under thesubcontract in the event of impending termination of the subcontractby the subcontractor.

In project­financed projects lenders may insist on such rights ortake a security assignment of the employer's rights.

This model can be diagrammatically represented as follows:

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Of the commonly used international standard forms, the FIDIC RedBook is a build­only contract.

The advantage of this structure is that the employer has a directcontractual link with each member of its design team and thecontractor(s) and therefore controls the entire design process andcan be assured that the design will meet its objectives. Theemployer does assume the risk of the design in relation to thecontractor although this risk would be passed on to the relevantdesign professional (subject always to agreed page "16" limitson liability and the design agreements). The employer also bearsresponsibility for the co­ordination of design development withconstruction.

The principal disadvantage of the model is that the separation of thedesign and construction phases results in longer periods for projectcompletion. Also, the employer will be exposed to the problem offragmented liabilities and it is often difficult to determine whetherresponsibility lies with a member of the design team or a contractor– a common area of dispute. In the case of project­financedconstruction,(1) there is an additional disadvantage in that there is noguarantee at the time the design work is contracted for that theworks will be built either for a cost, or within a period which willenable the project to be financed. Where the design process andparts of the construction works run in parallel without the necessaryprofessional co­ordination of the two, the risk of a mismatchbetween design and actual construction is enormous. The potentialconsequences can be observed in large­scale projects of the publicsector in Germany such as the new Berlin airport where the allegedlack of adequate co­ordination of the various work streamsthreatens massive delays and cost overruns.

A variation of this model is where the design team is contracted tothe employer at the outset of the project and then the employernovates the design team contracts to the contractor for theconstruction period of the project. The designers become thecontractor's subconsultants, under the contractor's supervision andcontrol. The principal benefit is continuation of the designdevelopment by the same design team. The risks for the employerinclude loss of control and potential for ‘designing down’ to reducecontractor costs by achieving completion of the works to requiredstandards but shortening the operating life of components orotherwise increasing maintenance costs. These risks can bemitigated by retaining compliance monitors who review and report tothe employer on design development. This variation is essentially ahybrid between the ‘build­only’ and ‘turnkey’ models.

[B]. Design and Build or ‘Turnkey’

This model involves all detailed design, construction andprocurement obligations being assumed by a single contractor (ormore frequently in large infrastructure projects, a consortium ofcontractors). Essentially the contractor is responsible for turningover to the employer a ready­to­use facility. The contractor, inaddition to building the works, assumes the duties of the designteam. It manages the design process as well as the constructionprocess and, importantly, takes the risk of the design and the riskof the interfaces between the design team, its own works and those

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of its subcontractors.

As in the case of the build­only model, the employer does not havea direct contractual link with the subcontractors/suppliers, as theycontract only with the contractor. However, again the employercommonly creates a direct contractual relationship withsubcontractors/suppliers by entering into direct agreements.

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This model can be diagrammatically represented as follows:

Of the commonly used international standard forms, the FIDICYellow and Silver Book, ENAA Model Form International Contractfor Process Plant Construction 2010 and AIA A141­2004 areturnkey contracts.

The advantage of the turnkey model is that the project can progresson a ‘fast­track’ timetable with design, construction andprocurement progressing in parallel. Another advantage for theemployer is that the contractor takes the full risk of design and alsoof changes to the design (other than design changes requested bythe employer). Also, the employer will have no difficulty in decidingwho is responsible as there is a single point of responsibility. Ofcourse, the contractor must have the requisite co­ordinationcapabilities to manage contractual interfaces among its ownconsortium members and subcontractors and suppliers. While thecontractor might be assumed to possess these skills, the practicemay be different. Mismanagement and lack of co­ordination is acommon complaint and catalyst for dispute between employers andcontractors and/or contractors and their subcontractors especiallywhere consortium members take responsibility for different aspectsof the contractor's duties.

The associated danger with this approach is that projects generallygo out to tender on a preliminary design, which will represent onlybetween 20% and 35% of the total design development required tofinalise the design. Detailed design by the contractor will be basedon this preliminary design and parameters set by the employer'sdesign criteria including performance criteria. The employer canthen change its requirements only if it accepts responsibility forattendant delay and costs. Changes in the design will often have asignificant impact in terms of delay and disruption to (and, therefore,cost of) the construction process. This risk of increases in projectcost and time is particularly acute where construction commencesbefore the design is sufficiently advanced. Where there aresignificant design changes, the responsibility for time and costrepercussions is a common area of dispute.

An additional problem can also arise as the turnkey contractor maybe tempted to assume too much of the work itself, rather thancontracting out the work to the page "18" subcontractors bestqualified to carry out the work, as might have happened if the workshad been tendered out in separate packages. Where work issubcontracted out to contractors not forming part of the turnkey

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contractor's consortium, the turnkey contractor will normally add apercentage mark­up to the subcontract price for co­ordination andan associated profit element increasing overall project costs.

[C]. Construction Management

In the construction management model, the employer appoints thetrade contractors directly to undertake the works. In addition, theemployer appoints a construction manager to undertake the role ofco­ordination of the design and construction. The constructionmanager does not carry out any construction works. Generally thereis no guarantee by the construction manager or strict liability toachieve a fixed price of the works or time for completion. Instead,the construction manager is obliged to use its reasonable care andskill to endeavour to achieve specified dates and budgets. Toprovide additional ‘teeth’, construction management contracts mayinclude targets as incentives for the construction manager tocomplete the works on time and to budget – for example, theconstruction manager may be entitled to recover only its costs (i.e.,without profit) if it fails to achieve longstop dates, or it may receivean increased profit margin if it completes on time or within budget.

If the construction manager is involved early in the project, it canalso assist with ‘buildability’ issues, arranging the works into workpackages and managing the procurement process.

This model can be diagrammatically represented as follows:

The advantage of this model is that the phases of design, planningand construction can also overlap easily and the employer hasdirect rights against the trade contractors who are carrying out theworks.

The drawback of construction management is that the employerbears the interface risk between each individual trade contractpackage and also between the design team and constructionmanager. Therefore, liabilities are fragmented and the employer maybe unclear where liability lies. Conversely, the employer is also atrisk of being a defendant to a multiplicity of claims. Despite themanagement responsibilities of the construction manager, thereremains a significant managerial burden on the employer who isresponsible for the interface of all parties including the constructionmanager. This model is attractive for sophisticated and well­resourced developer clients who have the project experience andcapability to manage interfaces. It renders page "19" redundantthe prime contractor's mark­up for co­ordination and additional riskcontingences given risks are managed and distributed amongst thespecialist trade contractors.

[D]. Management Contracting

Management contracting is a hybrid between the traditional forms ofprocurement and the construction management model. Theemployer appoints its design team and, in addition, a managementcontractor. The management contractor generally does little or nodirect construction work itself, but organises and co­ordinates thosethat do. The management contract can be let at a far earlier stagethan a traditional form contract and before any of the detailed designhas been done or even before planning permission has beenobtained. Commonly, the management contract will comprise twostages – pre­ and post­construction – with an option on the part ofthe employer either to abandon the project altogether or to re­tenderthe construction works before the second stage. Managementservices can be in respect of the works only or both the works andthe design. The works (and, in some cases, the design) are done by‘works contractors' who are subcontractors to the managementcontractor. The management contractor is responsible for themanagement of the construction process for the benefit of theemployer and must pursue any defaulting works contractors on theemployer's behalf. It is usually stipulated that any shortfall inrecovery is borne by the employer and any other loss which issuffered directly by the management contractor (e.g., in meetingclaims against the management contractor by a works contractor

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who has been disrupted by a defaulting work contractor) may alsobe passed to the employer if the defaulting works contractor fails topay. Commonly, the employer creates a direct contractualrelationship with the subcontractors by entering into collateralwarranties which are, in effect, direct contracts between theemployer and subcontractors.

This model can be diagrammatically represented as follows:

This type of contractual structure affords a significant timeadvantage compared to the traditional design­bid­build model as themanagement contractor can be appointed page "20" when thedesign is at a very early stage. Another advantage for the employeris that there is a single co­ordinating entity with whom it must deal(although this does not necessarily translate to a single point ofliability).

The disadvantage of management contracting is that the employerbears the risk of the default of the works' contractors, save in thecase of failure by the management contractor in its managementrole. Further, when a defaulting works contractor causes loss andexpense to an innocent works contractor, the innocent workscontractor will look to the management contractor forreimbursement, who will in turn look to the employer forreimbursement. The employer also bears the risk of insolvency ofthe works contractors. In the authors' experience this model ofcontracting is relatively rarely adopted.

[E]. Partnering and Alliancing

Partnering and alliancing are alternative methods of procurementthat have largely grown out of dissatisfaction with the traditionaldesign and build procurement methods and particularly theadversarial culture they tend to promote. Their aim is to improve co­operation and joint­working between various parties and toencourage the early resolution of problems and potential disputeswith collaborative effort. Partnering and alliancing techniques areaddressed in more detail in Chapter 4.

§2.05. Pricing Methodologies

Whichever contract structure is selected, the work can still bepriced in a number of different ways. The most common bases forpricing under construction contracts are as follows:

[A]. Cost Plus

This method involves paying the contractor its actual costs,reasonably and properly incurred, plus a profit fee. It may beappropriate where the construction presents unusual difficulties, forexample, innovative design or complex engineering with high risks,in which case a lump sum price that adequately takes account of allcontingencies would be prohibitively high. However, as neither the

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employer (nor any lenders) would be willing (save in exceptionalcircumstances) to accept an open­ended commitment to meet thecontractor's costs without limit there is usually some mechanism toencourage the works to be built for the lowest possible cost and inthe shortest possible timescale. Sometimes the risk is mitigated byincorporating a cap on the contractor's fee. Alternatively, it may bedone by introducing ceilings – or targets – beyond which costs areshared (see below). In contracts of this kind the employer's rights toaudit thoroughly the costs claimed to ensure that they have beenreasonably and properly incurred, and to require the contractor tomaintain comprehensive records for audit purposes, are key. Themost common area for dispute in pure cost plus arrangements iswhether the costs incurred by the contractor are both reasonable

page "21" and properly incurred or whether they could havebeen avoided by proper co­ordination, supervision or efficientworking.

[B]. Target Cost

Cost plus contracts incorporating ceilings or targets are known astarget cost contracts. Essentially the employer and the contractorwill agree on an estimate for the likely cost of the work. This isknown as the target cost. The contractor is paid the actual costsincurred, together with a fee or other mechanism to cover profit andindirect costs (e.g., head­office overheads). However, if actualcosts incurred exceed the target cost, the employer and thecontractor will share liability for the overspend in agreed proportions.As an additional incentive for the contractor to keep costs to aminimum, a target cost contract may also include a system ofbonus payments by which the contractor shares in the benefit ofcost savings. This basis for pricing raises the question whethercosts have been reasonably and properly incurred, and alsowhether, and the extent to which, the target cost should be adjustedwhere variations are ordered on the project.

[C]. Lump Sum

At the other end of the scale of pricing structures is the lump sumcontract that entitles the contractor to a pre­agreed contract sumregardless of actual costs incurred, subject only to adjustment forvariations to the works and in a limited number of othercircumstances. The lump sum should be sufficient to cover thecontractor's anticipated actual costs including overheads plus aprofit component. The main advantage for the employer is (at leastapparent) cost certainty. A further advantage is that theadministration of the contract is usually more straightforward thanunder the cost plus target cost methods, where costs have to beverified. The apparent appeal of a lump sum price, however, may beillusory where the contingencies required to be included in thecontractor's bid are such as to make the contractor's offerprohibitively high or where the design of the project or regulatoryrequirements are sufficiently uncertain to make variations (and thusadditional payment) a virtual certainty. A common area of dispute inlump sum contracts is the question of precisely what work iscovered by the contract and what work amounts to variations forwhich the contractor is entitled to extra payment. Turnkeycontracts, where the specification of the works is general or definedby reference to performance criteria, are particularly prone to thesetypes of disputes.

[D]. Provisional Lump Sum

A provisional lump sum involves taking a firm price for part of theworks, with provisional rates to apply to a series of contingencies.For example, a range of potential ground conditions could beseparately priced and the rates would simply be applied to matchthe conditions actually encountered. The employer then knows the‘worst case’ scenario, but will benefit from paying the lower rates ifthe conditions encountered prove to be straightforward. Aprovisional lump sum also mitigates the potential page"22" problems where the design is defined by reference to open­ended or general criteria, by allowing for alternative design solutionsto be priced.

[E]. Guaranteed Maximum Price

Increasingly popular is the Guaranteed Maximum Price (GMP)Contract. This involves a two­stage procurement process. The firststage includes a preliminary investigation, feasibility study andoutline design, sometimes with enabling works. The second stage isthe development of the design and project construction. The firststage of the project is paid for on a cost plus basis. The contractthen ‘converts' to a GMP once the scope and definition of the worksbecomes more certain and at this point the contract effectivelyoperates as a lump sum contract. The employer retains the optionnot to continue with the project at all after the first stage if the GMPoffered is prohibitively high or to break with the contractor andtender the job anew on the basis of the completed preliminarydesign.

[F]. Unit Price or Measured Works

The pricing method midway between lump sum and cost plus is theunit price. The price of the project is calculated per task in

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accordance with a bill of quantities which comprises a list of itemsgiving the quantities and brief descriptions of work comprised in thecontract. It forms the basis upon which tenders are obtained andaffords a means of comparing tenders received once priced.Terminology used in connection with bills of quantities include:

­ Daywork: the method of valuing work on the basis of the timespent by the workmen, the materials used and the plantemployed. Daywork rates are effectively ‘cost plus' rates.

­ Prime Cost (or the initials ‘PC’): a sum entered in the bill ofquantities at the time of tender as the notional sum provided tocover the cost of specific articles or materials to be supplied orwork to be done, after deducting all trade discounts and anydiscount for cash. The contractor is paid the amount the work(usually carried out by others) actually costs.

­ Provisional Sum: any sum of money included in the bill ofquantities to provide for work not otherwise included therein or forunforeseen contingencies arising out of the contract. It isgenerally only to be expended, either wholly or in part, under theemployer's direction and at its discretion. The only real differencebetween prime cost items and provisional sums is that theemployer intends to have prime cost items included in the works(though by people it specifies and for whose costs it effectivelyremains responsible) whereas provisional sums are for workwhich may or may not be carried out.

Where work is priced on the basis of agreed rates and prices, thecontract should also specify a chosen standard method ofmeasurement. Standard methods of measurement specify howvirtually all commonly­encountered construction activities are to be

page "23" measured. A unit price or measured works contractwithout an agreed method of measurement is prone to dispute. Toillustrate: the cost of excavation of a pit to accommodate a tankwith vertical sides might be determined by the volume of materialremoved to allow the tank to be erected. However, it is generallyimpossible to excavate a pit of any depth with vertical sides, so alarger pit with sloping sides needs to be excavated. In the absenceof an agreed method of measurement, is the work to be priced onthe basis of actual volume of excavation or merely on the amountrequired to fit the tank in? Sometimes, however, standard forms ofmeasurement create a dangerous priority over the drawings andspecifications contained in the contract, and can be used toincrease the final price by their manipulation. Standard forms ofmeasurement may also be used as guides in the quantification ofdisputed construction claims generally, for example, valuation ofvariation claims or quantum meruit claims.

[G]. Mix and Match?

Larger projects may adopt a mix of payment arrangements. Forexample, on the Channel Tunnel project for the construction of arailway link between England and France by way of two runningtunnels and a service tunnel, the underground civil works (thestructure of the tunnels, the cross passages for emergency escapeand the various underground ducts and machine rooms) were paidfor on a target cost basis. The terminals (buildings and platforms)and the mechanical and electrical equipment (track, catenary, powersupplies, signalling, ticketing systems, fire mains, pumps etc.) werepaid for on the basis of a single lump sum. Finally the rolling stockwas procured on a cost reimbursement basis. Interestingly, thelargest cost overrun (in cash terms) was for the mechanical andelectrical equipment – procured on the basis of a so­called lumpsum contract because changes in design for operational and safetyreasons resulted in multiple variations with significant additionaldirect and consequential costs.

Different pricing methodologies may also appear within a contract.For example, a lump sum contract may include a provisional sumcomponent for a part of the works that may or may not go aheadand may provide for variations (i.e., works additional to the originalscope of works) to be paid on the basis of daywork rates.

Mixing payment and pricing mechanisms within the same contractcan give rise to disputes where changes to one area of work impacton another which has a different pricing methodology. For instance,in the Channel Tunnel project the contractor, as part of the lumpsum works, decided to replace miles of expensive high current, lowvoltage cable in the tunnels with a system of high voltage cables,intermediate step down transformers and shorter runs of lessexpensive low voltage cables. This made sense to the contractorfrom an economic perspective (the cost of the components requiredfor the high voltage solution was cheaper) and also made sensefrom an engineering perspective. The contractor was entitled to dothis as the work fell within the lump sum element of the works and,for the same reason, the savings on the equipment costs accruedto the contractor. However, the transformers had to be putsomewhere and in order to accommodate them additional space hadto be excavated in page "24" the undersea machine rooms.This work formed part of the target works which was paid for in fullby the employer. The overall effect, therefore, was that thecontractor was able to take the benefit of the new engineeringsolution as a saving in the lump sum part of the works while thecost of the target works (and the overall cost to the employer)increased.

A mixed payment mechanism allowing for partial adjustments of the

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contract price based on actual out­turn costs is usually notbankable from a project finance perspective where lenders want tohave price certainty to the extent possible and thus insist on theuse of lump sum contracts.

§2.06. Payment Arrangements

It is very rare for contractors (other than on very small or short­termprojects) to be paid by way of a single payment at the completion ofworks. Cash flow is vital for the success of any construction projectas contractors must be able to cover the considerable costsincurred throughout the entire construction period in order tocontinue working and complete the project. Therefore, some systemof payment at intervals is required. In some jurisdictions, legislationhas been enacted to require employers to pay contractors on aregular basis throughout the construction period for example in theUK under the Housing Grants, Construction and Regeneration Act1996 (as amended). At the same time as the contractor receivesinterim payments, the employer needs to ensure that it is obtainingvalue for the payments made and that the contractor is sufficientlyincentivised to remain and carry out the project in accordance withthe requirements of the contract.

Interim payments may take a variety of forms (sometimes incombination). The main ones are:

[A]. Progress Payments

Most construction contracts will provide for staged payments to thecontractor, frequently on a monthly basis during the course of theproject. The amount due to the contractor at each stage will reflectits progress on the works – for example, as a percentage of thetotal project works – and will be recorded in an interim certificateissued by the certifier. The certificate will set out the cumulativeamounts paid to the contractor to date and the additional amountdue to the contractor in the relevant payment period. The certificatewill then record the total amount due to the contractor in thepayment period.

[B]. Milestone Payments

Some construction contracts provide for payments to contractorsupon achievement of milestones throughout the construction period.Milestones are set against the completion of certain activities or asection of work and, upon completing those works or that section,the contractor is paid for the works/section. Milestones are oftenincorporated page "25" in, and shown on, the project programmeand may give rise to bonus entitlements where achieved early andto budget. This type of payment method incentivises the contractorto complete works in accordance with the programme. In theabsence of obligations to complete stages of the work to suchmilestones the contractor generally has the right to plan andexecute the work as it wishes, subject always to meeting the finalcompletion date. As a consequence the employer may have limitedcontrols to require the contractor to speed up works even where it isapparent there is significant delay. Such an arrangement isunacceptable where the completion of the project on time isessential. The contracts for works for the London 2012 Olympicswere written to provide early termination rights for failure to achievemilestones, rights to order acceleration of the works and rigorousrequirements to update the contract programme to reflect actualprogress.

§2.07. Administration of the Contract

[A]. Background

Essential to many construction contracts is the role of the contractadministrator. The administrator will basically perform one or moreof the following three discrete functions:

­ the employer's agent in overseeing the progress of the works andgenerally giving instructions as to how the work should proceed;

­ certifier under the contract: construction contracts invariablyprovide for critical decisions which are determinative of the rightsof the parties to be recorded in certificates, for examplecertificates of payment, certificates of completion, certificates ofmaking good defects etc.;

­ (possibly) resolving disputes between the parties in the firstinstance.

In relation to the last function, the construction industries in Franceand other civil law jurisdictions do not give the same precedence tothe role of the contract administrator as does the UK constructionindustry. Most notably, the engineer – or Maître d'Oeuvre – does notnormally have any role in dispute resolution in the French orGerman construction industry. In fact, in German constructionpractice there usually is not a distinct person or entity engaged forthe purpose of fulfilling the specific role that an engineer traditionallytakes in the UK construction industry.(2)

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[B]. The Independent Engineer

Traditionally the role of contract administrator was given to the‘engineer’ – see for example the ICE and FIDIC Red Book standardforms of contract. When acting as certifier and in resolvingdisputes, the engineer was required to exercise his judgment fairlyand impartially between the parties. Essentially, he was supposedto act as a professional exercising his judgment in an even­handedmanner. In his other duties, he was free to act as the employer'srepresentative or agent.

The reality is – and probably always was – somewhat different. Theso­called independent engineer is appointed by the employer. Oneof his roles is to act as the employer's agent in overseeing theprogress of the works. The strong perception of contractors is thatthe engineer will tend to favour the employer's position. Thecontractor's concerns are even more acute where the engineer isresolving disputes between the parties in the first instance. Almostinvariably he will be second­guessing his own decisions – forexample where one of his certificates is challenged.

[C]. Reality: The Employer’s Representative

The realities of the relationship have led to the ‘independent’engineer being replaced by the ‘employer's representative’ ascontract administrator. There is no pretence here at independence.The employer's representative is not only often an employee but isacknowledged to act in the employer's best interests whenadministering the contract. However, English courts havedetermined that the employer's representative must act honestly,fairly and reasonably when issuing certificates (as an implied termof the contract).(3)

As a counter­balance to the consolidation of control of certificationand contract administration in the hands of the employer, disputeresolution provisions frequently provide for disputes to be resolvedin the first instance by an independent panel or expert who has norole in contract administration. This subject is addressed in Chapter3.

[D]. The Role of Certificates

Construction contracts provide for critical decisions that aredeterminative of the parties' rights to be recorded in certificatesissued by the contract administrator. The most importantcertificates are:

­ Interim payment certificates (see above).­ Completion or handover or taking over certificates, which markthe point in time at which the employer is entitled to take over thecompleted works and the point when the risk in the works (andresponsibility for insurance) transfers from the contractor to theemployer. page "27"

­ Certificate(s) of non­completion, which record the failure by thecontractor to complete by the due date (sometimes a conditionprecedent to a deduction by the employer of liquidated damages).

­ Certificate(s) of making good defects, which are issued oninspection at the end of the defects liability period(s), providedthat the certifier is satisfied that all defects have been adequatelyremedied. It will also usually trigger release of any final tranche ofretention held by the employer.

­ The final certificate, which is essentially a final reconciliationstatement between the parties. It will take account of allnecessary adjustments which have to be made to determine thefinal figure due to be paid to the contractor for all of the works.Deductions will be made as appropriate to reflect the cost ofremedial works to correct any outstanding defects notified to thecontractor. The final certificate may be given a conclusive effect,subject to any disputes referred to dispute resolution within alimited period following the date of issue of the final certificate.This question is addressed further below in the context oflimitation of liability.

It should be noted in this context that certificates play a particularlyprominent role in English and – stemming therefrom – international(standard form) construction contracts (see the FIDIC suite ofmodel forms). Despite the obvious practicality of such certificates,this is far less the case in other jurisdictions as e.g., in Germanywhere the issuance of a certificate is often limited to theacceptance of the works upon completion. That is not to say thatsome form of a documentary record of the achievement of keyperformance milestones is not prepared elsewhere, but this isusually done as a matter of practice within the relevant party'sorganisation without express contractual requirements for suchdocuments' production.

The reasons for the different approaches partly have their roots indifferences of the applicable laws that provide the legal frameworkfor the construction contract. E.g., the ‘final’ or ‘performancecertificate’ issued at the end of the defects notification period underan English law contract confirms the contractor's performance of allof its contractual obligations, including the obligation to carry outany remedial works within such defects notification period. Giventhere is no statutory regime for defects remediation the parties must

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agree on defect remedies as part of the rights and obligations underthe contract itself. The contractor will only have fulfilled itscontractual obligations under the contract if, at the end of a defectsnotification period, there are no more remediation obligationspending. No such certificate will be found in German lawconstruction contracts where a full­fledged statutory regime onwarranty rights and claims including limitation or warranty periodsapplies. In a German law contract the parties do not (need to) agreeon a regime for defects remediation as a specific part of thecontractual rights and obligations save to the extent they wish todeviate from the statutory regime. The contractor's primarycontractual obligations are considered to be satisfied uponacceptance of the works as being substantially in accordance withthe contract without the need to confirm performance of ongoingobligations to remedy defects which are governed by the underlyingstatutory law.

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[E]. Challenging Certificates

Some construction contracts confer the ability on an arbitrator toopen up, review and amend certificates issued under a constructioncontract. This type of provision led the English Court of Appeal tosay that such power was reserved for arbitrators alone, to theexclusion of the courts.(4) Subsequently, the English House of Lordsoverruled the Court of Appeal's obiter comments and found that theconferral of such power on an arbitrator does not limit thejurisdiction of the courts to determine the rights and obligations ofthe parties to the contract.(5) In other words, a court can makefindings that are contrary to those forming the basis of theadministrator's certification under the contract. The court is free toinvestigate the facts and to interpret the parties' respectivecontractual rights and obligations; the administrator's decision onthe issue will simply be part of the evidence that the court will weighup.

One proviso is where the construction contract contains a clearstatement that certificates issued under the contract are conclusive.In this case, an English court would give effect to the contractualprovision and would not open up the certificate. Save in exceptionalcircumstances such as fraud, the current position under Englishlaw, therefore, is that unless a certificate is expressly conclusiveand binding it will be open to review by any tribunal called upon todetermine the rights of the parties whether arbitral or judicial.

§2.08. Variation Orders

[A]. Why are Variation Orders Required?

In theory, every construction contract will define the project to bebuilt, whether by reference to a set of drawings and/or technicalspecifications or, where the contractor is to carry out the design, byreference to a performance specification. In practice, however, theemployer's requirements will often change or regulatory approvals atthe employer's risk necessitate design or construction changes.Contracts may also permit the contractor to propose a change tothe employer, for example, to achieve cost savings. It is thereforecustomary to incorporate a requirement in construction contractsthat the contractor must execute the changes (or variations).Variations are effected by way of ‘variation orders' (sometimescalled ‘change orders'). The only limit imposed on the employer'spower to order variations as a matter of English law is that thecontractor cannot be compelled to carry out something that iscompletely different from the original proposal.(6)

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Other systems of law impose greater restrictions. For exampleunder German law the principle of good faith(7) and – whereapplicable – the (strict) statutory rules on standard terms andconditions(8) will set limits to the extent to which the employer maybe entitled under a contract to instruct a variation. Under Germanstandard terms for construction (German Construction Procurementand Contract Regulations – ‘Vergabe­und Vertragsordnung fürBauleistungen’, ‘VOB’) that are most frequently used in Germanconstruction, the employer has the right to request changes (orvariations) to the original works but, as a matter of the above­mentioned good faith principle, must not order works that arecompletely different from the original bargain. If the contractor isinstructed to carry out works in addition to the original proposal thatdo not form part of the original scope but are required for thecontractor to achieve completion of the works, the contractor isobliged to follow such instruction save to the extent that itsenterprise does not have the resources to do so. Any othervariations can only be instructed with the consent of the contractordepending on the nature of the requested change.(9)

Of course, the ability to change the scope of the works is normallymatched by an obligation to adjust the contractor's remunerationand, if appropriate, to grant an extension of time to the agreedcompletion date if required to complete any additional works.Variation orders generally require additional work, in which case thecontractor is usually entitled to additional payment and time tocomplete the works. Negative variation orders or omissions involve

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deleting work from the original scope of works and, therefore,usually involve a reduction in the contractor's payment andprogramme. For this reason, there are usually limits on thecircumstances in which an employer may issue a negative variationorder – for example, it is one thing to delete works if those worksare no longer required for the project but it is quite another for theemployer to take work out of the hands of the contractor for the solepurpose of awarding it to another.

One additional constraint on the exercise of the power to ordervariations is not immediately obvious and arises where thecontractor is carrying out the design and has agreed to meetspecified performance criteria. In addition to granting the contractoradditional time and money, the effect of the change on the ability ofthe contractor to meet the performance criteria should be taken intoaccount. Accordingly turnkey contracts often contain a provisionpermitting the contractor to flag up any proposed changes whichwould affect its ability to meet the contract's performancerequirements, giving the employer the opportunity to withdraw ormodify the variation order. Of course, if the contractor does notexercise this right, the usual consequence would be for it to berequired to meet the performance requirements regardless of theeffect of any variation order.

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[B]. Controlling Variations and Their Costs

Variation orders may only be given by the employer (though in somecases the contractor may initiate a proposed variation). Since theireffect is usually for the contractor to become entitled to additionalpayment, the manner in which variations may be instructed orauthorised is normally closely controlled and involves a degree offormality. Variation orders are usually required to be in writing andgiven by specified individuals in accordance with an agreedprocedure.

As well as controlling the issue of variation orders, constructioncontracts usually ensure that the issue of the variation orders ismade on an informed basis – so that, at the time of issue, theemployer is aware of the time, cost and other consequences whichwill flow from the variation. Contracts frequently provide for aprocedure whereby the contractor is, save in urgent cases, requiredto provide an estimate of the likely cost of a proposed variation andthe likely impact on the timetable for completion of the project. Theemployer can then decide, in the light of such information, whetherit wishes to implement the variation.

Generally, a contract will require the contractor to give notice of aclaim for additional payment promptly, for example within twenty­eight days of issue of the variation order, together with fullsupporting particulars as to the sum claimed. If the variation isaccepted in whole or in part, then either the whole of the additionalpayment will be included in the next payment certificate to beissued to the contractor or the amount will be paid to the contractorprogressively as the variation works are carried out.

Alternatively, a contract may provide that the variation order will beimplemented on an agreed basis as regards time and cost, with noopportunity to claim additional impacts. If the parties cannot agree,the employer is normally entitled to order the contractor to complywith the variation order whilst the matter is referred to disputeresolution in accordance with the agreed procedure. The employermay be required to pay some costs against the variation order tothe contractor in the interim.

[C]. Variation Orders and Disputes

Variations, together with extension of time claims, are the mostcommon source of construction disputes. Occasionally a poorlydefined specification is at fault, but just as often it is theadministration of the variation clause or the financial pressures ofthe contract as a whole that give rise to variation disputes. On alump sum contract, variation claims are one of the few opportunitiesfor the contractor to recover additional money.

Disputes in relation to variations concern in the first instancewhether the alleged variation is in truth within the original scope ofthe contract (in which case the contractor is not entitled to anyadditional payment). The second issue is determination of theappropriate adjustment to the price – this throws up questions ofapplicability of contract rates and prices and the appropriate mark­up for overheads. The third issue is the impact of the variation onthe contract programme.

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Less common are disputes over whether the employer is entitled toissue the variation at all – for example if the subject of the variationorder is out of proportion with the scope of works for the project or ifa negative variation order is made for an apparently improperpurpose.

Disputes also arise in relation to the notification or other proceduralrequirements of the contract regarding variation orders – forexample, employers commonly rely on the contractor's failure tocomply strictly with the variation procedure in defence of a claim for

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additional payments where such requirements are said to beconditions precedent to any claim. As well as debating whetherthere was in fact compliance with such requirements, disputesfrequently involve allegations by the contractor that the formalrequirements were waived or that the employer is otherwise notentitled to rely on strict requirements for compliance with conditionsprecedent.

§2.09. Completion, Extensions of Time and LiquidatedDamages

[A]. Role of Completion

Completion is a critical stage in the project. Works are normally saidto be complete when they achieve ‘practical completion’ (alsoknown as ‘substantial completion’). ‘Practical completion’ is a termof art used in construction contracts to record substantialcompletion of the works save in respect of minor items which do notaffect the use of the works for which they are intended.

Typically it has the following consequences:

­ it is the point at which the completed works are handed over tothe employer and risk in the works passes from contractor toemployer;

­ it stops the clock running for the purposes of the contractor'sliability to pay liquidated damages for late completion;

­ it triggers the start of the defects liability or warranty period,which is essentially a period during which the contractor has anobligation to return to the site to remedy at its own cost anydefects which appear in the works and which are notified to thecontractor prior to the expiry of the defects liability period; and

­ it also generally triggers the release of half of any retention whichhas been deducted (or secured by a bond) from amounts due tothe contractor under interim payment certificates by the employeror any other reduction in the security level (amounts covered bybonds or sureties) provided by the contractor for the properperformance of its obligations under the construction contract.

The terminology and definitions used in construction contracts todetermine ‘completion’ of the works varies significantly. Given theabove consequences usually linked to the completion of the works,i.e., acceptance of the works as being substantially in accordancewith the contract, care should be taken to set out as clearly aspossible the page "32" requirements that need to be satisfiedfor the works to be considered completed. In plant construction forexample it would be risky for the employer to accept the works oncethey are ‘mechanically complete’ without any evidence of the plantsatisfying the agreed performance parameters in adequate testingand commissioning procedures. Inconsistencies or a lack of clarityin such taking over provisions are another source of disputes.

[B]. Defects Liability Period

Under English law and in contracts derived from English lawfollowing ‘practical completion’, the works will normally be subject toa ‘defects liability period’ or warranty period. This is the period –usually ranging between twelve months and five years depending onthe complexity of the works or any part thereof – during which thecontractor must return to site and repair any defects that arediscovered, or arise, in the works. It is at the end of the defectsliability period when, if all defects have been adequately remedied,the ‘certificate of making good defects' may be issued. Theemployer will generally retain a portion – usually half – of theretention or other security to secure performance of the contractor'sdefects liability period obligations. As noted above some systemsof law provide a statutory defects liability and remediationobligations (e.g., German law), hence contractual machinery is notrequired.

[C]. Date(s) for Completion

A construction contract may state a single date for completion bywhich the contractor must practically complete the whole of theproject works. More commonly on large or complex projects, therewill be a series of dates by which the contractor will be required tocomplete and hand over to the employer various sections or stagesof the works. For example, a multi­unit power station may behanded over unit­by­unit or an office building may be handed overfloor­by­floor. This is known as ‘sectional completion’ (or ‘stagedcompletion’). Sectional completion may enable the employer tocommence operations, fit­out or staff training on those parts of theproject completed early. Or sectional completion in a civil workscontract – for example on a water filtration plant – may be requiredto allow structural and M&E contractors progressively to commencetheir works on the project. Sectional completion can also be anadvantage to the contractor who would usually be entitled oncompletion of a section to transfer liability for insurance andsecurity to the employer and be relieved from liability to payliquidated damages in respect of the completed section.

[D]. Completion Certificate(s)

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Given the criticality of completion, it is usually marked by issue of acompletion certificate issued by the certifier that states the date onwhich practical or substantial page "33" completion of the workswas achieved. Practical completion certificates are invariablyissued subject to a list of outstanding items or defects that havebeen identified on inspection prior to issue of the certificate. Thislist of defects is sometimes known as ‘the snagging list’ or ‘punchlist’. In a contract which provides for sectional completion there willbe a practical completion certificate for each section of the works.

[E]. Completion Tests

On any sophisticated project there will be a regime of tests oncompletion. In the case of a power plant, for example, there will bea series of tests culminating in a reliability run, which involves theunits running continually for a period of, say, thirty days. The testson completion will define the standards that the plant has toachieve, for example in the case of a power plant in relation toelectricity generation, fuel consumption and levels of heatproduction. In the case of a transportation system the tests will turnon levels of service, noise, power or fuel consumption, for example.

[F]. Liquidated Damages for Delay

Construction contracts invariably provide for the payment ofliquidated damages by the contractor for failure to achievecompletion by the agreed completion date, or sectional completiondates. Liquidated damages are commonly payable in a specificamount on a daily or weekly basis. They should include a profitelement. On larger projects the total amount of liquidated damagesfor which a contractor can be liable is often capped. Contractsnormally make it clear that payment of liquidated damages does notrelieve the contractor from its obligation to complete or perform anyof its other obligations.

Liquidated damages serve a number of purposes. Most notably theytypically avoid any need for the employer to prove loss in the eventof contractor delay (although this is not universal as somejurisdictions require proof of actual losses, for example, Malaysianlaw). For contractors, liquidated damages provide certainty as totheir exposure to delay damages – and, where the damages arecapped, a limit of liability for delay. For both parties, liquidateddamages can also operate as a goal or incentive for projectcompletion.

In common law jurisdictions, liquidated damages must represent agenuine pre­estimate of loss, otherwise they may be subject toattack by the contractor on the grounds that they represent apenalty and are therefore unenforceable.(10) Occasionally, liquidateddamages clauses are poorly drafted so that the drafting rather thanthe specified rate renders the liquidated damages penal. Contractsthat provide for sectional completion are particularly prone to sucherrors, for example, if the contract page "34" only states asingle figure for liquidated damages or where the effect ofcumulative delays across sections has not been appropriatelyaddressed.(11)

In civil law jurisdictions such as Germany, for example, it ispossible and commonplace for construction contracts to containpenalties clauses. Other than liquidated damages a penalty is notusually the exclusive remedy for damages resulting from the breach(delay) by which it is triggered. It allows the innocent party to claimfor damages in excess of the agreed penalty amount provided thatparty can prove that it actually incurred damages in an amountexceeding the agreed penalty.(12) Penalties are frequently used inrelation to the timely achievement of key milestone dates prior tothe expiry of the overall time for completion working as incentivesfor the contractor to constantly keep up the works' progress. Thecontractor may be released from any such liability if it finallyachieves overall completion in time. It should be noted that underGerman law the employer must expressly reserve its rights andclaims in respect of penalties upon acceptance of the works as itwill otherwise be considered to have waived them.(13)

[G]. Extensions of Time

Construction contracts invariably provide that the contractor isentitled to an extension of time to the date or dates for completionand any interim milestones if it can demonstrate that the progressof the works has been delayed by one or more specified events(EOT events), for example:

­ changes to the works introduced by the employer;­ events of force majeure (to the extent wider than employer'sretained risks); and

­ unforeseen ground conditions (to the extent that this risk is notborne by the contractor under express terms of the contract).

Essentially the grounds for entitlement to an extension of timeagreed between the contracting parties reflect the allocation of riskbetween the parties for events which are likely to cause delay to theproject. Further examples of common EOT events are exceptionallyinclement weather, industrial disputes (strikes, lock­outs etc.) andunforeseeable shortages in availability of personnel or goods

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caused by epidemic or government action.

On its face, an extension of time clause is for the benefit of thecontractor. However, in common law jurisdictions, the change isalso an essential requirement to ensure that a liquidated damagesprovision will be enforceable where delays are caused by theemployer, or those for whom it is responsible. The employer will notbe page "35" able to rely on its own wrong in attempting torecover liquidated damages. If the employer has caused thecontractor's delay, and there is no adequate mechanism providedfor in the contract for extending time to reflect such delay, theliquidated damages provision becomes unenforceable. The time forcompletion is then said to be ‘at large’, i.e., the contractor isrequired to complete within a reasonable time. The employer is notleft without a remedy; it will be entitled to general damages asopposed to a pre­determined liquidated sum.(14) This, however, is ahighly unsatisfactory situation – there is no fixed time forcompletion and, because there is no pre­agreed figure representingthe employer's loss, there will inevitably be disputes as to theemployer's right to set off unliquidated sums against sums certifieddue to the contractor in any subsequent payment certificate.Exclusive remedies clauses or caps or exclusions of certain headsof loss, such as loss of profit or business, may also operate to limitor exclude recoveries which would otherwise fall within the scope ofan agreed liquidated damages provision.

Typical features of extension of time clauses include:

­ timely notice of claims as an express condition precedent (toprevent the contractor stockpiling claims and inhibiting the timelyinvestigation of the reasons for delay);

­ a requirement that the contractor should use best endeavours toavoid or reduce delays; and

­ the ability for the employer to order acceleration of the works inlieu of a grant of an extension, sometimes coupled withprocedures for obtaining quotes of cost and likely timeconsequences.

[H]. The Role of the Programme

Progress of works is planned and measured against an agreedprogramme, which may or may not be specified as a contractdocument. The programme maps out the contract works and showsthe order in which the works will be completed and the expectedduration of each activity, all in order that the works (or each sectionthereof) will be completed by the date for completion stated in thecontract. Turnkey contract programmes will also include the designperiod of the project. The programme will identify generally the‘critical path’ or paths through the works – the critical path is thelinkage between activities which the contractor is required tocomplete in order to avoiding delaying the date for completion.

Programmes come in various forms and levels of detail, dependingon the size and complexity of the project and the requirements ofthe contract. Programming is a sophisticated science and normallyutilises a standard, commercially available software package, firstto generate a programme at the outset of the project and then tomanipulate it during the project period. In addition to the informationdescribed above, page "36" programmes may show dates bywhich the employer is required to provide the contractor withrequired information and milestones or target dates with bonusespayable on the contractor meeting those dates. Contracts frequentlyoblige the contractor to update the programme, either periodically orupon the occurrence of delay events, in order to ensure that therealways exists a current programme.

The role of the programme is considered in more detail in Chapter10.

[I]. Critical Path Analysis

The contractor will not be entitled to any extension of time unlessthe delay is critical to completion of the relevant works. In otherwords, the delay must affect works on the critical path so that delayto those works will cause direct delay to the date for completion ofthe works (or the relevant section of works). For example, a delay tolandscaping works is unlikely to be critical until the very end of theconstruction period, as it is normally one of the very last tasks to becompleted and does not usually have other activities dependent onits completion. The question whether the works are critical tocompletion is decided by reference to an up­to­date contractprogramme showing actual progress to date, the activities still to becompleted and their interrelationship. This topic is discussed indetail in Chapter 10.

[J]. Concurrent Delays

Concurrent delay arises where two events occur in the same timeperiod, one of which is a delay under the contract that entitles thecontractor to an extension of time, and the other is not, and eachevent, were it to have occurred in isolation, would have caused thework to be delayed. True concurrency is rare. Analysing whatappear to be concurrent delays with the aid of programming toolsthat allow analysis of the impact of the events on the critical pathoften reveals co­existing events that may have been concurrent, but

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are not co­effective.

There exist various approaches to resolve true concurrency. Oneapproach is the ‘dominant’ cause approach – i.e., if there are twoevents causing a delay, the contractor will succeed in its claim foran extension of time where it can establish that the EOT event (asopposed to the event for which it is not entitled to an extension oftime) is the effective, or dominant, cause rather than merely theoccasion for delay. The question of which is the dominant cause isa question of fact. The generally held view, though, is that wherethere are two equally operative causes and one is an EOT event thecontractor should get an extension of time, although thecost/damages consequences may differ in these circumstances.

Concurrent delays are also considered in more detail in Chapter 10.

[K]. Work­Around Measures

A contract sometimes contains an express obligation on thecontractor to employ ‘work­around measures' in order to avoid adelay. This is sometimes seen as a simple page "37" obligationto mitigate. Other contracts provide that the contractor's entitlementto an extension of time will be subject to the contractordemonstrating use of all reasonable measures to overcome thedelay. For a contractor who wants an extension of time, there iseffectively little difference between these types of provisions –work­around measures are mandatory.

Alternatively, work­around measures may be required at the optionof the employer. In this case, a contract reserves to the employerthe right to order work­around measures as an alternative to anaward of an extension of time where the contractor's entitlement hasbeen made out. Additional costs associated with any suchmeasures should be for the employer's account.

[L]. Acceleration/Constructive Acceleration

Contracts also sometimes reserve to the employer the right to orderacceleration of works in lieu of granting an extension of time wherethe contractor's entitlement to an extension of time has been madeout. The simplest acceleration measures are out­of­hours work andemployment of additional labour. Additional costs associated withany such measures would normally be for the employer's account.

Constructive acceleration is not an acceleration order from theemployer but a claim by the contractor that it was entitled toaccelerate. For example, claims for constructive acceleration areseen when a contractor is ordered to take measures to achieve theoriginal completion date when in fact an extension of time shouldhave been granted.

Even where it is clear that acceleration has been ordered,quantification of acceleration claims under lump sum contracts cansometimes be fiercely disputed – particularly if one part of theproject has been accelerated at the request of the employer at thesame time as the contractor is in delay on another part of theproject, in which case it may not be clear to whose account (or inwhat proportions) the additional costs should fall.

[M]. Extension of Time Claims and Disputes

Claims for extensions of time, along with variation claims, are themost common cause of construction disputes. Extension of timeclaims invariably involve difficult factual questions of causation, asillustrated by the discussion of critical path analysis and concurrentdelays above and in Chapter 10.

As in the case of disputed variation claims, formal notification anddocumentation requirements are also frequently at issue inextension of time claim disputes.

[N]. Liquidated Damages for Performance Failures

Liquidated damages may be agreed not only in respect of delay butalso in respect of failure to achieve the specified performancestandards. For example, in the case of a power plant where theelectricity output does not meet the pre­agreed threshold, page"38" liquidated damages may apply as a factor of the guaranteedgross output. In the case of a transportation system, there may bea failure to achieve a pre­agreed running time where the works havefailed to pass the tests on completion. The contract will thengenerally provide the employer with the option of:

­ ordering repetition of the tests, if the perception is that the failurehas been a one­off because of teething problems; liquidateddamages for delay can be claimed where repetition of the testsdelays completion beyond the completion date;

­ rejecting the works in their entirety, where the failures are outsideagreed tolerances; or

­ taking over the works notwithstanding the failure to achieve thepre­agreed standards and claiming liquidated damages on the pre­agreed basis by way of compensation as a ‘one­off’ hit or areasonable reduction of the contract price.

While liquidated damages work to the advantage of the employer in

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avoiding the need to prove its loss and providing a clear route toset­off against sums due to the contractor, as noted above theymay also work in favour of the contractor as a limit on liability wherethe level of liquidated damages is capped.

§2.10. Liability

There are three obvious areas where a contractor is exposed toliability under a construction contract. These are:

­ delay in completion;­ failure to meet specified performance standards; and­ defects in the works.

[A]. Limitations of Liability

In common law jurisdictions, the general position is that breach ofcontract claims are available unless they are excluded by clearwords – for example, stating that the remedies provided in thecontract are the only remedies available to the parties (or thecontractor) to the exclusion of all other remedies at law.

At common law, the contractor is in principle liable to pay damageson account of all the employer's losses that flow ‘directly andnaturally’ from the breach of its obligations.(15) In practice, thecontractor's exposure is not as extensive as this, as a result of theagreement of limitations on its liability. Limitations of liability oftenreflect the availability of insurance to cover particular risks, such asnegligent design or environmental contamination.

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The general principle of full compensation is the same in civil lawjurisdictions and parties similarly look to limit their liabilities inaccordance with market practice. The exclusion of ‘indirect’damages and a cap on the overall liability of the contractor are themost typical examples.

It is important to note in this context that terminology and legaldefinitions of which losses or damages are recoverable varyconsiderably and constitute potential pitfalls for the parties. Theterm of ‘indirect and consequential damages' e.g., has a specificcommon law meaning. It refers to such damages that do not flowdirectly and naturally from the breach and are only recoverable tothe extent they were reasonably foreseeable by the other party dueto knowledge of special circumstances at the time of contracting.(16)Under English law the loss of ordinary profit which flows naturallyfrom a breach of contract would usually be considered a ‘direct’ lossthat is recoverably unless expressly excluded. The perception ofthe term ‘indirect and consequential loss' – often copied into Englishlanguage contracts governed by German law – is usually different.An indirect or consequential loss in a German law contract is oftenconsidered to refer to pure economic losses not directly resultingfrom any damage to the physical works. Where the contractorseeks to limit its potential exposure under the construction contractby excluding potentially significant profit losses on the part of theemployer, the use of the English terminology will not achieve thecontractor's aim. Care must be taken to ensure the parties fullyunderstand the implications of terminology used under the governinglaw of the contract.

[B]. Delay and Performance

As mentioned above, the parties frequently agree the payment ofliquidated damages if the project is delayed. Liquidated damages fordelay will generally be calculated on a daily or weekly basis.Liquidated damages for failure to meet performance standards willvary with the degree of the failure. For example, in a constructioncontract for the design and build of a power station, liquidateddamages may be applied at an agreed rate per unit of heat producedover and above the agreed tolerances, and a separate rate for eachunit shortfall in power produced. In transport infrastructurecontracts, liquidated damages may be imposed if specified noiselevels are exceeded, for failure to achieve specified ridecharacteristics, or if the travel times are longer than specified.

The contractor will look for such liabilities to be capped (in respectof individual performance requirements and/or overall) at a particularlevel. This has the effect not only of limiting the liquidated damagespayable but also of capping the contractor's liability for breaches ofthe type covered by the payment of liquidated damages.(17) This isbecause a liquidated damages clause will generally be construed asreflective of the page "40" parties' intention that liquidateddamages are to be the exclusive remedy in respect of a particularhead of loss.(18)

[C]. Defects

With regard to defects, a limit in monetary terms (usually part of anoverall cap on liability) can often be found. More usually, thecontractor will have negotiated to exclude particular types of loss,most obviously consequential loss. However, as set out above, insome jurisdictions, the meaning of consequential loss is unclearand may cause surprise as the exclusion of ‘consequential loss'

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may not in fact exclude very much – for example, under Englishlaw, consequential loss has been construed to cover only damageswhich would not, but for the express knowledge of the contractor, beregarded as losses flowing directly and naturally from any breach.(19) It is sensible to identify the particular categories of loss soughtto be excluded, rather than relying on general terminology.Accordingly, a contract may provide for liability to be limited to thecosts of repair or reinstatement of the works, excluding liability for alist of specified losses, such as loss of use, loss of productionand/or loss of contract.

[D]. Entitlement to Loss and Expense Due to Delay andDisruption

Construction contracts may entitle the contractor to claim for lossand expense due to delay and disruption. Delay and disruptionclaims (also called ‘prolongation claims') typically accompanyclaims for extensions of time. Whereas the latter concern thecontractor's claim to extend the date by which it must complete theworks, loss and expense claims are for the costs associated withhaving to take longer to achieve completion. Most costs claimedwill be no more than the contractor's ordinary costs of being on siteand carrying out the project for a longer period than would havebeen the case had the delay and disruption not occurred.

Prolongation cost items that are commonly claimed include: extralabour time, additional plant hire costs, overheads, profit, financingcharges (such as maintenance of bonds or overdrafts), loss ofopportunity and altered working conditions. Contracts mayexpressly exclude some categories of loss, such as loss of profitand loss of opportunity.

In common law jurisdictions, the absence of an express contractualright to claim for delay and disruption costs leaves a contractor withonly its common law right to sue for breach of contract where theemployer is responsible for a delay to the contractor's works. Wherethe delay is not the employer's fault then, even where there is acontractual right to an extension of time (e.g., exceptional inclementweather), there is generally no corollary right to delay and disruptioncosts associated with that delay. page "41" Again, differentjurisditions take varying approaches to entitlements to the recoveryof costs associated with delay. Under German law the contractorhas a right to claim damages if the employer omits an actnecessary for the performance of the work, the contractor hasoffered the performance owed under the contract and if the omissioncauses the delay of the performance. Where the German standardterms for construction (VOB) apply the contractor has to notify theemployer of events causing delay and will lose any entitlement if itfails to do so unless the employer was demonstrably aware of thedelay events.(20)

The contractor's entitlement to recover loss and expense onaccount of delay and disruption (if any) is usually subject to avariety of conditions precedent and other procedural requirements.For example, the contract may require that the contractor must firsthave established an entitlement to an extension of time, mitigatedits loss, provided timely notice to the employer of both the delayand the claim, and adequately substantiated the amounts claimed.Typical conditions precedent to claims are addressed in more detailin Chapter 4.

[E]. A Conclusive Final Certificate?

Another means by which the contract may limit the contractor'sliability for defects is by providing for the final certificate to beconclusive as to the satisfactory execution of works in accordancewith the contractual requirements. Contracts for mechanical andelectrical work, for example, generally favour a conclusivecertificate, save in respect of a narrow class of latent defects.(21) Incontrast, the standard form civil and engineering contracts (such asICE and FIDIC) have moved away from conclusive final certificates.The difference in approach lies in the nature of the work. Defects inmechanical and electrical plants are likely to emerge oncommissioning or soon thereafter. Defects in buildings or civil worksare notoriously difficult to detect – hence the reluctance to excludeclaims following issue of the final certificate. In addition, thecontinued performance of mechanical and electrical work aftercommissioning is heavily dependent on the operation andmaintenance regimes, thereby quickly reducing the responsibility ofthe original supplier for any failures.

§2.11. Project Security

[A]. Types of Security

The construction contract usually provides for security to be givento support the contractor's (and very occasionally the employer's)obligations. This may be tangible page "42" security (thecreation of a cash reserve by way of retention) or third partysecurity, either by way of a parent company guarantee or third partysecurity in the form of bank guarantees or bonds. The mostcommon forms of security are considered briefly below.

[B]. Advance Payment Bonds

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Where the contractor receives a sizeable advance payment in orderto mobilise or to order long lead time equipment, it is common tosecure repayment of the advance by way of deduction from sumsearned over the life of the contract. It is also common for thisrepayment obligation to be backed by a third party guarantee in theform of an ‘on­demand’ bond. An on­demand bond is one which canbe called by a simple written demand in strict compliance withformal requirements but without the need for proof of breach by thecontractor or of loss or damage suffered by the employer.

In theory, an advance payment bond should be a reducing bond,initially securing the whole of the advance but reducing in size asthe advance gets repaid by way of deduction from the value of workcarried out. However, where this level of sophistication is notaddressed the contractor carries the cost of the advance paymentbond for the whole life of the project. While this obviously gives theemployer additional security (and may be in lieu of a performancebond or lead to a smaller performance bond) this may be anunnecessary project cost if it affords more security than is required.This cost is ultimately carried by the employer as the contractor willinclude the costs of obtaining and maintaining the bond in its bidprice.

[C]. Retention Funds

The employer generally has the right to retain a percentage –usually three to five % – of the value of works certified as being duein each payment certificate up to practical completion to form aretention fund. The retention fund is available to the employer tomeet valid claims against the contractor, including claims fordefects. If there are no outstanding claims, typically half of theretention fund will be released on certification of completion and thebalance on certification of making good defects or expiry of thedefects liability period, whichever is the later.

In part to improve contractor cash flow the practice has evolved –and is now common in major infrastructure projects – whereby thecontractor provides a bond to cover all or part of the retention in lieuof the deduction of such sums by the employer. Since a retentionfund is a substitute for a cash sum, against which the employer hasunlimited recourse, there is no reason why the retention bond shouldnot be on­demand. In theory this should, until completion, be anincreasing bond, mirroring the build­up of the retention fund itreplaces but this is rarely the case in practice as bonds typically aretaken out for the relevant percentage of the estimated contract sumat the start of the project. It is wise however to provide arequirement to increase the value of the bond to reflect increases tothe contract price due to variations or, in a total cost contract,increased actual costs.

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[D]. Performance Bonds and Guarantees

The purpose of performance bonds and guarantees is to secure thedue performance by the contractor of its obligations under thecontract. In practice, the real value of these bonds is where thecontractor becomes insolvent as they then provide the only directaccess (in the absence of trust funds) to recovery without proving inthe liquidation.

Performance bonds and guarantees may be ‘on­demand’ (describedabove) or ‘on­default’. An on­default bond operates as a guaranteeand requires proof of default on the part of the contractor.Contractors often strongly resist providing on­demand bonds due tothe risk of wrongful calls. A degree of comfort may be given byrequiring the form of demand to be signed by a senior officer of theholder of the bond, who certifies a bona fide belief that thecircumstances justifying the call on the bond have arisen.

Performance bonds are frequently sought to a value of up to 20% ofthe contract price. In many circumstances, the guarantee will be inaddition to an advance payment bond (which may or may notreduce so as to have real value over the contract period) and aretention fund or bond. The costs of obtaining bonds and guaranteeswill be included as part of the contractor's tender and so effectivelythe employer will be paying for the benefit of such added protection.In addition, in some jurisdictions (e.g., Germany), bonds andguarantees must be shown as liabilities on the contractor's balancesheet, which discourages contractors from offering them.

[E]. Parent Company Guarantees

A parent company guarantee provides the employer with securityfrom the parent company of the party to the original constructioncontract. Parent company guarantees are usually required from theultimate parent company or another parent company in the chain –depending on the financial stability of the entities in question. If theultimate parent company is foreign to the jurisdiction where theproject is being constructed, this may influence the choice ofguarantor and/or affect the documentation relating to the guarantee.

Whenever a parent company guarantee is requested, the groupstructure needs to be reviewed to assess the value of the additional

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security being provided. If the parent company is itself a substantialoperating company with its own revenue stream and assets, theguarantee may be of considerable additional benefit. However, if theparent company merely owns shares in operating­ and asset­owningsubsidiaries, the value may not be significant, as any claim on theparent company is effectively subordinated to the claims of all thecreditors of all the subsidiaries. Despite this, parent companyguarantees are frequently requested as the guarantee is not usuallylimited to a specified percentage of the contract sum (as is a bond)and is usually of longer duration than a bond. The entity providingthe guarantee may, however, seek to negotiate a limit to the periodof time during which the guarantee may be called.

Sometimes construction contracts require the contractor to providea parent company guarantee and a bond (which may or may notactually be necessary). page "44" Normally the two do servedifferent purposes. The bond is for a limited sum and time period(often up to completion only) and protects against the risk that thecontractor may fail to complete due to insolvency or otherwise. Theparent guarantee usually lasts longer and mainly provides comfort inrelation to defects that may arise.

[F]. Payment Guarantees

A payment bond or guarantee may be sought by the contractor froman insubstantial employer. Commonly, such bonds or guaranteeswill cover a fraction of the contract sum, for example, 10%–20%.This is generally sufficient to protect the contractor in relation towork it has carried out but which it has not been paid for. Thecontractor can then take the decision whether to walk away from theproject and not to incur the costs of any additional works wherethere is a significant risk of non­payment by the employer, wherethe bond or guarantee have been exhausted.

Provision of a bond of this nature will give rise to an additionalproject cost. Therefore, alternative methods of providing security forthe contractor can and have been devised. For instance, in theChannel Tunnel project (see above), the payment mechanismprovided for the contractor to make monthly estimates of futurecosts two or three months ahead. Subject to scrutiny by theemployer, this sum was placed into an escrow account and wasavailable to meet actual costs incurred when the contractor hadcarried out the work. While this mechanism obviously has a fundingcost to the employer, it may be more desirable to provide comfort tothe contractor in this way than to purchase third party security in theform of a bond or guarantee.

[G]. Other Forms of Security

Project security may also be provided in other forms such as:

­ letters of credit – used, for example, in relation to the purchase ofhigh cost materials or other supplies; and

­ trust funds – for example, in the case of the financing of the IraqTrans Saudi pipeline where the proceedings of oil sales were paidinto a trust account earmarked for payment to the contractor onpresentation of documents and invoices certified by the CentralBank of Iraq.(22)

§2.12. Project­Financed Construction Projects

[A]. Introduction

The essence of project finance is that there is no, or only limited,recourse to any participant other than the project company. Theequity and debt ‘cushion’ provided by page "45" theshareholders of the project company will often be insignificant.Loans for the construction of the facility will essentially be repaidthrough the revenues the project company is creating once thefacility (a power plant, toll road etc.) has been put into operation. Toa fundamental extent, therefore, the lenders will call the tune on keyterms of the construction contract as well as the conduct andresolution of disputes to make sure that, to the extent possible,risks are directed away from the project company and anydifficulties during the construction phase are resolved as effectivelyas possible. In these projects, the interests of the lenders/otherfinanciers are paramount as, whatever the wishes of the projectcompany, its sponsors or the contractor, the construction contracthas to be ‘bankable’ otherwise the project simply is not feasible.

The contractor is often (though not invariably) one of the projectcompany's shareholders, or perhaps two or more of the projectcompany's shareholders (or their operating subsidiaries) actingtogether in a joint venture. The contractor will be looking for a swiftexit with a profit and wherever possible to leave risks in the projectcompany. In this context the project company and the lenders'interests are normally aligned as neither will accept risks to be leftin the project company that cannot be managed and they will insiston a complete back­to­back pass through of construction risks. Theextent to which this has or has not been achieved in the draftingcan give rise to disputes.

Most of the discussion in this chapter applies equally to project­financed projects. The difference is really the presence of an

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additional interest (the lenders) and therefore an additional layer ofcontract administration and dispute management. Some of thesedifferences are addressed further below.

[B]. The Lenders’ Engineer

Lenders will usually appoint their own independent engineer (or‘technical advisor’) with responsibility for reviewing the technicalspecification and reporting to the lenders on project progress withrights to inspect the works and off­site facilities. The lenders'engineer is also generally given responsibility for certifying thecompletion of milestones, the trigger for payments to the contractorunder the construction contract and the trigger for the drawdown offinancing under the loan agreements.

An employer will not want to have a mismatch between certificationunder the construction contract and drawdown under the loandocuments. Therefore, a solution often seen is that the lenders'engineer's certification is a condition precedent to certification underthe construction contract. An alternative is to provide for jointinspection by the lenders' engineer and employer's representative,with a requirement to have due and proper regard to anyrepresentations made by the lenders' engineer as to whether or notto issue a certificate under the construction contract. The employerthen takes the risk of mismatch in certification under the loan andconstruction contracts.

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[C]. Lenders’ Step­In Rights

Lenders' step­in rights are another important investment protectionmechanism. Lenders to a project company will usually have step­inrights under the construction contract to provide them with theopportunity to rectify any project company breaches or otherwiseperform the construction contract where the project company isunable or unwilling to do so. Typically, before a contractor is entitledto terminate the construction contract for project company's breach,the project company is allowed a specified period in which it isrequired (or entitled) to rectify the breach, after which the lendershave their own separate period in which they have the opportunity toremedy the breach.

Lenders will normally have similar step­in rights under the projectcompany's concession agreement or head contract with thegovernment or other authority for which it is carrying out the project.Again, these operate so that the government/authority's ability toterminate the concession agreement/head contract is subject to thelenders having the opportunity to rectify the project company'sbreach or otherwise perform the project company's obligations.

Lenders' step­in rights are often, but not always, limited to theextent necessary to rectify the breach.

[D]. Variation Orders

Lenders are also typically concerned to control the issue of variationorders and contracts may provide for their participation in theauthorisation procedure (either directly through the lenders' engineerunder the construction contract or indirectly by agreement with theproject company).

[E]. Liquidated Damages

A lender's liquidated damages ‘wish­list’ may be for liquidateddamages to cover up to six months' interest payments on theproject debt to be paid/deducted at a rate sufficient to cover interestpayments.(23) Contractors, however, will resist accepting full risk ofdebt service costs and delay damages are generally capped atabout 15%–20% of the total contract value. The contractor's pricewill reflect the level of exposure – for example, liquidated damageswith a cap above 20% of the contract value will generally translateinto an inflated price.

page "47"

[F]. Project Security

In project­financed projects, lenders look for a guaranteed method ofpayment of debt service. This tends to mean that the performancebond is seen not simply as protection against the contractor'sultimate insolvency but, as importantly, as a means of providinginstant cash to cover any period where the project is not revenueproducing. This has consequences for the type of bond orguarantee. As the real purpose of bonds in a project­financedproject is not so much to meet the demands of a stronglycapitalised employer, but to meet the peculiar demands of a projectcompany dependent on the continuing support of lenders, the normis for performance bonds to be on­demand. These fall away oncompletion when the operational phase starts, with revenue streamscoming online to meet debt service payments. In some markets(such as the UK PPP market) the need to balance the lenders'desire for near immediate cash against the surety's concerns aboutwrongful calls has been met by ‘adjudication bonds'. These are

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bonds which respond on the delivery of an adjudicator'sdetermination that sums are due to the beneficiary. As withadjudication generally, the adjudicator's decision is not final andwhile the surety is obliged to pay the sum found to be due by theadjudicator immediately, the amount finally due (whether more orless) will be determined or agreed later. Bonds of this nature are notoften used in international projects.

1 See section 2.12 below.2 See: F Einbinder, The Role of an Intermediary betweenContractor and Owner on international Construction Projects: aFrench Contractor's Viewpoint, ICLR 11, 175 (1994); T Kreifels,Construction or Project Management in Germany – The Structureand its Impact on Project Participants – An Overview, ICLR 10, 326(1993); S Nicholson, Effectiveness of the FIDIC Contract underArgentine Law, ICLR 9, 261 (1992); and F. Nicklisch, The Role ofthe Engineer as Contract Administrator and Quasi­Arbitrator inInternational Construction and Civil Engineering Projects, ICLR 7,322 (1990).3 For example, in Balfour Beatty v. Docklands Light RailwayLimited [1996] 78 BLR 42.4 Northern Regional Health Authority v. Derek Crouch ConstructionCo. Ltd [1984] 26 BLR 1.5 Beaufort Developments (N.I.) Ltd v. Gilbert­Ash N.I. Ltd [1998] 2All ER 778.6 See Ian Duncan Wallace, Hudson's Building and EngineeringContracts vol. I, 797 (12th ed., Sweet & Maxwell 2010).7 The general principle of Treu und Glauben (s. 242 of the GermanCivil Code) applies to all contractual relationships.8 Section 305 seq. of the German Civil Code which also apply toB2B relationships.9 See von Rintelen in Kapellmann/Messerschmidt, VOB Teile Aund B recital 60 ff (3d ed., C.H. Beck 2010).10 In contrast, Dutch law, for example, does not require liquidateddamages to represent compensation for loss.11 See Gleeson (M J) (Contractors) Ltd v. London Borough ofHillingdon [1970] 215 Estates Gazette 165; Zornow (Bruno)(Builders) Ltd v. Beechcroft Developments Ltd [1989] 51 BLR 16;Stanor Electric Ltd v. R Mansell Ltd [1988] CILL 399; and Bramall &Ogden Ltd v. Sheffield City Council [1983] 29 BLR 73.12 See ss. 339 seq. of the German Civil Code.13 Section 341 para. 3 of the German Civil Code.14 Peak Construction (Liverpool) Ltd v. McKinney Foundations Ltd[1970] 1 BLR 114; Rapid Building Group Ltd v. Ealing FamilyHousing Association Ltd [1984] 29 BLR 5.15 This is the requirement of ‘remoteness' as laid down in the caseof Hadley v. Baxendale [1843­60] All ER Rep 461.16 Hadley v. Baxendale [1843­60] All ER Rep 461.17 It is, however, a question of construction of the particularcontract: Baese Pty Ltd v. R A Bracken Building Pty Ltd [1989] 52BLR 130; Surrey Heath Borough Council v. Lovell Construction Ltdand Haden Young Ltd (third party) [1990] 48 BLR 108.18 Cellulose Acetate Silk Co Ltd v. Widnes Foundry (1925) Ltd[1933] AC; Temloc Ltd v. Errill Properties Ltd [1987] 39 BLR 30.Similarly in some civil law jurisdictions liquated damages isconsidered a substitute for any loss suffered e.g., Art. 1152 (1)French Civil Code, Art. 1382 Italian Civil Code and Art. 6.1.8.17 (2)the Dutch New Civil Code.19 See British Sugar plc v. NEI Power Projects Limited [1997] 87BLR 42.20 See s. 6 (1) of the VOB.21 See, e.g., Standard Model Form of General Conditions ofContract for the supply of electrical, electronic or mechanical plantwith erection MF/1 (revision 5, 2011) (IET/ IMechE, 2011)recommended by the UK based Institution of Mechanical Engineers,Institution of Electrical Engineers and Association of ConsultingEngineers for use in connection with domestic or internationalcontracts for the construction of electrical, electronics andmechanical plants.22 See Saipem SpA & Ors v. Rafidain Bank & Ors [1994] CLC 252.23 Whilst lenders think in this way, liquidated damages should bedetermined by reference to the loss suffered as a result of thedelay, not the debt service level. In most projects profits will exceedthe debt service level, but not in all and not necessarily during andshortly after first start­up.

Source

Chapter 3: DisputeAvoidance andResolution in Jane

§3.01. Introduction

Why are dispute resolution provisions important? This is not arhetorical question. Parties frequently spend significantly less time

Chapter 3: Dispute Avoidance andResolution

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Jenkins , InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 49 ­ 84

and effort drafting and negotiating the dispute resolution provisionsin their contracts than they do on the commercial and financialterms. Such provisions are often found towards the end of thecontract. Parties sometimes simply use boiler plate disputeprovisions or precedent language from another contract, withoutconsidering whether that language is appropriate for theagreement/project in question. In other cases, they may failaltogether to include dispute resolution provisions in their contract.

A lack of attention to dispute resolution provisions may be causedby a variety of factors, including a reluctance by the parties toacknowledge that problems might arise in their relationship in thefuture and/or pressure to finalise the negotiations and execute thecontract, which may prevent parties from undertaking a consideredreview and analysis of what type of dispute resolution provisionswould be most appropriate for the contract/project in question andwhether decisions will be capable for enforcement against availableassets.

Whatever the reason, a party may find that it is seriouslydisadvantaged as a result of having spent little (or no) time whenthe contract was prepared addressing the appropriateness of thedispute provisions. This is particularly true if the contract isinternational in nature, as a party may find itself exposed todisputes being resolved in the local courts of foreign jurisdictions.The laws and procedures of that jurisdiction may be very differentfrom those the party is familiar with, or would wish to apply to itsdispute.

§3.02. Dispute Avoidance

Owners, employers and contractors involved in internationalconstruction projects generally all want to see work delivered ontime and within budget. If lenders are page "49" financing theproject, they too will want work completed on time and withinbudget, to ensure that the project will generate the anticipatedrevenues during the finance repayment period. Avoiding disputes byidentifying, investigating and discussing problems at an early stageis one means of achieving these objectives, and parties haveincreasingly recognised that developing and using multi­tiereddispute resolution provisions tailored to the project in question canassist by:

­ allowing parties the flexibility to resolve low value and/or lessimportant problems more swiftly, and with less drain on cost andmanagement time, than would be possible in litigation orarbitration;

­ enabling parties to keep the project going, whilst avoiding orminimising disruption to the project and its completion within therequired time; and

­ ensuring that there are appropriate means available, if necessary,for resolving disputes that: (i) require a more rigorous andcomprehensive review of the circumstances giving rise to, andconsequences flowing from, the events in question and theirimpact on the parties' contractual and legal rights; and/or (ii) maybe capable of being resolved only by means of the litigation orarbitration process.

Parties may decide to create their own bespoke tiered disputeresolution provisions (used, for example, for the construction of theChannel Tunnel during the 1980s). Alternatively, many of thestandard form contracts used on international construction projectsnow include multi­tiered dispute resolution provisions. For example,each of the most recent editions of FIDIC's three main standardform contracts (the Red Book, Yellow Book and Silver Book)provides for disputes (including disputes related to the engineer'sdeterminations of claims, or, in the case of the FIDIC Silver Book,determinations made by the employer or its representative) to bedetermined in the first instance by binding adjudication. This isfollowed by ICC arbitration in the event that one party is dissatisfiedwith the adjudication determination. A flow chart illustrating thedispute resolution procedure under the FIDIC silver books is set outat Annex1.

To take another example, the ENAA model forms for power plantconstruction and process plant construction provide for disputes tobe resolved by mutual consultation between the parties, followed by(in certain specified cases) reference to an expert, whose decisionis final and binding unless either party refers the dispute to ICCarbitration. Again, the AIA A201 – 2007 General Conditions of theContract for Construction also provide for tiered dispute resolutionprovisions whereby claims (with the exception of those relating tohazardous materials) are in the first instance referred either to anindividual agreed by the parties (known as an Initial Decision Maker)or, if not agreed otherwise, to the architect for his decision. A partydissatisfied with that decision may, within thirty days of receivingthe decision, provide notice that it intends to refer the matter toarbitration. Prior to arbitration, the parties are required to endeavourto resolve the claim by mediation (in accordance with theConstruction Industry Mediation Rules of the American ArbitrationAssociation (AAA)). If mediation does not resolve the dispute, andprovided the parties have selected arbitration as the page"50" method for binding dispute resolution, the matter may bearbitrated in accordance with the AAA's Construction IndustryArbitration Rules.

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Settling any doubts about the enforceability of tiered disputeresolution clauses, the English courts have enforced provisionswhereby parties have contractually agreed to submit to some formof alternative dispute resolution (ADR) as a stage of their disputeresolution processes. In particular, the Courts have required partiesto undertake a particular stage of their dispute resolution processes(e.g., mediation, or review by a dispute board) before allowing themto proceed with court or arbitration proceedings that are intended tofinally resolve the dispute.(1) Courts in the United States have alsoenforced contractual provisions requiring parties to engage in anagreed ADR process prior to pursuing other remedies.(2)

Although multi­tier dispute resolution provisions are now the norm inmajor international construction projects, such provisions need to betailored to each individual project as they do not all require the samenumber, or types, of tiers. Including more tiers than the nature ofthe project requires may be counterproductive, in that it: (i)unnecessarily increases the cost and time required to resolvedisputes; and/or (ii) hinders final resolution of the matter by undulycomplicating and/or prolonging the dispute resolution process.

Determining which tiers of dispute resolution procedures may beappropriate to a particular project will depend on a number offactors, including:

­ the size of the project from a monetary perspective;­ the scope and expected duration of the project;­ the jurisdictions in which the parties are based;­ the location of the project;­ whether the parties have an existing (or developing) long­term,ongoing relationship; and

­ whether there are multiple parties (e.g., subcontractors, lenders)and/or multiple agreements involved in the project.

For example, if a project involves a long­term concession, theparties may want to include senior management discussions andsome form of ADR as procedures in their dispute resolutionprovisions, as these can provide a contractual framework thatsupports the ability to maintain and improve the parties' ongoingworking relationship. However, if an agreement is simply for theconstruction of a facility, with no ongoing operating or maintenancerelationship between the parties, parties might consider it lessuseful to include mandatory management discussions and ADRprovisions. They may instead want to ensure that disputes can bequickly referred to adjudication so that page "51" the disputecan be resolved relatively swiftly with the parties obliged toimplement the decision (and get on with completing the project)pending final resolution of the dispute through arbitration or litigation.

Whatever tier(s) of dispute resolution procedures parties include intheir contracts, they should also include express provision that theparties are obliged to continue to perform their obligations pendingresolution of any dispute.(3)

The primary advantages and disadvantages of the various forms ofdispute resolution procedures are discussed briefly below. Theprocedures are discussed in greater detail in later chapters.

§3.03. Options for Tiered Dispute Resolution Procedures

[A]. Mandatory Discussions

Concern about the adversarial nature of construction contracts hasled to the industry's operations being examined in a number ofjurisdictions. For example, reports in the UK such as the Readingreport, Trusting the Team,(4) and the Latham report, Constructing theTeam(5) (a joint industry and government review of the constructionindustry), advocated dispute avoidance in the first instance andcalled for problems to be identified early.(6)

In particular, these reports encouraged participants in theconstruction industry to avoid resorting to any formal disputeresolution procedures, by taking steps to resolve problems at thelowest possible level within their own organisations as quickly aspossible. Only if no solution can be found is the problem thenreferred to higher levels of management. Interestingly, this conceptconflicts with the introduction of the compulsory adjudicationprovisions of the UK Construction Act 1996 (discussed in detaillater in this chapter) and other jurisdictions which provide a right torefer disputes to adjudication at any time. The result of this is thateither party can always leapfrog the negotiations process andimmediately refer disputes to adjudication.

Of course, parties are always free to negotiate at any time, so whyshould they include specific provisions in their contract? One mainreason is that if such a provision were not included, some mightperceive a party's request to negotiate as a sign of weakness.

page "52"

The primary advantages of contractually specifying that potentialdisputes must in the first instance be referred for mandatorydiscussions at senior management level (e.g., managing directorsor chairmen) are that:

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­ it requires parties to turn their minds to a problem early, perhapsbefore the problem becomes substantial in nature;

­ involving senior management may overcome any deadlock overthe problem or entrenchment of positions that may havedeveloped at the project management or operational level;

­ senior management may be aware of broader issues, or interests,related to the dispute, the project and/or the parties' relationship,which may be relevant to that particular party's approach to theproblem and its possible resolution; and

­ if senior management are able to resolve the problem, it is amuch faster and cheaper way of resolving the dispute thancommencing court or arbitration proceedings.

The primary disadvantages of mandatory senior management leveldiscussions are:

­ There may be no means of forcing another party's representativeto engage in a meaningful and effective discussion. UnderEnglish law, for instance, such agreements to negotiate areunenforceable as: (i) the agreement lacks the necessarycertainty, so that the courts have insufficient objective criteria todetermine whether a party had complied with its obligation tonegotiate; and (ii) the courts refuse to police the circumstances inwhich a party may withdraw from such negotiations.(7) Successfuloperation of such provisions in these cases is, therefore, largelydependent on the goodwill of the parties.

­ Inevitably, such discussions will not result in determination oflegal questions of principle, but will be aimed at securing acommercial compromise. Accordingly, the outcome may notprove to be as useful in resolving future disputes of a similar kindas a binding determination imposed in formal dispute resolutionproceedings.

­ One party may try to thwart the process by refusing to makeitself available to participate in the discussions or to attend withno real commitment to engaging in meaningful dialogue. However,the risk that dispute resolution procedures will be stymied in thismanner can be avoided by ensuring that the contract: (i) includesa limit on the time for holding such discussions; and (ii) allowsdisputes to be referred to the next stage once that period of timehas expired, even if the management level discussions have notoccurred.

Finally, it may be appropriate on certain projects to create astanding board of senior management representatives that remainsin place for the duration of the project/contract, rather than arrangingad hoc meetings whenever a dispute arises. This technique is oftenadopted where partnering or alliancing arrangements are in place

page "53" (see Chapter 4) or the contract is for a substantialperiod of time. The board members will usually:

­ meet regularly to try to identify and resolve problems before theydevelop into disputes; and

­ when necessary, engage in mandatory discussions to attempt tosettle disputes.

[B]. ADR – Alternative Dispute Resolution

Other means of resolving disputes (in addition to adjudication,arbitration or litigation) are available if principal­to­principalnegotiations fail. Typically this involves the parties engaging aneutral third person to help them reach an acceptable settlement.Such procedures, generally known as ADR, aim to encourage theparties to acknowledge the weaknesses of their own case and thestrengths of their opponent's case, and to recognise the widercommercial implications of the dispute. ADR is not necessarilyintended to decide on the merits of the issue or to lay blame at oneparty's door. It is essential to recognise that this procedure does notattempt to achieve a comprehensive review of facts or legal ortechnical issues – the aim is simply to reach a commercial solution.For this reason (among others), ADR is often considered to workbest where the parties lack an understanding of the other's case andwhere the parties have a genuine desire to remain in a long­termrelationship. In consequence, ADR will often prove more successfulat the start of a project than at the end, when there may be noongoing commercial connection or prospect of an ongoingrelationship.

Terminology used to describe the varying forms of ADR is notuniversal, and can sometimes be interchangeable. However, themain types of ADR used on international projects are as follows.

[1]. Mediation and Conciliation

The parties may engage an impartial third party to act as mediatoror conciliator. There is no consistently recognised distinctionbetween the processes of mediation and conciliation. To the extentthat there is a difference, a conciliator may be more likely to issue anon­binding recommendation to the parties. Because of this lack ofdifferentiation, the term ‘mediator’ is used in this book to includeconciliators.

A mediator does not make decisions for the parties, but insteadmeets with the parties to assist them to negotiate their own solutionto the dispute. The parties can agree whether the mediator should

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consult with them separately and/or jointly. The mediator cannotcompel the parties to reach a settlement, but he may take a verypersuasive approach.

As discussed in more detail in Chapter 6, the procedure for amediation or conciliation will generally involve: page "54"

­ appointment of a suitably qualified mediator, in whom both partieshave confidence;

­ exchange of a short summary of each party's case, appendingonly key documents;

­ a relatively brief meeting (e.g., one to two days), with theopportunity to address the mediator in the absence of the otherparty;

­ an opportunity for the parties to negotiate face to face, with orwithout the mediator present; and

­ the mediator's assistance in drawing up any agreement reachedby the parties.

The advantages of mediation over litigation and arbitration is that itis:

­ Swift, with the whole procedure designed to produce agreementwithin weeks/months rather than months/years, thus providing anopportunity to avoid an antagonistic drawn­out dispute that ties upmanagement resources and damages on­the­job relations.

­ Relatively cheap, principally as a result of the length of timetaken and the lesser emphasis on the proof of rights.

­ Flexible, as mediation enables the parties and the mediator totake account of matters other than the strict contractual position,such as the future commercial relationship of the parties. For thisreason mediation is sometimes described as being an ‘interestbased’, as opposed to ‘rights based’, method for resolvingdisputes.

­ Confidential, with any offers to resolve the dispute made on awithout prejudice basis, so that the offer may not be disclosed inany subsequent formal dispute resolution procedure.

However, there are also disadvantages, including:

­ The risk that proposing mediation where there is no contractualrequirement to ask for ADR will be perceived a sign of weakness:the thinking (historically) being that a claimant with a strong casewill want to proceed straight to a binding determination.

­ Mediators have no teeth – the mediator cannot require eitherparty to take any steps such as disclosing relevant documentsdamaging to its case.

­ The outcome is non­binding – either party can refuse to reach anagreement or reject any recommendation that the mediator maymake.

­ There is no effective precedent value of a result in mediation,whether for future similar disputes between the same parties or inrelation to disputes with third parties, such as subcontractors.

­ A frank early disclosure of each party's case can be damaging asit gives the other party the opportunity to receive and evaluateinformation that may not otherwise have been available until amuch later stage in formal proceedings. Such early disclosuremay permit a party to prepare its case better for arbitration orlitigation. Accordingly, sometimes a party may agree to amediation without ever having any real expectation of reaching asettlement. page "55"

­ If it fails, it will be a waste of time and money.­ It will not produce a legally ‘correct’ result – the solution alwaysrepresents a compromise.

­ The non­investigatory nature of the procedures may make themill­suited to complex, technical disputes which require an in depthforensic examination of evidence to break the deadlock.

In addition to mediation, other types of ADR (also discussed inmore detail in Chapter 6) include:

[2]. Mini­trial/Executive Tribunal

Here a panel is created, usually consisting of a senior executive ofeach party, with a neutral chairman such as a retired judge or othersenior lawyer. The parties make limited representations to thepanel, which is responsible for reaching a negotiated settlement.The chairman may merely ensure fair play or may become involvedin the process – much as a mediator/conciliator would – to assistthe parties to resolve the issue. This form of ADR may involve amore detailed examination of the parties' legal positions thanmediation, and is considered by some to be best employed whenthere has been exchange of pleadings and disclosure of documents.

[3]. Early Neutral Evaluation

As an alternative to requesting assistance in the reaching of anagreement, the parties can obtain an independent evaluation of boththe technical and legal issues of their case by an independentexpert or in the context of existing proceedings perhaps a judge orarbitrator. The intention is to provide the parties with a realistic viewof the prospects of success, thereby encouraging settlement.

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However, if this process takes place close to the scheduled trialdate, substantial costs will already have been incurred by theparties. That said, it may still be preferable to attempt to resolvedisputes through this means than proceed to a full trial. The personwho provides the evaluation will receive written submissions inadvance, which will often (though not invariably) be supported byshort oral submissions by the parties at a hearing. This provides anopportunity to question the parties. Once the evaluation has beengiven, he is disqualified from being involved in the case further if itshould continue.

[C]. Factors to Consider in Drafting ADR Provisions

If parties decide to adopt mediation or conciliation as part of agreeddispute resolution provisions, they have the option of conducting theprocedure through an institution, or on an ad hoc basis.

Mediation and conciliation services with standard procedures areoffered by institutions throughout the world, such as: page "56"

­ the Centre for Effective Dispute Resolution (CEDR);­ the International Chamber of Commerce (ICC);­ the American Arbitration Association (AAA);­ the Chartered Institute of Arbitrators (CIA);­ the Hong Kong International Arbitration Centre (HKIAC); and­ the London Court of International Arbitration (LCIA).

Such institutions usually have a standard form of procedure and amethod of appointing the neutral third party (mediator or conciliator)in the absence of agreement between the parties. For example,CEDR, based in London, has for a number of years specialised inproviding mediation services in both domestic UK disputes andinternational disputes. There are also a number of specialisedmediation service providers in the US and other parts of the world.For example, in 2001 the ICC (based in Paris) introduced its ownset of rules (the ICC ADR Rules(8) ) dealing with ADR procedures.Additionally, the United Nations International Trade Law branch(UNCITRAL) has published Conciliation Rules that parties can agreeto adopt. Aspects of common mediation rules are considered furtherin Chapter 6.

Alternatively, parties can develop their own rules concerning theselection of the neutral third party and the conduct of the ADRprocedure. Indeed, many companies have their own bespoke ADRprocedures, which are introduced into their contracts as the firststage of the dispute resolution process, sometimes with an optionto leapfrog straight to litigation or arbitration if both parties agreethat ADR is not appropriate.

Finally, it should be remembered parties can always agree toparticipate in an ADR process once a dispute has arisen even ifthere is no ADR provision in their contract.(9)

[D]. Adjudication and the Use of Dispute Review Boards

In construction projects it is important that the parties have ameans of achieving binding decisions to resolve their disputes onan interim basis, so that work on the project can continue whilst theparties await the outcome of formal dispute resolution procedures(which can take months, often years, to complete). Many parties ininternational construction projects achieve this objective byproviding for adjudication.

Adjudication can take different forms. For example, it can involve asingle person or a panel deciding the dispute on an interim basis.The decision maker(s) will often be technical specialists or expertsin their fields. The use of panels of experts to act as interimdecision makers has become increasingly popular in internationalconstruction projects.

page "57"

In part, this has evolved from the role of the ‘engineer’ as decisionmaker in the first instance under various standard forms ofconstruction contracts. For example, earlier editions of the FIDICcontracts provided that: (i) disputes would in the first instance bedetermined by the person appointed as engineer under the contract;and (ii) his decision would be binding upon the parties until suchtime as it was reversed by arbitration held in accordance with theICC Rules of Arbitration (ICC Rules).

Sometimes contractors developed cynicism as to the engineer'simpartiality. This is perhaps not surprising, as frequently the disputewill concern a decision made by the engineer in the administrationof the contract, for example as to the amount of additional paymentdue to the contractor in respect of variations. In addition, theengineer is, of course, on the pay­roll of the employer. Acontractor's cynicism is likely to be even more acute where thecontract provides for disputes to be determined in the first instanceby the employer's representative, who is a member of theemployer's own organisation. Lenders to projects also increasinglyhad concerns over the potential lack of independence of thedecision­maker and pressed for alternative means of decision­making in the first instance.

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As a result panels of experts with particular skills, expertise andfamiliarity with the type of project or industry in question began tobe used during the 1980s and 1990s. Often these panels werechosen by the parties and appointed at the outset for the duration ofthe project. Panel members were paid (with the costs sharedequally by the parties) regardless of whether or not any disputeswere actually referred to them. Effectively, the parties created astanding panel of decision makers who would be available shouldthe parties need to call upon them.

International construction projects where such panels have beenused include:

­ The Channel Tunnel Project, which had a standing panel (theDisputes Review Board) of five members, of whom three wouldform a tribunal to make an interim binding decision concerning aparticular dispute.

­ The Channel Tunnel Rail Link Project in the UK, which had twostanding panels that determine disputes based on their subjectmatter. The technical panel (comprised of engineers) dealt withconstruction­related disputes, and the finance panel dealt withdisputes concerning the financial provisions of the concessionagreement.

­ The Sydney Desalination Plant Project, which had a standingdispute review board formed of three members (comprised of anengineer and two lawyers). The panel had an ongoing role inmonitoring progress of the project, and had the power to compelthe disputants to refer the dispute to the dispute review board fora recommendation if the issue could not be resolved by directnegotiation between the parties. The success of this disputereview board was demonstrated by the fact that no disputes werereferred to the formal dispute resolution procedure.

­ The construction of venues for the 2012 London Olympic andParalympic Games, which separated the functions between anindependent dispute avoidance panel (made up of elevenconstruction professionals with experience in major projects) andthe adjudication panel. The independent dispute page"58" avoidance panel focused on finding solutions to problemswhich arose before they became disputes, with any issues notsatisfactorily resolved by it being referred to the adjudicationpanel.

In the United States, the concept of using a standing panel ofimpartial, qualified people to provide non­binding recommendationsfor resolving disputes developed during the 1970s and 1980s, whensuch boards were used on various construction projects, includingthe second bore of the Eisenhower Tunnel (Colorado), the MountBaker Ridge Highway Tunnel (Washington) and the Chambers CreekTunnel (Washington).

Historically, such boards were used in the United States largely fortunnel projects, but by the mid­1990s they were being used on othertypes of heavy construction work (for instance, highways), andbuilding and process contracts, involving a variety of employers,including American Telephone & Telegraph, the HawaiianDepartment of Transportation and the International Monetary Fund.(10)

Certain institutions and organisations now include adjudicationprovisions in their standard form contracts or terms and conditionsapplicable to international construction projects. For example, in themid­1990s FIDIC introduced adjudication as a possible tier ofdispute resolution in its various standard form contracts, and eachof the current editions of FIDIC's Red Book, Yellow Book, SilverBook and Gold Book now include adjudication as the primary meansof dispute resolution.(11)

The NEC3 suite of contracts (currently in their third edition),developed to facilitate the implementation of sound projectmanagement principles provides for two adjudication options. A flowchart of each appears at Annex 2. These contracts have provedpopular for public works in the UK including for example, the HighSpeed Link from St Pancras to Folkestone and the Olympic Parkinfrastructure works. They are gaining popularity internationallyincluding notably in South Africa. New Zealand, Australia and HongKong. Uptake is also increasing in the Middle East and Asia Pacificregion. The World Bank also includes adjudication provisions in itsStandard Bidding Documents – Procurement of Works (March2012), which is the standard form of contract used on large scalecivil works projects funded by the World Bank where the estimatedcosts are more than United States Dollar (USD) 10 m.(12)Additionally, the World Bank and other multilateral developmentbanks and international financing institutions have prepared aMaster Bidding Document for Procurements of Works and User'sGuide (July 2005, updated 2008) which is intended to be used as amodel for such organisations in issuing their own standard biddingdocuments relating to projects that they decide to finance. Thatdocument also includes adjudication provisions that have beenaccepted by various development banks (for instance, the AsianDevelopment Bank and the European Bank for Reconstruction andDevelopment) in page "59" their standard bidding documents.(13)Furthermore, in 2005 FIDIC and the World Bank (along with otherdevelopment banks) published a special Multilateral DevelopmentBank (MDB) harmonised edition of the Construction Contract forMDBs (the Pink Book) which provides for the use of standingdispute adjudication boards.

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The AAA also publishes its own Construction Industry DisputesReview Board Procedures that parties can adopt. Additionally, theICC introduced its own Dispute Board Rules in September 2004(ICC DB Rules).(14) The ICC rules provide for ‘Dispute AdjudicationBoards' (panels that make binding interim decisions), ‘DisputeReview Boards' (panels that make non­binding recommendationsthat become binding if neither party expresses dissatisfaction withinthirty days of receiving the recommendation) and ‘CombinedDispute Boards' which usually issue recommendations as a DisputeReview Board but may in certain limited circumstances makeinterim binding determinations as a Dispute Adjudication Board(e.g., if one party requests that the panel do so, and the other partydoes not object).

The adjudication procedures published by the World Bank, FIDIC,the AAA and the ICC are considered in more detail in Chapter 5. Atable comparing the key features of each procedure is also set outin Chapter 5.

The interim binding nature of the adjudication panel's decisionresults from the parties contractually agreeing that they willimplement and abide by the adjudicator's decision until such time asthe dispute is finally resolved. The decisions are not enforceable bya summary procedure in the same way as arbitral awards orjudgments. Instead, a claim for breach of contract has to be broughtagainst a defaulting party. The enforcement and grounds for attackof such decisions are considered further in Chapter 5.

Common features of adjudication panels in internationalconstruction projects include:

­ A panel consisting of three (or sometimes five) members, witheach party choosing a panel member (whose appointment isapproved by the other party) and the parties, in consultation withthe other panel members, selecting a third person to act as chairof the panel. Sometimes a sole adjudicator will be appointedinstead.

­ A requirement that panel members be (and remain) independentof the parties and impartial. The panel members chosen by theparties do not act as advocates for, or representatives of, theparty that nominated the member.

­ Provision that the panel's discussions be confidential in respectof any non­parties or subsequent litigation or arbitrationproceedings.

­ A requirement that the panel members keep themselves regularlyinformed of the progress of the project, for example by readingprogress reports and other page "60" materials providedjointly by the parties, and making regular visits to site (e.g., everythree months).

­ A requirement that panel members have expertise and skills inthe type of project/industry in question.

­ Provision for the panel to take the initiative in investigating andascertaining the facts and law related to the dispute.

­ A requirement that the panel render decisions (usually written)within a relatively short period of time (often within three monthsof a dispute being referred to the panel).

A number of different terms may be used to describe adjudicationpanels. For example, the FIDIC standard form contracts refer to‘Dispute Adjudication Boards', whilst the World Bank refers to‘Dispute Review Boards'. Both these panels make interim bindingdecisions.

The terms ‘Dispute Board’ and ‘Dispute Review Board’ may havedifferent meanings to parties from different jurisdictions. Thus it isimportant to understand the effect that the board's decision will haveon the parties. This determines whether the proposed panel or boardis an adjudication panel imposing a binding interim decision on theparties (as provided for in the standard form contracts of FIDIC andthe World Bank and Dispute Adjudication Boards created pursuantto the ICC DB Rules), or simply makes a non­bindingrecommendation (as is common in the United States and withDispute Review Boards created pursuant to the ICC DB Rules). It isexpected that the parties' acceptance and implementation of thenon­binding recommendation will follow from their confidence in theboard in question, the theory being that recommendations by aboard comprised of impartial members with the appropriateexpertise and understanding of the project in question should bepersuasive. It has also been suggested that in some cases a partywill be encouraged to accept and implement a non­bindingrecommendation where the contractual provisions establishing theboard and its powers and procedures provide that itsrecommendations are admissible, to the extent permitted by law, asevidence in subsequent litigation or arbitration proceedingsconcerning the dispute in question.(15)

Reference to adjudication panels/boards in the remainder of thischapter are (unless indicated otherwise) to panels/boards makingbinding interim decisions.

[E]. Advantages and Disadvantages of Adjudication

The advantages of adjudication can be summarised as follows:

­ It provides the parties with a dispute resolution process that is

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relatively swift and less costly than court or arbitrationproceedings (of course such proceedings may be avoided onlytemporarily if a party is dissatisfied with the decision of theadjudication panel). page "61"

­ It allows the parties to continue with their project/contract whilethe dispute is being resolved. This can be particularly importanton major construction projects where the parties will normally allwant to ensure that work continues, particularly in light of thesignificant costs that may be incurred if work is suspended.

­ It provides the parties with the opportunity to select decisionmakers with appropriate skills, technical expertise and experiencefor the project/contract in question. This provides the benefit ofhaving decisions made by technically qualified people who willunderstand and be familiar with the often complex technicalissues that arise in international construction projects. At thesame time, the parties have the comfort of knowing that if thepanel of experts makes a flawed decision (on a factual or legalbasis), it will still be possible to have a court or arbitral tribunal re­examine and possibly set aside the panel's decision at a laterstage following a more comprehensive dispute resolutionprocess.

The drawbacks of adjudication are:

­ Although the parties gain the benefit of having decisions made bypeople with technical expertise, sometimes such panels makedecisions that are more ‘technical’ than ‘judicial’ in nature. Thatmay not be appropriate for the final determination of the dispute.Similarly, panel members with technical expertise may not bebest suited to deciding mixed questions of fact and law. (Thesedisadvantages are to an extent alleviated by the fact that thepanel's decision may later be reviewed and possibly set aside inarbitration or litigation).

­ Panels are commonly required to provide decisions within arelatively short period of time (typically within three months of areferral). This means the panel may not be able to conduct an in­depth and rigorous analysis of all the issues (factual and legal)that the parties consider to be relevant to their dispute.

­ The panel does not have the ability (absent agreement of theparties) to require disputes arising under different contracts to bejoined or consolidated with disputes arising under the contract inquestion, even if the same parties are involved in both disputesor the disputes arise out of the same events or circumstances(e.g., disputes in relation to a main contract and a subcontractdispute). Parties may attempt to overcome the risk ofinconsistent decisions by including provisions in their contractsfor joinder and/or consolidation of related disputes before onepanel. Alternatively, they might enter a stand­alone ‘umbrella’dispute resolution agreement addressing all of the contracts andallowing related disputes to be heard before one adjudicationpanel.

­ The decision of the panel is enforceable only as a matter ofcontract, not as a judgment of the court or award of an arbitraltribunal. It can therefore be more time consuming and costly toenforce the panel's decision in the event that one party does notcomply with it. page "62"

­ Although the panel's decisions may have persuasive value, theyare not binding precedents for similar disputes that might arisebetween the parties in future.

­ The panel's proceedings may prove difficult to control due to thewide freedom generally given to the panel to act as experts andinvestigate the facts. For example, under English law, experts arenot bound to follow rules of natural justice and may make theirown investigations and reach decisions without referring back tothe parties for their comments, and there is no statutoryframework such as exists for arbitration, (namely, the EnglishArbitration Act 1996), which applies to check perceivedprocedural unfairness. These issues are addressed in more detailin Chapter 5. Such risks can be mitigated to an extent by draftingprocedures designed to provide parties with greater control over,or at least involvement in, the process of fact­finding anddetermination. For example, as a minimum it is prudent to providethat all communications that each party has with the panel besimultaneously copied to the other party. Also, occasionallyprovision is made for a panel to provide a draft of its decision forcomment by the parties.

[F]. Factors to Consider in Drafting Adjudication Provisions

Assuming parties want to include adjudication (i.e., an interimbinding decision) as a tier of dispute resolution, they will need toconsider and address a number of issues including:

(a) whether the parties want a single person, several people(typically three) or one or more people selected from a panel(typically five to ten people) to act as adjudicator(s); and

(b) whether the parties want to create their own bespokeadjudication provisions, and if so what type of powers they wantto give to the panel (e.g., do the parties want the panel or boardto also be able to make non­binding recommendations and ifso, in what circumstances)? There is no firm precedent here toassist in making this decision. For instance, the FIDIC RedBook provides that binding decisions will generally be made butpermits parties to agree jointly to refer a matter to the Dispute

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Adjudication Board for its non­binding opinion (see clause 20.2).This option is not, however, found in the basic versions of theFIDIC Yellow or Silver Books. The FIDIC Gold Book allowsparties to agree jointly to refer a matter to the DisputeAdjudication Board for assistance or informal discussion toattempt to resolve any disagreements. The parties are notbound by any advice given during these informal meetings (seeclause 20.5). Another approach (as discussed above) is foundin the ICC DB Rules which allow parties to create a ‘CombinedDispute Board’ which primarily makes non­bindingrecommendations, but can in specified circumstances makebinding determinations.

page "63"

Accordingly:

­ will the panel be able to render a decision on the basis of amajority opinion, or will it need to be a unanimous decision?

­ what type of procedures relating to the adjudication do the partieswant to include in the contract (e.g., will the parties have a rightto request a hearing)?

Alternatively, the parties might decide to adopt existing adjudicationprovisions, such as those that have been developed by FIDIC, theWorld Bank, the AAA or the ICC (see Chapter 5 for a comparison ofthe key features of the institutional rules) relating to:

­ The allocation of the costs and expenses of the panel.­ The extent to which the panel will have the power to take theinitiative in ascertaining and investigating the facts and lawrelated to the dispute.

­ Whether the panel may appoint its own advisers to assist onmatters of legal interpretation or areas outside its expertise (and ifso, whether the prior consent of the parties is required in advanceof the panel making any such appointment).

­ The timescale for the panel to provide its decision.­ Whether the panel will have powers to award interest and/orcosts.

­ Confidentiality.­ Whether the panel members will be barred from acting aswitnesses in any subsequent litigation or arbitration.

­ The panel's powers in the event that one party refuses toparticipate in a reference (e.g., can the panel proceed to adetermination if a party is absent or refuses to participate).

­ Will the sole adjudicator or panel be appointed from the time thatthe parties' agreement is entered into (or shortly thereafter) untilthe end of the construction of the project (i.e., a standingadjudicator/panel), or will an adjudicator or panel only beappointed only if and when a dispute arises (i.e., ad hoc)? Theprimary advantage of standing panels is that whenever a disputedoes arise the members of the panel will have a high degree offamiliarity with, and understanding of, the project and its progressand the panel will generally be readily available to render adecision within a relatively short period of time.(16) Practically, astanding panel may also be able, if so desired by the parties, toact as an informal sounding board when issues first arise andbefore they are formally referred to dispute resolution.

page "64"

Disadvantages of standing panels include:

­ The fact that although the parties can initially select panelmembers with expertise from a range of disciplines, it is ofcourse possible that the panel may lack the expertise to deal witha particular dispute that arises. One way to address this is toprovide that the panel has the power to obtain external expertadvice if required; however, the associated costs will have to beborne by the parties.

­ The risk that the panel members may find it difficult to approachfresh disputes with an entirely uncoloured view of the merits, inlight of information received in relation to previous disputes on theproject.

­ The fact that the use of a standing panel can be costly,particularly if the project is of a significant duration.

­ The fact that the increasing popularity and use of standing panelsmay result in it becoming difficult to find suitably qualified peoplewho are available to accept relatively long­term appointments aspanel members.

Finally, as with the methods of dispute resolution we havepreviously discussed, it is important that parties who includeadjudication provisions in their contract also include either litigationor arbitration as the final tier of dispute resolution, unless they wantthe determination by the adjudicator(s) to be final and binding.Additionally, it may be prudent to provide that any dispute regardingnon­compliance with a panel's decision will be referred directly toarbitration (or litigation) to avoid having first to have recourse to thepanel.

[G]. Statutory Adjudication: The UK Experience

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The adjudication procedures described above involve acontractually agreed form of dispute resolution. In the UK, radicallegislation in the late 1990s (the UK Construction Act 1996),introduced mandatory fast­track adjudication for constructioncontracts carried out in England, Wales, and Scotland.(17) As aresult, even if the parties have decided, for whatever reason, thatadjudication is not an appropriate form of dispute resolution for theircontract or project, if that project falls within the ambit of Part II ofthe UK Construction Act 1996, they may nevertheless haveadjudication imposed on them in respect of certain types of dispute.This is also the case in some other jurisdictions, including NewZealand, Singapore and a number of the Australian states, whichhave also introduced legislation imposing compulsory adjudicationon aspects of the construction industry. In addition, compulsoryadjudication in the construction page "65" industry is beingconsidered in Hong Kong, South Africa, and some states in theUnited States.

Adjudication was not, of course, a new concept to the UKconstruction industry – families of standard form constructioncontracts in the domestic market, such as those published by theJoint Contracts Tribunal (JCT), included adjudication provisions inrelation to payment disputes in their subcontracts prior to theenactment of the UK Construction Act 1996. Adjudication was alsoseen on larger projects (e.g., the Channel Tunnel) with the use of apanel of experts as discussed above.

What was radical about Part II of the UK Construction Act 1996 wasmandatory regulation by Parliament, focused on a specific industryand imposing procedures on parties to construction contracts thatthey might not wish to adopt. This occurred against the backdrop of,amongst other matters, the Latham report (referred to above).Compulsory adjudication was one of the pivotal recommendations inthat report. The primary policy consideration was that adjudicationwould provide a swift, cheap mechanism for subcontractors topursue claims, thereby preventing perceived abuse by contractors(and their clients).

Essentially, Part II of the UK Construction Act 1996 provides thatfast­track adjudication (decisions are to be made within twenty­eightdays of a dispute being referred to adjudication) is available for all‘construction operations' carried out in England, Scotland or Wales(with certain limited exceptions). The term ‘construction contract’ isdefined to include agreements for carrying out ‘constructionoperations', and both ‘construction contract’ and ‘constructionoperations' are broadly defined in the UK Construction Act 1996. Inparticular, these terms capture many activities that parties mightnot initially consider to be core construction activities. For example,‘construction contracts' is defined to include contracts for projectmanagement, construction management, architectural, surveyingand advisory services. ‘Construction operations' is defined toinclude, amongst other matters, providing labour for the carrying outof construction operations and external or internal cleaning ofbuildings and structures carried out in the course of constructing,altering, repairing, extending or restoring a building structure.

If an activity falls within the statutory definition of an agreement for‘construction operations', Part II of the UK Construction Act 1996provides that any party is entitled to refer a dispute arising inrelation to those construction operations to adjudication at any time.(18) In the case of multi­tiered dispute resolution provisions, thisenables a party to ‘leapfrog’ over other dispute processes (e.g.,mandatory senior management discussions or ADR) that might beprovided for in the relevant agreement.

The extremely broad scope of Part II of the UK Construction Act1996 is often surprising to parties, even if they have a generalfamiliarity with English law. Indeed, the adjudication provisions inPart II of the UK Construction Act 1996 would have page"66" applied to the construction contract for the Channel Tunnel, atleast in so far as those parts of the works carried out in England, ifthe UK Construction Act 1996 had been in force when the tunnelwas constructed.

It is not possible for parties to contract out of the application of PartII of the UK Construction Act 1996. However, Part II of the UKConstruction Act 1996 is territorial in that its application is limited toconstruction operations carried out in England, Scotland or Wales.For example, it would not apply to construction projects in theMiddle East, even if the parties selected English law as thegoverning law for their contract.

Part II of the UK Construction Act 1996(19) sets out a series of nineminimum requirements that must apply to any adjudicationprocedure relating to ‘construction operations' falling within the ambitof the UK Construction Act 1996. These are:

(1) Each party shall have the right to give notice at any time of itsintention to refer a dispute to adjudication.

(2) A timetable must be provided with the object of securing theappointment of the adjudicator and referral of the dispute to himwithin seven days of such notice.

(3) The adjudicator is required to reach a decision within twenty­eight days of referral or such longer period as is agreed by theparties after the dispute has been referred.

(4) The adjudicator is allowed to extend the period of twenty­eightdays by up to fourteen days with the consent of the party by

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whom the dispute is referred.(5) The adjudicator has a duty to act impartially.(6) The adjudicator must be able to take the initiative in

ascertaining the facts and the law.(7) The decision of the adjudicator is to be binding until the dispute

is finally determined by legal proceedings, arbitration oragreement. Alternatively, the parties may agree to accept thedecision of the adjudicator as finally determining the dispute.

(8) The adjudicator must be allowed to correct the decision so asto remove a clerical or typographical error that has arisen byaccident or omission.

(9) The contract must provide that the adjudicator is not liable foranything done or omitted in the discharge or purporteddischarge of his functions as adjudicator unless the act oromission is in bad faith (and any employee or agent of theadjudicator is similarly protected from liability).

In the event that parties fail to provide for adjudication in writing(20)in their agreement (or they do provide for adjudication but fail in theircontractual provisions to provide page "67" for any one of thesenine compulsory requirements), a statutory scheme of adjudicationset out in the Scheme for Construction Contracts 1998(21) (theScheme) will automatically apply to the parties and their dispute.(22)

The adjudication process required by the UK Construction Act 1996is extremely fast and the adjudicator must reach his decision withintwenty­eight days unless both parties agree to extend the time afterthe dispute has been referred or the claimant agrees to an extensionof fourteen days. It is also weighted in favour of the claimant. Forexample, the claimant can prepare its submissions at leisure andthen refuse an extension of time, putting great pressure on therespondent to prepare its defence effectively.

The Scheme provides a framework for the adjudication but does notset out detailed procedural steps, for example, specifying when therespondent must deliver its submissions. It also does not providethat a party is entitled to a hearing. Other concerns include the factthat the UK Construction Act 1996 and the Scheme do notexpressly contemplate adjudication by a panel. Further, while theScheme does provide for joinder of related disputes if all partiesagree, that may prove difficult to achieve once a dispute has arisenand has to be determined within the applicable short timetable.

There are an increasing number of organisations in the UK with theirown adjudication procedures, including the Construction IndustryCouncil Model Adjudication Procedures (CICMAR), Technology andConstruction Court Solicitors Association (TeCSA) (formerly knownas the Official Referees' Solicitors Association), the JCT, the ICEand the Technology and Construction Court Barristers Association(TeCBar). Some may prefer to incorporate one of theseorganisation's procedures (possibly with amendments)(23) or toprepare self­standing adjudication procedures tailored to meet therequirements of the particular project, rather than relying on theScheme.

The provisions of Part II of the UK Construction Act 1996 apply onlyso far as the contract relates to ‘construction operations'.(24) Thiscan result in some aspects of a contract being subjected to the UKConstruction Act 1996, but not others. For example, in a turnkeycontract for civil and process plant works, the latter part of theworks will generally be excluded from the definition of constructionoperations by virtue of section 105(2). Similarly, a services contractwhich includes, as one element, maintenance of a building, will onlypartly come within Part II of the UK Construction Act 1996.

Different dispute resolution provisions may therefore apply,depending on the category of the works concerned. This situation isclearly unattractive as it may result in jurisdiction disputes over thecorrect method of dispute resolution. Clients and contractors alikemay therefore prefer to adopt adjudication procedures that are

page "68" compliant with the UK Construction Act 1996 for alldisputes arising under such a composite contract. This avoids theprospect of different procedures operating depending on the natureof the underlying dispute. Indeed, in cases where it is impossible todistinguish between the elements of the dispute falling within andoutside the UK Construction Act 1996, this may be a necessity.

[H]. Excluded Activities and Contracts

A number of specific activities are excluded from Part II of the UKConstruction Act 1996, including:

(1) Drilling for, or extraction of, oil or natural gas and the extractionof minerals.

(2) Assembly, installation or demolition of plant or machinery on asite where the primary activity is nuclear processing, powergeneration or water or effluent treatment.

(3) ‘Supply only’ contracts for manufacture or delivery to site of:(a) building or engineering components or equipment;(b) materials, plant or machinery; or(c) components for systems of heating, lighting, air

conditioning, ventilation, power supply, drainage, sanitation,water supply or fire protection, or for security orcommunication systems.

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However, ‘supply and fit’ contracts which also provide forinstallation of such equipment are not excluded.

Additionally, certain classes of construction contract are excludedby the Construction Contracts (England & Wales) Exclusion Order1998 (SI 1998/648) (Exclusion Order), which excludes concession­style agreements entered into with the government or a public bodyunder the public private partnership initiative provided certainrequirements set out in the Exclusion Order are met, and theConstruction Contracts (England) Exclusion Order 2011 (SI2011/2332) for construction contracts entered into on or after 1October 2011.

The policy decisions behind certain of the exemptions were debatedin Parliament. The exemptions for nuclear processing and powergeneration, for example, were justified on the basis that projects ofthis kind are generally for an identified client and well­funded.Relationships in these industries in the UK, where there are arelatively small number of long­term players, are generally perceivedto be good and generally there are not the same problems in relationto non­payment down the contractual chain as there are on civil andbuilding projects. The distinctions drawn in parliamentary debates,however, have not always been well reflected in the legislation.Design obligations in relation to plant or machinery for powergeneration, for example, are not excluded.

It would be prudent for a party who intends to engage inconstruction projects in England, Scotland or Wales, and is notfamiliar with the provisions in and application of Part II of the UKConstruction Act 1996 to obtain specialist advice concerning the

page "69" application of the UK Construction Act 1996. Ideally,such advice should be sought at the time that the dispute resolutionprovisions in the contract in question are being drafted andnegotiated.

[I]. The Final Tier: Litigation or Arbitration?

In major international construction projects, parties typically selectarbitration, rather than litigation, as the final tier of disputeresolution. There are a variety reasons for this, including thefollowing.

Arbitration avoids recourse to the courts of any one jurisdiction,which is often important when the project involves parties fromdifferent countries (with the project/facilities in question possiblybeing located in yet another country). Arbitration is often seen,therefore, as providing a ‘neutral’ forum for deciding disputes beforean impartial tribunal.

In addition, the enforcement of arbitration awards is greatlyfacilitated by the New York Convention,(25) which provides for whatis effectively a fast­track procedure for enforcing arbitral awards ascompared to judgments from foreign courts (see Chapter 13 formore detail(26) ).

Arbitration also provides the parties with the freedom to choose an‘arbitration­friendly’ venue for the ‘seat’ (or legal place) of thearbitration. Ideally the arbitration law of the seat will provide that thelocal courts are to exercise restraint in interfering with the conductof an arbitration and provide a supporting role, intervening only inlimited circumstances (e.g., to check a lack of procedural fairnessor bias on the part of an arbitrator). One indication of whether ajurisdiction that is being considered as the seat of the arbitration is‘arbitration­friendly’ is its adoption of the UNCITRAL Model Law onInternational Commercial Arbitration, adopted by the United Nationsin 1985 and updated in July 2006 (the UNCITRAL Model Law).(27)The objective of the UNCITRAL Model Law is to have numerousjurisdictions adopt it (subject to any special or unique requirementsof the particular legal system in question) and by doing so to createan arbitration law that is recognised and applied internationally. TheUNCITRAL Model Law is premised on the principle that local courtsin the place where an international arbitration is being held shouldsupport, but not unduly interfere with, the arbitral process.Accordingly, the UNCITRAL Model Law provides, among otherthings, that:

­ the courts play a limited role in the arbitral process (e.g., orderinginterim relief; subpoenaing witnesses or documents; decidingchallenges to the impartiality or independence of arbitrators);

page "70"­ courts support the arbitral process by ordering a stay of courtproceedings brought in breach of a valid arbitration agreement;

­ any inherent jurisdiction of a court to interfere in arbitralproceedings be excluded;

­ nationality should not preclude a person from acting as anarbitrator; and

­ the parties all receive equal treatment and be given a properopportunity to present their respective cases.

To date, over sixty­five jurisdictions have adopted the UNCITRALModel Law, including Australia, Bahrain, Canada, Egypt, Germany,Hong Kong, Mexico, Singapore and some of the United States(Texas, California, Oregon, Connecticut, Illinois, Florida andLouisiana). However, in some cases a jurisdiction has adopted theUNCITRAL Model Law but made significant amendments it, for

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example, permitting anti­arbitration injunctions to be made (as inIndia) or adding substantive grounds for review of arbitral awards (asin Egypt). Accordingly, if you are not familiar with the local laws ofthe place that you are considering selecting as the seat of yourarbitration, it is prudent to obtain advice (prior to selecting thatjurisdiction as the seat of the arbitration) from advisors who are bothqualified in, and experienced with, the laws of the jurisdiction underconsideration. This is advisable even if the jurisdiction has adoptedthe UNCITRAL Model Law.

The seat of the arbitration is also relevant to enforceability of theaward – ideally the country selected will be a signatory to the NewYork Convention. Again, this should be checked prior to agreeingthe location of the seat.

Arbitration also provides a final and binding award, generally notsubject to any appeal. There are exceptions to this principle,depending on the law of the seat of the arbitration. In England, forexample, under the English Arbitration Act 1996 there remains alimited right of appeal to the courts on a question of law. (Groundsfor challenge and appeals from an arbitral award are discussed inmore detail in Chapter 13.) Arbitration provides the parties with theadvantage of privacy – arbitral hearings are conducted in private. Itis often assumed that parties to an arbitration (and the tribunalmembers) are bound to keep information concerning the arbitration,and any resulting award, confidential. However, the laws of differentjurisdictions may treat the existence of an implied obligation ofconfidentiality differently. Accordingly, if an arbitration agreement (orthe procedural rules of a selected institution) does not expresslyimpose an obligation of confidentiality, national laws governing thearbitration become relevant to determine whether such an obligationexists. For example, in Esso/BHP v. Plowman,(28) the AustralianHigh Court rejected the prevailing English law view that parties aresubject to general implied duty of confidentiality.

Parties should also be aware that national laws may consider thereto be exceptions to an implied general duty of confidentiality. Forexample, in Hassneh Insurance Co of Israel v. Mew,(29) the Englishcourts held that a party (who was not subject to an expressconfidentiality obligation) could disclose an award and the page"71" reasons behind the award to a third party against whom it hada claim, in order to establish the basis of the party's right to claimagainst the third party.

Additionally, even where institutional arbitration rules impose a dutyof confidentiality on the parties, some institutions may neverthelesspublish certain limited information (redacted or edited to preservethe parties' anonymity) concerning arbitral awards. For example, theICC publishes summaries of arbitral awards, although it will notprovide copies of the award (Article 34 (2) ICC Rules). Article 27(8)of the AAA's International Arbitration Rules (AAA Rules) providesthat the AAA/International Centre for Dispute Resolution (ICDR)may publish or otherwise make publicly available selected awards,decisions or rulings (edited to conceal the parties' names or otheridentifying details), unless agreed otherwise by the parties. Article34(5) of the UNCITRAL Arbitration Rules provides that the consentof the parties is required in order for an award to be made public.

Finally, the parties are free to choose their tribunal by agreement.This, in the authors' view, is a very significant advantage overlitigation. Parties can make a selection based on a number ofcriteria, including their own past experience of an arbitrator, knowinghow he is likely to approach legal and procedural issues. Forexample, their case may be more likely to find favour before acommercially minded arbitrator as opposed to a technical, ‘black­letter’ academic lawyer.

However, arbitration (like all other forms of dispute resolution) canhave its drawbacks. In particular:

­ It is not necessarily a faster or cheaper means of resolvingdisputes than litigation. In fact arbitration may in some cases bemore costly as parties must pay the fees and expenses of thearbitral tribunal, as well as administrative institutional costs if thearbitration is administered by an institution. Additionally, themembers of the arbitral tribunal may have limited availability (dueto other commitments) to hold and conduct hearings and draftdecisions. This can be particularly difficult if there is a threeperson arbitral tribunal and it is necessary to find times when allthree members of the panel are available. As a result, somearbitral institutions are actively seeking to address the issue ofthe time taken to complete an arbitral proceeding. For example,the ICDR (the international division of the AAA) claims that bycareful selection of arbitrators and management of the process,certain arbitrations can be started and completed withinapproximately one year.

­ Arbitral awards (which are based on contractual agreement) arenot binding on non­parties to the contract, and generallyarbitrators do not have power to join or consolidate relatedproceedings unless all of the relevant parties involved agree to doso. As indicated above, this can be cured by providing for joinderand consolidation in all relevant contracts (or having all partiesenter into an umbrella dispute resolution agreement).Alternatively, a degree of protection can be obtained by suitableselection of institutional arbitration rules. In particular, Article22.1(h) of the LCIA Rules provides that an arbitral page"72" tribunal has the power (unless agreed otherwise by theparties) to order that a third party be joined in the arbitration as a

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party, provided that both the third party and person(s) applying tohave the third party added to the proceedings agree to the joinder.The ICC Rules provide that the ICC International Court ofArbitration may, at the request of a party, consolidate two or morearbitrations into a single arbitration where: the parties have agreedto consolidation; or the all of the claims in the arbitration aremade under the same arbitration agreement; or where the claimsin the arbitrations are made under more than one arbitrationagreement, the arbitrations are between the same parties, thedisputes in the arbitrations arise in connection with the samelegal relationship, and the Court finds the arbitration agreementsto be compatible (see Article 10).

­ Enforcement of the award will be problematic in countries that arenot signatories to a treaty recognising international arbitral awards(including the New York Convention or the Riyadh Conventionproviding for enforcement of awards made in arbitrations havingtheir seat in an Arab league state). Moreover, the practicaldifficulties of enforcing an award in a hostile environment shouldnot be overlooked. It is prudent to seek local law advice inrespect of prospects for enforcement of an award in jurisdictionswhere principal assets are located.

Some major international construction projects do include litigationrather than arbitration as the final tier of dispute resolution. Theprimary advantages of litigation, as compared to arbitration, arethat:

­ state courts often have the power to order that relatedproceedings be joined or consolidated and heard together (even ifthe parties do not agree to do so), thus minimising the risk ofinconsistent decisions being made;

­ state court judgments may bind third parties; and­ state courts often also have other powers that an arbitral tribunaldoes not have, including the power to order interim relief and tosubpoena witnesses.

The choice of arbitration versus litigation to resolve disputes oninternational construction projects will depend to an extent on theparticular nature of the project. Generally, however, the maindisadvantages of choosing litigation rather than arbitration to resolveinternational construction disputes are that:

­ it is often more time consuming and costly to enforce a courtjudgment in a foreign jurisdiction than an arbitral award,particularly if the foreign jurisdiction has ratified the New YorkConvention or other applicable enforcement treaty;

­ use of national courts may give a party a ‘home court’ advantage;­ court proceedings are usually public; page "73"­ parties usually are not able to ensure that the judge(s) who willdecide their dispute is either experienced in, or knowledgeableabout, construction­related matters;(30)

­ generally, parties must follow prescribed rules of procedure thatcannot be adapted to fit any specific needs of the dispute orparticular objectives of the parties; and

­ the dispute may be subject to appeal(s) in relation to any pre­trialrulings made by the court and/or the trial court's judgment on themerits of the claim.

Flow charts of the key steps of arbitration proceedings under the,ICC, LCIA and UNCITRAL rules are set out at Annex 3.

[J]. Factors to Consider in Drafting Arbitration Provisions

Parties who opt for arbitration rather than litigation must consider anumber of issues when drafting the arbitration provisions. Inparticular, such parties will have to:

­ decide whether to have an institutional or ad hoc arbitration;­ choose the seat and language of the arbitration;­ determine the number of arbitrators (one person or a panel ofthree);

­ determine whether any rights to appeal an arbitral award shouldbe preserved;

­ consider the ability to seek interim and injunctive relief;­ address multiple party and/or multiple contract situations; and­ consider the impact of limitation periods if the contract providesfor multiple tiers of dispute resolution procedures.

These are each addressed briefly below.

[1]. Institutional Versus Ad Hoc Arbitration

An arbitral tribunal can be appointed, and the arbitration conducted,either in accordance with institutional rules adopted by the parties intheir contract (e.g., the arbitration rules of the LCIA,(31) theArbitration Institute of the Stockholm Chamber of Commerce,(32) theAAA(33) or the ICC(34) ), or on an ad hoc basis.

An ad hoc arbitration is one where the parties either: (i) draftbespoke rules for the appointment of the arbitral tribunal andconduct of the arbitration (which allows them to tailor the rules to

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their particular requirements); or (ii) adopt model rules such page"74" as the UNCITRAL Arbitration Rules,(35) which are the bestknown and most widely used rules developed for ad hocarbitrations.

The principal disadvantage of a purely ad hoc arbitration (i.e., onethat does not provide for an appointing authority or institutionalsupport or model rules of procedure) is that, practically, itseffectiveness depends on the willingness of the parties to co­operate in reaching agreement on the appointment of the arbitraltribunal and conduct of the arbitration. In particular, there will be noinstitution to police the proceedings before the arbitral tribunal isappointed or to rule on applications to remove arbitrators. Thus, ifone party does not wish to co­operate, it can result in the earlyadministration of the arbitration being difficult and time consuming.Indeed, costly court applications may be required in order to ensurethat a tribunal is appointed, though where the ad hoc arbitration isconducted in accordance with the UNCITRAL Arbitration Rules, thiscan be avoided since the Secretary­General of the Permanent Courtof Arbitration at the Hague can be asked to designate an appointingauthority.

In contrast, choosing to conduct the arbitration in accordance withinstitutional rules means that there will be a professionalorganisation available to administer and supervise the proceedings.Of course, institutions require parties to pay for such administrativeand supervisory services. The institutions will also usually have aschedule of the fees and costs that are payable to the members ofthe arbitral tribunal. The ICC, for example, fixes the amount of theICC's administrative expenses and the fees of the arbitrator(s) in allcases ad valorem on a sliding scale by reference to the amount indispute. Other institutions (e.g., LCIA) simply have a fixed scheduleof fees and costs.

The other main advantage of adopting institutional rules for anarbitration is that the procedural rules developed by the institution inquestion will usually have been ‘tested’, both in previous arbitrationsand in international enforcement proceedings. This should providesome comfort to a party concerning the conduct of the proceedingsand its ability ultimately to enforce an arbitral award.

Of course, before adopting any set of institutional rules, the partiesneed to review the rules before agreeing to them. Such a review isnecessary to ensure that the procedures prescribed by the rules areacceptable to the parties and/or appropriate for potential disputesarising in relation to the project/contract in question. Parties will alsosometimes want to modify an institution's procedural rules. Theparties' ability to modify institutional rules and have the institution inquestion agree to administer the modified procedural rules willdepend in large part on the particular procedural rules, and theattitude of the institution, in question. For example, both the LCIARules and the ICC Rules expressly contemplate that certain rulescan be modified by the parties.(36) There are, however, clearly limits.It is difficult to see, for instance, how any institution page"75" could agree to parties attempting to disapply its fee structuresor the ICC (for instance) agreeing that its process of review ofawards before issue should not take place. Where major changesare being contemplated to an institution's rules it is sensible toapproach that institution before contracting in order to make surethat the amended procedures will be acceptable to it.

[2]. The Seat of the Arbitration

As mentioned above, the seat of the arbitration is generally theplace where the arbitration hearings are held (unless agreedotherwise by the parties and arbitral tribunal), and the selection ofthe seat is important as it determines what additional proceduralrules may apply to the arbitration by virtue of the local arbitrationlaws. The seat of the arbitration is also important to theenforceability of the award, so parties should consider whether thereare reciprocal enforcement arrangements between the jurisdiction inwhich the arbitration is seated and the likely place(s) of enforcement(in particular, whether they have both ratified the New YorkConvention or other applicable enforcement Treaty).

Other factors that should be considered in deciding the seat of thearbitration are the convenience of the venue for the parties,witnesses and arbitrators, and the geographical neutrality of thevenue if the parties are from different jurisdictions. Ideally, theparties should specify the seat of the arbitration in the arbitrationclause.

[3]. The Language of the Arbitration

The language of the arbitration should also be addressed in thearbitration clause. Factors to consider when choosing the languageof the arbitration include the language(s) of the contractualdocumentation, the law governing the contract, and the languagesspoken by the parties and any likely witnesses.

[4]. Number of Arbitrators

A primary advantage of choosing a panel of three arbitrators is thatit provides more opportunity to obtain the appropriate mix of cultural,legal or linguistic attributes and/or technical expertise that may berelevant to an international project. Additionally, having three

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arbitrators rather than one may provide parties with some level ofcomfort that it is less likely that all three arbitrators might fail tounderstand, or fail to take account of all of the relevant factual andlegal issues in reaching their decision. Of course the additionalcosts and potential delay involved in having a three person tribunalmay not be warranted if the contract in question is not of aparticularly significant value.

page "76"

[5]. Right to Appeal

Parties may choose arbitration over litigation because it generallyresults in a decision that is final, as the laws of many jurisdictionspermit arbitral awards to be appealed only in limited circumstances,for example where there is fraud, lack of procedural fairness or thearbitral tribunal did not have jurisdiction to determine the dispute.Under the English Arbitration Act, parties can contract out of theirright to appeal an award on a point of law, although they cannotcontract out of the right to challenge an award on the basis ofsubstantive lack of jurisdiction of the tribunal or serious irregularityaffecting the tribunal, the arbitral proceeding or the award.(37)

Parties will need to consider whether to include provisions thatexpressly exclude the parties' right to appeal any arbitral award. Ifthe parties have chosen to apply the arbitration rules of aninstitution, the institution's rules often deal expressly with the abilityof the parties to seek recourse concerning an award. (e.g., both theLCIA Rules and the ICC Rules provide that parties, by adopting therules, waive their right to recourse insofar as such a waiver can bevalidly made(38) ). The AAA Rules provide that awards are ‘final andbinding’ on the parties (Article 27(1)).

The effectiveness of such an exclusion (whether in the contract orinstitutional rules) will need to be considered in the context of thelaw of both the seat of the arbitration and where the award is likelyto be enforced.

[6]. Continuing Performance

Standard form contracts commonly used in internationalconstruction projects frequently provide that the parties shallcontinue to perform their obligations under the contract despite adispute being referred to the dispute resolution procedures.(39) Asmentioned above, if parties are using a bespoke contract (or theirstandard form does not include such a provision), the parties willusually want to include such a provision, in order to ensure thatwork continues whilst disputes are being resolved. However, thelaws of the jurisdiction chosen to govern the contract and/or the lawof the place of performance may nonetheless entitle the contractorto suspend work in certain situations, for instance for non­payment.See, for example, section 112 of the UK Construction Act. Suchrights also exist under French(40) and Dutch law.(41) Some standardform contracts also include such suspension rights.(42)

Employers, owners and lenders will also generally want to ensurethat the contractor cannot treat a reference of a dispute to thedispute resolution procedures as an event entitling the contractor toan extension of time and/or additional costs (e.g., on the basis thatfailure by the employer to accept the contractor's claim is an act or

page "77" omission causing delay to the works). Parties maywant to expressly provide for this in their contracts.

[7]. Interim and Injunctive Relief

Parties need to consider whether it is necessary, or desirable, toinclude express provisions allowing the parties to seek interim orinterrogatory relief from national courts in aid of arbitration or inconnection with arbitration proceedings, and if so, how the courtsmight treat such a provision. This will depend on the law governingthe contract, the law of the seat of the arbitration and the law of thejurisdiction(s) where the parties might seek to obtain such aremedy. For example, in England the courts will not treat such aprovision as supplanting arbitration as the agreed method of disputeresolution, but as entitling them to act only to support the arbitrationin circumstances where the arbitral tribunal does not have thenecessary power to act in urgent cases.(43) This may not be thesituation in other jurisdictions, and therefore specialised advice willusually be required. In addition, the arbitration rules of certaininstitutions include provisions that contemplate court applicationsprior to the constitution of the tribunal or, in exceptional cases, afterthe tribunal is in place.(44) Further, anti­suit injunctions may beavailable to restrain court proceedings brought in breach of anarbitration agreement even where an arbitration has not beeninitiated.(45)

[8]. Multiple Parties or Contracts

As discussed above, on major international construction projectsthere are often more than two parties involved in the project and/ormore than one contract related to the project. In such situations,another issue that must be considered when drafting arbitrationprovisions is, joinder or consolidation of disputes. For example, amain contractor with a series of subcontracts or back­to­back

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supply agreements may want to provide for disputes under thesubcontracts to be consolidated with disputes under the maincontract (and vice versa) in situations where the decisionconcerning a dispute under one contract has direct effects on theother contract(s). The advantage of being able to consolidatedisputes in such circumstances and having them heard by onearbitral tribunal is that it avoids the cost and time of arguing thesame issues in different arbitrations. It also avoids the risk thatdifferent arbitral tribunals could render inconsistent decisions on thesame facts.

However, employers and owners often resist such provisions, onthe basis that they do not want to become embroiled in disputesfurther down the contractual chain.

page "78"

The arbitration rules of the LCIA and ICC permit a tribunal to orderjoinder or consolidation, but in very limited circumstances.(46) TheConstruction Industry Arbitration Rules published by the AAA allowfor joinder or consolidation upon the written request of a party whichoutlines the reasons for such request (Rule 7(a)(i)­(ii)).

If joinder or consolidation or similar provisions are agreed, they needto be addressed in each of the various relevant contracts.Alternatively, as mentioned above, parties may agree to enter intoone, stand­alone ‘umbrella’ dispute resolution agreement that dealswith disputes arising under the various contracts and addresses,amongst other matters, when and how consolidation of disputes canoccur under the relevant agreements. Both the preparation anddrafting of consolidation provisions in various contracts and draftingof a separate umbrella dispute resolution agreement, will usually bevery complex in nature and usually requires specialist advice.

It will also be necessary to ensure that any confidentialityprovisions in the contracts in question are not compromised as aresult of the consolidation/joinder provisions or stand­alone disputeresolution agreement.

One possible alternative to joinder or consolidation in circumstancesinvolving subcontracts is to provide for a procedure whereby:

­ the subcontractor is entitled to make representations and presentsubmissions in the name of the contractor in the proceedingsagainst the employer or owner;

­ the subcontractor must comply with all relevant time limits inpresenting such submissions and evidence, and shall be entitledto copies of the evidence and submissions supplied by theemployer or owner only where they are relevant to issues raisedin the dispute between the contractor and subcontractor (theability to do this will need to be addressed in any confidentialityprovisions in the main contract in order to allow the contractor topass such information along to the subcontractor); and

­ it is agreed that the outcome of the dispute proceedings under themain contract will be binding both as between the employer/ownerand the contractor and as between the contractor and thesubcontractor.

Such procedures are sometimes referred to as ‘name­borrowing’.The parties will need to seek advice on the enforceability ofprocedures like this under the law(s) applicable to their contracts.

Parties will also need to consider how to deal with the appointmentof arbitrators when more than two parties will, as a result ofconsolidation or joinder, be involved in particular arbitrationproceedings. Of course even if there is only one contract, but morethan two parties, it will be necessary, when drafting, to consider andaddress the appointment of the arbitral tribunal in such situations.One particular issue that arises is the balancing of parties' rights toparticipate in appointing the arbitral tribunal and the need to balancethe number of parties. Some of the institutional arbitration rules

page "79" expressly address this issue, in part as a result ofthe decision in 1992 of the French Supreme Court in Siemens v.BKMI and Dutco (on which see Chapter 8).

[9]. Limitation Periods

Finally, in preparing multi­tiered dispute resolution provisions, theparties will usually provide that the various processes/proceedingsprovided for in each tier must be completed before a party is entitledto refer a dispute to the next tier (e.g., by requiring completion ofADR proceedings before arbitral or judicial proceedings can becommenced). For instance, as noted above, the courts in Englandand the United States will generally require parties to follow agreedprocedures and not permit a party to leapfrog to the next stage if thechosen method of dispute resolution does not suit their purposes.(47)This may cause difficulties if a limitation period may expire prior tothe time that a party will be able to commence arbitral or judicialproceedings as the final tier of the dispute resolution procedures. Asolution to this problem is to include a provision in the disputeresolution clause which allows that in such circumstancesarbitration (or litigation) may be commenced on the condition thatthe arbitral/judicial proceedings then be stayed until such time asthe parties have completed all of the earlier sequentialprocesses/proceedings provided for in their dispute resolutionclause.

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[K]. Drafter Beware

Generally, parties will want to be able to rely on the arbitrationprovisions that were included in their agreement. The enforceabilityof an arbitration clause will depend on a number of factors (includingthe law applicable to the contract) that need to be considered whendrafting the arbitration clause. There are certain things that youshould or should not do when drafting your clause, in order to avoidsome of the main pitfalls that can arise concerning theenforceability of arbitration clauses, including the following:

­ Do not equivocate – make it clear whether or not arbitration is theexclusive remedy. Do not, for example, include language that canlead to a situation where it appears that the parties have not infact made a choice between litigation or arbitration (e.g., ‘In thecase of arbitration, the X Rules of Arbitration apply; in case oflitigation, any dispute shall be brought before the courts of Y’).Similarly, avoid using shorthand (e.g., ‘Arbitration, if any, by ICCRules in London’) as it may lead to ambiguity that can later beexploited by your opponent.

­ Before you agree to adopt the rules of an institution, check therules to confirm that they are acceptable to you, and ensure thatyou correctly identify the page "80" institution (e.g., ‘Disputesto be resolved through arbitration by the AAA’, not the ‘AA’).Also, it is generally best to adopt that institution's modelarbitration clause. A selection of model clauses is set out inAnnex 2. Amending such model clauses is often unnecessary,and can be unwise unless you have taken specialist advice.Moreover, there is a risk that an institution may later refuse toadminister the arbitration if you have amended its model clause.

­ If you are designating an appointing authority, ensure thatauthority's willingness to accept the responsibility, otherwise youmay find that the arbitration agreement becomes inoperablebecause the designated authority is unwilling to undertake therole you envisaged. That could lead to having to litigate yourdispute, possibly in a jurisdiction that you would not have chosen.

­ It is usually best to avoid trying to combine the procedural rulesof various jurisdictions. For example: ‘Disputes relating to thevalidity or interpretation of this Agreement shall be governed bythe Arbitration Rules of X institution in Country A, in accordancewith the laws of the European Union and federal laws applicabletherein’. There is a risk that the laws of one country may containmandatory provisions that are inconsistent with the laws ofanother country that is referred to, which could lead to intractableproblems in practice.

[L]. Related Provisions

Parties drafting and negotiating dispute resolution provisions inagreements concerning international construction projects also needto address separate, but related, provisions, such as:

­ the law governing the agreement;­ state immunity; and­ if litigation is selected to resolve disputes, provisions concerningjurisdiction and service abroad.

Each of these topics raises its own unique issues, and dependingon the nature and location of the project, and the nature andnationalities of the contracting parties, can require extensiveconsideration of various public international law and conflicts of lawquestions which are beyond the scope of this work. However, at aminimum, the following issues may arise.

[1]. Governing Law

When selecting the substantive law to govern the contract (i.e., thelaw that will apply to determine the substantive rights, obligationsand remedies under the contract), the parties should askthemselves the following questions: page "81"

­ Will the local courts/government in the location of the project beable to interfere with or review the contract terms, even if theparties have chosen the law of another jurisdiction as thegoverning law?

­ If contracting with a state or state agency/emanation (such as astate bank or state owned oil marketing organisation), will it bepossible for it to agree that the law of another jurisdiction shallgovern the agreement? If so, are the national courts of the state(and jurisdictions where proceedings might be brought) likely touphold and enforce such contractual provisions?

­ Will certain areas of local law be applied to the contract on thebasis that they are mandatory, even if the law of anotherjurisdiction governs the contract? For example, the laws of manyjurisdictions provide that parties cannot contract out of local lawprovisions relating to bankruptcy, licensing and administrativeconsent requirements (such as planning and environmentalconsents) or property rights.

­ Is the law of the chosen jurisdiction sufficiently developed to beused adequately in connection with the project? For example,currently the laws in some areas of Eastern Europe and theformer Soviet Union may not be adequately developed to address

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all of the legal issues that might arise in relation to what arecommonly known as public private partnership (PPP) styleinfrastructure projects.

­ Do the parties want to consider including ‘international’ conceptsinto their governing law provisions? For example, parties willsometimes provide that the law of a chosen jurisdiction and‘generally accepted principles of international law’ shall governthe agreement (although this may lead to problems ofinterpretation). Similarly, parties in some industries (for instance,oil and gas) frequently agree that in addition to complying with theapplicable law, parties shall perform their obligations inaccordance with ‘good international industry practice’.

It is advisable to obtain specialist local law and public internationallaw advice, in order to properly consider and address these andother issues relating to the choice of the governing law for thecontract.

[2]. State Immunity

Foreign states and their agencies/emanations are generally immuneboth from suit and from enforcement against state assets.Accordingly, if your counterparty in an international constructionproject is a state or its agency/emanation, then state immunityissues will need to be considered and addressed. In particular, it isnecessary to ensure that the contract contains effective waiver ofimmunity provisions both in respect of proceedings being broughtagainst the state or its agency/emanation and in respect ofimmunity against enforcement of an arbitral award or judgmentmade against that party.

page "82"

[3]. Jurisdiction and Service Abroad

If litigation is chosen as the final tier of dispute resolution for aninternational project, a jurisdiction clause should be included in thecontract.

A jurisdiction clause is intended to determine which national courtswill hear a dispute between the parties and apply the law chosen asthe governing law. It is, of course, possible to give jurisdiction of adispute to the courts of one country (or alternatively a number ofcountries) that is different from the country whose law is chosen bythe parties to govern their contract.

Drafting and negotiating jurisdiction clauses involves addressing anumber of issues that can often be complex. These include whetherthe courts of a chosen country should have exclusive or non­exclusive jurisdiction over disputes and how courts in otherjurisdictions (e.g., where assets may be located or the partiesproject may be based) will approach the enforceability of thejurisdiction clause. Specialist legal advice may also be needed inrespect of conflicts of law and/or public international law issues thatarise in connection with jurisdiction clauses.

Additionally, it may be prudent to provide for an agent to acceptservice of court proceedings within the jurisdiction of the relevantcourts if litigation is to be the final tier of dispute resolution and theparties are from various jurisdictions. Such provisions can helpavoid potentially costly and time consuming efforts that mightotherwise need to be undertaken to effect service of courtproceedings on the defendant. They will be critical where there is nomeans of otherwise effecting service on the prospective defendant.For example, if service is required by means of service throughdiplomatic channels, and those channels have broken down,proceedings to enforce legitimate contractual rights will effectivelybe stymied. This occurred when sanctions were imposed on Iraqfollowing the invasion of Kuwait in 1990 and diplomatic relationswere suspended between England and Iraq. It was thereforeimpossible, in the absence of an agent for service clause, to servecourt proceedings on Iraqi state entities, as the English rules ofservice required service through diplomatic channels.

The same service issues do not arise in relation to arbitrationproceedings. For example, under the ICC Rules all that is requiredto commence the arbitration is delivery of the Request forArbitration to the Respondent: no specific manner of service isstipulated. However, it may still be advisable to appoint an agent forservice of process, to avoid any difficulties that might otherwisearise if one party. seeks assistance from a local court in support ofthe arbitration (e.g., to obtain interim relief) and cannot serve courtprocess on the other party.

[M]. Drafting Checklist

As discussed above, there are many factors and issues that needto be considered and addressed when drafting dispute resolutionprovisions for use in international construction projects. Set out inAnnex 4 is a non­exhaustive checklist of some of the moreimportant of these factors/issues and at Annex 5 is a sample set ofprovisions including negotiations, expert determination, arbitrationand ADR, together with the procedure for expert determination andterms of appointment for a panel member.

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1 See Cable & Wireless plc v. IBM United Kingdom Ltd [2003] BLR89 and Channel Tunnel Group Ltd v. Balfour Beatty Construction Ltd[1993] AC 334. Note, however, that such provisions must be clearas to the contents of the parties' obligations including a definedprocess and specific ADR provider in default of agreement: TangChung Wah v. Grant Thornton [2012] EWHC 3198 in which anarbitration award was challenged in circumstances where referral ofthe dispute first to a panel of board members had not occurred.2 See HIM Portland, LLC v. Devito Builders, Inc., 211 F.Supp.2d230 (1st Cir. 2002) and Kemiron Atlantic, Inc. v. AguakemInternational, Inc., 290 F. 3d 1287, 1290 (11th Cir. 2002).3 However, as discussed later in this chapter, in some jurisdictionsa contractor may be entitled to suspend performance of itsobligations in situations where it has not been paid monies that itclaims are owing to it under the contract.4 John Bennett & Sarah Jeyes, Trusting the Team: The BestPractice Guide to Partnering in Construction (Thomas Telford 1995).5 Michael Latham, Constructing the Team: Final Report of theGovernment/Industry Review of Procurement and ContractualArrangements in the UK Construction Industry (HMSO 1994).6 See also: Construction Industry Review Committee, Construct forExcellence (2001), a report on construction practices in Hong Kong,available at: http://www.devb.gov.hk/filemanager/en/content_735/reporte.pdf(accessed 10 Sep. 2013); and Constr. Indus. Council & Dept. Envt.,Building our Future Together: Strategic Review of the ConstructionIndustry (Stationery Office Dublin 1997), a report on an investigationinto the construction industry in the Republic of Ireland.7 Courtney & Fairbairn Ltd. v. Tolaini Brothers (Hotels) Ltd [1975] 1All ER 716; Smith (Paul) Ltd v. H & S International Holding Inc[1991] 2 Lloyd's Rep 127; Walford v. Miles [1992] 2 AC 128.8 Note that the ICC refers to its ADR Rules as ‘amicable disputeresolution’ rules, as compared to ‘alternative dispute resolution’which is what the term ADR is frequently understood to mean.9 As discussed above, the advantage of including mandatory ADRprovisions in a contract is that it removes what can (at leasthistorically) sometimes be a perceived stigma associated with beingthe party to suggest using ADR.10 Matyas, Robert et al., Construction Dispute Review BoardManual 10–11 (McGraw­Hill 1996) and Appendix A.11 See clause 20 of each of the current editions of the Red Book,Yellow Book, Silver Book (First Editions, 1999) and Gold Book(First Edition, 2008).12 See the World Bank's Standard Bidding Document forProcurement of Works (March 2012) available at: http://siteresources.worldbank.org/INTPROCUREMENT/Resources/Works­EN­22­March12_Rev5.pdf (accessed 10 Sep. 2013).13 For example, see the Asian Development Bank's ProcurementGuidelines (March 2013), available at: http://www.adb.org/sites/default/files/Guidelines­Procurement.pdf(accessed 10 Sep. 2013).14 Available at, http://www.iccwbo.org/products­and­services/arbitration­and­adr/dispute­boards/dispute­board­rules/(accessed 10 Sep. 2013). For more information see ch. 5.15 For example, Art. 25 ICC DB Rules provides that arecommendation made by a Dispute Review Board is admissible inany subsequent judicial or arbitral proceedings between the parties.16 For example, each of FIDIC's Red Book, Yellow Book, SilverBook and Gold Book provides for decisions to be made within 84days of a dispute being referred to the Dispute Adjudication Board(see clause 20.4 of the Red Book, Yellow Book and Silver Book,and clause 20.6 of the Gold Book).17 The UK Construction Act 1996 was extended to Scotlandpursuant to the Scheme for Construction Contracts (Scotland)Regulations 1998 (SI 1998/687) as amended by the Scheme forConstruction Contracts (Scotland) Amendment Regulations 2011 (SI2011/371). Similarly, Ireland enacted the Construction Contracts Act2013 which implements statutory adjudication for payment disputesarising under a construction contract.18 Subject to a limited number of exceptions which exclude theapplication of statutory adjudication to disputes arising underspecific acts, including the Waverley Railway (Scotland) Act 2006.19 Section 108(2)­(4).20 Although s. 139(1) of the Local Democracy, EconomicDevelopment and Construction Act 2009 repealed the provisionrequiring construction contracts to be in writing, the Scheme willapply unless the required adjudication provisions are set out inwriting: section 108(2) Construction Act 2006.21 As amended by the Scheme for Construction Contracts (Englandand Wales) Regulations 1998 (Amendment) (England) Regulations2011 (SI 2011/2333).22 Section 108(5).23 Where an organisation's adjudication procedural rules are notadopted, the contract needs to address, in writing, the ninemandatory requirements in Section 108 of Part II of the UKConstruction Act 1996.24 Section 104(5).25 The Convention on the Recognition and Enforcement of ForeignArbitral Awards (1958).26 See also

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http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention.html(accessed 10 Sep. 2013).27 United Nations Commission on International Trade Law ModelLaw on International Commercial Arbitration, available at, http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/1985Model_arbitration.html(accessed 10 Sep. 2013).28 [1995] 128 ALR 391.29 [1993] 2 Lloyd's Rep 243.30 However, some jurisdictions may have specialist courts. Forinstance, construction related disputes in England and Wales aregenerally heard by the Technology and Construction Court a sub­division of the High Court, Queens Bench division.31 Available at, http://www.lcia.org/Dispute_Resolution_Services/LCIA_Arbitration_Rules.aspx(accessed 10 Sep. 2013).32 Available at, http://www.sccinstitute.com/skiljedomsregler­4.aspx (accessed 10 Sep. 2013).33 Available at, http://www.adr.org/aaa/faces/rules (accessed 10Sep. 2013).34 Available at, http://www.iccwbo.org/products­and­services/arbitration­and­adr/arbitration/icc­rules­of­arbitration/(accessed 10 Sep. 2013).35 Available at, http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration.html(accessed 10 Sep. 2013).36 See, e.g., Art. 28 (1) (Conservatory and Interim Measures) andArt. 38 (Modified Time Limits) of the ICC Rules, and Art. 15.1(Submission of Written Statements and Documents), Art. 22.1(Additional Powers of the Arbitral Tribunal) and Art. 28.4 (Award ofArbitration and Legal Costs) of the LCIA Rules.37 Sections 67–69.38 Article 26.9 LCIA Rules; Art. 34 ICC Rules.39 See, e.g., clauses 20.4 of FIDIC Red, Yellow and Silver Booksrespectively and clause 20.6 of FIDIC Gold Book.40 Article 1184 of the French Civil Code and the general principal‘exception d'inexécution’.41 Section 6:262 of the Dutch Civil Code (Burgerlijk Wetboek).42 See, e.g., clause 16 of the FIDIC Red Book.43 Channel Tunnel Group Ltd v. Balfour Beatty Construction Ltd,supra.44 Article 25.3 LCIA Rules; Art. 28(2), ICC Rules.45 See, e.g., the Supreme Court's decision in Ust­KamenogorskHydropower Plan JSC (Appellant) v. AES Ust­KamenogorstkHydropower Plant LLP (Respondent) 2013 UKSC 35.46 Article 22.1(h) LCIA Rules; Art. 10 ICC Rules.47 See Channel Tunnel Group Ltd v. Balfour Beatty ConstructionLtd, supra and Kemiron Atlantic, Inc. v. Aguakem International, Inc,supra. In England this is subject to the application of Part II of theUK Construction Act 1996 (discussed above).

Source

Chapter 4: ClaimsAdministration in JaneJenkins , InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 85 ­ 98

§4.01. Introduction

Ideally, a construction contract should operate as a valuable projectmanagement tool. It should include provisions which facilitatedispute avoidance and claims handling, in order to prevent disputesescalating through formal dispute resolution procedures. Effectiveprocedures will ideally lead to early solutions, lower costs and fewerdelays to the project overall.

If there is the opportunity to have input in the drafting stage of theconstruction contract it is valuable to involve the project managersor contract administrators. It is frequently the case that a contractdrafted by lawyers without any input from those who will be runningthe project does not accurately reflect the procedures which areused on the ground. Frequently, comments are expressed whendisputes arise that practices simply do not follow the contractprocedures, which are unduly cumbersome or simply inappropriatefor the project in question.

Equally, it is important that the project managers understand theextent and limits of their available powers under the contract so that(i) they exercise those powers for the benefit of the project; and (ii)they do not purport to give instructions, waive requirements, orotherwise make agreements which are potentially inconsistent withthe express contractual terms. That can be challenging givenproject managers are there to ‘get the job done’, rather than beexperts in the interpretation of contractual rights and obligations.However, a proper understanding of the risk allocation and powers inthe contract can avoid later disputes as to whether any departurefrom the contractual provisions was intended and is contractuallyenforceable. In this context, the day­to­day relationship betweenthose on site and internal legal counsel can be key to proper andefficient implementation of the contract.

This chapter focuses on management of incoming claims from thecontractor. It looks at a number of tools for effective claims

Chapter 4: Claims Administration

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management including: page "85"

­ ‘early warning’ provisions;­ the requirement for provision of particulars;­ conditions precedent to claims;­ rights of access to information;­ audit rights;­ ‘keep working’ provisions;­ identification of communication/reporting lines; and­ partnering and alliancing techniques.

§4.02. Early Warning Provisions

A contract may include provisions requiring the contractor to givenotice of actual or potential difficulties, so as to enable the partiesto address solutions at the earliest opportunity. The idea is toencourage joint problem­solving and reduce the ultimate costs anddelay which both parties may otherwise suffer. Such arrangementsmay be formalised by an agreement to refer problems to a projectboard, for example, which is a popular technique in partneringarrangements (see further below). One example of such a clause inthe FIDIC Silver Book is as follows:

The contractor shall promptly give notice to employerof specific probable events or circumstances whichmay adversely affect or delay the execution of theWorks.(1)

The IChemE International Redbook (Clause 14.1) and IMechE(2)(Clause 33.1) are examples of specialised international standardform contracts that both contain early warning provisions.

The ENAA's standard form for power plant construction, requires thecontractor to monitor progress of all activities specified in theproject's programme and to supply a monthly progress report to theemployer, indicating ‘where any activity is behind the programmegiving comments and likely consequences and stating thecorrective action being taken’.(3)

The contract may provide for consequences for failing to providesuch notice, for example, barring the opportunity to pursue claims inrespect of such events. If so, the contractor must take great care toensure notice is given to the employer in compliance with such aclause. The NEC3 (referred to in the previous chapter)is such anexample. It obliges both the contractor and the employer's projectmanager to notify the other if they become aware of any matterwhich could increase the total contract price, delay completion orimpair the performance of the works.(4) The sanction for failure bythe contractor to give early warning of a compensation event is toreduce the payment due to him for any related claim to the levelthat he would have been entitled to if he had page "86" givenearly warning and allowed cost saving actions to be taken.(5) Thereare a number of issues to consider when dealing with suchprovisions. These include, for example, the point at which noticeshould be given and the extent of particulars required to ensure thenotice requirement is satisfied. Further, there may be somepractical difficulty associated with determining the amount by whicha claim should be discounted, should the notice not be inaccordance with requirements.

§4.03. Requirements for Provision of Particulars

From the employer's perspective the construction contract willideally require a contractor to provide accurate andcontemporaneous information in respect of potential claims. Thirdparties, such as project insurers, financiers, governmentalauthorities (e.g., health and safety or environmental officers,depending on the nature of the event in question) may be interestedin such information. Such clauses usually require information to beprovided, (within a certain time of the contractor becoming aware ofthe event), as to the following:

­ the event which gives rise to the claim;­ its contractual relevance in terms of the risk allocation agreedbetween the parties and the agreed treatment of such risk;

­ the consequences of the event in terms of the time and costimpact to the project;

­ whether it is possible to mitigate the consequences of the event,for example, by adopting work­around measures or by a variationorder in circumstances where, for example, a particular product isunavailable to permit the use of a suitable alternative.

In addition, these clauses often require the contractor to continue toupdate the employer as the situation develops. An example of thisis found in Clause 20.1 of the FIDIC Silver Book. Clause 20.1 of theFIDIC Red and Yellow Books contain identical provisions.

§4.04. Conditions Precedent to Claims

Requirements to give particulars may act as conditions precedent tothe entitlement to pursue the claim. In such cases, if the notice orparticulars required are not provided within a certain time period the

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claim is barred. The question whether a requirement to give noticeof a claim or particulars in relation to the claim is a conditionprecedent is one of the true construction of the agreement. Someare unambiguous. For example, as stated above, the FIDIC SilverBook requires a contractor to give notice within twenty­eight days ofan event or circumstance which may give rise to a claim. If it failsto do so it loses the right to claim time and/or cost, and theemployer has no liability page "87" in that respect. Clause 20.1of the FIDIC Red and Yellow Books contain identical provisions. Aless black and white approach is to be found in clauses 53(1) & (4)of the ICE D&C. There, if a contractor fails to notify the employer inwriting of any claim within twenty­eight days, it shall only be entitledto payment ‘to the extent that the Employer's Representative hasnot been prevented from or substantially prejudiced by such failurein investigating the said claim’.

Do such clauses have to be reasonable? Under English law there isno general overarching principle of reasonableness. The onlyexception to this is where one party is contracting on the other'sstandard terms of business. In these circumstances the UnfairContract Terms Act 1977 (UCTA) subjects to the test ofreasonableness clauses which restrict liability in respect of breach(including clauses which require the party to make a claim within acertain time limit).(6) However the UCTA will only apply in aconstruction scenario where the contract is one party's standardform. It is often the case on major projects that the terms andconditions put forward by the employer as part of its tender packageare negotiated between the parties. Similarly, the standard formssuch as FIDIC, ICE and AAA do not constitute one or the otherparty's standard terms of business. Accordingly, on major projectsUCTA has limited application to conditions precedent to pursuingclaims.

Civil law codes may also impose a general requirement ofreasonableness on contractual terms. Their application can varygreatly from jurisdiction to jurisdiction. Examples of civil law codesthat contain such a requirement include, for example, the UAE andEuropean jurisdictions such as Germany and Italy. In Italy thereasonableness requirement can result in a notice provision beingheld null and void if it is deemed ‘unreasonable’. That question inturn depends on, for example, the actual length of time for noticeunder the term compared with the activity to be carried out by thedefaulting party.

§4.05. Rights to Access to Information

A critical issue for an employer is access to accuratecontemporaneous information about the status of the project. Iflenders are involved there will generally be a requirement for regularprogress reports. There may in addition be obligations to notifyinsurers in respect of certain events.

There are various different sources of information addressed inconstruction contracts, for example:

­ Status reports to be provided on a monthly or other specifiedperiodic basis.

­ Site meetings again to take place on a specified periodic basis,generally weekly (a contractual clause may specify who is toattend such meetings).

­ Provisions for shared databases, for example in relation to designinformation. page "88"

­ Requirements for updated programmes to be provided on aregular basis. For example, the FIDIC silver book requires revisedprogrammes to be submitted where the previous programme isinconsistent with the actual progress of the contractor'sobligations.(7)

There is a good general clause in the FIDIC Silver Book,(8) whichspecifies the nature of information required to be provided:

­ a detailed description of progress;­ photographs;­ the stage in manufacture of main items of plant;­ the contractor's personnel and equipment on site;­ quality assurance documents and test certificates;­ a list of variations and notices of claim;­ safety statistics and hazardous environmental­related incidents;and

­ a comparison of actual against planned progress and ofevents/circumstances which may jeopardise completion and themeasures which have been taken to overcome delay.(9)

Clause 7.3 of the Silver Book also permits the employer to have fullaccess to the site to be able to inspect/test and to check progressof manufacture of plant and materials. The FIDIC Red and YellowBooks contain identical provisions.(10)

§4.06. Audit Rights

Rights to audit costs which have been incurred or which will beincurred as a result of orders or contracts placed with suppliersand/or subcontractors are critical in any cost plus or target cost

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contract. Invariably, the contractor's entitlement to recover costsunder these contracts will be subject to a test of such costs beingreasonably and properly incurred (see Chapter 2). There may, inaddition, be the negative condition that the cost should not beincurred as a result of a wrongful act or omission by the contractor.

The employer will want to have access to detailed records andaccounts, including invoices, orders, day work records, records ofpayment and charges made. It is important that the contract shouldinclude requirements for records to be retained page "89" and acontractor should in turn impose identical requirements on itssubcontractors to ensure that it complies with its obligations underits contract. In some circumstances, contracts provide for anindependent audit. This is increasingly common in partneringarrangements, where the philosophy of co­operation and the ethosof goodwill and mutual trust are seen to be undermined where theemployer retains the right to conduct the audit itself. In suchcircumstances, the costs of the independent audit are generallyshared between the parties.

§4.07. ‘Keep Working’ Provisions

Construction contracts may include an express requirement for theparties to continue to perform their obligations under the contractdespite the existence of a dispute. The contract may expressly saythat there is no right to suspend work or to terminate the contract.

These rights may, however, be inconsistent with local law. Forexample, under English law there is a statutory right to suspendwork for non­payment which cannot be excluded by contract.(11)

There is a similar right in, for example, New York state.(12) UAE lawand Dutch law also provide for such a right, although it can bederogated from by contract. What is the position if the partysuspending performance is also in default? The answer differsdepending on the jurisdiction. For example, in New York, therelevant provisions conferring such a right only apply to undisputeddebts. In the UAE, breach by the contractor will not affect its rightto suspension in the event of non­payment. In the context ofvariations, the employer may have the right to require a contractorto proceed with the variation despite the time and costconsequences not having been agreed in advance. On a fixed pricelump sum contract, this will put the contractor at a severedisadvantage in circumstances where the employer does not acceptthat the work in question is a variation at all but is instead within theoriginal scope of work and therefore that there is no entitlement toadditional payment. A relaxation to this position that is sometimesnegotiated is that the employer shall pay a proportion of thecontractor's costs actually incurred in carrying out the variationpending the resolution of the dispute.

On a cost plus contract, such issues are less controversial as thecontractor is entitled to recovery of its reasonably and properlyincurred costs in any event. The issue becomes more complex,however, where the contract includes targets and adjustments tothose targets are required where variations are ordered.

Where a dispute does arise, ideally there will be an appropriatedispute resolution mechanism which will provide for early resolutionof such disputes (such techniques are addressed in Chapter 3above).

page "90"

§4.08. Partnering and Alliancing

Becoming increasingly popular in US, UK and Australia is the use ofpartnering and alliancing techniques.(13) These are aimed atestablishing joint working and co­operation with varying degrees offormality. At one end of the spectrum is a non­binding partneringcharter, whereby parties agree to abide by a set of behaviouralprinciples with the intent that they shall conduct their relationship ina spirit of mutual trust and co­operation and shall strive to avoiddisputes by early communication of issues and shared problem­solving. In the UK it is common for such partnering charters to bedrawn up following a facilitated workshop, in order that the parties'key objectives can be jointly agreed. A partnering board orcommittee may be set up to address in the first instance problemsthat cannot be resolved at project level. If disputes cannot beresolved, the parties would then proceed through the formal disputeresolution procedures.

Standard form contractual documentation is available to introducepartnering provisions on individual projects.(14) Parties have theoption of entering into a single contract incorporating all termsrelevant to partnering as well as the delivery of the project or,alternatively, to use two contracts, an agreement embodying thepartnering elements that sits alongside the traditional workscontract. In these circumstances, it is usual to amend the workscontract to reflect the terms of the partnering agreement. Therewould then be the option, if the partnering agreement were to beterminated, for the parties to revert to the traditional works contract.

It is common for such arrangements to include:

­ the creation of an integrated project team, identifying the bestperson for each role from the partners. ‘Man­to­man marking’ is

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avoided to reduce costs;­ procedures to break down formal hierarchies to create a flatterstructure for direct communication, for example, betweensubcontractors and the employer and its consultants;

­ the creation of a core group or team comprising representativesfrom all, or key, members of the partnering arrangements towhom key issues are referred, including, for example, theapproval of a variation to the project and consequences in termsof time/cost and any impact on performance criteria;

­ the calculation of project costs and any pain share/gain sharepayments;

­ the exclusion and admission of partners;­ dispute resolution; and­ procedures for information sharing and joint working, including, forexample, shared databases, secondments and arrangements foroffice sharing.

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An example of modelling software which has been developed tofacilitate collaborative working between professional consultantsand contractors involved in design and construction on both privateand public sector projects is Building Information Modelling (BIM).

There are different levels of BIM, each representing what issometimes described as the ‘maturity’ of the model. These are:

­ 0: Unmanaged Computer Assisted Design usually in 2D format,with paper (or electronic paper – e.g., pdf files) as the main dataexchange mechanism.

­ 1: Managed CAD in 2 or 3D format with a collaboration tool(extranet) providing a common data environment, possibly alsousing some standard data structures and formats.

­ 2: Managed 3D environment held in separate discipline ‘BIM’models and tools with attached data. Data exchange is mainly onthe basis of proprietary exchange formats. This approach mayinclude 4D programme data and 5D cost data.

­ 3: Fully­open process with a single project model and dataintegration and exchange using Industry Foundation Classesstandards; and process is managed by a collaborative modelserver.(15)

It is understood that BIM level 3 is still in course of development.(16)

BIM software and services are well developed in North America andWestern Europe, with Asia Pacific quickly catching up. HoweverLatin America, the Middle East/North Africa and Africa are notexpected to adopt BIM until around 2020.(17) In the UK, BIM haslargely been driven by government policy, and it is to beimplemented in government projects above a certain size by 2016.(18) There is research to suggest that strong public sector supportleads to a more robust BIM structure.(19) UK engagement with theBIM process is currently taking place across a wide spectrum ofsectors, including nuclear, the environment and highways, albeitthat this is predominantly in the public sector.(20)

The formal contractual arrangements for ‘BIM­enabled projects' willbe:

­ A BIM protocol,(21) which will describe how the BIM will beimplemented, e.g., the structure of the model and how data is tobe deposited by the project team members. page "92"

­ The underlying contract which should incorporate the BIMprotocol as a contract document and, where necessary, deal withany other legal issues.

BIM­enabled projects will administered by a BIM informationmanager, a role which may be taken on by an existing consultant ora specifically appointed specialist consultant.

Proponents of BIM point to the potential for improved design withbetter co­ordinated construction documents, which remain up­to­date throughout the project and the life cycle of the building. It issaid that this will in turn reduce costs. These perceived benefitsalign with those associated with partnering and alliancing onconstruction projects. However, BIM does raise a number ofquestions, including:

­ Intellectual property: e.g., who will own the rights in the model?­ Liability: e.g., who is responsible for errors in the model?­ Insurance: e.g., are existing insurance provisions appropriate forBIM projects or are new products required?

­ Contractual issues: e.g., how to ensure that each member of theprofessional team will comply with the requirements of the BIMinformation manager? Further, as the process encompasses thestorage and sharing of information during the entire life cycle ofthe building including operation and maintenance through todemolition, this potentially impacts on what are otherwise lookedupon as traditional milestones in construction, such as theconcept of practical completion in the UK.(22)

­ Confidentiality: e.g., where will commercially sensitive data beheld?

­ Procurement: e.g., how will public tendering encompass the

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need for a ‘BIM­enabled team’?

Alliancing is said to represent a more ‘hard­headed’ approach topartnering because, as well as the behavioural and organisationalissues addressed above, it involves profit­sharing and often risk­sharing schemes. A distinctive feature of an alliance is anincentivised contract which is central to the partnering relationship,with sanctions applying for failure to achieve key performanceindicators and targets. The scheme will usually link the rewards ofall alliance members to the overall outcome of the project and nottheir individual performance. The fundamental aim is to encourageco­operation and reduce the potential for adversarial conflict. Withincentivisation arrangements linked to targets, the same tensions inrelation to the award of variations as arise in fixed price lump sumor target cost contracts will apply. It is therefore generally the casethat the alliance board has the right to decide whether a variationshould be admitted to the project, and the consequences upon therisk­sharing arrangements.

Surveys carried out in both the US and the UK report significantcost savings as a result of adopting partnering arrangements. Forinstance, an analysis of project page "93" performance forpartnering projects in the US Army Corps of Engineers carried out inDecember 1992 by David Charles Western concluded that there is a9% improvement in cost and 8% improvement in time on partneredprojects. Again, estimates published in the UK by the ReadingConstruction Forum indicate that cost savings of 2 to 10% aretypically achieved with project specific partnering and savings of30% are realistic over time with long­term or strategic partnering.(23)The benefits to be gained will turn largely on the type of partneringarrangements employed and the degree of party integration and risk­sharing. As the greatest opportunity for influencing out­turn costsand quality of the project arises at the early planning and designphases, generally speaking it is considered to be most effective toadopt partnering techniques from the outset.

It is clear from the discussion of partnering arrangements abovethat they are designed to avoid the traditional claims­orientatedadversarial approach adopted on traditional construction projects. Itis common, for example, to suspend the requirement to give noticeof claims and to submit full and detailed particulars to support aclaim within a given timeframe during the currency of the partneringarrangements. Avoiding the time and costs associated with thepreparation and review of claims materials is seen as one of theprincipal benefits of adopting partnering arrangements.

Parties need to consider, however, what will happen if the partneringarrangement falters and the parties resort to claims pursuant to theterms of the works contract. Ideally, there will be express provisionfor such circumstances and the consequences of termination of thepartnering arrangements. In the absence of such express provisionan employer may argue that the contractor is out of time to pursueclaims which arise in respect of circumstances during an early partof the project when the partnering arrangements were in place. Inresponse, a contractor may be able to demonstrate that theemployer has waived its right to receive such notices andparticulars on the grounds that the parties were voluntarily followingthe partnering arrangements. It is possible that the arrangementsmay stop short of a formal variation of the contract, depending onthe manner in which they are documented. For example, if there ismerely a partnering charter which is expressed to be non­binding, anargument that there has been a formal variation of the contract maynot succeed. Instead, however, the contractor may be able to resortto an argument based on waiver by estoppel.

To avoid arguments over waiver or estoppel parties may wish toprovide that, if the partnering arrangements are terminated, thecontractor may then have a specified period of time which is, in allthe circumstances, a reasonable period, to provide particulars ofany claims in relation to events which have taken place during thecurrency of the partnering arrangements. Where the partneringagreement includes risk­sharing provisions, increased costs anddelays sustained during the currency of the partnering agreementmay be required to be taken into account when calculating an ‘exitfee’ or payment for release from the partnering arrangements.

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§4.09. Effective Contract Management

Effective contract management may assist in minimising disputesthat do proceed to formal dispute resolution.

[A]. Maintenance of Records and Documentation

Both parties will be concerned to track progress and delay on theproject and monitor increased costs. In any formal dispute,contemporaneous correspondence and documentation will be criticalto establishing entitlement to any claims brought by the contractorand the legitimacy of defences raised by the employer. Documentswill need to be stored either in hard copy or, increasingly,electronically, to ensure a party is in the best possible position toproceed to formal dispute resolution. Obvious key documents (foreither party) are:

­ the most recent version of the contract and any amendments to

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the contract agreed between the parties;­ progress documents such as programmes, method statements,information release schedules;

­ on site records for example site diaries, equipment lists,timesheets, day work sheets, site instructions;

­ inspection/investigation reports in relation to incidents or potentialdefects;

­ maintenance records;­ inspection reports of equipment/plant being verified for service;­ correspondence and information exchanged between the parties,including minutes of meetings, which will ideally be signed toreflect agreement to the terms of the meetings;

­ internal correspondence; and­ variation orders and instructions.

In other words, any document of potential relevance to the contract,its interpretation, performance and claims. A number of issuesshould be considered in the context of contemporaneous documentmanagement during the life of the project. This will assist not only inmanaging claims during the project, but in compiling the necessarydocumentation for use in any later dispute.

Thought needs to be given to a document retention policy. It maybe that events taking place at the beginning of the contract will haverelevance directly or indirectly to final claims. On a major projectwhich will last for a number of years, standard corporate policy mayresult in the destruction of materials relevant to the early stages ofthe project after a specified period of time. It is sensible where aproject is ongoing and there is the possibility of disputes arising topreserve all documents in relation to the project. It is essential toliaise closely with the company's IT department in order to ensurethat emails are backed up and retained.

There are a number of ways in which documentation can be storedand much will depend upon the nature and complexity of the project,number of parties involved and page "95" cost and location ofthe project. Increasingly, electronic filing techniques are used and itis sensible to provide for unique document identification numbers.Scanning may be used, or storage of information on databases orintranets.

Care should be taken when selecting information to be included in ashared database, as it may be inappropriate for some internalcommunications or commercially sensitive information to bedisclosed to the other party to the contract.

From the perspective of managing disputes it is very helpful toinclude as part of the data­entry process, a means of tagging keyissues for later search and retrieval of the documents. This requiresconsiderable thought in advance of setting up any such database asto the comprehensive list of issues that should be included in orderto achieve consistency in data entry. Issues can, however, later beadded as and when they arise.

Both parties need to keep in mind the necessity to gain access todocumentation to assist them in preparation for a dispute.Consideration should be given to security and the control of accessto confidential documents. It may be possible to grant wider accessin ‘read­only’ format to ensure that those accessing the documentsare not able to amend or change the documents in any way.

Particularly where the project site is remote, or subcontractors arein remote locations (and if documents are generated in hard copy),there is a risk of failure to collate and retain all relevant documents.Particular risk arises where the project its near its end point and theparties are about to demobilise. Consideration needs to be given torequesting copies of key documents from subcontractors to avoidthe need to request them at a later stage.

Great care needs to be taken in relation to emails, which encouragea more informal style of communication and may be difficult tocontrol. The risk is that such communications may be required to bedisclosed in later litigation or arbitration. Very broad rules ofdiscovery(24) apply in Anglo­American systems of Court litigation,requiring the production of all categories of documents which arerelevant to the issues in dispute which are within the control ofeither of the parties. Protection is afforded in these systems tolegally privileged documents but there is no automatic protection fordocuments merely because they are confidential or internal.Informal email exchanges at a project level or far more formaldocuments such as board minutes are unlikely to be privileged andcan be key to the outcome of disputes.

Civil law systems have a far more restricted approach to disclosure,for example in France and Holland parties are not generally requiredto disclose categories of documents other than those they wish topresent to support their case. The trend in international arbitration istowards a more limited disclosure than common law litigation (seethe discussion in Chapter 11 below).

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[B]. Time Limits Under the Contract

Contractors in particular need to be aware of time periods set out in

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the contract. As noted above there may be notice requirements,which operate as conditions precedent to claims. Generally it issensible for the parties to:

­ track notice periods;­ track the performance of obligations within an agreed time limit;­ track payment within agreed time limits; and­ track claims time limits/requirements for the provision ofparticulars.

Thought and consideration needs to be given to events which mayultimately give cause for delay or additional costs. The aboveprovisions can result in a constant stream of correspondence fromcontractors with the aim of trying to best protect their position. Thiscan result in additional work for the contract administrators withinboth the employer and the contractor. Conversely early attentionmay result in successful mitigation of costs or delay.

It is sensible for the contract correspondence to be written with aneye to the possibility of future formal dispute resolution. Oralcommunications or instructions should be confirmed in writing, forexample. ‘Warning’ letters should be written where an action oromission is proposed by the other party to the contract which maybe prejudicial or result in breach of contract. Issues to address inrelation to contract correspondence include:

­ Does the writer have authority to speak on behalf of thecompany?

­ Is the letter addressed to the correct party/representative of theparty?

­ Has the letter gone through any internal review procedures?­ Is the language appropriate (business­like, factual, firm)?­ Does the letter avoid unnecessary concessions?­ Does the letter explicitly preserve rights where appropriate?­ Is the correspondence supported with facts as opposed toopinions?

­ Are there clear references to contractual provisions and precedingrelevant correspondence or documentation?

Care should be taken to avoid the waiver of rights. Of course, it isnot uncommon in long­term projects to make accommodations withthe other party for functional reasons. Care should be taken,however, to ensure that one­off concessions will not operate towaive contractual rights generally. The first step is to check theterms of the contract for provisions in relation to waiver. Somecontracts specifically address this issue, providing that failure topursue a right on one occasion should not be deemed a waiver ofrights for the future. Explicit reservations of rights incorrespondence is sensible, however. It should not be assumed thatmerely stating ‘without prejudice’ on a letter will be sufficient.

There is the further point that under most sophisticated legalsystems the conduct of the parties in implementing the agreementcan affect the rights and obligations under the agreement even ifthere is not an express written variation. Acquiescence to page"97" conduct in breach of contract over an extended period wherethere is reliance on such acquiescence, for example, may lead to aparty being estopped from pursuing the relevant rights in the future.It may be sensible for the in­house legal team to do regular check­ups on contract correspondence to address such issues.

1 Clause 8.3; the Yellow Book and Red Book contain similarprovisions.2 Model form of General Conditions for Contract for use inconnection with home or overseas contracts for the supply ofelectrical, electronic or mechanical plant – with erection.3 Clause 18.3 ENAA Power Plant Model Form 1996.4 Clause 16.5 Clause 63.5.6 Unfair Contract Terms Act 1977, s. 3(2)(a). The test ofreasonableness for the purposes of UCTA is that ‘the term shallhave been a fair and reasonable one to be included having regard tothe circumstances which were or ought reasonably to have been,known to or in the contemplation of the parties when the contractwas made’.7 Clause 8.3; for similar provisions in other standard forms seeFIDIC Red Book (clause 8.3), FIDIC Yellow Book (clause 8.3) andENAA Process Plant Model Form 1992 (clause 18.2). However,under some standard forms the contractor is obliged to produce arevised programme only if the employer requests one e.g., ENAAPower Plant Model Form 1996 (clause 18.4) and ICE D&C (clause14.4).8 Clause 4.21.9 In addition, clause 1.12 FIDIC Silver Book provides the employerwith a general right to request information in order to verifycontractual compliance.10 For other examples of provisions giving the employer or hisrepresentatives rights of access to the works, see the ENAAProcess Plant Model Form 1992 (clause 23.8), ENAA Power Plant

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Model Form 1996 (clause 23.8), ICE D&C (clause 37), AIA A201­1997 General Conditions of the Contract for Construction (clause3.16.1) and EEC (clause 28.1).11 Section 111 UK Construction Act 1996.12 New York State General Business Law § 756(b).13 For a discussion on partnering and alliancing in the constructionindustry including a review of the historical development ofpartnering, structures for partnering and alliancing and typicalcontractual arrangements, see Sally Roe and Jane Jenkins,Partnering and Alliancing in Construction Projects (Sweet & Maxwell2003).14 For example, see The NEC Partnering Option (Thomas Telford2001); and PPC 2000 The ACA Standard Form of Contract forProject Partnering (Amended 2003) (Assn. Consultant Architects2003).15 Getting the Most out of BIM A Guide for Clients, Davis Langdon,AECOM.16 Ibid., at 24.17 Growth through BIM Richard G Saxon CBE (April 2013).18 Government Construction Strategy, infra n. 22.19 Comparative Roles of Major Stakeholders for the Implementationof BIM in Various Countries, Dr Andy. D. Wong, Prof. Francis K. W.Wong, Dr Abid Nadeem.20 See the BIM Task Group at www.bimtaskgroup.org (accessed10 Sep. 2013).21 E.g., the Construction Industry Council has published itsBuilding Information Model (BIM) Protocol (February 2013). Some ofthe larger building contractors are producing these protocols and itis thought that individual UK government departments are also likelyto publish their own protocols in due course.22 Government Construction Strategy (May 2011) recommends thatthose designing and constructing buildings should demonstrate thatthe building is operating at the required performance level for aperiod of up to 5 years after completion.23 Bennett & Jeyes, Trusting the Team, supra n. 4, Ch. 3.24 See the discussion in Ch. 11.

Source

Chapter 5: DisputeBoards in Jane Jenkins, InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 99 ­ 118

§5.01. Introduction

In Chapter 3 we discussed the use of dispute boards as a means ofdispute resolution, considering their advantages and disadvantages.

This chapter looks at typical procedures for a reference before adispute board, guiding the reader through the various stages andidentifying the issues that frequently arise in the process. After ageneral discussion of such procedures, there is a brief commentaryon the most common institutional rules with a comparison of thekey features provided in a table. The chapter then discusses how toapproach a reference before a dispute review board tactically,including the manner of preparation of submissions andrepresentation at the hearing. Finally, the effect of arecommendation or decision, enforcement and challenge areconsidered.

§5.02. Commencing the Reference

The procedure for commencing a referral to the dispute board willdepend on whether the project has a standing dispute board in placeor the dispute board must be constituted on an ad hoc basis oncethe dispute has arisen.

Where the contract provides for an ad hoc dispute board to beconstituted, the first stage in the process is to give notice ofintention to the other party to refer a dispute to the dispute board,and thereafter to appoint the dispute board members. Typically theconstruction contract will provide that the dispute board member isto be agreed between the parties (where there is a single disputeboard member) or that each party shall nominate one member withthe third party being appointed (a) in consultation with the party­nominated members or (b) by an institution(1) (where there is a

page "99" three­member dispute board). The notice of intentionto refer is typically a brief document (two or three pages) settingout:

­ the nature and a brief description of the dispute;­ the names and addresses of the parties involved and theirrepresentatives, if applicable; and

­ the nature of the relief sought.

The notice should contain sufficient information to enable thereceiving party, potential board members and the institution who willappoint the dispute board, if agreement cannot be reached asbetween the parties, to assess the suitability of particularindividuals for appointment to the dispute board.

Where the dispute board is to be selected from a standing panel of,

Chapter 5: Dispute Boards

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say, five experts, with two experts sitting with a chairman todetermine a particular dispute, the notice of intention to refer adispute for determination should provide sufficient information toenable the chairman of the dispute board panel to select the mostsuitable experts from the standing panel to hear the reference. (Ofcourse, parties may have agreed that experts should be selected instrict rotation, in which case there would be no discretion regardingthe selection of the panel members as and when a dispute arises).

Where the members of the dispute board are fully constituted fromthe outset, the rules may require that the referral notice includes allinformation, including supporting documentation upon which thereferring party wishes to rely in the proceedings. Where a disputeboard is to be constituted after a party has issued a notice ofintention to refer a dispute for determination, this information maybe required to be delivered within a specified number of daysfollowing the constitution of the dispute board. Alternatively, therules may require the parties to exchange written submissionssimultaneously rather than providing for a sequential process.Depending on the overall time frame for the reference it is commonto see a period of up to twenty­eight days for the submission ofresponses to the other party's submissions.

§5.03. The Powers of the Dispute Board

A typical feature of a dispute board process is that the disputeboard members are given full power to take the initiative inascertaining the facts and the law. In particular, the dispute boardmay have the express power to:

­ request clarification or additional information from either or both ofthe parties;

­ make such site visits and inspections as it considers appropriate;­ convene meetings upon reasonable notice to the parties at whichboth parties shall be entitled to be present;

­ appoint its own advisors to advise on matters of legalinterpretation or expertise outside the area of expertise of each ofthe members on which the parties are not agreed; page "100"

­ open up, review and revise any decision, approval,recommendation or determination made, notice or certificategiven by the employer and/or the employer's engineer orrepresentative; and

­ make use of the specialist knowledge of each of the members.

Save where the agreed procedural rules specify otherwise, thedispute board will be required to follow any methodology andinstructions prescribed by the parties, whether in their agreement orthe terms of reference of a specific dispute. Accordingly, if theyhave agreed that certain procedures are to apply (e.g., theexchange of documents, the holding of a hearing) the dispute boardwill be required to comply with such procedures. In practice, disputeboards tend to be sensitive to taking steps which may result inadditional cost, which will be met by the parties, without the priorconsent of the parties.

§5.04. Do the Rules of Natural Justice Apply to DisputeResolution Boards?

If the agreement is silent on procedural issues, for example,whether a hearing should be held, will rules of natural justice(meaning due process of law) be imported into the procedure?

As of writing, the authors are not aware of any caselaw on thisissue specific to dispute board proceedings. In the context of expertdeterminations, the English courts have said:

There is no requirement for the rules of natural justiceor due process to be followed in an expertdetermination in order for that determination to bevalid and binding between the parties.(2)

Likewise, the English courts have recognised that an adjudicator,deciding disputes within the twenty­eight day timetable provided forin the UK Construction Act 1996 (as amended), may be permittedcertain deviations from the rules of natural justice that would beexpected in court or arbitral proceedings:

one has to recognise that the adjudicator is workingunder pressure of time and circumstances whichmake it extremely difficult to comply with the rules ofnatural justice in the manner of a court or an arbitrator.Repugnant as it may be to one's approach to judicialdecision making, I think that the system created bythe Act can only work in practice if some breaches ofthe rules of natural justice which have nodemonstrable consequence are disregarded.(3)

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In order to avoid such situations arising, parties may wish to includemore specific drafting in bespoke procedures for references beforedispute boards to produce specific minimum safeguards which acourt may be slow to import. For example, they may wish to providethat the dispute board shall convene a meeting at the request ofeither party to give the parties the opportunity to make oral

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submissions before the dispute board reaches its decision, or thatall communications with one party must be copied to the other atthe time of sending.

§5.05. Institutional Rules

A number of institutions have produced contractual provisionsaddressing dispute boards for inclusion in construction contracts,together with pro forma agreements (to be entered into between thedispute board members and contracting parties), procedural rulesand codes of conduct.

By way of illustration selected examples are now addressed.(4) Acomparison is presented in tabular form below.

[A]. World Bank Dispute Review Boards

The use of dispute boards, initially on tunnelling projects andeventually extending to other heavy civil engineering works andbuilding construction projects, had been widespread for decades inthe US domestic construction market and was considered highlysuccessful. As a result, in 1994, the World Bank began consultationwith various interested parties, including FIDIC, on the use ofdispute review boards on World Bank funded internationalconstruction contracts. In 1995, the Bank introduced therequirement for dispute review boards in a revised edition of itsStandard Bidding Documents – Procurement of Works (SBDW).(5)

For contracts valued at USD 50 m and above, SBDW (1995revision) required constitution of a dispute review board comprisingthree members. For contracts valued at less than USD 50 m, theparties had the option of using either a three­member dispute reviewboard, a single person acting as a disputes review expert (or DRE)or an engineer independent of the employer.

SBDW (1995 revision) provided for the dispute review board ordispute review expert to issue recommendations. Arecommendation was final and binding only if neither party hadgiven notice to the other of its intention to commence arbitrationwithin fourteen days of receipt of the recommendation. If notice ofarbitration was given within this fourteen day period, then the partieswere not bound by the page "102" recommendation. A revisededition of the SBDW was published in May 2000. SBDW (2000revision) made significant changes to the dispute resolutionmechanism on World Bank financed projects. The mandatoryrequirement for a three­member dispute review board on contractsabove the USD 50 m threshold was maintained. However, the optionof using an independent engineer to resolve disputes on contractsbelow this threshold was removed.

In addition, SBDW (2000 revision) provided that therecommendation of a dispute review board or dispute review expertwas binding and must be given effect to unless or until revised byan arbitral award. If neither party gave notice of its intention tocommence arbitration within fourteen days of receipt of arecommendation, it became final and binding.

A further significant review of the SBDW took place in May 2005 toreflect the publication of the Master Procurement Document forProcurement of Works & User's Guide approved by the multilateraldevelopment banks and other international financial institutions.

The relevant changes introduced in the 2005 version of the SBDWwere:

­ the replacement of the old Red Book with the new FIDICConditions of Contract for Construction MDB Harmonised Edition2005 (the Pink Book), a harmonized version of the Red Bookagreed between FIDIC and the multilateral development banks;

­ the replacement of the terms dispute review board and disputereview expert with dispute board (DB); and

­ the removal of the mandatory requirement for a three­memberdispute review board for contracts valued at USD 50 m andabove.

The SBDW is updated every few years, with the most recentversion of the SBDW published in March 2012. The provisionsrelating to dispute boards remain unchanged from SBDW (2005revision). The dispute resolution clause, General Conditions ofDispute Board Agreement and the Procedure Rules for DBs are setout in section VIII of SBDW (2012 revision).

[B]. FIDIC Dispute Adjudication Boards

The early standard forms published by FIDIC provided for theengineer to resolve disputes in the first instance In the event eitherparty was dissatisfied by the engineer's decision, the dispute couldthen proceed to arbitration. However, as discussed in Chapter 2 therole of an engineer (who was remunerated by the employer) actingas impartial adjudicator of disputes between the employer andcontractor became increasingly untenable. On the one hand,contractors were distrustful of engineers remunerated by theemployer impartially deciding disputes. On the other hand,employers from less developed countries were similarly suspiciousof engineers who were often from page "103" the same country

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as the contractor.(6) FIDIC therefore decided to follow the lead of theWorld Bank and adopted the use of dispute boards, which FIDICcalled dispute adjudication boards (DABs).

FIDIC first introduced the concept of a dispute board into itscontracts with the publication in 1995 of its conditions of contractfor design­build and turnkey projects (the ‘Orange Book’). FIDICalso issued supplements to the old Red Book in 1996 and the oldYellow Book (conditions of contract for electrical and mechanicalworks, 1987 edition) in 1997, extending the use of dispute boards tothese contracts.

The 1999 editions of the Red Book, Yellow Book and Silver Book(EPC/Turnkey Projects) included interchangeable variations ofdispute boards: the Red Book provided for a standing board to beappointed from the outset of the works; the Yellow and Silver Booksprovided for ad hoc dispute boards to be constituted twenty­eightdays after a party gave notice of an intention to refer a dispute tothe dispute board.(7)

FIDIC provided that the findings of a DAB (termed a decision) arebinding on the parties and are to be implemented forthwith, unlessor until the decision has been revised by an agreement between theparties or subsequent arbitration.(8)

The DAB provisions under FIDIC are part of the contract's disputeresolution clause and are applicable whenever a FIDIC contract isused,(9) unless the parties have amended or deleted the provisions.A set of procedural rules to govern the DAB and the generalconditions of a tripartite agreement between the employer,contractor and DAB members is annexed to the contracts.

[C]. American Arbitration Association (AAA) Dispute ReviewBoards

The AAA published its Dispute Review Board Guide Specifications(DRB Guide Specifications) on 1 December 2000. The DRB GuideSpecifications provide the rules and guidelines for dispute boards.The AAA also issued a Three­Party Agreement (a model contractproviding for the rights and duties of the employer, contractor andDRB members) and an AAA roster of experienced persons fromwhich dispute board members can be selected. The DRB GuideSpecifications is a stand­alone document, which can beincorporated into any contract. However, it is a guide and parties areadvised to make sure it fits in with the rest of the contract,especially the other dispute resolution provisions.

According to the AAA, its DRB Guide Specifications draws on thelatest DRB models, including those used on the Boston CentralArtery Tunnel Project, the Puerto Rican Tran Urbano Project and theGolden Gate Bridge Retrofit Project in California. Whilst the use ofDRB has been prevalent in the US for decades, the main usershave generally been parties involved in public sector construction.The AAA has developed page "104" the DRB GuideSpecifications to make dispute boards more accessible to theprivate construction sector.

A peculiar feature of the DRB Guide Specifications is the heavyinvolvement of the AAA. The AAA believes that although partiescan choose to administer the process themselves, the involvementof an institution such as itself enhances the sense of neutrality. TheAAA's role includes providing lists of potential dispute boardmembers, acting as a liaison between dispute board and parties,including scheduling meetings and site visits, organising payment ofthe dispute board members' fees and disbursements andcommunicating minutes of meetings and the dispute board'srecommendation to the parties.

Another feature of the DRB Guide Specifications, which intendingusers should approach with caution, is the process of nominatingmembers for the dispute board. It has the potential to become adrawn­out process if one party objects to the nominee of the other.A party is allowed fourteen days to nominate a replacement and theother party has a further fourteen days to reject the replacement andis not required to disclose the reason for non­acceptance. Thisprocess will continue, ‘until two mutually acceptable members arenamed’.(10)

[D]. International Chamber of Commerce (ICC) Dispute Boards

The ICC published its dispute board documents in September 2004.The documents comprise a set of Dispute Board Clauses (ICC DBClauses), Dispute Board Rules (ICC DB Rules) and a Model DisputeBoard Member Agreement (DBMA). The objective of the ICC'sdocuments is to provide parties intending to use dispute boards witha comprehensive and flexible framework. According to the Chairmanof the ICC Task Force charged with drafting the rules,(11) the mainfactor differentiating the ICC's approach from others is that theICC's system is intended to be adaptable and applicable tomedium/long term contracts in any industry anywhere in the world.

As noted in Chapter 3, parties intending to use the ICC documentshave three options. The first is to opt for a Dispute Review Board(DRB). A DRB attempts a consensual approach to resolvingdisputes and issues a ‘recommendation’. A recommendationbecomes final and binding only if neither party expresses

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dissatisfaction with it or the recommendation is upheld by arbitrationor by the courts. The second option is the use of a DisputeAdjudication Board (DAB), which approaches dispute resolution in aless consensual manner. A DAB issues a ‘decision’ which must beimplemented forthwith. The decision becomes final if neither partyfiles a notice of dissatisfaction. If dissatisfaction is notified, thematter will be finally decided by arbitration or through the courts.The third option is a hybrid of a DRB and DAB called a CombinedDisputes Board (CDB). The CDB will normally issue arecommendation but if either party requests a decision and the otherdoes not object, the CDB will issue a decision.

page "105"

Another distinct feature of the ICC rules is the power given to theICC under Article 21 to review a decision by a DAB or CDB before itis communicated to the parties. However, this power is exercisableonly if the parties have expressly authorised it in the relevantclause.

In addition, parties are encouraged under Article 17(3) to seek toresolve the matter amicably even though dispute board proceedingsare ongoing.

page "106"

§5.06. Comparison of rules and procedures for DisputeAdjudication Boards/Dispute Review Boards

WORLD BANK FIDIC ICC AAAAd hoc/Standing Standing: to be

appointed bythe date statedin the contract.

Red Book:Standing: to beappointed bydate stated inAppendix toTender or theContract Data,as applicable.

Yellow Bookand SilverBook: To beappointed withintwenty­eightdays of noticeof intention torefer dispute.(12)

Standing unless otherwiseagreed. To be establishedat time of entering thecontract.

The parties must specifywhether the dispute boardis to be a DRB, a DAB ora CDB.

Standing: Itcould take up toeighty­fourdays(13) fromdate contractentered intobefore the boardis in place.

Size of board One or threemembers

One or threemembers

One or three members One or threemembers

Time limits Decision to begiven withineighty­fourdays of receiptof thereference ofthe dispute,parties mayagree longerperiod.

Decision to begiven withineighty­four daysof receipt of thereference of thedispute, partiesmay agreelonger period.

Recommendation/decisionto be given within ninetydays of commencementof proceedings, partiesmay agree longer period.

Recommendationto be given withinfourteen days ofhearing,(14)parties mayagree to extendthis period.

page "107"

Twenty­eightdays to givenotice ofdissatisfactionwith thedecision andintention tocommencearbitration

Twenty­eightdays to givenotice ofdissatisfactionwith thedecision.

Thirty days to give noticeof dissatisfaction with therecommendation ordecision.

Fourteen days togive notice ofacceptance orrejection of therecommendation

Procedure –

Exchange ofstatements

Right to hearing

DB mayconducthearings andrequestexchange ofstatements orany otheradditionalinformation asthe DB mayrequire for thepurpose ofmaking adecision.

DAB can adoptan inquisitorialprocedure.

DAB mayconducthearings andrequestexchange ofstatements orany otheradditionalinformation asthe DAB mayrequire for thepurpose ofmaking adecision.

DAB can adoptan inquisitorialprocedure.

A hearing shall be heldwithin fifteen days ofreceipt of response,unless otherwise agreedby the parties and thedispute board.

Unless otherwise agreedor DRB/DAB/CDB ordersotherwise, exchange ofStatement of Case andresponse.

A hearing is tobe scheduledwithin sevendays of receipt ofresponse to thereferral requestor the responseto counterclaim,whichever islater.

Parties are toexchangestatements ofcase. Parties areencouraged toexchange anyother documents,evidence orexhibits,although theDRB may limitany exchange ofinformation.

page "108"

There are no There is no Parties must appear in Parties are to

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expressrestrictions onthe use oflawyers athearings butthe DB hasfinal say onconduct of theproceedingsand can refuseaudience toany personsother than therepresentativesof the parties.

expressmention on theuse of lawyers,but the DABhas the right torefuseadmission orgrant audienceto anyone otherthan the parties'representatives.

person or throughauthorisedrepresentatives, but theymay be assisted byadvisors/lawyers.

have authorisedrepresentative atall hearings.Participation oflawyers is limitedunless otherwisedecided by theDRB.

Jurisdiction Resolution ofdisputesformallyreferred to it byeither party.

Parties mayagree to seekan opinion on amatter on aninformal basisfrom the DABor a memberthereof.

Resolution ofdisputesformallyreferred to it byeither party.

Parties mayagree to seekan opinion on amatter on aninformal basisfrom the DABor a memberthereof.

Resolution of disputesformally referred to it byeither party.

Resolution of disputes onan informal basis providedall parties agree.

Resolution offormal disputesreferred to it byeither party.

DRB mayfacilitate theresolution ofproblems andclaims beforethey becomeformally referreddisputes.

Joinder ofdisputes

No provision. No provision. No provision.(15) Yes – DRB canconsolidatedisputes bynotifying theparties in writing.The onus is onthe contractor toprovide the DRBwith alldocuments indisputesinvolvingsubcontractorsand to ensuresubcontractorattends andassists in theproceedings.

page "109"MonitoringProject Progress(mandatory sitevisits etc.)

At intervals ofnot more than140 days butnot less than70 days.

At site visits,DB is expectedto becomeacquaintedwith progressof works andany problems.

The Red Book:at intervals ofnot more than140 days butnot less than 70days.

DAB to use sitevisit to becomeacquainted withprogress ofworks and anyproblems.

Schedule meetings tokeep it informed about thecontract and site visit ifrelevant. Minimum ofthree site visits perannum if site visits arerelevant.

Review periodicprogress reportssubmitted to it bythe parties.

Site visits atleast every threemonths unlessthe DRB andparties agreeotherwise.

Produce areport aftereach visit.

Produce areport aftereach visit.

At meetings and sitevisits DB is to reviewperformance of contract,provide informalassistance with respect toany disagreement andproduce a writtensummary.

Each visit tocomprise a fieldinspection of theworks and aninformalroundtablediscussion onstatus of theworks, disputesand claims.

Produce report after everymeeting and site visit.

Produce minutesof meeting to begiven to partiesby the AAA.

page "110"Effect of Decision/

Recommendation

Binding andmust beimplementedforthwithunless anduntil revised byamicablesettlement oran arbitralaward.

Binding andmust be giveneffect topromptly unlessand untilrevised byamicablesettlement oran arbitralaward.

A recommendationbecomes binding if anotice of dissatisfaction isnot given within thirtydays. If notice is giventhere is no obligation tocomply withrecommendation untildispute finally determined.

Recommendationis non­binding.

Becomes finalif no notice ofdissatisfactionis given withintwenty­eightdays of receipt

Becomes finalif no notice ofdissatisfactionis given withintwenty­eightdays of receipt

A decision is binding andmust be given effect tounless and until revisedby arbitration. If neitherparty has given a noticeof dissatisfaction within

page "111"

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of decision. of decision. thirty days of receipt ofthe decision, then partiesagree (insofar as suchagreement can be validlymade) to continue tocomply with the decisionand not to contest it.

Next tier Fifty­six daysfrom date ofnotice ofdissatisfactionto attempt anamicablesettlement ofthe dispute.

ICC arbitration,unlessotherwiseagreed, ifamicablesettlementnegotiationsfail.

Fifty­six daysfrom date ofnotice ofdissatisfactionto attempt anamicablesettlement ofthe dispute.

ICC arbitrationif amicablesettlementnegotiationsfail.

Arbitration or litigation. No provision, butparties are freeat any timeduring DRBproceeding torefer the disputeto the AAA formediation or anyother ADRmethod.

page "112"

[A]. Dispute Board Federation (DBF)

The DBF published its Ad Hoc Dispute Adjudication Board Rules in2011. The rules are a stand­alone procedure to be used inindependently administered dispute board matters. The DBF isunique from the other institutions highlighted above as it is the onlyone which publishes detailed guidance for its dispute boardmembers and requires each member to subscribe to its code ofethics.

§5.07. Finding the Best Approach

[A]. Preparation of Submissions

The key procedural objective for the parties in dispute boardproceedings should be to clarify the dispute or issues aseconomically and quickly as possible. Rather than identification ofthe issues through pleadings the parties are (typically) encouragedto present their respective cases in a narrative form. For example,the ICC DB Rules provide that the Statement of Case shouldinclude a clear and concise description of the nature andcircumstances of the Dispute and a presentation of the referringparty's position on the issue(s) in dispute, along with any support forits position such as documents, drawings, schedules, andcorrespondence. However, in the experience of the authors, wherelawyers are involved in dispute boards, this lack of practicalexperience can result in the proceedings being run as mini­arbitrations, with the exchange of substantial volumes of legalsubmissions, witness statements and expert reports. In the view ofthe authors, this approach is rarely appropriate.

[B]. Disclosure of Documents

Whilst the dispute board may request further materials, whether ofits own motion or upon the suggestion of the other party, there are(typically) no fixed requirements for disclosure of documentaryevidence beyond the need, as a matter of proof, for each party, tosubmit documents upon which it relies and to respond to requestsfor further information made by the dispute board. Where the partiesagree, limited specific orders for disclosure may be granted.

It is not uncommon for the dispute board to draw adverse inferencesif a party has refused to provide obviously relevant documentseither of its own volition, or upon the specific request of the otherparty or dispute board itself.

[C]. Hearings

Under the commonly used rules referred to above there will behearings. Sometimes, as discussed above, the rules express a biastowards hearings being scheduled for the next regular site visit. Anexample is ICC DB Rules Article 19.2 which states: page "113"

Hearings shall be held during scheduled meetings orsite visits, unless the Parties and DB otherwise agree.

The dispute board is given freedom in relation to the procedure to befollowed at the hearing stage. Article 19.8 of the ICC DB Rulessuggests a default running order namely:

­ presentation of the case by the parties;­ identification by the DRB of any issues which need to be exploredfurther;

­ clarification by the parties concerning the issues identified by theDRB; and

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­ responses to the clarification only to the extent that new issuesare raised by the other party.

In early dispute board hearings, in the authors' experience externallawyers took a low profile in hearings before the dispute board.Indeed, on occasions external lawyers were invited to attend asobservers only. However, it has increasingly become common fordispute board hearings to involve ‘mini hearings' including the cross­examination of factual witnesses testimony from expert witnessesand lengthy oral submissions. This is not a helpful developmentsave for the most significant of projects or where there is asignificant prospect that the parties will accept the outcome of thedispute board proceeding without further reference to arbitration. Itmay be that there are certain issues of legal principle which arecentral to the dispute, in which case external lawyers may play avaluable role in presenting the party's case on those issues –alternatively an in­house lawyer or contract manager may be used.Given the essential aim of the procedure is to achieve a morestreamlined and informal process than arbitration arguably thepreferred approach is for the presentation of the facts to be made bythose with first­hand knowledge of the relevant issues such as thesite engineering, employer's representative, contract administratoror programmer.

The tribunal typically takes an inquisitorial approach, askingquestions of those presenting the case with the parties' legalrepresentatives submitting written draft questions to be posed to thewitnesses by the dispute board in advance.(16)

Ideally the members of the dispute board will have the relevanttechnical expertise and accordingly there will not be the samenecessity to ‘educate’ as may be required in respect of arbitratorswho are lawyers with limited experience of the technical issues indispute.

§5.08. The Dispute Board’s Recommendation or Decision

As set out above, all of the institutional dispute board rules requirethe dispute board to issue its recommendation or decision within aset period. Arguably the dispute board has no jurisdiction todetermine the dispute if it has not issued its recommendation ordecision within this period. One school of thought recommends thatthe relevant contract provides that this period can be extended withthe consent of the parties, in order to allow the dispute boardadditional time to determine the referred dispute if page"114" required. However, given the increasing tendency for disputeboard procedures to become ‘mini arbitrations' it may be better notto provide an express ability to extend the duration in the contract.It is always open to the parties to agree to extend the period allowedto the dispute board if this is unavoidable or requested by thedispute board. Again, depending on the rules, the dispute boarddecision may need to be unanimous, or a majority decision only.For example, the ICC DB Rules require three­member dispute boardto make every effort to reach a unanimous decision. Where thiscannot be achieved, a majority decision is permissible. It is usefulto provide a power to correct any clerical error or mistake in thedecision outside of the time limit for delivering the decision.

The decision may also address the question of costs in relation tothe reference. Generally, each party bears its own costs in relationto any reference before a dispute board, with the reasonable costsand expenses of the dispute board being borne by the parties inequal shares.(17) It is increasingly common for the dispute boards tobe asked to make orders in relation to costs, allocate its own costsin unequal shares and/or to order the losing party to pay some or allof the winning party's costs.

[A]. The Status of a Dispute Board Decision

The dispute board decision is not an arbitral award capable ofenforcement under the New York Convention, nor does it have thestatus of a court judgment. Instead, the decision is binding only asa matter of contract between the parties. Accordingly, its effect willbe governed by the relevant contract (typically the constructioncontract or separate dispute board agreement). It may, for example,constitute only a recommendation which is not binding on theparties at all (see table above). More typically the decision will bebinding unless and until reversed in arbitration on service of a noticeof dissatisfaction or referral to arbitration by either party. It isgenerally the case, however, that the rules will provide that thedecision does have to be complied with in the meantime. Indeedthis is the very essence of the value of dispute board proceedings –they provide a means of resolving disputes in the first instance toenable the project to continue even if, following arbitration, the resultmay be reversed or modified in some way.

In practice, the most limiting aspect of dispute boards is the lack ofan effective enforcement procedure. Dispute board decisions,although binding in nature, may not be complied with; and enforcinga decision in the face of non­compliance is rarely straight forward.(18) If a party believes that a decision is wrongly decided it will often

page "115" ignore the decision, in the belief that it will bevindicated when the matter is finally determined by arbitration orlitigation.(19)

[B]. Enforcing a Dispute Board Decision

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The appropriate method of enforcing a dispute board decision istherefore an ordinary action for breach of contract. What is theproper forum for such a claim? This, of course, will depend again onthe drafting of the dispute resolution clauses. Ideally, there will be aprovision expressly providing that a dispute concerning a party'sfailure to comply with a binding dispute board decision, whether thedecision is final or not, can be referred directly to the agreedprocedure for final determination of disputes for enforcement, mostusually (on international projects) arbitration but possibly litigation inthe designated courts.(20)

How should an arbitral tribunal respond to a request to enforce adispute board decision?

The enforcement of FIDIC dispute board decisions has been thesubject of a number of arbitral and court decisions. It appearsrelatively uncontroversial that an arbitral tribunal, faced with abinding but not final dispute board decision, has jurisdiction toenforce the decision by way of interim or partial award pendingdetermination of the overall dispute in a final award.(21)

On what grounds may a respondent to such an action seek to resistenforcement? Potential grounds include.

[1]. No Jurisdiction over an Issue

If the dispute board purports to decide matters which, on a trueconstruction of the referral documentation, were not referred to itthen the decision is outside its jurisdiction and will not be enforced.The argument is essentially that the dispute board has asked itselfthe wrong question.(22) Alternatively, it may be said that the verynature of the decision is one which the dispute board is notcontractually permitted to make. For example, the dispute boardmay have issued a provisional decision where it is permitted only toissue a final determination (albeit subject to reversal at the next tierof dispute resolution). Further, it may have applied its ownassessment of what is fair and reasonable in the circumstances andnot strictly applied the terms of the contract. page "116" Inshort, a dispute board charged with applying the contract is notpermitted the freedom to act as amiable compositeur to arrive at itsown assessment of what it perceives to be a fair result. In theauthors' experience this may be a real temptation for a disputeboard, and if the parties consider this to be an attractive option,they should consider building in the flexibility to use the disputeboard in this way.

[2]. Lack of Fairness

As discussed above, enforcement of a dispute board's decisionmay be refused if there has been a lack of fairness in theprocedures adopted. The authors are not aware of any decidedcases in the UK on this issue. However, by analogy with caselaw inEngland on the status of an adjudicator's decision, examples mayinclude where:

(i) assistance is sought from a programming specialist, but theparties are not given an opportunity to comment on the finalreport prepared by him;(23)

(ii) one party is consulted upon submissions made by the otherwithout a reciprocal process;(24)

(iii) the failure to make available to one party information obtainedfrom the other party and various third parties;(25) and

(iv) use of an analysis different to that advanced by the partieswithout informing the parties of the proposed methodology andwithout seeking their observations on its suitability.(26)

1 For example, FIDIC, the ICC or the Dispute Board Federation.2 Bernhard Schulte GmbH & Co KG and others v. Nile Holdings Ltd[2004] EWHC 977 (Comm) (Cook J).3 See Balfour Beatty Construction Limited v. Lambeth LondonBorough Council [2002] BLR 288. See also Macob Civil EngineeringLtd v. Morrison Construction Ltd [1999] BLR 93. In GlencotDevelopment and Design o Ltd v. Ben Barrett & Son (Contractors)Ltd [2002]]BLR 207.218 where an inevitable compromise isrecognised ‘it is accepted that the adjudicator has to conduct theproceedings in accordance with the rules of natural justice or asfairly as the limitations imposed by Parliament permit.’ But note PCHarrington Contractors Ltd v. Systech International Ltd [2012]EWCA Civ 1371 in which the court determined an adjudicator wasnot entitled to payment of his fees where his decision was heldunenforceable due to a serious breach of natural justice.4 In addition to the rules discussed below, other institutions (forexample, the Institute of Civil Engineers, London) publishprocedures which may be encountered.5 The SBDW is the standard form of contract that must be used onany large­scale civil works project­financed wholly or partly by theWorld Bank and is based on the FIDIC Conditions of contract forWorks of Civil Engineering Construction (the old Red Book).

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6 See John Bowcock, What FIDIC has to Offer and Plans for theFuture, available at, http://www1.fidic.org/resources/contracts/bowcock97.asp (accessedon 26 Jul. 2005).7 Subsequent publications by FIDIC have also included provisionfor standing or ad hoc dispute boards.8 The difficulties in enforcing decisions from DABs are addressedat the end of this chapter.9 See clauses 20 FIDIC Red, Silver, Yellow and Pink Books and2011 Subcontract respectively.10 Specification 1.02.C.5.c DRB Guide Specifications.11 Pierre M. Genton, in a presentation at an ICC/FIDIC conferencein Paris 29–30 April 2004.12 Under FIDIC Silver and Yellow Books parties have the option ofmaintaining a standing DAB.13 Or longer, if either party objects to a nomination. SeeSpecification 1.02.C which gives parties in each case 14­daytimeframes to accept/reject alternative nominations to the Boarduntil ‘mutually acceptable members are named’.14 Whilst the rules provide time limits for responding to referrals, itis left to the DRB to fix the date of hearing, which, the rulesrecommend, should be around the time of the next site visit; seeSpecification 1.04.D.15 But note Art. 15(4), though not an express joinder provision,permits the DB to adapt the rules to apply to multi­party situationswhere there are more than two parties to the contract.16 This reflects the default position under the AAA institutionalrules.17 The FIDIC General Conditions of Dispute AdjudicationAgreement and the AAA Dispute Resolution Board GuideSpecifications provide that the contractor pays the dispute boardmembers' invoices in the first instance, with the contractor to bereimbursed by the Employer for one­half of the amounts so paid.The ICC Model Dispute Board Member Agreement provide theoption of the parties being invoiced directly in equal share, or oneparty paying the dispute board members in full and seekingreimbursement for one­half from the other party.18 See CRW Joint Operation v. Perusahaan Gas Negara (Persero)TBK [2011] SGCA 33.19 See Nael Bunni, The Gap in Sub­Clause 20.7 of the 1999 FIDICContracts for Major Works, 22 Intl. Constr. L. Rev. 272 (2005).20 For example, the FIDIC 1999 suite of contracts provide for thedirect referral to arbitration of a party's failure to comply with abinding dispute board decision: Sub­clause 20.7.21 See CRW Joint Operation v. Perusahaan Gas Negara (Persero)TBK [2011] SGCA 33, supra n. 18 and the various case reportsreferred to therein. But see criticism of this case: ChristopherSeppala, How Not to Interpret the FIDIC Disputes Clause: TheSingapore Court of Appeal Judgment in the Persero Case, 29 Intl.Constr. L. Rev. 4 (2012).22 See, by analogy, case law on the enforcement of an expert'sdecision, for example, Shell UK Ltd v. Enterprise Oil plc [1999] 2Lloyd's Rep 456 and Jones v. Sherwood Computer Services plc[1992] 2 All ER 170.23 RSL (South West) Ltd v. Stansell Ltd [2003] EWHC 1390.24 Discain Project Services Ltd v. Opecprime Development Ltd.[2001] BLR 285.25 Woods Hardwick Ltd v. Chiltern Air Conditioning [2001] BLR 23.26 Balfour Beatty Construction Limited v. Lambeth London BoroughCouncil, supra n. 3.

Source

Chapter 6: Forms ofADR in Jane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 119 ­ 136

§6.01. Introduction

The obvious question is why, in a work on construction arbitration,is there a chapter on mediation, conciliation and other forms ofADR. The answer is that this book is intended to provide a guidethrough the real world of construction arbitration and is not anabstract treatise on the practice of arbitration in a vacuum.Arbitration is not an end in itself but a means to an end. Inachieving the objective (settlement of a dispute) it will often besensible to consider whether that objective is best served bypursuing arbitration to the exclusion of all other modes of disputeresolution. If not, whether a two­pronged approach is a moresensible, practical and cost efficient way to proceed. For thatreason, and because in the real world the possibility of resolvingdisputes in a more consensual and less confrontational way will beencountered, this chapter sets out to identify the forms of ADRwhich are available, the circumstances in which they might beconsidered and how they interface with the arbitration process itself.

So how, when disputes are to be resolved by arbitration, do theparties come to resolve their differences by ADR? To start with, it isnow commonplace for judges to take an active role in seeking tosettle court cases by the process of court encouraged mediation. InEngland and Wales, for instance the Woolf Report recommendedincreased use of ADR, and parties to litigation are required to state

Chapter 6: Forms of ADR

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whether ADR has been considered as part of the pre­trial review.(1)An unreasonable refusal to do so may later result in cost penalties ifthe litigation proceeds.

Similarly, there is an international trend for voluntary and robustlyencouraged ADR – court annexed and connected programmes areincreasingly common. Parties involved in litigation in otherjurisdictions may be required (by the relevant courts page"119" and/or applicable civil procedure rules) to consider attemptingto resolve their disputes through ADR. For example:

­ in Hong Kong, parties are required to indicate at the point oftimetabling, whether they are willing to undertake mediation (andif not, why not) and an unreasonable failure to participate inmediation could result in adverse consequences;(2)

­ in Germany, parties are given financial incentives to encouragemediation, including the waiver of court fees, the suspension ofthe statutes of limitation and enforceability of settlements;(3)

­ in the Netherlands, law is being reviewed which provides thatmediation proceedings will stop the expiry of limitation andprescription periods, and provides a framework in relation toconfidentiality and the enforcement of settlements;(4)

­ in Ghana, pre­trial mediation is mandatory in the CommercialDivision of the Ghana High Court and is being extended throughthe District Courts;

­ in South Africa, the Court Rules on Mediation make mediation acompulsory step for all civil and commercial litigation;(5)

­ in parts of Canada, parties to a civil dispute must undertakemediation within a certain time after the action has been set downfor trial;

­ in the United States, the rules of civil procedure applying todisputes before the federal District Courts and the United StatesCourts of Federal Claims provide for consideration of ADR at pre­trial conferences as a means of assisting in the resolution of thedispute;

­ in proceedings brought in certain courts in Australia, parties arerequired to consider (as part of their case management) usingmediation to attempt to resolve their dispute; and

­ more generally, the EU Mediation Directive 2008 aims toencourage amicable dispute resolution, particularly through theuse of mediation.(6)

Arguably, a similar focus upon encouraging the parties to settle adispute by ADR should be encouraged by arbitrators. However, thelack of any such standard practice means that if any form of ADR isto be attempted it generally happens by agreement between theparties without the involvement of the arbitrator in the process.

page "120"

Parties' agreement to participate in ADR may come about in one oftwo ways. First, as discussed in Chapter 3, the dispute resolutionprovisions of the construction contract may require the parties toattempt ADR as part of the dispute resolution process. At one timeit was considered that such clauses, as a matter of English law andpossibly some other common law based legal systems, wereunenforceable and could be simply and safely ignored by a partywhich felt disinclined to seek to attempt to resolve their disputes inthis fashion. Now, any dispute resolution provision governed byEnglish law which includes a requirement to mediate (or attemptsome other form of ADR) must now be regarded as binding,provided the procedure for doing so is sufficiently clearly prescribedin the contract.(7) In Singapore, a recent case held that an expresscontractual clause requiring parties to negotiate in good faith wasvalid and enforceable.(8) The Court of Appeal also commented thatin principle, there was no difference between an agreement tonegotiate in good faith and an agreement to submit a dispute tomediation. Therefore, a reluctant party can also now be compelledby an application to either an arbitrator or a court, to participate in amediation. This does not, of course, imply that the chosen ADRtechnique must result in a concluded settlement or even that it mustbe pursued to the bitter end if it is obvious that it will fail. But at thevery least the steps agreed by the parties for participation in theADR procedure must be attempted.

Where ADR has taken hold it is now commonplace for both litigatorsand arbitration specialists alike to regard mediation and other ADRtechniques as one of the tools by which clients' disputes may beresolved.

However it comes about, the two questions which need to beaddressed at this stage are (i) what form of ADR should beattempted and (ii) who should be the neutral mediator. Obviously thetwo questions are to some extent interdependent, with the answer tothe second question largely dependent on the answer to the first.However, there is a continuum of possibilities for forms of ADR –they need not fall squarely into just one of the typical formsdescribed below (or indeed any other). Indeed, all instances of ADRare personalised to the nature of the dispute and the parties tosome extent. In this regard – where parties are genuinely bothinterested in settling the dispute – the parties can usually come tosome agreement (even if the relationship has in the past beenparticularly acrimonious) as to the way in which ADR will beapproached.

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page "121"

§6.02. Types of ADR

ADR sits somewhere between the forms of principal­to­principalnegotiation that take place both at site and project managementlevels every day of every week on construction projects and themore formal systems of dispute resolution processes, includingexpert determination, adjudication, Dispute Adjudication Boardsand, of course arbitration and litigation themselves. Yet even withinthis narrow part of the dispute resolution spectrum, ADR techniquesspan a considerable gap. The principal common feature is theinvolvement of an independent neutral mediator whose objective isnot necessarily to determine the parties' respective rights andobligations, but to facilitate an effective resolution of disputes whichhave arisen.

While this may involve consideration – sometimes quite careful anddetailed consideration – of rights and obligations, as often as not,this is in the context of encouraging the parties to consider what thealternatives to reaching a binding negotiated settlement might entail.In the context of the common or garden variety construction case,this contemplation of what might take place if they do not reach anegotiated settlement will almost inevitably lead the parties torealise that it would entail considerable expense and diversion ofmanagement time from their principal business (quite apart from therisk of award against it and consequential cost orders). As such,anything other than a negotiated settlement at as early a stage as ispossible is destructive to the parties. For this reason, if for no otherreason, early settlement should be encouraged in all possiblecircumstances. The neutral mediator's job is to facilitate this. Inorder to achieve this desirable outcome, the neutral mediator's skillscan be deployed in a number of different ways, the principal ofwhich are discussed below.

Of course, there is no obligation on any of the parties to reach asettlement as a result of any form of ADR procedure and the neutralmediator has no powers to compel the parties to enter into anagreement or to hold them to any particular agreement that may ormay not have been made in the course of the ADR procedure. Onlywhen a formal agreement has been reached and recorded by theparties in writing(9) is the dispute settled. Although the agreementsreached through mediation are generally more likely to beimplemented voluntarily, the EU Mediation Directive requires all theMember States to establish a procedure whereby an agreementmay, at the request of the parties, be confirmed in a judgment,decision or authentic act by a court or public authority. This isintended to allow mutual recognition and enforcement throughout theEU of agreements reached through mediation, under the sameconditions as those established for the recognition and enforcementof court decisions in civil and commercial matters.

page "122"

[A]. Mediation and Conciliation

At the least judgmental end of the scale of ADR procedures liemediation and conciliation. Unfortunately there are no harddefinitions of either of these terms and as a result they may eitherbe used more or less interchangeably (according to some) or bedistinguished (say others) by the willingness of a ‘conciliator’ toadopt a more rights based, judgmental approach than a mediator.For present purposes, no real distinction is intended to be drawnbetween the process of mediation and conciliation, it beingrecognised that the degree to which the neutrals concerned arewilling to take a more interventionist, judgmental approach hasmuch more to do with the personal temperament and outlook of theneutral than with the label attaching to the process. For that reasonthe terms ‘mediator’ and ‘mediation’ are used without any intentionthereby to distinguish the process from conciliation.

Ignoring the semantics, therefore, the process of amediation/conciliation is about the bringing together of the partieswith judicious use by the neutral mediator of both carrot and stick,usually, though not invariably, in a non­judgmental way. In otherwords, the neutral mediator's approach is one which causes theparties to think for themselves, prompted by the neutral mediator asand when necessary, which elements of a proposed deal are to theiradvantage and which are not. It is for the parties, not the neutralmediator, to assess and factor into their analysis of whether tosettle and on what terms, and the chances of their success andcosts (particularly the irrecoverable costs) that failure to settlewould involve.

Where the contract contains an express requirement to participatein a mediation, the process will start as laid down in the contract.This may either contain quite detailed provisions as to the conductof the mediation or may be in a short form, often referring to theprovisions of one of the recognised ADR centres. Either way, thefirst significant step is the choice of the mediator. At this point, it isimportant to remember what it is that the mediator is doing or,rather, not doing. By and large, what the mediator is not employedto do is to determine the respective rights and obligations of theparties. What the mediator is attempting to do is to bring the partiesto the point where they realise that it is in their best interests tosettle, even if that means making some compromises along the

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way. For this reason, the selection of the mediator is as much aboutchoosing the person with the right interpersonal skills as it is aboutthe mediator's knowledge of the subject matter of the dispute. And itis much more about picking the mediator with the right interpersonalskills than finding the person who will determine what the ‘right’answer is.

The ideal mediator will, therefore, have the skill to identify what it isthat each party wants to get out of the mediation by way ofsettlement and how to bring them together, by focussing on therelevant issues and removing the obstacles to settlement that adeep­rooted dispute often contains. Not least, the mediator mustrecognise the personal involvement of the individual participants,many of whose actions have contributed to the dispute and whosebonuses, reputations or possibly even careers depend, not ongetting the most sensible commercial settlement in all thecircumstances, but on getting the answer to which they havecommitted themselves, along with the organisation for which theywork.

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Taking these interpersonal skills as a given, the next issue is theimportance of the mediator having some familiarity with the subjectmatter of the dispute or of the businesses within which the partiesoperate. Of course, again in an ideal world, a mediator would haveboth the skill set and the detailed knowledge, not just of the parties'businesses, but also of the subject matter of the dispute. Thereality is that this happens only occasionally and that such ‘newage’ mediators can rarely be found – or if they do exist they will nothave the time to devote to the mediation. Given that the ideal maynot be attainable, a mediator's understanding of the way thebusiness operates, and the opportunities within that business area,is more important than a knowledge of the specifics of the dispute.Purists will say a mediator need not have any legal or otherparticular background. However, one must remember that the morecomplex the dispute (and the more at war the parties), the greaterthe necessity for the mediator to be capable of testing andchallenging each of the respective party's views as to the likelyprospects of success and the risk of failure.

Accordingly, the choice of mediator will normally be made on thebasis of the mediator's reputation, knowledge of the business areawithin which the dispute has arisen, and availability. Once themediator has been chosen, any deficiency in the mediator'sbackground knowledge can often be made good by the selection ofan appropriate ‘pupil mediator’. Most ADR institutions require anymediator recommended by them to have undergone both theoreticaland practical training, as well as undergoing a process of continuingeducation and practice. For this reason there is, at least at the timeof writing, a steady supply of would­be pupil mediators willing to gethands­on experience of mediations. While not having any formalrole in the conduct of the mediation – and not being paid for theirparticipation either – a suitably qualified pupil mediator working withthe chosen mediator can often add invaluable experience to theprocess. So too can having lead and co­mediators, with the co­mediator supplying industry – or subject matter – specific input,though obviously at additional cost. There will almost invariably betiming difficulties in organising a mediation with a desired mediator.Particularly where international parties are involved, it may bedifficult for parties' decision makers to travel, and for the mediator tobe available at the same time as the parties and their counsel. Thismust be borne in mind in advance of attempting to identify potentialwindows for ADR.

Another factor that may be considered is the likely prejudices of themediator. Time and time again the question is asked whether themediator is a ‘black letter lawyer’ or a ‘commercial man’, or whetherthe mediator is a ‘contractor's' or an ‘employer's' man. Thesematters are, in practice, clearly of great significance to the users ofthe medication process and for that reason should not be ignored.After all, the process requires the parties to reach agreement, and itis in no one's interest if one party perceives the mediator as beingpartial to the position of the other. However, while there is oftengreat pressure and much temptation to influence the process ofmediation, much as is (quite properly) done when selecting anarbitrator, the best result must be to select a mediator who does nothave a reputation for favouring the position of one party or the other.

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As for costs, while some mediators charge as much as the mostexpensive arbitrators, the overall costs of a mediation – measuredin days of work rather than weeks or months – means that thequestion is of marginal relevance.

[B]. The Process – Preparation for the MediationMeeting/Hearing

Once the mediator(s) have been chosen, the next step will often beinformal approaches by the mediator to both parties, either togetheror separately, in order to establish the procedure and to allow themediator an early opportunity to direct the process in a way whichhe considers most likely to result in a favourable outcome.

Unlike arbitration, there are no restrictions on the parties (or theiradvisers) talking to the mediator without the other being present,although occasionally some advisers do attempt to stamp their own

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authority on the process by seeking to dictate that virtually allcontact with the mediator is to be joint. Fortunately, most mediatorsexplain why this is not likely to be in the best interests of eitherparty and most often the process continues as the mediator seesfit.

Whilst institutions such as the ICC, LCIA, AAA, CIETAC, ICSIDand UNCITAL have established ADR rules in one form or anotherwhich may be adopted by the parties in their contracts, it should benoted that there are, in fact, very few inviolable rules relating to theconduct of a mediation. The single most important one, which isfound in virtually all guides and rules of mediation, is that theprocess is to be without prejudice – i.e., nothing said or done in thecourse of the mediation is to be relied on as evidence in anysubsequent court or arbitration proceedings. The other fundamentalrule is that what is said by one side to the mediator in confidencemust not be passed on to the other party without consent. How thatconsent is given varies from mediation to mediation, with the defaultposition generally being that everything said by one party in theabsence of the other is to be regarded as confidential unlessdisclosure is expressly authorised. Occasionally the default is thereverse, with the mediator feeling free to pass on everything said tohim unless it is specifically identified as being confidential and notfor onward disclosure. Either way can work satisfactorily but it is, ofcourse, essential to know which default position is to apply.

One of the first things that the mediator will do is to circulate a draftmediation agreement.(10) This will deal with the key issues of theuse to which information disclosed in the mediation may be put. Itwill also deal with confidentiality, as well as more mundane matterssuch as fees, venue for the hearing and its duration. The mediationagreement should be in place prior to commencement of themediation.

The draft mediation agreement – and no doubt the mediator inperson – will also make it clear that it is expected that those leadingthe mediation for each party will have the necessary authority tosettle. This is clearly an important factor, and one which causesconsiderable anxiety in practice. Of course, in practice, nobodyrepresenting a corporate body comes authorised to settle at anyprice, though normally most do come page "125" withsomething resembling authority to settle within a realistic range.However, where it becomes apparent – regardless of what is beingsaid – that those leading a party's delegation to the mediation do notin fact have authority (or cannot easily obtain it via mobiles orBlackberries) the process is likely to founder quite quickly.Especially difficult are cases where third parties such assubcontractors, professional advisers, insurers or lenders to SPVshave an interest in the outcome. While a degree of understanding isnormally present concerning the difficulties that these situationspresent, it is nevertheless incumbent on the party having to reportto, and obtain approval from, other interested parties to take allnecessary steps to have those other parties engaged in the issuesand the process. This might extend to having them present on anobserver basis to reduce the information lag that would otherwiseoccur.

Following the introductory and administrative stages of themediation, it is likely that the parties will be invited to presentposition papers to the mediator and each other. Typically, mediatorsprefer these to be fairly short but the parties (and their advisers)tend to make them longer than they need necessarily be, often alsoattaching many files of supporting papers. In part, this is becausethe function of these position papers tends to be forgotten. Althoughthe mediation process will involve a review of the matters leading upto the dispute and the parties' respective rights and obligations, thepurpose of the mediation is to find a settlement which is as muchforward looking as it is an historic review of what went wrong. Thereal function of these position papers is not, therefore, to set out ingreat detail all that has gone before. Most, if not all, of this willalready be known to the parties and be of only marginal relevance tothe mediator. The real functions of the position paper are (i) toeducate the mediator about the parties' current positions and thepossible avenues for a successful settlement and (ii) to educate theparties' decision makers (who, likely as not, will not previously havehad direct exposure to the other party's case) about the key factorshe should take into account in agreeing to a settlement on the termsthat the other party considers acceptable.

Matters dealt with in position papers may therefore include keystrengths in a party's own position or key weaknesses in the otherparty's position (relevant if the matter is not settled and hassubsequently to be determined by an arbitrator), but it is just aslikely they will include suggested opportunities for each side toimprove on their own commercial position in the present project.However, unlike any form of court or even arbitration proceedings,there is no reason why the messages being sent should berestricted to the matter in dispute or even the project or businessrelationship that gives rise to it. There is no reason why the positionpapers should not identify instances where the parties might jointlytake advantage of future opportunities not readily exploitable byeither in isolation, or raise possible adverse commercialconsequences to one or both of them if settlement is not reached.In short, a lengthy regurgitation of the contractual correspondenceat this stage is a wasted opportunity. The focus should be ongetting key issues at play across to the decision maker of the otherparty.

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[C]. The Meeting/Hearing

Following the exchange of position papers (and possibly replyposition papers), experienced mediators will often ask a series offollow­up questions, suggesting areas of the written presentationthat might be developed or clarified. After that, there will be someform of mediation hearing. Again, there are absolutely no hard andfast rules as to how such a meeting will be conducted. All that cansensibly be said is that almost all start off with general introductions(mainly for the mediator's benefit, as it would be unusual for theparties not to know each other's representatives) and an opportunityfor each party to make an oral presentation to the other party/iesand the mediator. Again, this is a stage in the process that providesgreat opportunities, and equally one which is often wasted. What isdefinitely not required at this stage is a (further) detailedregurgitation of the history of the dispute. What the first part of thehearing offers each party is the opportunity to present its reasonsas to why a settlement should be agreed and on what terms. Whilethis may have been done before, this is usually the first opportunityto give such information directly to the decision maker of the otherparty without any filtering or spin added by the decision maker'ssubordinates and advisers. This is important, because it may wellbe that those subordinates and advisers have a vested interest in aparticular outcome, either because they were part of the problem orbecause they have become identified with a particular view on theposition, from which it is now difficult to resile.

From this point going forward in a mediation it becomes increasinglydifficult to predict which procedure will be adopted. More often thannot, the mediator will suggest that the parties break out intoseparate rooms so that the mediator can explore specific issueswith each party to improve its knowledge of the issues and thelikely area of settlement. At the same time, the mediator will oftentake the opportunity to make sure that each party is taking arealistic view on the strength of its position and the consequencesof not reaching a settlement. Normally the mediator will avoid takinga position on the underlying dispute but will cause the parties toundergo a process of reality testing by which they are made to faceup to the key points in their and the other party's cases and thefinancial and other consequences of not settling. As part of this, themediator may require each party to produce summaries for theirinternal use. In addition, specific matters (commercial, technical orlegal) may be identified for further discussions in small groupsbetween the parties. This has the benefit of allowing the mediator toisolate and sideline potential stakeholders in the process who mightrepresent an obstacle to success.

Whatever the process, there will come a stage when the mediatorfeels comfortable enough to attempt to sketch out a settlement thatthe parties have, in essence, bought into. Not unusually there is stilla gap (gulf, more often) between the parties at this stage whichneeds further work, involving more reality testing and morediscussion about the impact that resolving the dispute in atraditional manner will have on the parties' businesses.

At some later stage, one of two things will happen. First, it maybecome apparent that no further progress can be achieved in thetime allotted for the hearing, with the result that there is no purposein continuing. If that has happened as a result of the need page"127" to obtain a higher level of authority or third party consent, themediator will encourage the parties to obtain that authority/consentimmediately but, failing that, to seek to maintain the progress of themediation either by agreeing a date for an adjourned hearing orfixing a date and time for a conference or video­conference call totake matters forward.

The other thing that happens more often than might be expected isthat a settlement agreement is reached. In this event, the challengefor the mediator and the parties is to document the settlementagreement in an acceptable form, ideally before the parties leavethe hearing. In reality, it is only relatively simple disputes where thesettlement can be fully documented with the resources available tothe parties at the hearing, even if lawyers are present for bothparties. Experience shows, however, that a written record – even ifonly a heads of agreement – of the settlement should be signed bythe parties before they leave the mediation hearing, therebyreducing the chances of the agreement being reviewed – perhaps byothers not present at the mediation – and the deal evaporatingbefore being consummated.

[D]. Mini­trial/Executive Tribunal

The mediation process described above involves, in any complexcase, each party being supported by a large number of peoplerequired to provide the necessary factual, legal, technical andfinancial support to the decision maker. A mediation involvingtwenty or more people is, as a result, not uncommon. Nevertheless,having this number of people involved is unwieldy and makes themediator's job more difficult as it is by no means always easy toseparate the decision makers from the rhetoric and the interests ofother stakeholders and to get the decision makers to focus on whatis in the best interests of the parties they represent. One particularlyeffective way this can be done is by the ADR technique known as‘mini­trial’. In essence, this is an amalgam of a conventional hearing

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and a mediation as described above. The essential differencebetween a mini­trial and a mediation is that the decision maker ofeach party is isolated from its team and placed with its oppositenumber and the neutral.

Again, while there are no hard and fast rules on how mini­trials areto be conducted, the stages up to the oral hearing are likely to besimilar to those in a typical mediation. In other words, there will beselection of a neutral, agreement of the ground rules (withoutprejudice nature of documents, confidentiality of proceedings etc.)and preparation and exchange of position papers. The differencecomes about at the hearing itself. At this point, instead of therebeing a hearing of the sort previously described, the decisionmakers and the neutral form a panel to which each party'srepresentatives make presentations. At the conclusion of thepresentations, including after any reply submissions and questionsfrom the panel, the panel retires without the presence of any of theparty's other representatives. What then takes place is a mini­mediation between the parties' decision makers, moderated andguided by the neutral.

There are a number of advantages to this. For a start, the fact thatthe decision maker will be isolated from its support staff means thatit will be much better briefed page "128" than if it knew it hadimmediate and unfettered access to its advisers and others in itsorganisation. This enhanced degree of preparation enforced uponthe decision maker increases the chances of the success of theprocess. The same effect can often be found in mediations thattake place away from both parties' home bases. Even withincreasingly sophisticated communications, the extra degree ofpreparation attendant in going ‘off­site’ produces an increasedchance of a settlement. The second advantage is that the neutralgets sole access to the decision makers and can direct their focusonto what is in their organisation's best interests, generally speedingup the process by which mediated settlements tend to be reached.

Despite these advantages, the fact is that mini­trials are far lesscommon in Europe (at least) than mediations, although the Centrefor Effective Dispute Resolution in England and the NetherlandsArbitration Institute both cater for the process.(11)

[E]. Early Neutral Evaluation

As discussed in Chapter 3, a further technique – which is bydefinition an evaluative process – is the process of Early NeutralEvaluation (ENE). Unlike the processes of mediation, conciliation ormini­trial, the technique sets out to obtain a non­binding decisionfrom an independent third party who is an expert in the relevantfield. There is, therefore, no need for the neutral to have therequisite interpersonal skills or ability to assist parties in reachingan acceptable settlement. This ADR technique is all about – andonly about – reaching a non­binding decision on the merits of thedispute so as to assist the parties in reaching a settlement outsideof the confines of the process itself.

Since this is, in effect, a trial run of the parties' cases, there is noreal need for any of the safeguards required bymediation/conciliation or mini­trial to prevent material used in theENE from being relied on in any subsequent proceedings. That said,it is conventional for the parties to agree that their submissions andthe results of the process shall not be relied on in subsequentproceedings.

Since the process is non­binding, the timescales for the productionof a decision by the mediator can be kept short, so that the processcan run in the same sort of timescales as an adjudication or disputeadjudication board for a small project. Of course, the key differencebetween the result of an ENE and that of an adjudication or disputeadjudication board is that the decision is not binding, eventemporarily. This means that although the decision is expected tobe indicative of a decision ultimately obtained in an arbitration, thereis no need for the case to be worked up to quite the same degree aswould be needed if the decision were binding, even if binding onlyunless and until overturned in arbitration. For this reason, it is notunusual for ENE procedures to be determined on paper only, or withvery short oral submissions. It would be rare for witnesses to becalled or for the evidence or credibility of factual or expert witnessesto be taken into account. For these reasons, there are many caseswhere there is no real value to be obtained by an ENE. Theprocedure is most suitable for questions of interpretation ofdocuments or narrow technical disputes where the page"129" facts are not much in dispute. Where a neutral's decision inan ENE does depend on facts which are in contention the value ofthe decision will be much reduced, since each side will then aim offfrom the decision obtained through the ENE by its anticipatedchances of success on the disputed facts.

§6.03. Which ADR Technique Should be Used?

As readers will have appreciated from the description of theprocedures set out above, the most commonly used form of ADR ismediation/conciliation. Of the two other types of ADR which havebeen identified, ENE is clearly unsuitable for many constructiondisputes since these cases tend to be fact and document intensive.However, despite this, ENE may be suitable if there are keyelements of larger disputes which are suitable for the procedure.

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In particular, a good number of disputes in construction projectsinvolve the applicability or non­applicability of clauses limiting orexcluding liability. Of course, in many cases these issues areresolved by treating them as a preliminary issue in an arbitration,but this is often resisted on the basis that one party feels that thewhole of the case needs to be deployed in order to put the clause inits correct commercial context. In addition, even a preliminary issuewhich is binding on the parties and which may be determinative ofthe outcome of the claim may involve considerable expense.Perhaps because of these factors, a number of such issues are notresolved in this sensible and relatively economical fashion, but areleft to be determined by the tribunal in the course of a generaldecision on the merits. Where this happens, huge amounts of timeand money can be wasted on proving the substantive merits of thecase when what is really in issue is only, for instance, whether theclaims are effectively unlimited or restricted to a small percentageof the claim. Once the answer to that threshold question is known, asuitable settlement can be swiftly negotiated, almost regardless ofthe arguments on the merits. ENE may be a suitable vehicle forgetting the parties to a position where they are sufficiently confidentof the answer to such questions to know what figure thenegotiations should be around.

Leaving aside the possible use of ENE in the circumstancesdescribed above, the bulk of construction claims will generally besuitable for mediation or conciliation. Typical construction casesinvolve considerable disputes over the facts and large quantities ofpaper, both factors tending towards an ADR technique whichfocuses on harnessing the parties' knowledge of their cases ratherthan requiring the case to be distilled into a form that can bepresented to a tribunal and then ruled upon. In addition, insignificant parts of the industry (particularly in the process andpower sectors, as well as in many public sectors), there is a patternof repeat business, which lends itself to constructive solutions toproblems on particular projects.

Whether or not mini­trial finds an increased role for itself is a matterof some debate. Quite obviously, the process lends itself toorganisations with a strong central management where a decisionmaker can make – and is accustomed to making – decisionswithout first obtaining a consensus within a large part of theorganisation. Perhaps because of this it may be difficult to seemuch scope for mini­trial in the public page "130" sector or incultures where it is important to obtain consensus before decisionare made.

Further, as identified above, any form of ADR can be tailored orcombined with other forms to suit parties and the nature of thedispute. The authors are aware of successful ADR processesinvolving a first stage of non­binding neutral evaluation, in which theevaluator does not issue a decision but identifies to each party (inthe presence of both parties) the likely obstacles and weaknessesto their case. A subsequent commercial negotiation/mediationbetween the parties themselves was then conducted against abackground of common knowledge and understanding of the parties'respective risks as evaluated by a neutral individual.

It has to be recognised, however, that not every case is suitable forADR. There are cases which can clearly only be determined by abinding decision made by a judge or arbitrator. Typical (though lesslikely to be heard by an arbitrator) are cases where fraud or othersignificant malpractice is alleged. Cases falling within this class arevery difficult to settle on a voluntary basis because of the stigmawhich so often attaches to the person or organisation against whichthe allegations are made. Even where the costs of fighting the caseand proving innocence make a commercial settlement eminentlysensible, in practice cases such as these prove remarkably difficultto settle. Also falling within this general category are claims againstorganisations where either a decision to compromise a claim maybe perceived as being ‘soft’ or, worse, involving some form ofbenefit for the person within the organisation making the decision tosettle. In these cases, it is easier for the organisation and theindividuals who comprise it to press the matter to a decision of anarbitrator or judge – even if the decision is adverse – than to reach asensible commercial compromise before that time.

§6.04. ADR’s Interface with Arbitration

There are two principal issues arising out of the interface betweenADR and arbitration. The first is when is it appropriate to engage inan ADR procedure when the matter is to be referred to arbitration.The second is in what circumstances, if at all, is it appropriate forthe arbitrator to engage in a form of ADR and the consequences ofthe arbitrator continuing in office if he does.

[A]. ADR and Arbitration: A Question of Timing

As already described, any form of ADR process leading to aconsensual result (including ENE, to an extent) requires that theparties to the process are fully aware of the facts surrounding thedispute and their chances of succeeding in resolving it in theirfavour if the matter is referred to arbitration. It is for this reason thatit makes no sense for a party committed to mediation to try to‘bounce’ the other party into a settlement by refraining fromrevealing part of its case before the mediation. Trial by ambush maywork in an environment where it is permitted and where there is no

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opportunity to take time out to answer the point. But in theoverwhelming majority of cases, such last minute disclosure in anADR procedure merely renders the prospect of reaching any

page "131" agreed settlement remote. Not only will the‘bounced’ party want time to reconsider the impact of the newinformation on its own analysis of the situation, but it will also wantthe opportunity to educate the party responsible for making the laterevelation why it is not the smoking gun that it was portrayed to be.

Accordingly, mediation cannot sensibly take place before the claim,its basis, its size and potential impact have been explained by theclaimant and then not before the respondent has had an opportunityto analyse it with the benefit of its own advisers and on the basis ofthe facts as its own records and witnesses understand them to be.In practical terms, in a construction contract this probably meansthat where an engineer, architect or contract administrator ischarged with forming an initial view on the validity of claims,mediation is unlikely to be successful before this process has beencompleted. However, with the benefit of this information and therespondent's response to the claim, both parties should be inpossession of sufficient information to allow their respectiveorganisations to participate in an ADR procedure and to make aninformed decision about the circumstances of the dispute. Inaddition, it is hoped that the wider issues relevant to the benefits toboth parties of settling rather than fighting the matter to the bitterend would be readily available at this time.

Where there is no such procedure, or the procedure has not beenfollowed but the parties nevertheless decide to proceed with an ADRprocedure regardless, it is probably fruitless to attempt to gostraight to ADR without some form of formal claim beingconsidered. While the position papers exchanged in mediations ormini­trials could be used for this purpose, their real function is not toargue the merits of the substantive dispute but to prepare for themediation. In these circumstances it would make sense either forthe standard contract procedures to be followed (if there are any) orfor an analogous or shadow procedure to be adopted, perhaps on atruncated timetable.

So far the question of timing has been approached on the basis thatthe decision to try ADR is either written into the contract as one ofthe early steps in the dispute resolution process, or that the partieshave simply decided (as sometimes happens) that the potentialsavings of ADR are worth going for even though the contract doesnot require them to. However, in the absence of guidance in thecontract and any positive desire to resolve disputes in a costefficient and effective manner, it may be that the first time that ADRis considered is after arbitration proceedings have beencontemplated, or even started. At this point, it is likely that therewould be ample information available to both parties to enable themto evaluate both their own and the other party's case – certainlysufficient to allow them to reach an informed decision to settle. Thequestion is then not whether the parties are able to enter into aneffective ADR procedure but whether it is in their interests to do soat that time.

If the question of attempting ADR has not been addressed up to thispoint, it is likely that a considerable amount of investment willalready have been made by one or both parties and the opportunityto save a considerable proportion of the costs of a conventionalarbitration will have been missed. From this belated starting pointthe relative merits of proceeding with ADR sooner rather than laterneed to be considered. In essence, this is a trade off between theadditional information that the arbitration process will produce foreach party against the costs of achieving additional certainty

page "132" about each party's own case and its knowledge ofthe other's. There is, unfortunately, no clear answer to this question.

In fact, only two clear conclusions can be drawn. The first is thatthe sooner ADR is attempted, the greater the chances become of alower overall spend on the dispute resolution process. What thisdoes not, however, reveal is whether, from each party's individualperspective, it will achieve a better overall settlement (costsincluded) by participating in an ADR process at an early stage,rather than waiting for more information to become available. Forinstance, the availability of a wide scale disclosure process mayoffer significant actual or perceived opportunities to one or otherparty, which would suggest leaving an attempt at ADR until after thedisclosure process is complete. Alternatively, it may be that it isimportant to see whether a particular person will be called as awitness for the other side and, if so, what he has to say. The casemay revolve around a technical issue, the merits of which will notbecome clear until the exchange of experts' reports. The existenceof any of these factors would suggest that commencement of anADR procedure should be delayed.

The second conclusion is that there will come a point – before thecosts of the hearing itself are incurred – when the parties will knowas much about their own and the other party's case as they will everknow. The consequence of this is that in almost every case there isa window of opportunity for the parties to achieve both certainty ofoutcome and a reduction in the costs of resolving their dispute byattempting ADR. While in some ways this window is far too late inthe process to be ideal, achieving both of these objectives certainlymakes the exercise worth attempting.

[B]. Arbitrators as Mediators: Med­Arb

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The one argument against attempting mediation at this late stage isthat if it is unsuccessful, further money and effort will have beenwasted in bringing a third party up to speed on the case. Thisinevitably leads one to question whether one or more of thearbitrators could not sensibly fulfil the function of a mediator,thereby eliminating or (at the worst) significantly reducing thepossibility of ADR adding to (rather than reducing) the costs ofresolving the dispute. The obvious advantages include the fact thatthe arbitrator(s) have already been brought up to speed or will haveto be brought up to speed on the case, so the additional cost ofeducating him in the context of the mediation is either non­existentor one which will be incurred anyway. It is also probable that thearbitrator(s) have been selected for their suitability to determine thedispute, with the probable result that they have relevant backgroundknowledge of the parties' businesses and/or of the subject matter ofthe dispute.

Whilst the arguments in favour of the arbitrator(s) acting asmediator(s) are superficially attractive, the following two mattersneed to be taken into account.

First, that the arbitrators have in all probability been selected fortheir abilities as arbitrators and not as mediators. While it isbecoming increasingly common for arbitrators to train as mediators(as well as adjudicators, experts and members of all types ofdispute boards), this does not necessarily mean that they are asgood at the job of mediators as they are at the job they are bestknown for. Indeed, there is an inherent page "133" conflict whenswitching from carrying out a rights based analysis (judge/arbitrator)to contributing to an interests based solution (mediator). Some, butby no means all, judges/arbitrators successfully accomplish thetransition. It therefore comes as no real surprise to find that some ofthe best mediators in the world act solely as mediators – whetherthis is explained by the way they approach matters or the amount ofpractice they get is immaterial.

Second, mediation involves a process of exchange of informationbetween the parties and the mediator that is entirely contrary to therules of natural justice found in arbitration (which effectively prohibitone party making private disclosure to the arbitrator). As a result,either the arbitration or the mediation will be compromised. If thearbitrator/mediator does accept private information from partieswithout disclosing it to the other there will be a real risk that thatmaterial may, consciously or unconsciously, inform that arbitrator'sdecision, leading to reasonable grounds for concern and challengeof any arbitral award, both in the courts of the place of thearbitration and in the courts of the place of enforcement. If,however, the arbitrator/mediator either refuses to accept receipt ofprivate information or accepts it only on terms that it may be usedin reaching its decision in the arbitration and/or disclosed to theother party, then the process of mediation will be compromised. Noright­thinking party in these circumstances would then voluntarilydisclose anything to the mediator which would have the remotestpossibility of impacting adversely on its case if the mediation failed.

For these reasons, the possibility of arbitrators acting as mediatorsand then continuing to act as arbitrators (Med­Arb) has been andremains the subject of considerable controversy. Med­arb is arelatively familiar practice in civil law jurisdictions, where bothjudges and arbitrators are used to taking on the role of mediator toencourage settlement between the parties during the proceedings.In contrast, the practice is viewed with great suspicion in commonlaw jurisdictions, as highlighted by the decision in the Hong KongCourt of Appeal in the Gao Haiyan case.(12) In Asia, including China,med­arb is commonly seen. Although parties in Asian jurisdictionswill often still commence arbitration or litigation proceedings at thestart of a dispute to communicate a strong indication of their intentto see the claim through, they are also often amenable toengagement in mediation, given that negotiated settlement ispositively viewed in Asian commercial culture. Often, settlement,and in particular mediation, is strongly encouraged by arbitraltribunals and courts in Asian and other civil law jurisdictions whilstproceedings are ongoing.

For example, a positive attitude towards med­arb is reflected inJapan's Arbitration Law of 2003 and the JCAA Arbitration Rules,which allow an arbitrator to attempt page "134" to settle thedispute subject to the proceedings over which he is presiding,subject to the parties' consent.(13) Likewise, the mediator in adispute may go on to act as arbitrator in any subsequent arbitralproceedings arising from the same dispute, and any mediationsettlement may be incorporated into an arbitral award.(14) InGermany, the German judge is under a legal duty to carry out aconciliation hearing before the actual hearing can commence.(15)

As in England and the United States, the position taken in mostinternational arbitration rules (such as the ICC rules(16) ) is that inorder to maintain the neutrality and fairness of the proceedings, anymediation process should be kept completely separate from anyarbitration. As such, it is crucial that little additional (and noconfidential) information is given by either party to thearbitrator/mediator whilst he is wearing his mediator hat.

[C]. Model Mediation Clause

The successful drafting of a ‘model’ ADR clause depends greatly onthe willingness of the parties subject to its provisions to co­operate.

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While an ADR provision may not be able to force the parties to enternegotiations with open minds, it can provide a structure and processwithin which the parties can find a mutually acceptable solution.

The clause must provide a clear, satisfactory framework withinwhich either party may invoke the ADR process and contain aneffective mechanism for referring the dispute to arbitration (or someother formal means of dispute resolution) if settlement cannot bereached within a prescribed amount of time. If the parties intend thatmediation should function as a condition precedent to arbitration (orsome other formal proceedings), then multi­tiered or escalating ADRclauses should clearly and unequivocally set out in detail the natureof any ADR steps to be undertaken before commencingproceedings or, as noted earlier in this chapter, there is a risk thatthe clause will be held to be legally unenforceable.(17)

1 Lord Woolf MR, Access to Justice: Final Report to the LordChancellor on the civil justice system in England and Wales (HMSO1996).2 In Hong Kong a Mediation Ordinance has also been enacted,providing a regulatory framework for the conduct of mediation. Itprimarily deals with rights and obligations of participants inmediation especially in relation to confidentiality and the non­admissibility of mediation evidence in court and other determinativetribunals.3 German Mediation Act, which came into force in July 2012.4 Bill 32555.5 In addition, the King Richard III Report on corporate governanceplaces a fiduciary duty on management to consider the use of ADR,in particular, mediation before deciding to litigate.6 The Directive applies to cross­border disputes in civil andcommercial matters, with the exception of revenue, customs oradministrative matters or the liability of the State for acts oromissions in the exercise of state authority. The Directive thereforeprovides that Member States should authorise the courts to suggestmediation to the litigants, without, however, compelling them to useit. The Directive does not apply in Denmark.7 Cable & Wireless plc v. IBM United Kingdom Ltd [2002] EWHC2059 held that where negotiation or mediation procedures aresufficiently clearly prescribed in a contract, the court will enforcethem. It was held that the courts should not be able to accentuateuncertainty (and therefore unenforceability) in the field of disputeresolution references: contractual references to ADR which did notinclude provision for an identifiable procedure would not necessarilyfail to be enforceable by reason of uncertainty. This is distinguishedby Sulamé rica CIA Nacional de Seguros SA and others v. EnesaEngenharia SA and others [2012] EWCA Civ 638 and Wah (AkaAlan Tang) and another v. Grant Thornton International Ltd andothers [2012] EWHC. Both cases held that because the process forADR was not properly defined and the parties' commitment to theprocess equivocally expressed, then the requirement to submit toADR as a pre­condition to arbitration was not enforceable.8 HSBC Institutional Trust Services (Singapore) Ltd (trustee ofStarhill Global Real Estate Investment Trust) v. ToshinDevelopment Singapore Pte Ltd [2012] SGCA 48.9 Writing is not, perhaps, strictly necessary but is required by theprincipal standard rules for mediation.10 For an example, see the CEDR Model Mediation Agreement(13th ed., 2012), available at: http://www.cedr.com/about_us/modeldocs/?id=20 (accessed 10Sep. 2013).11 See http://www.cedr.co.uk and http://www.nai­nl.org/english/ (accessed 10 Sep. 2013).12 In Gao Haiyan and another v. Keeneye Holdings Ltd and anotherCACV 79/2011 the Hong Kong Court of Appeal held that an arbitralaward was enforceable following a claim that the arbitralproceedings in a med­arb process were ‘tainted with bias' from thepreceding mediation proceedings. In deciding whether the mediationprocess gives rise to apparent bias, the Court of Appeal placedconsiderable importance on context and how mediation is normallyconducted in the forum of mediation, including cultural differencesbetween China and Hong Kong which may help to explaindifferences in the way in which mediation is conducted in the twojurisdictions.13 See Art. 38(4) of the Arbitration Law (Law No.138 of 2003), andRule 47 of the JCAA Commercial Arbitration Rules.14 JCAA International Commercial Mediation Rules, Rules 8 and11.15 Section 278 of the German Code of Civil Procedure.16 See Art. 7, (3) and (4) of the ICC ADR Rules: http://www.iccwbo.org/products­and­services/arbitration­and­adr/adr/adr­rules­and­guide­to­adr­rules/#article_7 (accessed 10Sep. 2013).17 In Wah (Aka Alan Tang) and another v. Grant ThorntonInternational Ltd and others [2012] EWHC 3198 (Ch) the ChanceryDivision held that the terms of the agreement lacked sufficientdefinition and certainty in respect of the terms of the process andthe parties respective obligations to constitute enforceableconditions precedent to the commencement of arbitrationproceedings.

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Source

Chapter 7:Commencement of anArbitration in JaneJenkins , InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 137 ­ 154

§7.01. Introduction

This chapter outlines one of the main benefits of arbitration: theability to tailor the procedure to the needs of the parties. The partiesare able to shape the process in various respects, the mostimportant being their right to appoint the members of the tribunal.The fact that the parties can choose arbitrators who are specialisedin particular technical areas and select the seat of the arbitrationand the language to be adopted allows a unique flexibility, whichmeans the process is particularly appropriate for international andcomplex technical disputes.

The decision as to whether arbitration is the most appropriate forumin which to resolve a dispute is usually taken long before anyproblem arises between the parties. The arbitration agreement thatthe parties draft at the time of entering in to contractual relationswill, to a great extent, dictate the process.(1) The parties musttherefore think very carefully at the early stage, when the arbitrationclause is being agreed, about issues such as the types of disputeswhich may arise, the appropriate seat and language of anyarbitration and, where there is potential for a multi­party dispute,which parties are likely to have similar interests. It is often a difficultchallenge to anticipate the way in which future disputes may arise,however this chapter will try to and address some of theconsiderations one should bear in mind when drafting an arbitrationclause in order to ensure the proper procedures are in place, shouldit ultimately be necessary for the parties to arbitrate.

As discussed in the previous chapter, there are several arbitralinstitutions that will provide guidance and structure to the process,should the parties opt for an institutional arbitration. However, theparties should be aware that there is an additional cost, in that feesare payable to those institutions and that procedural rules page"137" such as those of the ICC and LCIA exclude the right toappeal for an error of law. The alternative is an ad hoc arbitration,which provides more flexibility and party control, but carries with itcertain disadvantages. For example, an ad hoc arbitration may takemore time, as the parties have to co­operate and agree theprocedure and there are no institutional deadlines driving theprocess. It may also be necessary to have recourse to nationalcourts for matters such as the appointment of arbitrators in defaultof agreement further slowing the process. There is, however, amiddle road, whereby the parties elect to adopt the framework of aparticular institution, but reserve the right to derogate from its rulesby agreement.

Parties from different countries may favour different models, oftendepending on whether they are from civil or common lawjurisdictions.(2) In international disputes, the procedural expectationsof parties from different legal traditions can lead to difficulties,although as arbitration becomes more common these problems arediminishing. Nevertheless, it is vital that before selecting aparticular structure, the parties consider the pros and cons of thedifferent rules of the various arbitral institutions and assess theflexibility each provides.

§7.02. Selection of the Tribunal

The principle behind the parties' right to appoint the arbitral panel isthat they should be free to have the dispute resolved by ‘judges oftheir own choice’.(3) The quality of an arbitral tribunal is the mostimportant factor in ensuring that the process is effective and hasthe confidence of the parties. The process works best where theparties are able to weigh up all the circumstances of a particulardispute before making a decision as to the skills that are required ofthe particular tribunal. There is, accordingly, a tactical decision tobe made at the time of drawing up the arbitration agreement, withregard to how much detail the parties want to include about thecomposition of the tribunal.(4) Where the arbitration clause is draftedbefore the dispute arises and includes restrictions as to the specificexperience an arbitrator must possess or his nationality is specifiedin some detail, the choice of available arbitrators may besignificantly limited. For this reason it is generally safer to provide abroad set of criteria and allow the parties (or failing them therelevant institution), to make the selection based on this guidance.It is also generally preferable for the parties to be involved in theselection process even if agreement between them is reached lessoften than would be liked. Being involved in choosing theirarbitrators gives the parties a sense that their case is being properlyheard and may later assist them to accept the award.

Ensuring equal treatment of the parties in the organisation ofproceedings, and in particular the selection and appointment ofarbitrators, can be very difficult in a page "138" multi­partydispute. This situation may occur where there is a single contractbetween several parties (e.g., a joint venture) or where there is a

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web of interrelated contracts. Failure to ensure that all the partieshave equal input may provide grounds for resisting enforcement ofthe award.

The parties should take time carefully to consider their options whencarrying out the selection process. It is an opportunity to ensurethat the panel is composed of the people with the requisite skill andknowledge to serve the needs of the parties and to reach the correctdecision. This may be particularly important where the panel will berequired to decide complex technical disputes, such as often ariseout of construction contracts. The parties must, however, bear inmind any statutory, institutional or contractual time limits andensure that in taking their time in considering the appointment, theydo not fail to meet any deadline. Care must also be taken to confirmthe availability of the candidates as many of the well­known andrespected international arbitrators are very heavily committed whichcan cause significant problems for fixing hearing dates and theprompt rendering of awards.

[A]. Number of Arbitrators

This issue is usually decided at the time of drafting the arbitrationclause. There is obvious merit in having an odd number ofarbitrators; it is most common to have either three arbitrators or asole arbitrator. A sole arbitrator will be cheaper and may deliver hisdecision more quickly, as he need not consult or discuss the issuewith others. Co­ordinating meetings and hearings for threearbitrators will also be more difficult and may result in delays. It isnot unusual therefore for parties to provide for a sole arbitrator whendrafting their arbitration agreement if it is anticipated that disputeswill be of relatively low value. Conversely, with a three­membertribunal there is less chance of an unusual result or a mistakenapproach being adopted towards the case. However, the maindisadvantage of proceeding with a sole arbitrator is that if theparties cannot agree on who to appoint, the decision will fall to anappointing authority and be taken out of the parties' hands. Wherethe arbitration agreement provides for three arbitrators, the usualpractice is that the parties each appoint an arbitrator and the third isselected by the two party­appointed arbitrators or the arbitralinstitution. For the reasons outlined above, it is recommended thatthe parties retain control over the selection process by carefullydrafting the procedure for the appointment of arbitrators in thearbitration clause or adopting institutional rules.

As with many stages of the commencement process, much willdepend on whether the parties have elected an institutionalarbitration or an ad hoc arbitration. The different institutions havetheir own preferences. The LCIA(5) and ICC(6) Rules provide thatunless the parties agree otherwise, there will be a sole arbitrator.However both the LCIA and the ICC Rules make an exceptionwhere the dispute is such that in the circumstances, it warrants theappointment of three arbitrators. By contrast, the page"139" UNCITRAL Arbitration Rules(7) and the UNCITRAL ModelLaw(8) express a preference for three arbitrators unless, within thirtydays, the parties have agreed otherwise. In China, CIETAC(9) is themost popular commission for international arbitrations and its Rulesrequire that the tribunal is made up of three arbitrators unless theparties agree otherwise.(10) The pros and cons of the differentoptions must be considered.

[B]. Considerations When Selecting a Tribunal

The ability to select an arbitrator is one of the unique features ofarbitration and is one which the parties should use to their bestadvantage. There are a wide range of potentially relevant qualitiesand skills that the parties should consider when tailoring theselection to their needs. These range from practical issues, such aslanguage and experience, to the appropriateness of appointing aperson with particular publicly­held views or a well­known approachto an issue relevant to the dispute. The decision may also hinge onthe number of arbitrators making up the tribunal. Ultimately, themore experienced the panel, the more efficient the process will be,thereby saving time and money for the parties.

As arbitration becomes increasingly popular in internationaldisputes, the language of the arbitrators becomes increasinglyimportant to the parties. The languages of the parties may differ,documents in the case may be in a variety of languages (althoughof course these can be translated, albeit at a cost), witnesses mayspeak different languages and the seat of the arbitration may not bein the native country of one or more of the parties. Having a multi­lingual arbitrator or an arbitrator who speaks a party's own languagemay be a source of reassurance and comfort to the parties. Underthe ICC Rules, if the parties cannot agree the language, it will bedetermined by the tribunal ‘with due regard being given to allrelevant circumstances including the language of the contract’.(11)Under the LCIA Rules, the language is based on that of thearbitration agreement, but the final decision is determined by thetribunal based on the LCIA recommendation, the parties' commentsand any other relevant matters.(12) Under the UNCITRAL ArbitrationRules, the language is again determined by the tribunal.(13) It is alsousual for sole arbitrators or chairpersons to be of a nationality otherthan the nationalities of the parties.

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At least one of the arbitrators on a panel should generally be anexperienced lawyer, particularly where the arbitration involvesissues of law – and there are few arbitrations that do not. Theprincipal reason for this is that in most international commercialarbitrations the parties need to be able to entrust the process tosomeone who is capable of progressing it justly and effectively.Second, on a more substantive level, international commercialarbitrations frequently involve difficult questions of law. It istherefore sensible for at least the chairman of a three man tribunalto be a lawyer, so that he can deal with such legal issues as andwhen they arise. There is then the question whether to appoint alawyer trained and experienced in a common law or civil lawsystem. This will be relevant to both substantive and proceduralissues given an arbitrator who is familiar with, for example, crossexamination in the English courts is likely to be more comfortablewith orders for cross­examination of witness (albeit on a limitedbasis) than the civil law practitioner. The fusion of common and civillaw procedures in international arbitration does mitigate against apolarised approach and rules such as the IBA rules on the Taking ofEvidence in International Arbitration propose a useful middle­ground.These issues are discussed further in the next chapter.

In many jurisdictions, including the UK, it is both acceptable anddesirable for some of the arbitrators on a panel to be non­lawyers inareas such as engineering and construction. It is clearlyadvantageous in a complex technical dispute for the arbitrators tohave expertise in the relevant sector, although if the parties intendto use experts they might not deem it an essential requirement. Theparties may agree that the arbitrator should be a person engaged ina particular trade. The parties may even agree that the appointmentshould be made by a trade association. If an arbitrator is suitablyqualified, he will be able to liaise competently with the experts (ifthey are also required) and help guide the tribunal in interpreting theexperts' opinions and attaching weight to their findings. TheChartered Institute of Arbitrators runs courses and examinations forthose who wish to qualify as arbitrators. Many arbitral institutionsreserve the right not to confirm the appointment of a person theyconsider unsuitable.(14)

Arbitrators may also be selected because of their particular,publicly­held, views in relation to fundamental issues between theparties, for which reason the party nominating them feels that theywill appreciate the party's case more readily. This is one area wherethe right to select arbitrators, one of the key advantages ofarbitration over domestic courts, needs to be exercised with somecare. While it is quite acceptable to nominate an arbitrator whosebroad views – perhaps on legal theories or the roles of parties toconstruction contracts – align with those needed to win the case,care must be taken not to overstep the mark. Views held not justgenerally but on the particular subject matter of the dispute inquestion are likely to form the basis for a challenge for lack ofneutrality. It is for these reasons that it is becoming increasinglycommon for the parties to interview arbitrators before nominatingthem. This is not just to assess whether the arbitrators have theappropriate qualifications or personality traits, but also to test theirviews on relevant issues. Clearly, any such conversation can be

page "141" conducted in only the most general terms, since itwould be inappropriate – and a ground for subsequent challenge ofthe award – for one party to have a private conversation with anarbitrator about the merits of the case he is appointed to determine.

[C]. Methods of Appointment

The method of appointment is usually agreed in the arbitrationclause. There are two main ways in which the arbitral tribunal maybe appointed. The process may be conducted by the parties or bythe arbitral institution. The procedural law of the seat may alsoinfluence the process.

Where an institution is not involved, the most common method isthat the parties seek to agree on the identity of a sole arbitrator or,where there is a panel of three, that each party each appoints onearbitrator and the two party­appointed arbitrators then agree on thechairperson.(15) The appointment of the third member of the tribunalby the two party­appointed members is usually the mostsatisfactory method to the parties, as they will have faith in theirappointed arbitrators' judgment in electing the chairperson. However,it is important to consider what is to happen in the event of anyfailure to agree on the identity of an arbitrator, or where one partysimply fails to participate in any way in the appointment process.Whilst in most jurisdictions it will be possible to apply to the localcourts to appoint an arbitrator in such circumstances, this can be aslow and uncertain process.(16) For that reason, where theappointment of arbitrators is in the hands of the parties (as in an adhoc arbitration) it is good practice to have an experienced body toact as an appointing authority – i.e., one whose principal function isto make appointments of arbitrators in default.

Where an institution is involved, the process tends to be under itscontrol. While the parties may nominate arbitrators for appointment,the actual appointment is reserved to the institution itself. Thusunder the ICC Rules(17) and the LCIA Rules(18) (where the partieshave expressly agreed to be involved in the selection), the partieshave the right to select one arbitrator of a three­member tribunaleach, however this is subject to institutional confirmation and theICC or LCIA will appoint the chairperson. In addition, as describedabove, where any party fails to agree or to participate in the

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nomination/appointment process as required, the institution will fillthe gap by acting as the appointing authority. In an ad hocarbitration under the UNCITRAL Arbitration Rules, if the parties donot appoint the arbitrators, the Secretary–General of the PermanentCourt of Arbitration at The Hague may, at the request of eitherparty, designate an appointing authority.(19) This two­step process iscumbersome, but at least avoids the need to apply to a court toappoint the arbitrators.

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The CIETAC Rules apply a list procedure for appointment of thechairman, whereby each side nominates one to five candidates andprovides their names to CIETAC (if the parties have not agreed onthe chairman or choose not to entrust nomination to the Chairman ofCIETAC).(20) Where one candidate appears in common on both lists,such candidate will be appointed as the chairman of the tribunal. Ifmore than one name is proposed by both sides, CIETAC decidesthe most suitable appointment. Where the parties do not nominatethe same person or persons, CIETAC will appoint an individual whohas not been nominated by either side.

The use of such lists may be ‘an effective and happy compromise’.(21) It provides the opportunity for institutions to consult with theparties on the appointment of the arbitrators. The parties may beprovided with a list of names and given an opportunity to vetoanyone they do not think suitable or express a preference forothers. Alternatively, the parties may draw up their own lists andexchange them simultaneously. This method helps to prevent thedeadlock which often occurs when each party automatically rejectsthe other's nominations.

The UNCITRAL Arbitration Rules employ a system which is a hybridof the party appointment and list systems.(22) The ICDR andNetherlands Arbitration Institute also employ this method. Theappointing authority sends out the same list to each party, with atleast three names on it. Each party grades the names on the list toshow its preference and the tribunal appoints the arbitrators basedon the parties' input. This method ensures that the parties retain theelement of choice, but helps protect the arbitrators' independence.The parties are also more likely to be content with all threemembers of the tribunal if this method is employed. In theNetherlands, research shows that the preferences expressed by theparties are the same in 80% of cases.(23) The use of a list alsohelps with adapting the process of selection to multi­party disputes.

[D]. Duties of Arbitrators

Once appointed, the tribunal has a duty to act fairly to both parties,even if the parties appointed their own arbitrators to the panel.(24)Arbitrators must meet the required standards of fairness, equality,independence and impartiality.(25) This has been described as a‘non­waivable mandatory principle’.(26) The presumption is that the

page "143" arbitrators should be independent and impartial evenif they were appointed by one of the parties as a ‘representative’ ofthat party's views.(27) Because of this many (though not all)institutions require that, unless the parties agree otherwise, thenominated arbitrators must sign a statement of independencedisclosing any previous relationship with the parties or the subjectmatter of the dispute.(28) One example where no formal statement ofindependence is required can be found in the AAA Rules, however,there is a clear duty to disclose any circumstances likely to giverise to justifiable doubts as to the arbitrator's independence andimpartiality.(29) The ICC Rules require arbitrators to act withindependence and impartiality, and that arbitrators disclose to theparties any matter which might be regarded as impacting theirindependence or impartiality.(30) The UNCITRAL Arbitration Rules(where there is no institution) provide that any arbitrator may bechallenged ‘if circumstances exist that give rise to justifiable doubtsas to the arbitrator's impartiality or independence’.(31) The CIETACRules impose a positive obligation on all arbitrators to treat theparties equally, fairly and independently.(32) Arbitrators are alsorequired to declare to CIETAC any matters which might raisereasonable doubts as to their independence and impartiality,whether such matters arise before or during the arbitral proceedings.(33)

Certain institutional rules also have some limitation on a solearbitrator or chairman's nationality specifying it should (save certaincircumstances) be different to that of the parties, to ensureneutrality.(34) Arbitration clauses that attempt to place limitationsupon, for example, the nationality of an arbitrator were recentlychallenged in England (on the basis that arbitrators were‘employees' for the purposes of English legislation againstdiscrimination of employees. However, the Supreme Court hasrejected such an objection to these limitations on arbitratorappointments, clarifying that arbitrators are instead ‘independentproviders of services who are not in a relationship of subordinationwith the person who receives the services'.(35)

The institutional arbitral rules provide a range of tests as to theability to challenge an arbitral appointment. The ICC Rules refer tochallenge for ‘an alleged lack of impartiality or independence orotherwise’. For purely ad hoc arbitrations, national laws contain therelevant tests. The UNCITRAL Model Law is representative of such

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rules requiring there to be ‘justifiable doubts' as to the arbitrator'simpartiality or independence. The arbitral institutions do not definethe meaning of ‘independent’ and ‘impartial’; instead they aredefined on a case­by­case basis.

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In the last few years there has been a distinct trend away fromviewing ‘independence’ and ‘impartiality’ separately and towards‘viewing these two elements as the opposite side of the same coin’.(36) The traditional view(37) is that ‘independence’ can be judgedobjectively as it has nothing to do with the arbitrator's state of mind.It relates to his relationship to the parties. ‘Impartiality’, however,relates to bias and can only be assessed subjectively.

The parties should try to anticipate any problems in order to try toensure that their selection does not cause any unnecessary delayto the proceedings. Previous contact between the parties and thearbitrator should be considered; for example, if an arbitrator has anyemployment history with a party(38) or has any financial interest inthe outcome of the arbitration,(39) there is a clear argument thatthere is a possibility of prejudice. In one case, a successfulchallenge was made to the SCC Board when the son of one of thearbitrators joined the law firm acting for one of the parties.(40) Even apattern of repeated appointment (of a particular arbitrator) by one ofthe parties could raise concern. However, in practice, succeedingwith such a challenge is difficult. In considering whether there isground for challenge, the consideration will be whether a ‘fair­mindedand informed observer’ would conclude that there was a ‘realpossibility’ that the tribunal was not impartial’.(41) Similar views onthis point have been expressed in both the UK and the US.(42)

As this is a complicated and controversial area, the IBA publishedGuidelines on the Conflicts of Interest in International Arbitration(the Guidelines) in July 2004 to help parties and arbitratorsdetermine what information should be disclosed. The IBA believesthat the duty to be independent and impartial should not be ahindrance to international arbitration. The Guidelines are aimed atclarifying the scope of the duty so that there are fewer challengesto, and withdrawals of, arbitrators. The IBA provides specificexamples of potential conflicts and determines the appropriateaction based on a traffic lights system: they have produced: (i)‘Non­waivable Red’, (ii) ‘Waivable Red’, (iii) ‘Orange’, and (iv) ‘Green’lists. The ‘Non­waivable Red’ scenarios are regarded by the IBA asgiving rise to justifiable doubts as to the arbitrator's independenceand impartiality, and disclosure of the situation cannot cure theconflict. The Guidelines' examples of the ‘Non­waivable Red’category include where the arbitrator is a director or legal advisor ofone of the parties or has a significant financial interest in theoutcome of the arbitration. ‘Waivable Red’ situations are where theconflict is serious, page "145" but if the parties expressly agreeto the arbitrator's appointment, the conflict can be waived (e.g.,where a close family member of the arbitrator is a manager of oneof the parties or has a financial interest in the outcome). TheGuidelines' ‘Orange’ list covers situations where one of the partieshas justifiable doubts about a conflict such as an arbitrator'shistorical involvement with one of the parties, but if no timelyobjection is made, the arbitrator may conduct the proceedings. The‘Green’ list covers situations where, objectively, there is no conflict.This may be where the arbitrator has previously published a generalopinion concerning a relevant issue or owns an insignificant numberof shares in one of the parties, which is publicly listed.(43)

Either party can challenge the preliminary decisions made at thetime of commencement. In an institutional arbitration, the challengeis usually addressed to the institution, however a challenge may bemade through the courts of the country in which the arbitration is totake place if the national law allows it. Challenges should be madeas soon as is reasonably practical. A challenge to an arbitrator canbe used to challenge an award. However, it is frequently too late toraise an objection by the time the award is granted, unless groundsare discovered late in the day. If the objection is not raised at thetime the grounds for objection became apparent, the grounds forchallenge will be deemed to have been waived.

§7.03. The Parties: Joinder/Consolidation

The arbitration model is best suited to bilateral disputes. The reasonfor this is that the arbitral process is based entirely on theagreement of the parties in the arbitration clause of the relevantcontract, generally before any dispute has arisen. It is a consensualprocess.

Unfortunately, construction disputes often involve multi­partyrelationships, whereby various contractors and subcontractors aretied into one project together. In those circumstances it is verydifficult to draft the ‘perfect’ arbitration clause because one cannotpredict the different sets of facts that may give rise to disputesbetween the parties. This is further complicated where there is aninternational element. In addition, because of the different times atwhich the various agreements are concluded (and the differingnegotiating strengths of the parties to those agreements) the partiesmay each have consented to arbitrate but under differentprocedures. For example, the employer and the contractor mayhave agreed to arbitrate under the ICC Rules in Switzerland,whereas the contractor and its various subcontractors and suppliers

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may have agreed to arbitrate under the LCIA Rules in London. Thetwo sets of agreements may also make different provisions forlanguage or the number of arbitrators. In the absence of anyagreement between the parties, there is no scope to consolidate thetwo sets of arbitrations.

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[A]. Joinder or Consolidation by Consent of the Parties

Where disputes arise in relation to the same project, involvingmultiple parties, it may make sense to join additional parties orconsolidate multiple proceedings (at least in relation to disputes withcommon elements). However, this is not generally provided for instandard form arbitration clauses, and is only rarely achieved inpractice. It can, in fact, be very difficult to achieve a workableconsolidation arrangement. Parties to an arbitration clause shouldgive thought at the time they enter into the first contract to includingconsolidation provisions if they are not addressed in the institutionalrules adopted by the parties.

There is some scope in principle in certain institutional rules forjoinder of additional parties and consolidation of proceedings. TheICC Rules were amended in 2012 to permit joinder of an additionalparty where this is notified to the Secretariat before appointment ofarbitrators. However, joinder is subject to the Court determining thatan arbitration agreement exists between all involved parties or thatarbitration agreements in the different applicable contracts arecompatible.(44) Similarly, the ICC Rules allow for consolidation ofmultiple arbitrations in any of three circumstances (i) the partiesagree to consolidation; (ii) all claims are made under the samearbitration agreement; or (iii) where claims are made under multiplearbitration agreements, the arbitrations are between the sameparties, the disputes in the arbitrations arise in connection with thesame legal relationship, and the Court finds the arbitrationagreements to be compatible.(45)

Therefore, even where a joinder/consolidation arrangement isincluded in the institutional rules,(46) the two sets of parties mayhave agreed to incompatible provisions, for example regarding theseat or language of the arbitration, which could have the effect ofhindering or preventing consolidation.

Where there is no power in the relevant rules to consolidate casesand where it is obvious that consolidation of cases arising betweendifferent parties to different agreements is likely to be beneficial, theparties may try to make express provision for consolidation ofproceedings in two ways.(47) First, they may enter into what mightbe called ‘push’ or ‘pull’ arbitration agreements, so that A enters intoan agreement with B and B with C, D, E and so on, with eachagreement containing an express consent to have disputes arisingunder that agreement consolidated with those arising under otheragreements (i.e., pushed into a joined proceeding). As importantly,such an agreement must also allow disputes under otheragreements to be heard together with disputes under the agreementin question (i.e., pulled into a joined proceeding). All relatedcontracts should, of course, contain arbitration clauses with thesame seat, language, governing law etc. Done properly, judicioususe of the ability to push disputes into other arbitrations or to pullother disputes into the arbitration of the dispute under the page"147" agreement in question will allow effective consolidation. Theadvantage of this technique is that the consent of all the parties isnot required simultaneously after the dispute has arisen but isprovided for in the contractual arrangements.

The second possibility is that all the parties involved in the projectenter into a separate and stand­alone ‘umbrella agreement’, whichallows for all related disputes to be heard together or, for similardisputes to be consolidated. In such an arrangement, the partiesmay reserve the right to decide which proceedings are related, ormay refer that decision to the tribunal. However, it is inevitable thatdisputes will not always arise at the same time, so the partiesshould consider giving the tribunal a discretion not to consolidate,so that if one set of proceedings is quite advanced when the otherarises, time and money is not lost in unnecessary consolidation.Although an umbrella agreement requires a separate set ofnegotiations (which may not be easy to complete), the advantage isthat it allows a joinder/consolidation regime to be applied toagreements which have already been negotiated without theconclusion of founder provisions and also permits (since it providesfor a stand­alone arbitration procedure) differences in the individualarbitration provisions in each of the underlying related agreementsto be overcome.

[B]. Consolidation by Court Order

In some jurisdictions,(48) joinder and consolidation can be ordered bythe courts, without the consent of the parties when it is necessaryor convenient, however this is still considered exceptional. Court­ordered consolidation or joinder contradicts the principle thatarbitration procedure is ‘in accordance with the agreement of theparties'(49) and private.

[C]. Advantages and Disadvantages of Joinder andConsolidation

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The main advantage of joinder or consolidation is that it can, atleast when the costs of all the parties are aggregated, be cheaperfor the parties and make the process quicker and more efficient.The cost of setting up a second or even third tribunal will be savedeven if the one arbitration actually conducted will be rather morecomplex. It also helps to reduce the risk of inconsistent awards andtherefore increases the parties' confidence in the process bydelivering a more certain outcome, particularly for the party such asthe main contractor who is the ‘meat in the sandwich’, having todeliver to the employer what, in practice, its subcontractors will beproviding.

All is not, however, rosy even where time and effort has been putinto agreeing a regime which permits joinder and consolidation. Forinstance, one of the disadvantages of joinder or consolidationprovisions is that unless they are invoked at the start of the initialdispute then, if another party is sought to be joined at a later stagein the proceedings and the disputes consolidated, that joined partyor parties will not have page "148" had an equal input into thecomposition of the tribunal. This is one reason why joinder andconsolidation clauses often provide for the appointment of alltribunal members by an independent body, thereby eliminating anydisparity in influence between the original and joining parties.(50)

However, even the most artful drafting cannot overcome theprincipal problem of the late joinder of parties, which is the impacton the timetable of the arbitration into which they have been joined(questions of fairness dictate that some delay will have to betolerated, to allow the joining parties to catch up). Nor can it reallyovercome the problem of the wasted costs of the joining parties ifthey have already been seeking to resolve their disputes in someother forum. The only practical answer is to limit the operation ofjoinder/consolidation clauses to specific windows around the start ofthe first relevant disputes, leaving the provisions inoperative if notinvoked more or less contemporaneously with the commencementof the first arbitration.

[D]. No Joinder: Alternative Solutions

In many cases it is simply not possible to obtain effective joinder atthe contract drafting stage. In many cases, an employer, forinstance, will say that it wants single point responsibility for deliveryof its project by its main or general contractor and therefore has nointerest in becoming involved in disputes with subcontractors. Or,perhaps, the employer is in a position to dictate dispute resolutionprovisions which are unattractive to both the main contractor and itssubcontractors, with the result that it is less unattractive to haveseparate dispute resolution mechanisms than it is to have alldisputes resolved in an unfamiliar forum.

In these cases there are a number of drafting solutions which canbe adopted to allow disputes with common themes to be resolved inone forum. One technique to protect the main contractor is the useof pay­when­paid provisions which prevent the main contractor frombecoming exposed to its subcontractors until in receipt of fundsfrom the employer. These clauses are, however, becoming lessattractive since not only do they eliminate the risk of differingdecisions on the same issue (i.e., is payment due?) but they alsopass down to the subcontractors the credit risk that the maincontractor has taken on the employer. This last point is generallyregarded as unfair and has led, in certain countries, for pay­when­paid clauses to be either wholly or partially outlawed.(51) In addition,unless the main contractor has passed the whole of the risk down toa subcontractor in an identifiable way,(52) pay­when­paid clauses can

page "149" also have the effect that the sins of the employer arevisited without good reason on its subcontractors.

For all these reasons the trend in major projects is to move awayfrom simple pay­when­paid clauses to provide protection to the maincontractor and (to some extent) the subcontractors by a schemewhich provides that the subcontractors are entitled to receivewhatever the main contractor is entitled to receive – and only what itis entitled to receive – whether it actually receives it or not. Thecorollary to this is that the subcontractors are normally given a rolein the pursuit and defence of claims between the main contractorand the employer. This may or may not be visible in the course of amain contract arbitration, where the effective party will generally behidden behind layers of advisers and representatives. In somecases, however, the main contract expressly recognises thepossible role of subcontractors in main contract arbitrations, thoughas part of the main contractor's representation and not (as in fulljoinder) as a separate party.

By these techniques the risks associated with lack of joinder can belargely overcome. Where a subcontractor's rights and obligationsare effectively defined by reference to the establishment of the maincontractor's rights and obligations as against the employer, byapplying the results of a main contract arbitration down the chain asa matter of contract, overall risk can be minimised. While disputesmay still be brought at the subcontract level – indeed it is nigh­onimpossible to stop claims being brought – if the parties' respectiveentitlements under the subcontract are defined by reference to theequivalent entitlements under the main contract, a subcontractdispute will clearly be fruitless unless and until those main contractrights have been determined. This, and the possibility of an adversecosts order for bringing frivolous claims, operates as a powerfuldisincentive to the bringing of such claims before properly

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established at the main contract level.

§7.04. The Request for Arbitration

The Request for Arbitration (Request)(53) is the first step towardsarbitration. The Request is served on the respondent by theclaimant,(54) and has three key functions. First, it is a means ofgiving notice and calling the arbitration into existence. Failure tocomply with the rules for giving notice may render the awardunenforceable. Second, it establishes the basis of the dispute andwill inform the arbitral tribunal of the issues to be decided. Third, itis important in trying to promote settlement in the case. If theclaimant presents a strong case in its Request, the respondent maybe more willing to settle.

Different jurisdictions have different approaches to the manner andextent in which this first written document should shape the conductof the arbitration. The requirements of national laws must bechecked as to any requirements they impose with regard to the formor content of the request or notice commencing arbitration.

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However, national rules on this subject will often be subject to theparties' agreement and therefore, the requirements of the relevantarbitral institution. If the parties have adopted the rules of one of thevarious arbitral institutions, those rules will dictate what should beincluded in the Request, unless (and to the extent permitted underthe rules concerned) the parties have agreed otherwise. Therequirements of the ICC and LCIA are similar to those of a modernEnglish particulars of claim. The full names and a description of theparties and their full addresses must be set out. The main body ofthe Request should contain a description of the nature andcircumstances of the dispute and the relief sought. The ICC Rulesalso require information as to the basis of the claim and amounts ofany quantified claims, together with an estimate of any otherclaims.(55) Reference should be made to the relevant agreements indispute and the arbitration clause that is invoked (these arenormally attached). The Request should also contain a statement ofany matters on which the parties have already agreed, such asplace of arbitration, language, the number of arbitrators,qualifications of those arbitrators or even their identities. Ifagreement has not been reached on these issues, the claimantshould set out its proposals in the Request. The Request must befiled with the appropriate body. For the ICC, the appropriate body isthe ICC Secretariat and for the LCIA it is the LCIA Registrar. TheRequest must also be sent to the other party or parties. Theclaimant should check with the institution as to whether there is afee to be paid on filing the request. In an ad hoc arbitration, if theparties have not made reference to the rules of any arbitralinstitution, it may fall to the law of the country of the seat ofarbitration to determine the content of the Request and the mannerin which it is to be served on the respondent.

The differences between the requirements of the different arbitralinstitutions reflect to a large extent the different jurisdictionalapproaches. In particular they differ in terms of the factual detailrequired and the inclusion of legal argument in the Request. TheLCIA Rules effectively require service of an English­style particularsof claim, setting out in sufficient detail the facts and any law onwhich the party relies.(56) An example outline for a Request forArbitration under the LCIA Rules appears at Annex 6. In contrast,the AAA Rules reflect the US approach and require only a bareindication of the facts.(57)

Receipt of the Request marks the commencement of the arbitration.The claimant must ensure that the respondent receives theRequest, and should request that receipt is acknowledged. Ofcourse, one must also keep in mind, given this is thecommencement of proceedings, that they do what is necessaryunder the applicable law / rules to stop the time limit running for anyclaim (whether that time limit is set out in the contract or otherwise)and set parameters for jurisdiction of the tribunal in respect of theissues referred for determination. In addition, in ICC cases, theRequest will form the basis of the ‘Terms of Reference’.Accordingly, parties should be careful to set out all claims early on,to try and avoid later significant departure from those Terms or

page "151" therefore, a later potential challenge to thearbitrator's jurisdiction over the relevant disputes.

The form of any later pleadings, submissions or memorials (as theterminology will differ depending on the tribunal and the institutionalrules) is determined by the framework set out by the relevant rulesin combination with the parties' agreement. This is dealt with furtherin Chapter 8.

§7.05. Selection of the Parties’ Representatives

As with court litigation, lawyers or other professional advocates maybe used to present the parties' cases to the arbitral tribunal.Although there is often no particular requirement that the parties berepresented or that the parties' representatives are lawyers orlawyers qualified in the place of the arbitration,(58) this is often thecase.

[A]. Appointing Counsel

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Each party will normally appoint counsel (i.e., a lawyer or lawyers)to run their case. The qualities that the parties should look for intheir legal team are not covered here. This section addresses onlythe question of whether the assistance of local lawyers is required.This is often an important consideration in international arbitrations.Take the example of an ICC arbitration with its seat in Paris, wherethe documents on which the dispute centres are governed byGerman law. French lawyers may be required to advise on certainlocal, mandatory, procedural laws which the parties cannot contractout of. That does not mean, however, that the arbitration needsactually to be conducted by French lawyers, and there is nothing ineither French law or the ICC Rules that requires this. Indeed, thearbitration might most logically be conducted by German lawyers,though if the project documents were in another language such asRussian, even this apparently sensible solution might not be themost appropriate.

While the local laws of the place of arbitration may be relevant tothe conduct of the arbitration including rights of audience to makesubmissions; the parties may (and probably should) require locallaw advice to identify any pitfalls peculiar to the conduct ofarbitration in that country. The presentation of the case is separatefrom, and not dependent on, the law of the place of the arbitration.In almost every case, factors such as familiarity with thesubstantive law of the agreement, the project, the business sector,the language of the arbitration, the arbitration process or even thearbitrators themselves is more likely to be relevant in choosing themost effective representation than familiarity with the law of theseat.

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[B]. Insurers

Another issue that should be considered is involvement of insurers.At the least they should be notified of the commencement of anarbitration which impacts in any way on their potential exposure tomeet losses under insurance policies. Where cover is denied, it isstill important to keep insurers informed so as to avoid an argumentlater should a claim be pursued against them that their subrogationor other rights were in some way prejudiced by the manner ofconducting the claims.

§7.06. Conclusion

There are many important decisions to be made by the parties whencommencing an arbitration. They should be fully aware of theimpact of these choices on the process. In particular, time and careshould be taken over selection of the tribunal. The parties' ability toinput their views and nominate members of the panel is unique toarbitration. The parties need to have confidence in the arbitrators'ability to conduct the proceedings and they will usually find it easierto accept an award if they know that they appointed the rightarbitrator.

The level of detail to include in any Request is another key tacticaldecision. The parties may not want to reveal their hand at such anearly stage, especially if they anticipate new facts coming to light inthe future, however setting out a strong case in the Request maylead to early settlement.

Whether to consent to joinder or consolidation is another importantpractical decision. Each case must be considered on its ownmerits. Consolidation may save costs in some situations but createdelays in others.

All these issues should be discussed with the parties' lawyers assoon as the dispute arises. In fact, the parties should think aboutthem at the time of drafting the arbitration clause. If the clausemakes provision for the relevant procedures, the process shouldthen run more smoothly if and when it is necessary to commencean arbitration. More importantly, the parties, rather than the arbitralinstitutions or the national courts, will be in control.

1 The process will depend on whether (and if so which) institutionalrules have been adopted and the national arbitral legislation of thearbitral seat.2 In very general terms the common law adversarial approach (asin England) is more party driven. The civil law approach (as incontinental Europe) is more tribunal driven.3 Convention for the Pacific Settlement of International Disputes(Hague I) 1907, commonly referred to as the Hague Convention1907.4 An example of this is where clauses have specified that thetribunal must be composed of ‘commercial men’. The courts haveheld that this refers to ‘practical commercial experience’ – PandoCompania Naviera SA v. Filmo SAS [1975] 2 All ER 515.5 Article 5.4.6 Article 12(1), (2).7 Article 7.

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8 Article 10.9 CIETAC revised its rules effective 1 May 2012. As at the date ofwriting, CIETAC has made an announcement terminatingauthorisation of its Shanghai and South China branches to acceptand administer arbitrations. These branches had declaredthemselves independent institutions with their own arbitral panels,and refused to accept the revised 2012 CIETAC Rules. For thepurposes of this book, a reference to the CIETAC Rules is areference to CIETAC Arbitration Rules revised and adopted by theChina Council for the Promotion of International Trade/ChinaChamber of International Commerce on 3 Feb. 2012, effective as of1 May 2012.10 Article 23(2).11 Article 20.12 Article 17.13 Article 19.14 E.g., Art. 7.1 LCIA Rules.15 E.g., Art. 7 UNCITRAL Arbitration Rules.16 Article 13 of the ICC Rules now empowers the ICC Court toappoint arbitrators directly where it deems it necessary to do so(such as in the event of delay by the relevant National Committee inproviding names).17 Articles 12 and 13.18 Articles 5 and 7.19 Article 6 UNCITRAL Arbitration Rules.20 CIETAC permit parties to nominate any person, subject toconfirmation by CIETAC.21 C Newmark & R Hill, The Appointment of Arbitrators inInternational Arbitration, 7 Intl. Arb. L. Rev. 73–80 (2004).22 Article 8.23 Newmark & Hill, Appointment of Arbitrators, 74 supra n. 21.24 The tribunal effectively enters in to a mandate with both partieswhich enables it to bind the parties to the terms of any award.25 Articles 11(1) and 22(4) ICC Rules, Art. 17(1) UNCITRALArbitration Rules, Art. 14(1) LCIA Rules, Art. 7(1) AAA Rules, andGeneral Standard 1 IBA Guidelines on Conflicts of Interest inInternational Arbitration 2004.26 Garnett, Richard et al., A Practical Guide to InternationalCommercial Arbitration 67 (2d ed., Oceana Publications Inc 2000).The duties of arbitrators are different however from those of a Judgein civil proceedings as the arbitrator does not have a duty to thestate. In contrast in some jurisdictions, such as New York State,partiality is positively encouraged.27 Article 11(1) ICC Rules and Art. 5.2 LCIA Rules.28 Article 11(2) ICC Rules and Art. 5.3 LCIA Rules.29 Article 7(1) AAA Rules.30 Article 11.31 Article 11.32 Articles 22 and 33.33 Article 29(1).34 Article 6(7) of the UNCITRAL Rules states the appointingauthority shall take into account the advisability of appointing anarbitrator of a nationality other than the nationalities of the parties.The ICC Rules state that a sole arbitrator or chairman ‘shall be of anationality other than those of the parties.’ The latter is subject tosuitable circumstances otherwise and provided that neither of theparties objects. The AAA Rules only provide that the chairman maybe of a different nationality to the parties; it is not a requirement.35 Jivraj v. Hashwani [2011] UKSC 40.36 Nigel Blackaby & Constantine Partasides, Redfern and Hunteron International Arbitration 4–54 (5th ed., Oxford U. Press 2009).37 Ibid., at 4–77.38 For example if he is an officer of an associate company ormanaging company: Edinburgh Magistrates v. Lownie [1903] 5 F (Ctof Sess) 711.39 For example, if he has a substantial shareholding: Sellar v.Highland Railway Company [1919] SC (HL) 19.40 Niklas Lindstrom, ‘Challenge to Arbitrators – Decisions by theSCC Board during 2008–2010,http://www.sccinstitute.com/filearchive/4/40158/Challenges%20to%20Arbitrators%20–%20Decisions%20by%20the%20SCC%20Board%20during%202008.pdf(accessed 10 Sep. 2013).41 ASM Shipping Ltd of India v. TTMI Ltd of England [2005] EWHC2238 (Comm.) (Q.B.).42 Morelite Constr. Corp. v. N.Y.C. Dist. Council Carpenters'Benefit Funds, 748 F.2d 79 (2d Cir. 1984). See also Garnett,Richard et al., A Practical Guide to International CommercialArbitration 67 (2d ed., Oceana Publications Inc 2000), 58.43 For a more detailed discussion see Redfern & Hunter onInternational Arbitration (2009) s. 4.72–4.90.44 Unless all parties agree that the party may be joined despite an(or more than one) arbitrator having already been appointed (Art7(1)).45 Article 10 ICC Rules.46 Article 22.1(h) LCIA Rules.47 English Arbitration Act 1996, s. 48, allows for consolidation onlyif there is express agreement.48 For example, Netherlands, Hong Kong and California.49 Article V.1(d) New York Convention.50 In part to address the decision in Siemens v. BKMI and Dutco,Cour de Cassation 7 Jan. 1992, discussed further in Ch. 8.

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51 Somewhat unusually in the UK Housing Grants Construction andRegeneration Act 1996, pay­when­paid clauses are ineffective inrespect of construction contracts in England, Wales and Scotlandunless the ultimate payer is insolvent, protecting the subcontractoragainst late payment but not, ultimately, against the insolvency ofthe employer. Prohibitions on pay­when­paid clauses are alsoapplicable in Australia.52 As happens at the ‘concessionaire’ level in PFI and limitedrecourse financings where all of the concessionaire's obligations arenormally cleanly passed down to a few separate contractors.53 It is called a ‘notice’ in the UNCITRAL Arbitration Rules.54 The ICC takes responsibility for serving the Request and acts asan intermediary between the parties (Art. 4(5) ICC Rules), howeverthe other institutions do not (e.g., Art. 1.1(g) LCIA Rules).55 Article 4(3).56 Article 1.57 Article 2(3)(e).58 Occasionally a country's professional conduct laws for the legalprofession reserve the conduct of arbitrations to lawyers admitted inthe country which is the seat of the arbitration, though the trend isto remove such bars on the practice of international arbitration.

Source

Chapter 8: Control ofthe Arbitration in JaneJenkins , InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 155 ­ 178

§8.01. Introduction

This chapter considers the arbitral tribunal's powers and duties tocontrol the proceedings, with reference to institutional andinternational rules of arbitration and the arbitration laws of selectedjurisdictions. As a starting point, the source of the tribunal's powersand duties is examined, as well as the principle of party autonomyand the extent to which this underlies or restricts the tribunal'sability to conduct the proceedings. A discussion of the tribunal'sprocedural powers in respect of each of the key stages of theproceedings follows, starting with the preliminary steps following thetribunal's appointment, all the way through to post­hearing matters.Finally, the tribunal's ‘case management’ duties, encompassing theneed to ensure procedural fairness and the duty to act‘expeditiously’ are considered in the light of arbitral rules and caselaw in order to assess what, in practice, is required from thetribunal.

§8.02. Powers of the Arbitral Tribunal to Control theProceedings

[A]. Source of the Arbitral Tribunal’s Powers

The powers of an arbitral tribunal are ‘those conferred upon it by theparties themselves within the limits allowed by the applicable law,together with any additional powers that may be conferred byoperation of law’.(1)

Accordingly, the powers of the tribunal originate primarily from theparties, directly or indirectly: directly, where the parties specify inthe arbitration agreement, arbitrators' terms of appointment oranother written agreement the powers which they wish thearbitrators to exercise; indirectly, where the parties stipulate that the

page "155" arbitration is to be conducted according to rules ofarbitration, whether institutional or ad hoc, which confer expresspowers (general and specific) upon the tribunal. For example, theUNCITRAL Arbitration Rules give an arbitral tribunal general powersto conduct an arbitration ‘in such manner as it considersappropriate’ (Article 17(1)), while also giving it specific power, suchas the powers, absent any agreement of the parties, to determinethe place of the arbitration (Article 18(1)) or the applicable law(Article 35(1)).

However, as stated above, the ‘applicable law’, constituted by thelaw governing the arbitration agreement and the law of the place ofthe arbitration (to the extent that these are distinct), will also have arole to play in determining the tribunal's powers. It may operate soas to supplement such powers: for example, the English ArbitrationAct(2) confers general and specific procedural powers on the arbitraltribunal, subject to any agreement to the contrary by the parties.(3)Thus, an arbitral tribunal sitting in England may (unless the partiesotherwise agree) appoint experts or other advisers, order a claimantto provide security for costs, give directions for the inspection,preservation etc. of any property which is the subject of theproceedings, administer oaths to witnesses and give directions to aparty for the preservation of any evidence in that party's custody orcontrol.(4)

The applicable law may also operate to restrict the powers of thearbitral tribunal. For instance, in almost any civil law country, thearbitral tribunal will not be entitled to administer oaths. According toacademic commentary, the reason for this is the limited scope ofthe arbitration agreement, which does not extend to third partiessuch as witnesses.(5) In common law countries, however, arbitration

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laws quite often include provisions that allow the tribunal toadminister oaths or to order the production of documents by thirdparties.

In practice, therefore, in order to determine the scope and nature ofa tribunal's powers, regard should be had, in the following order, tofour sources:

(a) the arbitration agreement;(b) any arbitral rules to which the parties have subjected the

arbitration;(c) the law governing the arbitration agreement; and(d) (to the extent that this is distinct from (c)) the law of the place

or ‘seat’ of the arbitration (the lex arbitri).

The law governing the arbitration agreement ((c) above) may beexpressly chosen by the parties, though in fact rarely is. In theabsence of such express choice, in many cases a presumption thatthe law governing the arbitration agreement is the same as page"156" that governing the underlying contract and the substance ofthe agreement has been applied.(6) However, this is not an invariablerule and the presumption has been disregarded in some cases, infavour of the law of the place of arbitration.(7)

§8.03. General Principles

[A]. Party Autonomy

Since the arbitration agreement between the parties is the basis ofthe tribunal's jurisdiction, the guiding principle is that the parties arefree to dictate the procedure to be followed in an arbitration, withincertain limits and subject to the requirement to observe basicstandards of procedural fairness, as discussed below. Rules ofarbitration and national arbitration laws strongly affirm the principleof party autonomy. For example, both the UNCITRAL Model Lawand the ICC Rules state that, subject to the relevant institutionalrules, the parties are free to agree on the procedure to be followedby the arbitral tribunal in conducting the proceedings. It is onlyfailing such determination by the parties that the tribunal may itselfdetermine rules of procedure.(8)

The LCIA Rules also promote the parties' freedom to determine theconduct of the proceedings, stating that ‘the parties may agree onthe conduct of their arbitral proceedings and they are encouraged todo so’ (Article 14.1). Again, under the LCIA Rules, the tribunal'sdiscretion to determine the rules under which it should discharge itsduties is subject to any agreement by the parties to the contrary(Article 14.2). The English Arbitration Act 1996 also states that thetribunal's ability to decide all procedural and evidential matters is‘subject to the right of the parties to agree any matter’ (section34(1)). Arbitration legislation in both Switzerland(9) and Germany(10)provides that the parties may determine the arbitral procedurethemselves or by reference to arbitration rules, and, again, it is onlyfailing such determination that the page "157" tribunal maydecide how the proceedings should be conducted.(11) Finally, itshould be noted that failure to respect the principle of partyautonomy can be a bar to recognition and enforcement: underArticle V(1)(d) of the New York Convention, one ground forchallenging the recognition and enforcement of an award is where‘the arbitral procedure was not in accordance with the agreement ofthe parties'.

However, some arbitral rules envisage a transfer of control of theproceedings from the parties to the tribunal early on. Both theUNCITRAL Arbitration Rules and the AAA Rules, in almost identicalprovisions, state that the tribunal may conduct the arbitration insuch manner as it considers appropriate, subject to the relevantrules and minimum requirements of procedural fairness (discussedfurther below).(12) This is supported by paragraph 4 of theUNCITRAL Notes on Organizing Arbitral Proceedings(13) whichstates that:

Laws governing the arbitral procedure and arbitrationrules that parties may agree upon typically allow thearbitral tribunal broad discretion and flexibility in theconduct of arbitral proceedings

as well as by paragraph 7 of the Notes which states that proceduraldecisions by the arbitral tribunal may be taken with or withoutprevious consultations with the parties, depending on whether thetribunal considers such consultations necessary or whether:

hearing the views of the parties would be beneficial forincreasing the predictability of the proceedings orimproving the procedural atmosphere.

In this context it should, of course, be noted that (unlike sets ofarbitration rules), the UNCITRAL Notes on Organizing ArbitralProceedings are generally not something that would be chosen byagreement of the parties or binding upon them. Rather, as the Notesexplain, they are designed ‘to assist arbitration practitioners bylisting and briefly describing questions on which appropriately timeddecisions on organizing arbitral proceedings may be useful’ (note 1).It is clear that reference to, or the use of, the Notes ‘cannot implyany modification of the arbitration rules that the parties may have

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agreed upon’ (note 3).

[B]. Restrictions on Party Autonomy

The ability of the parties to determine the conduct of theproceedings is not completely unfettered, even under those arbitralrules that go the furthest in espousing the principle of partyautonomy. Types of restrictions on the parties' freedom include:

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­ ‘due process' principles (in particular the independence andimpartiality of the arbitral tribunal, equal treatment and the parties'right to be heard);(14)

­ public policy/mandatory rules of the forum;­ institutional rules; and­ the principle that arbitral proceedings cannot have an impact onthird parties.

These restrictions are examined in turn below.

Due process principles such as the ones outlined above arefundamental requirements of arbitral procedure. They are intendedto protect the parties, but also operate to limit the parties' freedomto determine how the arbitral proceedings should be conducted: theparties cannot, for instance, agree that the proceedings beconducted in a way that treats one party differently from the other.

A prominent example of the impact of this principle is the Dutcocase,(15) in which arbitration proceedings were commenced by aclaimant against two other parties, the claims against each of theparties being different. In accordance with the agreement toarbitrate, the claimant appointed its own party­nominated arbitratorwhilst the two respondents were required, under protest, jointly toappoint a second party­nominated arbitrator, as the arbitrationagreement provided for arbitration by a tribunal composed of twoparty­nominated arbitrators and a chairman. The tribunal's partialaward affirming that it had been validly constituted was set aside bythe French Cour de Cassation, which stated that:

the principle of the equality of the parties in theappointment of arbitrators is a matter of public policy(ordre public) which can be waived only after a disputehas arisen.

These basic standards of procedural fairness are reflected in theabove­mentioned rules of arbitration and national laws, which allstate that the tribunal must both (1) act fairly and impartially orotherwise treat the parties with equality; and (2) ensure that eachparty has a reasonable opportunity to present its case or is giventhe right to be heard.(16) They are also part of international publicpolicy, as embodied in the European Convention of Human Rights.Article 6(1) of that convention states:

In the determination of his civil rights and obligationsor of any criminal charge against him, everyone isentitled to a fair and public hearing within a reasonabletime by an independent and impartial tribunalestablished by law.

Although an agreement to arbitrate disputes may constitute a waiverby the parties of some of their Article 6(1) rights (e.g., rights ofaccess to court, public hearing and page "159" publicjudgment), it does not necessarily waive all of the rights guaranteedby Article 6(1).(17)

As a result, failure to observe these standards will be a ground forchallenging the recognition and enforcement of the award. Achallenge to enforcement of an award may be made under ArticleV(1)(b) of the New York Convention according to which recognitionand enforcement of the award may be refused if there is proof that:

the party against whom the award is invoked was notgiven proper notice of the appointment of the arbitratoror the arbitration proceedings or was otherwise unableto present his case.

Refusal may also occur under Article V(1)(d) (non­compliance of thearbitral authority or arbitral procedure with the agreement of theparties or the law of the seat of the arbitration) or Article V(2)(b)(public policy).

The parties cannot determine that the proceedings be conducted ina manner that is contrary to the mandatory rules or public policy ofthe forum state. These encompass the principles of proceduralfairness discussed above. More generally, however, any agreementby the parties to perform an act that is contrary to the forum state'smandatory rules or public policy, or an act that is not capable ofbeing performed under the law of the forum state (or the lawgoverning the arbitration agreement) would be unenforceable in thatcountry. Further, such an agreement could open any resultingarbitral award to challenge under Article V of the New YorkConvention, specifically under Article V(1)(a), which provides for adefence to enforcement where the arbitration agreement is not validunder its governing law or the law of the country where the awardwas made and, depending on where recognition and enforcementare sought, under Article V(2), which provides for challenge where

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recognition and enforcement of the award would be contrary to thepublic policy of the forum where they are sought.(18)

The arbitral rules chosen by the parties may also restrict the parties'freedom to determine the conduct of their proceedings, as illustratedby the UNCITRAL Model Law and the ICC Rules, which both statethat the parties' ability to determine the rules of procedure is subjectto the provisions of the relevant rules.(19) However, rules ofarbitration generally contain few mandatory provisions over andabove the basic requirements of procedural fairness.(20)

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Finally, in light of the principle that an arbitration agreement cannotbind third parties, the parties' latitude to dictate the conduct of thearbitral proceedings does not generally extend to requestingprocedural measures which might affect third parties, such ascompelling third parties to produce documents.

Although party autonomy is the guiding principle underlying arbitralproceedings, in practice, from the moment that the arbitral tribunalis appointed, there is a gradual transfer of control from the parties tothe arbitral tribunal. Once a dispute has been referred to arbitration,the parties may be unable to agree any aspects of the procedure onwhich they have not agreed in advance.

Accordingly, what follows is a discussion of the arbitral tribunal'spower to control the proceedings at each of the key stages of aninternational arbitration, as reflected in rules of arbitration andnational laws.

[C]. Preliminary Steps

Preliminary steps taken by the parties and the arbitral tribunal at theoutset of the proceedings will include some or all of the following:

(a) A preliminary meeting to discuss the organisation of theproceedings (i.e., essentially a case management conferenceor meeting during which the timetable and proceduralarrangements will be discussed and the framework for thearbitration going forward determined or agreed). In the case ofan ICC arbitration the Tribunal is required to draw up the Termsof Reference for the arbitration and to submit this to the ICCCourt for approval. See further Chapter 11 below and sampleoutline Terms of Reference at Annex 7.

(b) A determination of any preliminary issues, such as jurisdiction,the law(s) applicable to the substance of the dispute and thearbitral proceedings and whether any of the issues in theproceedings (e.g., quantum) should be heard separately (seeChapter 11).

(c) The appropriateness of expedited remedies, such as the pre­arbitral referee procedure and ‘fast­track’ arbitrations.

As a general rule, neither institutional rules of arbitration nor nationallaws grant the arbitral tribunal any specific powers in respect ofthese preliminary steps. However, as discussed later in thischapter, the tribunal has a duty to conduct the proceedingsdiligently and expeditiously, and such preliminary steps will be akey means of resolving procedural issues.

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[D]. Written Submissions

Following the submission of any Request or Notice of arbitration(which is dealt with above in Chapter 7) and any Answer, furtherwritten submissions are invariably exchanged. These providegreater detail of each parties' respective claims and defences, alongwith the evidence upon which each party relies.

One of the many purposes of written submissions is to give thearbitral tribunal enough information to enable it to manage theconduct of the proceedings in an efficient and effective manner.This is reflected by a number of arbitral rules, which each set outthe framework of requirements for written submissions. Differentrules anticipate different structures for the exchange of writtensubmissions. These provisions usually cover some or all of thefollowing: the contents of the written submissions, includingcounterclaims and set­off; the periods for filing submissions; andthe possibility of amending or supplementing submissions. Often,the relevant rules are not so prescriptive as to identify exactly whatmust be filed in what form. Much will depend upon discussionbetween the parties and tribunal at the case management stage. Inpractice, depending on the detail of requirements of the relevantrules or laws, and indeed the nature of the dispute and agreement ofthe parties, the form of submissions can vary quite significantly.Often, submissions in the memorial style will be agreed upon, ofwhich there may be one or more rounds (these types ofsubmissions will typically include evidence along with legalsubmission, such as witness statement and expert reports andother exhibits). Other arbitrations may employ a sequence of filingsof pleadings and evidence which more closely approximates anEnglish or American style of court litigation (i.e., pleadings followedby witness statements followed by expert reports).

For example, Article 15 of the LCIA Rules provides for service,

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within thirty days of notification of the formation of the arbitraltribunal and then at thirty­day intervals, of written submissions andreply submissions. These submissions must set out ‘in sufficientdetail the facts and any contentions of law’ on which they relyand/or which they admit or deny (and the grounds for admitting ordenying such facts or legal contentions), and, in the case of theStatement of Case, the relief claimed against all other parties to theextent that such matters have not been set out in the Request forArbitration.(21) The Tribunal may also, before a hearing, require aparty to give notice of the subject matter of a witness' testimony, itscontent and its relevance to the issues in the arbitration.(22)

The ICC Rules require a case management conference followingsubmission of the Request and Answer, during which the proceduraltimetable governing the rest of the proceedings will be set.(23) Thetribunal is to establish the facts of the case by ‘all appropriatemeans'(24) and will hold a hearing (if any party requests one or of itsown motion) after ‘studying the written submissions' and ‘alldocuments relied upon’. page "162" Accordingly, the ICC Ruleshave great scope for submissions to be tailored based on theparties' agreement and what is appropriate for the case in hand.However this also highlights that consideration needs to be given tothe appropriate form and timing of submission at a very early stage.

Under the UNCITRAL Rules, a party can treat its Notice ofArbitration as the Statement of Case if it so wishes, as long as theNotice contains a statement of the relevant facts, points in issue,relief or remedy sought, and legal grounds supporting the claim (aswell as contact details of the parties).(25) The tribunal may otherwiserequire the parties at any time during the proceedings to producedocuments, exhibits or other evidence as it sees fit.(26)

National arbitration laws are less prescriptive as to the form, contentand process of, exchanging written submissions. For instance theSwiss PILA is completely silent on the issue of writtensubmissions, whilst the English Arbitration Act 1996 merely statesthat, subject to any contrary agreement by the parties, the arbitraltribunal may decide ‘whether any and if so what form of writtenstatements of claim and defence are to be used, when these shouldbe supplied and the extent to which such statements can be lateramended’.(27) That said, it must, of course, be remembered thatsuch laws are generally intended solely to provide the bareessentials necessary to allow an arbitration to be conducted and arenot in themselves intended (in the normal run of things) to operatewithout input from the parties – whether by bespoke drafting or theadoption of published sets of rules.

In virtually every case the tribunal retains some modicum of controlover written submissions, even where the rules of arbitration aredetailed. For example, the LCIA Rules state that the Rules'provisions on written submissions are subject to any contrarydetermination by the parties or the arbitral tribunal.(28) Under both theUNCITRAL Arbitration Rules and the UNCITRAL Model Law, theperiod for filing written submissions is to be determined by thearbitral tribunal.(29)

Such powers confer on tribunals the ability to further refine theparties' cases to assist in proper case management.

[E]. Evidence

The arbitral tribunal's role in the process of the taking of evidencemay vary to a certain degree according to the place of thearbitration and the legal background of the arbitrators. Arbitratorsfrom a common law background tend to act more like referees orumpires monitoring procedural fairness, whereas civil law arbitratorstend to favour page "163" more active case management.(30)Common law systems tend to oblige litigants, particularly indisclosure, to present all evidence relevant to the issues in disputeincluding that which may be adverse to their own interests. Civil lawsystems require the parties to identify and produce the evidencethat they wish to rely upon, without necessarily producing what maybe adverse to their case. Further, there are of course differencesbetween common law approaches (e.g., in the US, privilegegenerally is applied more restrictively than in the UK). Common lawsystems rely more heavily upon oral testimony (particularly thattested by cross­examination); and civil law upon contemporaneousdocuments.

The handling of evidence and fact­finding are converging ininternational arbitration as a result of the use of the 2010 IBA Ruleson the Taking of Evidence in International Commercial Arbitration(the IBA Rules)(31) discussed below. Differences in the methods oftaking evidence persist depending on the background of thearbitrators, for example in relation to document production.(32) Thechoice of arbitrator may therefore have a fundamental effect on thestyle of the proceedings.

However, experienced international arbitrators, whether they comefrom a civil law or a common law background, do not usually allowthemselves to be limited by existing rules of evidence, which mightbe purely technical and/or prevent them from establishing the factsnecessary for determining the issues between some parties. Ininternational commercial disputes, the strict and formal rules ofevidence, which were originally devised to protect juries, are notappropriate. On the contrary, modern arbitration rules provide that

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the tribunal may conduct the fact­finding in any way it deemsappropriate,(33) which includes the application or rejection of rules ofevidence.

As a general principle, it has been stated that ‘the methods ofpresenting evidence to an arbitral tribunal on disputed issues of factderive from a synthesis of party autonomy, discretion of the arbitraltribunal and court control at the stage of enforcement’.(34) Thetension between the first two principles, party autonomy and thediscretion of the arbitral tribunal, is illustrated in different ways, bythe various sets of institutional rules:

­ The ICC Rules give the tribunal a wide discretion to decide rulesof evidence, stating that it ‘shall proceed within as short a time aspossible to establish the facts of the case by all appropriatemeans'.(35) The ICC Rules go on to provide page"164" specific instances of the tribunal's autonomy, inter alia inrelation to hearing the parties(36) and witnesses or experts(37) andtaking measures to protect trade secrets and confidentiality,(38)although one limitation is that the tribunal cannot decide the casesolely on documents if one of the parties wishes to be heard.(39)

­ The LCIA Rules contain very detailed provisions concerningevidence, conferring similarly wide powers on the tribunal,subject, in most instances, to giving the parties a ‘reasonableopportunity to state their views'.(40) Under the LCIA Rules, thetribunal may (1) conduct such enquiries as are necessary andexpedient to ascertain the relevant facts; (2) order any party tomake any property, site or thing under its control and relating tothe subject matter of the arbitration available for inspection; (3)order any party to produce any relevant documents or classes ofdocuments for inspection; and (4) decide whether or not to applystrict rules of evidence as to admissibility, relevance or weight ofany factual or expert material.(41) Specifically in relation towitnesses, the tribunal has a discretion to allow, refuse or limitthe appearance of witnesses (whether they are factual or expertwitnesses),(42) to control questioning by the parties/put its ownquestions to the witnesses(43) and to dictate the form/manner ofexchange of witness testimony.(44)

­ Both the UNCITRAL Arbitration Rules and the AAA Rules providethat the tribunal may require either party to deliver a summary ofthe documents and other evidence which that party intends topresent in support of the facts in issue set out in its claim,counterclaim or defence. Furthermore, at any time during thearbitral proceedings, the tribunal may require the parties toproduce documents, exhibits or other evidence.(45) Concerningwitnesses, the tribunal is free to determine the manner in whichthese are to be examined.(46) Finally, the tribunal shall determinethe admissibility, relevance, materiality and weight of theevidence offered.(47) page "165"

­ The UNCITRAL Model Law, however (as perhaps might beexpected of an instrument intended to provide the frameworkwithin arbitrations are conducted, rather than a set of arbitrationrules per se), is more brief on the issue of evidence, and clearlyaffirms the pre­eminence of the parties' autonomy. It states that,subject to the provisions of the UNCITRAL Model Law and anycontrary agreement by the parties, the arbitral tribunal mayconduct the arbitration in such manner as it considersappropriate, which power includes determining the admissibility,relevance, materiality and weight of any evidence.(48) TheUNCITRAL Model Law also provides that the tribunal may meetat any place which it considers appropriate for the purposes, interalia, of hearing witnesses or experts or for the inspections ofgoods, other property or documents.(49)

­ The CIETAC Rules provide that the arbitral tribunal mayundertake investigations and collect evidence on its own initiativeas it considers necessary.(50) The arbitral tribunal may consultexperts or appoint appraisers for clarification on specific issues ofthe case and request the parties to deliver or produce to theexpert or appraiser any relevant materials, documents, property,or goods for checking, inspection or appraisal by the expert orappraiser.(51)

­ The DIAC Rules provide that the tribunal may decide on the rulesof evidence to be applied, relevance or weight of any materialtendered by a party on any matter of fact or expert opinion. Thetribunal may also on its own motion, order a party to producedocuments or other evidence as the tribunal considers necessaryor appropriate.(52)

National rules also affirm the principle of party autonomy. TheGerman ZPO contains almost identical provisions to those of theUNCITRAL Model Law in this respect.(53) Under the EnglishArbitration Act, the tribunal's right to decide evidential matters(including, whether any documents or classes of documents shouldbe produced by the parties, whether to apply strict rules of evidenceas to admissibility etc. and whether there should be oral or writtenevidence) is subject to ‘the right of the parties to agree any matter’.(54) However, Swiss law states that ‘the arbitral tribunal shall itselfconduct the taking of evidence’.(55)

Finally, the effect of the IBA Rules needs to be taken into account.Unlike the UNCITRAL Notes on Organizing Arbitral Proceedings, theIBA Rules ‘are designed to be used in conjunction with, and adoptedtogether with, institutional or ad hoc or other rules or procedures

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governing international arbitrations' (see Foreword to IBA Rules). Inpractice, parties frequently agree to the application of the IBARules, either of their own volition or at the prompting of the tribunal.Where adopted, the IBA Rules balance page "166" partyautonomy and the tribunal's discretion by referring to partyautonomy as underlying the arbitral tribunal's powers, whilst givingthe tribunal wide discretion in relation to a number of specificevidential issues.(56) For example, if a party asks the tribunal to takesteps to obtain documents from a third party, the tribunal may useits discretion to determine whether the documents are relevant andmaterial and, if so, it should take the necessary steps to obtainthem.(57) At any time before the arbitration is concluded, the tribunalmay also request a party to produce any documents that it believesto be relevant and material to the case.(58) Further, the tribunal mayorder either party to ensure, or seek to ensure, the appearance fortestimony of any person.(59)

In practice, the three main areas in which a tribunal in internationalarbitration is likely to exert control are:

­ Document production: in the majority of cases, the tribunal willseek to limit document production as far as possible, in order tofocus on those documents or categories of documents likely tobe relevant and necessary.

­ Witnesses: the tribunal will also, as far as practicable, attempt toshorten the oral stage of the proceedings, for example, byrefusing to hear oral witness evidence or at least restricting thenumber of oral witnesses and any cross­examination.(60)

­ The admissibility, weight and relevance of the evidence tendered:as stated above, an experienced arbitral tribunal will rarelyexclude evidence on grounds of inadmissibility; however, it mayuse its discretion to attribute more or less weight to evidence(e.g., it may attribute less weight to uncorroborated witnesstestimony than to documentary evidence).

[F]. Experts

The parties may submit their own expert evidence to the arbitraltribunal, however, the tribunal usually has the power to appoint itsown expert, if the tribunal considers it necessary and appropriate.This power may be expressly set out in the arbitration agreement orincorporated into the agreement by reference to institutional orinternational rules of arbitration. Alternatively such power may beimplied under the law governing the arbitration agreement.(61)

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The tribunal may require the parties to provide its expert with anyrelevant information or to produce for inspection any relevantdocuments, goods or other property that may be required by theexpert.(62)

Generally, the parties have some control over the tribunal's expert.Some rules of arbitration provide that the arbitral tribunal shouldinvolve the parties in the process of appointing any such expert andin defining the scope of the expert's retainer. Both the ICC Rulesand the IBA Rules, for example, state that the tribunal may appointexperts and define their terms of reference ‘after having consultedthe parties'.(63) Further, the parties may have the right to makeobjections to the tribunal if they have doubts as to theindependence of its expert.(64) Finally, the parties must also begiven the opportunity to question any tribunal­appointed expert at ahearing and to present their own expert witnesses to testify on therelevant issues (see Chapters 12 and 13).(65)

[G]. Interim Measures

In most cases, an arbitral tribunal will have the power to issueinterim measures, usually for the purposes of taking or preservingevidence,(66) preserving the status quo and providing security forcosts, pursuant to national laws of the seat, or the partiesagreement (or both).(67) However, some jurisdictions expresslyreserve the power to issue any provisional or interim relief fornational courts only (such as is the case in Italy and China). Ofcourse, as with any remedy or relief, the tribunal has no power overany party who is not party to the arbitration.

While the parties' right to apply to the relevant local courts forinterim measures is preserved by national laws or institutional rulesof arbitration,(68) once a tribunal has been established the parties areoften required first to seek relief from the arbitral tribunal, or at leastto ask its permission before seeking interim remedies in the localcourts. For example:

­ Unless the case is ‘one of urgency’, the English Arbitration Act1996 provides that the court may make interim orders only if aparty's application has been made with the permission of thetribunal or the agreement of the other parties (in all cases, thecourt may act only if or to the extent that the arbitral page"168" tribunal/institution does not have the relevant power or isunable to act effectively).(69)

­ Under German law, for the purposes of taking evidence or inrespect of the performance of other judicial acts which thetribunal is not empowered to carry out, court assistance may be

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requested, but only by ‘the arbitral tribunal or a party with theapproval of the arbitral tribunal’.(70)

­ Although institutional rules of arbitration are generally not as clearas national laws on this issue, the LCIA Rules state that a party'sright to apply to local courts for interim or conservatory measuresshall only be exercised in ‘exceptional case’ once the tribunal hasbeen formed.(71) The ICC Rules provide that parties may seekprovisional measures from a national court either before the file istransmitted to the arbitral tribunal, or ‘in appropriatecircumstances' or thereafter.(72)

Consequently, the parties should turn to the tribunal as their firstport of call before pursuing remedies in the local courts, althoughthey should bear in mind that the tribunal's ability to issue interimmeasures will be subject to limitations, as discussed in Chapter 11.

Clearly, a tribunal cannot issue interim relief before the tribunal isconstituted. The ICC, SIAC and the SCC Rules provide for anemergency arbitrator (subject to the parties agreeing to opt out ofthis).(73)

There is some difficulty surrounding the enforcement of interimmeasures granted by a tribunal given they are by definition notforms of final awards (whether partial or otherwise) on the issues tobe determined. The New York Convention contains nothingregarding enforceability of such measures in the context ofinternational arbitration. However some jurisdictions have enactedlegislation specifically regarding enforcement of such measures.(74)Without legislation, it will depend upon the approach of the courts inthe particular country of attempted enforcement Although the betterview is perhaps that such provisional measures are enforceable,local advice (in the jurisdiction in which the measure would need tobe enforced) should be taken. See further Chapter 11 below.

[H]. Hearings

Most rules of arbitration give the tribunal the right to determinewhether or not oral hearings should be held, whilst preserving theright of the parties to request to be heard page "169" orally ifthey so wish, unless they have previously agreed otherwise.(75)Furthermore, the rules usually state that it is for the tribunal todetermine the time and place of such hearings,(76) whether this is atthe request of the parties or on its own initiative.

By the stage of oral hearings, control will usually have shifted fullyfrom the parties to the tribunal. This is reflected by the ICC Rules,which state that the arbitral tribunal ‘shall be in full charge of thehearings' (Article 26(3)). In practice, in an international arbitration,the tribunal tends to take an active role, more typical of the civil lawtradition than of the common law one, at least for the purposes ofestablishing the facts.(77) For instance, the tribunal may givespecific guidance to the parties concerning the presentation andcontent of their evidence,(78) as well as putting questions directly tothe witnesses. A starker illustration of the tribunal's empowerment isthe technique of witness conferencing (see above and Chapter 12),which consists of ‘the simultaneous joint hearing of all factwitnesses, expert witnesses, and other experts involved in thearbitration’,(79) although it should be noted that this practice is notyet widely used in the international arbitration community. Finally, inthe event that one party refuses to appear at the hearing, thetribunal may proceed with the hearing and issue its award.(80)

[I]. Post­Hearing Matters

Once the hearing is over, the arbitral tribunal will declare theproceedings closed. Thereafter, the parties may not make anyfurther submissions or produce any new evidence, unless requestedor authorised to do so by the tribunal.(81) It is becoming increasinglycommon for tribunals to exercise their discretion to allow the partiesto submit post­hearing briefs, which may be used to allow parties toaddress any new material or submissions made by the other partyor answer any questions posed by the tribunal during the hearing towhich they did not have the time to respond, or produce page"170" new evidence arising which came to light after the hearing(but before the tribunal has issued its award).(82)

In addition to these general areas where a tribunal will exercisecontrol in the conduct of the arbitration proceedings, it is becomingincreasingly common for tribunals in major construction arbitrationsto seek to increase the efficiency of the proceedings by requiringthe parties to produce schedules of their position on matters, bothprocedural (for instance on the parties' respective positions on theproduction of documents by reference to criteria contained in theIBA Rules) and substantive (for instance by the use of ScottSchedules, as discussed in Chapter 9). Both factual and expertwitness evidence is also being tested in innovative ways, forinstance by the use of meetings (or conclaves) of experts andwitness conferencing or ‘hot­tubbing’ of both factual and expertwitnesses at the hearing, where witnesses and experts givingevidence on the same topics are heard together before the tribunaland their evidence is tested by questions asked not only by theparties but also by their opposite numbers and the tribunal (seeChapters 12 and 13 for more information on witnesses and expertsin international arbitration).

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§8.04. The Importance of Effective Case Management

In exercising its various powers at each stage of the arbitralproceedings, the arbitral tribunal must respect the followingfundamental principles: the parties' due process rights (as outlinedabove) in particular, the principle of equal treatment and the parties'right to be heard and the need to act efficiently and fairly, avoidingunnecessary delay or expense.(83)

[A]. Procedural Fairness

As discussed in the first part of this chapter, the parties' dueprocess rights (principally, the right to an impartial and independenttribunal, the principle of equal treatment and the right to be heard)are fundamental requirements of the arbitral procedure, restrictingboth the parties' and the arbitral tribunal's freedom to determine howproceedings enforcement of should be conducted. If the parties' dueprocess rights are not respected in the course of the proceedings,any ensuing award could be open to refusal of enforcement of anaward under Article V.1(b) of the New York Convention (and/orchallenge of the award pursuant to laws of the seat which alsoreflect the requirement for due process). How, in practice, does thisimpact on the arbitral tribunal's conduct of the arbitral proceedings?

The principle of equal treatment will, in most cases, require thetribunal to treat the parties with plain equality, for instance, givingeach party the same opportunity to participate and express itsviews on the evidence. However, it is worth noting that page"171" some rules of arbitration only impose a duty on the tribunal toact ‘fairly’.(84) According to one commentator, in most cases this willmean treating the parties with equality, but in some circumstancesit may mean that the tribunal has to treat the parties on less thanequal terms, to preserve substantive equality.(85)

Some key examples relate to the extent to which the tribunal mustadhere to and give due consideration the arguments pleaded by theparties.(86)

For example, as long as it is permitted to do so pursuant to locallaw of the seat of the arbitration a tribunal may award relief of adifferent nature from that requested by the claimant, provided theaward is ultimately within the limits of the claim and (therefore)within the parties' reasonable contemplation. One example of this isthe Swiss case of Bank Saint Petersburg PLC v. ATA InsaatSanayi ve Ticaret Ltd,(87) concerning an arbitral award in which thetribunal had granted damages rather than specific performance asrequested by the claimant.(88) The Swiss Federal Tribunal statedthat there was no breach of the principle ‘ne eat iudex ultra petitapartium’ (or the judge must not award more than what is claimed bythe parties) ‘when the tribunal adjudicates in law and within thelimits of the claim, and yet does not base its legal considerations,or does so only partially, on the legal arguments set forth by theparties'. The Court, added, however, that the parties would have theright to be heard again in circumstances where the tribunal wishedto base its award on legal arguments which the parties had notpresented and the relevancy of which they could not havereasonably anticipated.

Another example of the tribunal's freedom in this regard is that it isnot necessarily bound to rely exclusively upon the authoritiessupplied by the parties. For instance, in one English caseconcerning an application to set aside an arbitral award on thegrounds that the award contained references to several authoritiesnot referred to by either the parties or the arbitrator in the course ofthe proceedings, it was held that the applicant had failed to point toany injustice caused by the arbitrator's failure to cite the authoritiesearlier in the proceedings.(89) It is, however, undoubtedly the casethat good practice would suggest that an arbitrator wishing to rely onadditional authorities in an award would be well advised to let theparties know of this intention at an appropriately early stage and topermit submissions on them. At the very least, this would avoid thepossibility – even if it were ultimately unsuccessful – of a challengeon the basis that no prior mention of the authorities had been made.

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However, the authors are aware of circumstances in whichdeparture by the tribunal from the matters strictly pleaded by theparties might be held to have infringed their right to be heard. Forexample:

­ Where the tribunal fails to give the parties the opportunity toaddress it in relation to an important point not advanced by eitherparty, but which plays a key role in its determination. In OAONorthern Shipping Co v. Remolcadores deMarin SL (theRemmar),(90) the tribunal found against the claimant on the basisthat there had been no misrepresentation by the defendant in thecourse of a sale of a ship. However, at the hearing the case waspresented to the tribunal on the basis that misrepresentation wasnot in issue, and it did not form the subject of argument at thehearing. The tribunal had accordingly found against the claimanton a point neither raised nor seriously disputed by the defendant,and on which the claimant had not been given an opportunity toaddress the tribunal. The tribunal did not invite submissions onthe point and the hearing was a very short one, (as this was a

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small claim), so it was essential that parties made submissionson key points in issue only. The award was successfullychallenged. In another case, the tribunal determined that therespondent had not been in breach of its contractual obligations.However, liability was not in issue and the dispute related toquantum only. The claimant's application to set aside the awardwas granted by the court, which stated that the arbitrators had notgiven the parties sufficient notice that they were going to reopenthe issue of liability, which had been very firmly closed by way ofpleading.(91)

­ Where the tribunal uses particular items of evidence/fails toconsider other evidence without allowing the parties to addressthis. In another English case, a landlord claimed that the awarddetermining the level of rent should be set aside for seriousirregularity because the arbitrator had determined the rent on theassumption that the upper floors of the relevant premises wouldremain vacant and that a rent­free period would be required in lieuof contribution to the cost of works. The tribunal had also chosento ignore a substantial premium in a comparable transaction onthe assumption that this was attributable to fixtures and fittings.The court set aside the award, stating that the arbitrator shouldnot have made such assumptions without affording the partiesthe opportunity to comment on them.(92)

­ Where the tribunal fails to give the parties the opportunity toaddress it in relation to issues affecting its determination of animportant point (e.g., costs) which are not advanced by eitherparty. In an English construction case, for example, an arbitratorinitially issued an interim award in favour of the claimants, butthen made a final award in favour of the claimants on someissues and in favour of the respondent contractors on otherissues. In the final page "173" award the arbitrator awardedcosts in favour of the respondents, relying on two matters whichhad not been raised by either party. The court stated, inter alia,that the arbitrator's power to award costs was subject to thegeneral duty to act fairly and impartially between the parties undersection 33(1) of the English Arbitration Act 1996 and that ‘atribunal does not act fairly and impartially if it does not give aparty an opportunity of dealing with arguments which have notbeen advanced by either party’.(93)

­ Where the tribunal proceeds to decide a case on a legal basisdifferent from that pleaded by the parties, such as principles oflex mercatoria, without seeking argument thereon from theparties.(94)

Overall, however, the courts are reluctant to interfere with arbitralawards on grounds of procedural defects, provided that the parties'rights to due process (whether that be by regard to the pleadedissues, procedural timetable or otherwise) have been respected.(95)

In Hong Kong, the Court of Appeal has confirmed that only ‘seriousor egregious' procedural violations by the arbitral tribunal could leadto an award being overturned there. In Pacific China Holdings Ltd v.Grand Pacific Holdings Ltd,(96) the claimant complained that thetribunal had (i) refused to grant it leave to respond to certain issuesof Hong Kong law raised late in the proceedings; (ii) refused toconsider additional authorities on which the claimant wished to rely;and (iii) amended the arbitration procedure in favour of a sequential(rather than simultaneous) exchange of submissions. That meantthat the claimant only received the defendant's submissions on theFriday night before the hearing commencing on the followingMonday morning. However, the Court of Appeal held thatnonetheless, the claimant had still had reasonable opportunity topresent its case (e.g., it had two opportunities previously in theproceedings to address Hong Kong law issues).

London Underground Ltd v. Citylink Telecommunications Ltd,(97) is aparticularly relevant example in a construction context. Thedefendant alleged that breaches by the claimant had caused delayto the works, seeking an extension of time of sixty­five weeks. Thetribunal found that there had been a delay of forty­eight weeks (theyhad rejected the conclusions of the critical path analysis on whichthe sixty­five week claim was based). Both parties applied to havethe award set aside on the basis that they had not been givenproper opportunity to address the tribunal. The court held that thefinding of a delay of forty­eight weeks was well within the pleadings,submissions and evidence. Nothing required the arbitrator to seekfurther submissions. It is often the case that a claim or defence hasnot wholly succeeded and the tribunal must determine page"174" the consequences of the partial success or failure. Providedthat the results are based on primary facts that had been in issue inthe proceedings, there could be no objection.

Similarly in the US, Courts appear to acknowledge the flexibility ofarbitral procedure when examining whether due process has beenadhered to. In that regard, rigid compliance with particularprocedural rules is not expected and arbitrators have discretion inthe manner in which hearings are conducted. Nonetheless, theoverarching requirement is that each party has a proper opportunityto have its case heard or ‘the opportunity to be heard at ameaningful time in a meaningful manner’.(98) In one US case, thecourt rejected one of the parties' argument that the arbitrators hadacted improperly in limiting its ability to cross­examine the witnessof the other party, stating that the arbitrators were charged with theduty of determining the relevance of evidence and that ‘barring aclear showing of abuse of discretion, the court [would] not vacate anaward based on improper evidence or the lack of proper evidence’.

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(99) Further, an arbitrator is not bound to hear all evidence or mayexclude some evidence, provided that does not produce an unfairhearing.(100)

The English case Egmatra v. Marco(101) concerned the awardrendered in an arbitration under the auspices of the London MetalExchange, which the respondent challenged on the basis that thearbitrators had rejected its request to hear expert evidence oncertain issues. The court upheld the award, stating that thearbitrators, who were experts in the metal industry, were entitled todecide that they did not require expert evidence to assist them.Finally, in a Swiss case, the Swiss Federal Tribunal held that aninterim award on costs preventing the party against whom it wasissued from offsetting the payment of the costs against anypossible claim for compensation that might be granted in a finalaward did not violate the principle of equal treatment or Swiss publicpolicy.(102) Overall, therefore, it has been commented that ‘the trendof the day is definitely non­interventionist; courts of law do notintervene if they do not have to … during the proceedings arbitratorsenjoy large freedom to render procedural decisions knowing thatlocal courts of law will not interfere’.(103)

[B]. The Arbitral Tribunal’s Duty to Act Expeditiously

For the purposes of complying with its duty to act fairly, as well asensuring procedural fairness, the tribunal must conduct the arbitralproceedings diligently, efficiently and page "175" within theshortest time­span in order to avoid unnecessary costs. Accordingto one commentator, ‘the diligent exercise of the arbitrationprocedure is … the best antidote against dilatory tactics inarbitration procedures'.(104)

A duty to manage the proceedings so as to avoid undue delay andexpense is expressly imposed on the arbitral tribunal by someinstitutional rules of arbitration. For instance, the LCIA Rules statethat the tribunal has a duty to ‘adopt procedures suitable to thecircumstances of the arbitration, avoiding unnecessary delay orexpense, so as to provide a fair and efficient means for the finalresolution of the parties' dispute’.(105) The AAA Rules state that thetribunal ‘shall conduct the proceedings with a view to expediting theresolution of the dispute’.(106) The 2012 ICC Rules state that theparties and the tribunal ‘shall make every effort to conduct thearbitration in an expeditious and cost­effective manner, havingregard to the complexity of the dispute’.(107) From a practical point ofview, the main means by which an arbitral tribunal may manage theproceedings more effectively is the use of meetings with the partieswhere procedural issues (such as issues relating to documentproduction) may be thrashed out. The AAA Rules make specificreference to this, stating that the tribunal ‘may conduct apreparatory conference with the parties for the purpose oforganising, scheduling and agreeing to procedures to expedite thesubsequent proceedings'.(108) The new 2012 ICC Rules require thatthe tribunal convene a CMC that may result in orders using specificcase management techniques for the proceedings, options for whichare listed in Appendix IV to the Rules. That Appendix IV highlightsthe importance of proportionality of time and costs, particularly withregard to cases with lower complexity. As an alternative (or inaddition), in some jurisdictions, as well as under the ICC Rules, aspecific time limit within which to render the award is imposed onthe arbitral tribunal,(109) although this can usually be extended.(110)

Failure by the arbitral tribunal to comply with its duty to actexpeditiously may give rise to sanctions such as the following:termination of the tribunal's mandate;(111) deprivation ofremuneration;(112) or even removal by a competent court.(113) Thereis also the (slim) possibility that the members of the arbitral tribunalcould be made liable for damages for undue delay, on the basis of acontractual duty of care (although page "176" arbitrators oftenseek to exclude such liability in their terms of appointment).(114) TheAAA's Code of Ethics also provides some guidance on the types ofbehaviour likely to be sanctioned by a court, by indicating that forthe purposes of acting fairly and efficiently, an arbitral tribunal mustmake reasonable efforts to prevent delaying tactics, harassment ofthe parties or other participants or other abuse or disruption of thearbitration process.(115)

Concerning the sort of behaviour likely to constitute a failure to actexpeditiously on the part of the arbitral tribunal, the Englishconstruction case of Pillar v. Edwards(116) is highly instructive. Inthis case, a dispute concerning the final value of building works wasreferred to arbitration by the contractor and in the course of thearbitration proceedings the costs and fees incurred by both partiesmounted to nearly four times the value of the original claim(£100,000). The judge, stating that ‘there [was] something inherentlywrong with an arbitral process which involve[d] such large sumsbeing spent in costs relative to the size of the sums in dispute’,held that the arbitrator had breached his duty to adopt proceduresavoiding unnecessary delay or expense under section 33(1)(b) ofthe English Arbitration Act, on the basis of the following: (i) thearbitrator had failed to direct the parties to put right their pleadings,which were prolix and diffuse, as well as the schedules they hadproduced summarising their respective cases, which, in breach ofthe arbitrator's original directions, were not Scott Schedules andfailed to consolidate all aspects of each disputed work item; (ii) thearbitrator and the parties had not consolidated the two arbitrations

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into one so as to keep costs to a minimum; (iii) the hearing wasdisproportionately long (ten days), as a result of the number ofexpert witnesses, the failure of the parties and the experts to defineand reduce the number of issues and the absence of time­limitedcross­examination; and (iv) the award, which took several months tobe prepared, was diffuse, lacked substantial reasoning, incorporatedverbatim the extensive pleadings and contained a significantnumber of errors and omissions, resulting in a large number ofcorrections being required.

However, as with procedural fairness, a tribunal's decision not totake certain measures in the name of efficiency does notautomatically provide grounds for a successful challenge. In anEnglish case on this point, one of the parties sought to challenge anaward on the grounds, inter alia, that the arbitrator's decision todetermine his own jurisdiction as a preliminary point,notwithstanding the fact that it involved deciding an issue closelyrelated to the substance of the dispute to be arbitrated, constituteda serious irregularity under section 68 of the English Arbitration

page "177" Act. The judge rejected this contention, stating thatit was commonplace in international arbitration for jurisdiction andliability both to be disputed and that the mere fact that the arbitratorchose a course which might involve the issue of his jurisdictionbeing first determined by him on a preliminary basis and then allover again could not constitute a basis for an allegation of breach ofhis duty under section 33(1)(b) English Arbitration Act.(117)

In the light of the above, whether or not an arbitral tribunal may beheld to have breached its duty to act expeditiously appears to be aquestion of degree. Costs and delays that are grosslydisproportionate to the complexity of the dispute and/or the reliefclaimed will, in any event, be a sure indicator that the tribunal hasfailed to manage the proceedings.

1 Redfern and Hunter on International Arbitration, para. 5­06.2 Section 2(1) Arbitration Act 1996 applies to any arbitration with aseat in England and Wales.3 Section 34(1) Arbitration Act 1996: ‘It shall be for the tribunal todecide all procedural and evidential matters, subject to the right ofthe parties to agree any matter’.4 Sections 37, 38, 38(3), 38(4), 38(5) and 38(6) Arbitration Act1996.5 See Hans­Patrick Schroeder, ‘Die lex mercatoria arbitralis’, at 239et seq. (Abschnitt 3.A.II.2), (Sellier Legal Publishers March 2007).For a discussion of German law on this issue, see Joachim Münch,Münchener Kommentar zur Zivilprozessordnung, 3rd edition, (Beck,2002), §1049 paras 27 and 35.6 See Sulamérica Cia Nacional de Seguros SA v. EnesaEngenharia SA in which the English Court of Appeal set out a threestage test: (i) have the parties made an express choice of law togovern the arbitration agreement?; (ii) if not, have the parties madean implied choice?; (iii) if not, what law has the closest and mostreal connection with the arbitration agreement? The Court of Appealclarified that under English law, in the absence of any indication tothe contrary, an express choice of substantive law for theunderlying contract will be a ‘strong indication’ of the parties'intention in relation to the law governing the arbitration agreement.7 See, e.g., Bulgarian Foreign Trade Bank Ltd v. Al Trade FinanceInc, Swedish Supreme Court, 27 Oct. 2000, Case No. T 1881–99, inYearbook Commercial Arbitration XXVI 291–298 (2001). For furtherdiscussion see Gary Born, International Commercial Arbitration443–451 (2009).8 See Art. 19 UNCITRAL Model Law and Art. 19(1) ICC Rules.9 Private International Law Act (AS 1987, 1779–1831 SR 291) (theSwiss PILA), which governs international arbitrations with a Swissseat. Domestic arbitrations are governed by the Concordat of 27Mar. 1969 on Arbitration (the Concordat), a uniform cantonallegislation governing domestic arbitration.10 Arbitration Law 1998, in force 1 Jan. 1998 (Act on the Reform ofthe Law relating to Arbitral Proceedings of 22 December 1997,Bundesgesetzblatt (Federal Law Gazette) 1997 Part I, 3224). Thislaw is contained in the 10th Book of the Zivilprozeßordnung, orGerman Code of Civil Procedure (the ZPO).11 See Art. 182(1) and (2) of the Swiss PILA. The Concordatcontains a provision (Art. 24) to similar effect for domesticarbitrations. See also ZPO, §1042, especially §1042(3) and§1042(4).12 Article 17(1) UNCITRAL Arbitration Rules and Art. 16(1) AAARules.13 Available at,http://www.uncitral.org/pdf/english/texts/arbitration/arb­notes/arb­notes­e.pdf (accessed 10 Sep. 2013).14 Fair notice (of the appointment of the arbitrators and the conductof the proceedings) is sometimes raised as an independent dueprocess principle, although arguably it follows from the principles ofequal treatment and the parties' right to be heard.15 Société BKMI et Siemens c/ Société Dutco, Cour de Cassation,7 Jan. 1992, reported in Yearbook Commercial Arbitration XVIII(1993), pp. 140–142.16 See Art. 1.1 UNCITRAL Rules, Art. 18 UNCITRAL Model Law,Art. 14.1(i) LCIA Rules, Art. 22.4 ICC Rules, Art. 16.1 AAA Rules,

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s. 33(1)(a) English Arbitration Act, Art. 182(3) Swiss PILA and theZPO, §1042(1).17 See William Robinson & Boris Kasolowsky, Will the UnitedKingdom's Human Rights Act Further Protect Parties to ArbitrationProceedings? Arb. Intl. 18, 453–66 (2002). See also Neil McDonald,who states ‘art. 6(1) guarantees are certainly present within …international public policy’ (Neil McDonald, More Harm than Good?Human Rights Considerations in International CommercialArbitration, J. Intl. Arb. 20, 523–38 (2003)).18 See, e.g., Soleimany v. Soleimany [1999] 3 All ER 847, in whichthe English Court of Appeal held that an arbitral award purporting toenforce an illegal contract was unenforceable in England. The Courtstated: ‘There may be illegal or immoral dealings which are from anEnglish law perspective incapable of being arbitrated because anagreement to arbitrate them would itself be illegal or contrary topublic policy under English law’. See also AJU v. AJT [2011] 4 SLR739.19 Article 19 ICC Rules and Art. 19(1) UNCITRAL Model Law.20 Redfern and Hunter on International Arbitration, paras 6–17.Examples of mandatory requirements imposed by institutional rulesof arbitration include, inter alia: the obligation of the arbitral tribunalto draw up Terms of Reference in an ICC arbitration (Art. 23 ICCRules); and requirements concerning the consecutive exchange ofwritten submissions under UNCITRAL Arbitration Rules (Arts 20 and21).21 Article 15.2–15.5 LCIA Rules.22 Article 20(1) LCIA Rules.23 Article 24(2) ICC Rules.24 Article 25(1) ICC Rules.25 Article 20(1) and 20(2) UNCITRAL Rules.26 Article 27(3) UNCITRAL Rules. Similarly, under the DIACArbitration Rules, a Statement of Claim must be filed within 30 daysof notification of establishment of the tribunal unless already filedwith the Request. In addition to the Statement of Claim andStatement of Defence, the tribunal may allow further writtenstatements: Arts 23–25.27 Act s. 34(2)(c) English Arbitration Act.28 Article 15.1 LCIA Rules.29 Article 23(1) UNCITRAL Model Law and Arts 20(1) and 21(1)UNCITRAL Arbitration Rules.30 See Schroeder, Die lex mercatoria arbitralis, 187 et seq.(Abschnitt 3. A.).31 International Bar Association, available at,http://www.ibanet.org/publications/IBA_Guides_Practical_Checklists_Precedents_and_Free_Materials.cfm(accessed 10 Sep. 2013). The IBA Rules constitute a step towardsestablishing an international standard on the taking of evidence.32 The common law concept of disclosure is quite foreign to thecivil law systems. See Richard Hill, The New Reality of ElectronicDocument Production in International Arbitration: A Catalyst forConvergence? 25 Arb. Intl. 87–102 (2009). See also Ch. 12 infra.33 Article 25 ICC Rules; Art. 9(2). IBA Rules; and Art. 27 DISArbitration Rules (Deutsche Institution für Schiedsgerichtsbarkeite.V., DIS­Schiedsgerichtsordnung 1998, arbitration rules publishedby the German Institution of Arbitration and available in bothGerman and English at, http://www.dis­arb.de/scho/schiedsvereinbarung98­e.html (accessed 10 Sep.2013).34 Redfern & Hunter on International Arbitration, para. 6­96.35 Article 25(1).36 Article 25(2) (ability of the tribunal to hear the parties together inperson on the request of either party or of its own motion).37 Article 25(3) (ability of the tribunal to hear witnesses and expertsin the presence of the parties or in their absence, provided theyhave been duly summoned) and Art. 25(5) (ability of the tribunal tosummon any party to submit additional evidence).38 Article 22(3).39 Article 25(6).40 Article 22.1.41 Article 22.1(c) – (f).42 Article 20.2.43 Article 20.5.44 Article 20.1, 20.2 and 20.3.45 Article 27.3 UNCITRAL Arbitration Rules and Art. 19.2 and 19.3AAA Rules.46 Article 28.2 UNCITRAL Arbitration Rules and Art. 20.4 AAARules.47 Article 27.4 UNCITRAL Arbitration Rules and Art. 20.6 AAARules. Under the AAA Rules, in particular, the tribunal has thediscretion to direct the order of proof and exclude cumulative orirrelevant evidence (see Art. 16.3).48 Article 19.49 Article 20(2).50 Article 41.51 Article 42.52 Article 27.53 ZPO, s. 1042(3) and (4) and s. 1043(2).54 Section 34 English Arbitration Act, especially s. 34 (d)­(f) and(h).55 See Art. 184(1) Swiss PILA.56 Article 1(5) IBA Rules, which states that, insofar as the IBARules and any applicable institutional/ad hoc rules are silent and theparties have not agreed otherwise, the tribunal ‘may conduct the

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taking of evidence as it deems appropriate’.57 Article 3(9) IBA Rules.58 Article 3(10) IBA Rules. The relevant party may object to such arequest on various grounds of inadmissibility, set out in Art. 9(2).59 Article 4(11) IBA Rules.60 See s. 34(2)(h) English Arbitration Act, which states that thetribunal may decide whether and to what extent there should be oralor written evidence.61 See, e.g., s. 37 English Arbitration Act 1996 and ZPO, s. 1049.62 Article 21.1(b) LCIA Rules; Art. 27.2 UNCITRAL Rules; Art. 26(1)(b) UNCITRAL Model Law; Art. 22(2) AAA Rules; and Art. 6(3) IBARules; Art. 42 CIETAC Rules.63 Article 25(4) ICC Rules; Art. 6(1) IBA Rules.64 Article 6(2) IBA Rules.65 Article 25(4) ICC Rules; Art. 21.2 LCIA Rules; Art. 29.4UNCITRAL Rules; Art. 22(4) AAA Rules; Art. 26(2) UNCITRALModel Law; s. 37(1)(b) English Arbitration Act; and ZPO, s. 1049(2).66 An arbitral tribunal does not usually have the power to compelthe attendance of witnesses, as reflected by Art. 27 UNCITRALModel Law, which states that ‘the arbitral tribunal… may requestfrom a competent court of this State assistance in taking evidence’.67 Article 25.1 and 25.2 LCIA Rules; Art. 26 UNCITRAL Rules; Art.17 UNCITRAL Model Law; Art. 21 AAA Rules; and Art. 28 ICCRules. See also s. 38 English Arbitration Act; Art. 183 Swiss PILA;and the ZPO, s. 1041.68 See, e.g., Art. 26(9) UNCITRAL Rules; Art. 28(2) ICC Rules; andZPO, s. 1033.69 Section 44(3)­(5) English Arbitration Act. The case of HiscoxUnderwriting Ltd v. Dickson Manchester & Co Ltd [2004] EWHC479, confirmed that the cases of urgency in which the court canissue interim injunctions are not limited to applications for orders topreserve assets or evidence, but effectively extend to any form ofinterim injunction.70 See ZPO, s. 1050.71 Article 25.3 LCIA Rules.72 Article 28(2) ICC Rules.73 See also, e.g., UNCITRAL Rules, Art. 26(1); LCIA Rules, Art.25.74 For example German ZPO, s. 1041(2).75 See Art. 15(2) UNCITRAL Rules; Art. 24(1) UNCITRAL ModelLaw; Art. 19 LCIA Rules; Art. 25(2) and (6) ICC Rules; s. 34(2)(h)English Arbitration Act; and ZPO, §1047(1); Art. 33 CIETAC Rules;Art 28 DIAC Rules.76 See, e.g., s. 34(2)(a) English Arbitration Act, Art. 26(1) ICCRules, and Art. 19.2 LCIA Rules.77 See H. M. Holtzmann, Fact­finding by the Iran­United StatesClaims Tribunal, in Fact­finding Before International Tribunals 101,paras 6–10 (Richard B. Lillich ed., Transactional Publishers 1991).Holfzmann states that ‘it is wise for an arbitral tribunal to take anactive role in augmenting the parties' presentation of the facts…Arbitration is more effective and efficient when the arbitratorsactively seek to elucidate the facts, rather than merely evaluatingwhat the parties chose to present’.78 See UNCITRAL Notes on Organizing Arbitral Proceedings, para.80: ‘arbitration rules typically give broad latitude to the arbitraltribunal to determine the order of presentations at the hearings… itmay foster efficiency of the proceedings if the arbitral tribunalclarifies to the parties, in advance of the hearings, the manner inwhich it will conduct the hearings, at least in broad lines’.79 See Wolfgang Peter, Witness ‘Conferencing, Arb. Intl. 18, 47–58(2002),and Chapter 12.80 See, e.g., Art. 25 UNCITRAL Model Law.81 See, e.g., Art. 27(1) ICC Rules.82 See generally Redfern & Hunter on International CommercialArbitration, para. 6­243–6­246.83 E.g., s. 33(1) English Arbitration Act 1996 and Art. 14.1 LCIARules.84 E.g., s. 33(1) English Arbitration Act 1996 and Art. 14.1 LCIARules.85 Georgios Petrochilos, Procedural Law in International Arbitrationpara. 4.87 (Oxford U. Press 2004). Petrochilos cites as an examplethe possibility that the arbitral tribunal may have to allocate costs inunequal terms, in the event of one of the parties being impecunious,in order to maintain a level playing field between the parties.86 According to Petrochilos, Procedural Law in InternationalArbitration, para. 4.89, it seems to be ‘a question of degree, ratherthan anything else, to what extent a tribunal may stray, as it were,from the parties' submissions in general’.87 Bank Saint Petersburg PLC v. ATA Insaat Sanayi ve TicaretLtd, 2 Mar. 2001, ASA 3/2001 531.88 See also Unidentified v. Unidentified: Swiss Federal Tribunal 7Jan. 2011.89 Sanghi Polyesters Ltd (India) v. International Investor KCSC(Kuwait) [2000] All ER (D) 93.90 [2007] 2 Lloyd's Rep. 302(Comm. Ct.).91 Pacol Ltd v. Joint Stock Co Rossakhar [1999] 2 All ER (Comm)778.92 Guardcliffe Properties Ltd v. City & St James Property Holdings[2003] EWHC 215 (Ch).93 Gbangbola and another v. Smith & Sherriff Ltd [1998] 3 All ER730.94 See Petrochilos, Procedural Law in International Arbitration,

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para. 4.90, stating that ‘in no case should an arbitrator proceed,without seeking argument from the parties, to decide a case onprinciples of lex mercatoria or the like, whose content is on anyview indeterminate’.95 See Daniel M. Kolkey et al. eds., Practitioner's Handbook onInternational Arbitration and Mediation para. §8.05 (Juris Publg.2012).96 Pacific China Holdings Ltd (In Liquidation) v. Grand PacificHoldings Ltd [2012] HKCU 971.97 London Underground Ltd v. Citylink Telecommunications Ltd[2007] EWHC 1749.98 Mathews v. Eldridge, 424 U.S. 319, 333.99 Laminoirs­Tréfileries­Cableries de Lens, SA v. SouthwireCompany and Southwire International Corporation, 484 F. Supp.1063 (D. Ga. 1980), 1067.100 Iran Aircraft Industries v. Avco Corp., 980 F.2d 141 (2d Cir.Conn. 1992).101 Egmatra A.G. v. Marco Trading Corporation [1999] 1 Lloyd'sRep 862. This case emphasised that ‘substantial injustice’ under s.68 English Arbitration Act 1996 would only arise in ‘extreme caseswhere the tribunal has gone so wrong in its conduct of the arbitrationthat justice calls out for it to be corrected’.102 A, B and C v. D, Schweizerisches Bundesgericht, 17 Dec.2002, 4P.196/2002.103 See Sigvard Jarvin, To what extent are procedural decisions ofthe arbitrators subject to court review? ICCA Congress Paris No. 9(1998).104 See Juan Eduardo Figueroa, Ethics in International Arbitration,Mealy's Intl. Arb. Report 18, 41–50 (July 2003).105 Article 14.1(ii) LCIA Rules.106 Article 16(2) AAA Rules.107 Article 22(1) ICC Rules.108 See Art. 16(2) AAA Rules.109 Article 30(1) ICC Rules (six months), and Arts 813 and 820 ofthe Italian Code of Civil Procedure.110 Article 30(2) ICC Rules.111 Article 14(1) UNCITRAL Model Law, stating that if an arbitrator‘fails to act without undue delay, his mandate terminates if hewithdraws from his office or if the parties agree on the termination’.112 E.g., in Colombia (see Mantilla­Serrano, Colombia inInternational Arbitration in Latin America 121 (Nigel Blackaby et al.eds., Aspen Publishers 2003).113 Section 24(1)(d)(ii) English Arbitration Act, stating that a partymay apply for the removal of an arbitrator on the ground that he ‘hasrefused or failed – (1) properly to conduct the proceedings; or (2) touse all reasonable despatch in conducting the proceedings ormaking an award, and that substantial injustice has been or will becaused to the applicant’.114 For a fuller discussion, see Redfern & Hunter on InternationalCommercial Arbitration, para. 5­15­5.66.115 See Canon I (F) of the AAA Code of Ethics for Arbitrators inCommercial Disputes, in force since 1 Mar. 2004, which states: ‘Anarbitrator should conduct the arbitration process so as to advancethe fair and efficient resolution of the matters submitted fordecision. An arbitrator should make all reasonable efforts to preventdelaying tactics, harassment of parties or other participants, orother abuse or disruption of the arbitration process’. Available at:http://www.adr.org/aaa/ShowProperty?nodeId=%2FUCM%2FADRSTG_003867&revision=latestreleased(accessed 10 Sep. 2013).116 RC Pillar & Sons v. Edwards and another [2001] All ER (D) 232.117 Kalmneft JSC v. Glencore International AG [2002] 1 All ER 76.

Source

Chapter 9: Preparationand Collection ofEvidence in JaneJenkins , InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 179 ­ 212

§9.01. Introduction

The collection of evidence for the conduct of a constructionarbitration will almost invariably involve the following tasks:

­ reviewing documents relevant to a claim (including for instance,head office correspondence, site correspondence, site diaries,invoices and receipts);

­ interviewing witnesses who can give an account of the factsrelevant to the claim; and

­ obtaining expert evidence as to the implications or relevance ofcertain facts (from, for instance, programming, soil mechanics,accounting or quantum experts).

When the bulk of this work is done is, in the end, a question ofjudgment. Clearly, undertaking all this work prior to thecommencement of an arbitration (whilst a counsel of perfection) willlead to delay and considerable expenditure which may eventually bewasted if matters are ultimately accepted by the other party or thecase takes a different turn in the light of the other party's

Chapter 9: Preparation and Collection ofEvidence

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presentation of its own case. However, drafting pleadings (or theRequest for Arbitration where the request is required to contain asubstantial part of the claimant's case) without having firstthoroughly reviewed the evidence is risky. Asserting a patentlyunmeritorious claim may lead to an award for costs in the otherparty's favour to the extent that the other party wasted costsdefending the unmeritorious claim.

Ideally, therefore, a party will at the very least make sure that thefacts underpinning the legal arguments set out in its pleadings aresupported by the evidence before filing that document with thetribunal and may include key witness statements with the pleadingsto reinforce the strength of critical elements of the case at theoutset. Time, however, does not always permit an exhaustivereview of the evidence at the time of drafting statements of case, inwhich case a party may need to amend its page"179" statements of case once the process of collecting evidencehas been completed. Whether – and the extent to which – a partymay in fact amend its statements of case to introduce new claimsor counterclaims. depends on the terms of the parties' agreement toarbitrate and the terms of reference.

Ultimately, the method by which documents are managed during thearbitral proceedings is a matter to be agreed between the parties orordered by the tribunal (depending on the parties' agreement toarbitrate and/or the terms of reference). This chapter sets out someof the issues surrounding the review, analysis and management ofdocumentary evidence in international construction arbitrations.

§9.02. The Value of a Chronology and Other Aids

Particularly in large disputes, the volume of evidence relevant to thefacts in issue may be formidable. Moreover, the evidence may wellbe contradictory in places; witnesses may differ as to the date onwhich events occurred and documents may contradict thewitnesses' recollections. Reviewing and synthesising suchinformation in order to assess the merits of a claim can be aparticularly daunting task.

Perhaps the best way to review evidence is by preparing achronology. This is not to say that preparation of evidence byreference to specific issues is not a useful tool. On the contrary,once the structure of the case by reference to a timeline has beenestablished, it is normal for particular issues to be identified and theevidence relevant to those specific issues separately collated. Butthe first step, in all but those cases with the most limited number ofissues, is the establishment of that timeline or chronology in whichthe analysis of the individual issues sits.

There are no hard and fast rules about the format of a chronology,but typically it will be set out as shown:

Date Event Source2 May Site instruction X issued requesting

contractor to carry out Y work.SiteinstructionX

3 – 5 May(approx)

Contractor commences Y work. Witnessstatement

8 May Site is shut down by strike. Site diaryZ andwitnessstatement.

Invariably, the first column of a chronology will be the date on whichthe event relevant to a claim occurred. Sometimes it will be difficultto state the exact date on which the event in question occurred. Inthat case it may be useful to place the event approximately withinthe chronology until such time as the date can be pin­pointed bybetter evidence.

Typically, the second column is the event or fact relevant to theclaim. There are a number of issues to consider when deciding whatto include in the chronology. It is, page "180" for instance,important to be discerning in the selection of the facts to beincluded. A chronology which is littered with irrelevant facts maybecome meaningless and unwieldy. Having said this, certain factsor events, while not directly relevant, may need to be includedbecause they put other relevant facts in context. Of more concern –at least if the chronology is to be presented to the other party to thearbitration – is the extent to which the selection of relevant factsprovides information, by what is included and what is not included,of the internal thought processes which underlie the approach to thecase.

Finally, it is useful to have a column which sets out the evidenceproving the facts in the chronology. Linking the facts to theavailable evidence in this way allows a party to assess where theevidence is lacking, as the source column will be empty where factsremain to be substantiated on the evidence.

Additionally, the source column allows a party to see whether thereare any possible inconsistencies in the evidence. Review of bothsources of evidence should obviously be undertaken forconsistency and, if there is a major inconsistency which cannot beresolved, the correctness of the fact has to be regarded as beinguncertain.

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A good chronology will form the backbone not only of a party'spleadings, but also of its witness statements and any expert reportsit requires. Programming experts in particular cannot assess a claimfor delay or disruption unless the reasons for, and the dates of, thedelay to the claimant are known with precision.

However, this is not the end of the chronology's value. Arbitraltribunals and courts alike often require chronologies to be submittedby the parties. Even the most carefully drafted pleadings,statements and submissions can be difficult to read and digest. Inthis regard, the ICC Construction Arbitration Report(1) notes:

If there are any claims for delay or disruption, achronology of events will be required from the parties.This should be ideally included with the claimant'srequest for arbitration or the respondent's answers….Since most construction arbitrations are about theperformance of a relatively long­term contract, it is inour view highly desirable that the tribunal shouldscrutinize any chronology with care.(2)

In some cases an arbitrator will require the parties to submit anagreed chronology setting out the undisputed facts relevant to thedispute. Experience unfortunately suggests that the compilation ofan agreed chronology can be a complex and time consuming affair.Whilst most of the genuinely key facts are likely to be undisputed, itis the inclusion of other ‘facts' which tend to cause the problems. Inthe nature of things, there will be disputes as to whether somethingdid or did not happen as described, the date on which it did or didnot happen, and the significance of the event. Accordingly, it is notunusual for there to be only the very barest of an agreedchronology, with each party supplementing this with its own, moredetailed (and probably more partial) spin on what took place. Insofaras disputed facts are concerned, the ICC Construction ArbitrationReport encourages the arbitral tribunal to: page "181"

…compile a composite chronology from the materialprovided and send it to the parties, asking them toclarify any discrepancies. The tribunal shouldthereafter maintain the chronology, amending it as thecase develops, circulating any revisions, and askingthe parties to complete any gaps in it.(3)

There is a clear strategic advantage to having one's ownchronology, where possible, form the primary basis of the tribunal'schronology. For this reason, it makes good sense to prepare achronology which is accurate, reliable, relevant and user­friendly. Inmany cases, time will be far better spent in the preparation of thisdocument than in attempting to argue the case through the processof agreeing a chronology.

The ICC Construction Arbitration Report also suggests that arbitraltribunals:

…request information to enable it to createorganisation charts, layouts and glossaries….(4)

Such aids are also of great benefit to the parties insofar as theyserve to present complicated facts or difficult legal arguments andmay be worth preparing in advance of pleadings or submissions.

§9.03. Document Management

[A]. Document Review and Disclosure

During the course of an arbitration a party will review its owndocuments for the purposes of preparing its pleadings, providing theback­up documentation for witness statements or the giving ofevidence­in­chief and in reply, briefing expert witnesses andpreparing for disclosure to another party (where such disclosure isagreed between the parties or ordered by the tribunal).

In each case, the documents required to be reviewed may bevoluminous. As the number of documents required to be reviewedgrows, the importance of using an appropriate system for themanagement and analysis of those documents increases. If thesystem for managing documents is inadequate, then certaindocuments may go un­reviewed and/or certain analysis may go un­captured. Such inefficiencies inflate the cost of proceedings to theextent that additional time is required to be expended reviewing thesame material on multiple occasions.

[1]. The Scope of the Disclosure

The scope of the disclosure is determined by the parties' agreementor by the tribunal's direction. Generally, however, the scope of thedisclosure is defined according to the ‘issues' required to beresolved for the purposes of determining the dispute. In the contextof a construction arbitration, the ICC Construction Arbitration Reportnotes: page "182"

The tribunal should make it clear at the outset that thedocuments should be directly relevant to the issuesas defined by the tribunal and should be confined tothose which a party considers necessary to prove itscase (or to dispose of the case of the other party) or

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which help to make the principle documentscomprehensible.(5)

This is welcome guidance on the process of the disclosure ofdocuments and the preparation of materials to be used at thehearing, whether conducted in a common law jurisdiction orelsewhere. Of course, an order for disclosure for the purposes of aninternational arbitration is typically narrower in scope than an orderfor disclosure of a common law domestic court for the purposes oflitigation. In this regard the ICC Construction Arbitration Reportnotes that:

Few are still in favour of the wholesale andindiscriminate production of documents by means ofthe common law process of discovery…. In anyevent, such a process as practiced in domestic foramust be justified if applied to an internationalarbitration. Otherwise it has no place in ICCarbitrations.(6)

Once the scope of the disclosure is known, the tribunal and theparties will be in a position to assess the volume of documentsrequired to be managed for the duration of the proceedings. It is atthis stage of the arbitral proceedings that the tribunal and the partiesare best placed to decide the most appropriate way to managedocuments.

See Chapter 11 for further discussion on disclosure.

[2]. Electronic Document Management

It is commonplace in international construction arbitration fortribunals to require – or, if not require, to suggest – the use ofelectronic document management systems (EDMSs).(7) To theextent that the parties may be able to agree on whether or not suchsystems should be used by the terms of their agreement toarbitrate, the following advantages and disadvantages ought to beconsidered.

EDMSs are generally less expensive to use(8) and more accuratethan paper based methods of document management, for thefollowing reasons:

­ Storage: While it is unrealistic to assume that the need to bringoriginal paper documents together in one place will be eliminated,electronic storage of documents reduces the cost involved inmaintaining large document libraries in multiple locations, with aconsequent saving in paper and related stationery. Additionally,to the extent that electronic documents are accompanied bymeta­data (which would include, for instance, information as towhere the document was created and to whom the document wassent), that information may be captured by certain EDMSs.

page "183"­ Coding: typically documents stored on EDMSs are coded withobjective and subjective data fields. ‘Objective’ data fieldscapture such information as the date, author and subject matterof the document, whereas ‘subjective’ fields capture informationsuch as the relative relevance of a document, or the issue towhich a document relates. Many EDMSs allow for controlleddata­entry by the creation of ‘pick­lists' from which the data­entryoperator is required to select when coding a document therebypromoting greater consistency in data­entry. Additionally, certainEDMSs allow related documents to be ‘data­linked’, for ease ofnavigation.

­ Searching: specific documents or ranges of documents may beretrieved quickly by using search terms. Typically, EDMSs permitsearching according to both subjective and objective databasefields. Certain EDMSs, however, also allow for full text searchingof the stored document itself by means of optical characterrecognition processes.

Clearly a system which retrieves documents quickly and accuratelyis likely to reduce the amount of time required to be spent searchingfor relevant documents and, in doing so, reduce the cost ofdocument management generally. Additional advantages of EDMSsinclude:

­ Printing and reporting: search results may be reportedelectronically and printed, where necessary. Large volumes ofdocuments may be printed relatively quickly for the purposes ofdisclosure or for the creation of evidence or tender bundles laterin the proceedings.

­ Portability and multiple users: EDMSs may be operated bymultiple users simultaneously and are usually accessible fromany computer terminal installed with the relevant softwareconnected either through a local network or, more commonly,through the Internet. Additionally, information from EDMSs maybe distributed electronically and quickly to others (including, forinstance, the arbitral tribunal, clients, counsel or to other partiesfor the purposes of disclosure).

There are, of course, disadvantages associated with EDMSs,including the cost of purchasing the necessary hardware andsoftware and the cost of training data­entry operators and users. Tothe extent that the equipment and users are likely to be the same,these costs may be spread across several disputes. However, the

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costs involved in setting up the EDMS (including the cost ofscanning, loading and coding documents) will be specific to thearbitration at hand and these are likely to be considerable.

[3]. Market Trends

EDMSs are commonly used by law firms in the United Kingdom tomanage documents relevant to disputes. Most large law firms havebought, or have developed for themselves, large­scale EDMSsoftware. Where such capabilities are not available page"184" in­house, it is possible to outsource document managementrequirements to litigation support agencies in possession of anEDMS, as and when the need arises.

In some cases, organisations are so frequently involved in disputesthat it is cost effective for them to manage all of their documents bymeans of an EDMS, irrespective of whether a dispute is anticipated.Consequently, documents are stored and coded automatically upontheir conception on the presumption that they will be required for thepurposes of preparing or defending a claim in future. Even wherenot, the increasing trend towards the paperless office and electronicproject communication is making EDMS usage very much thenorm. Situations where the backlog of documents to be loaded ontoan EDMS is too great to allow its effective implementation should inthe future become few and far between. This is supported by theresults of a study by the University of California(9) which found that92% of new information in 2002 was stored electronically. Given therate of take up of electronic storage and interchange of data sincethat time, it is likely that EDMS use will grow in the future.

[4]. EDMS Software and Web­Based Packages

EDMS software and/or web­based packages are available from avariety of sources. Moreover, each particular software and web­based package has its own particular strengths and weaknesses.Insofar as product trends are concerned, there is an increasingtendency to use web or intranet based products.

[B]. Managing Documents during the Hearing

In addition to requiring a method for managing the internal reviewand external disclosure of documents, a party may also wish toconsider a method for managing documents during the hearing.Included in the documents required to be managed at this stage willbe the contemporaneous documentary evidence, witnessstatements, expert reports, pleadings and submissions.

The ICC Construction Arbitration Report again suggests that thesedocuments be managed electronically:

The tribunal will need to ascertain at the outsetwhether it is practicable to work from printouts orwhether it would be better if the material wereaccessed directly by the tribunal, in which case it willbe necessary for the tribunal and every other party tobe provided with the necessary software.(10)

Clearly such a system is potentially expensive, requiring thepresence of computers, software and the relevant support staffduring the hearing. However, the ability for all involved in thearbitration to access the same set of documents has a veryconsiderable benefit which is difficult to quantify. Providing all theusers are comfortable with the page "185" operation of such asystem (and this may still be a generational issue for certain users,including witnesses), common access to a unified databaseeliminates the time consuming and frustrating process of ensuringthat all parties are (literally) on the same page.

To the extent that it is decided that the tribunal will work fromprintouts, there is nothing in any arbitration rules commonly usedtoday that requires documents to be managed in a particular way.Consequently, the manner in which documents are to be managedis likely to be dictated by order of the tribunal.(11) The ICCConstruction Arbitration Report suggests that documents becollated into agreed ‘working’ files (containing, for instance,complete sets of site minutes, programmes or instructions)(12) andagreed ‘issues' files (containing documents relevant to a particularissue).(13) In some cases the tribunal may request exhibits towitness statements to be presented in the same file, inchronological order. Much depends on the preference and collectiveprejudices of the tribunal, though here as elsewhere there is muchto be gained by taking the initiative and persuading the tribunal (ifnecessary against its first inclinations) to adopt the way of workingwhich will most suit the presentation of your own case and the easeand comfort of your advisers, witnesses and experts.

In agreeing working or issues files, however, the parties are notagreeing the admissibility of those documents or their evidentiaryvalue, rather it is only the authenticity of the documents which is inquestion. Documents whose authenticity is disputed (a rare event ininternational commercial arbitrations) may be kept separately untilsuch dispute is resolved. Certainly, agreeing working and issuesbundles serves to eliminate any unnecessary duplication in thedocuments and is a practice used widely by domestic courts.

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Furthermore, where a paper based document management systemis employed, the ICC stresses the importance of uniquelyidentifying each of the documents by an agreed number system(14)

and highlighting the relevant sections of those documents for easeof reference.(15) Another simple but effective suggestion is to‘colour­code’ files according to their content; for instance pleadings,exhibit bundles, working and issues files might each be assignedtheir own colours. The importance of ensuring that where multiplesets of documents are used (i.e., not a shared database on anelectronic management and display system) that all documents areidentical and there is a readily understandable system of uniqueidentification for every page of every document, cannot be over­estimated. Presentation may not be everything but if the tribunalcannot readily be directed to the material that is being considered,the impact of the presentation can be materially damaged.

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§9.04. Scott Schedules

During the course of a construction arbitration it would be typical fora large number of pleadings and amended pleadings, particulars andso on to be filed by the parties. The Statement of Case, forinstance, will set out numerous claims; generally each claim fordefective work, for instance, will be separately pleaded.(16) Giventhe large number of claims, it can be difficult for the tribunal andparties alike to quickly identify which of the claims areparticularised, defended, the subject of a reply or the subject offactual or expert evidence.

For this reason it has become the practice for schedules to beprepared setting out the state of the pleadings on each individualissue. Known in the English courts as ‘Scott Schedules'(17) thesesummarise the pleadings (and sometimes the evidence) into asingle document, so that the parties and tribunal may very quicklyidentify the status of a given claim. They might be described as‘ancillary’ to the main pleadings.

As with chronologies, there are no hard and fast rules for the formatof Scott Schedules. Usually their form is dictated by the tribunal'sorder. However, they are usually similar in the form to thespreadsheet set out below. Typically, claims of a similar nature(such as claims for delay, variations and/or defective work) aredealt with in the same schedule. page "187"

Table 9.1DelayClaim

Particulars Defence Particulars Response Particulars Quantum Particulars

20–22June2006

Breachofcontract(clause23) –failureto giveaccess.

Truckblockingaccess tosite from06.00 20June 2006until 17.0020 June2006.

[Witnessstatementof JBuilderdated 2December2006Paragraph54]

Denied:claimant'sworkforcewas onstrike.

Industrialactioncommenced15.00 19June 2006and ended17.00 24June 2006.

[Witnessstatementof J Ownerdated 2December2006Paragraph34]

Not all oftheclaimant'sworkforcewas onstrikeduring theperiod 19– 24 June2006.

J Thoms,P Harmer,and HHarris wereon site andready forduties.

[Witnessstatementsof JThoms, PHarmer,and HHarrisdated 2December2006Paragraph14]

£50,000. Wastedlabourcosts£30,000.

Wastedsiteoverheads£2,000.

Wastedconcretemix£18,000.

[Report ofquantumpreparedby EExpertdated 4December2006 atParagraph32].

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Typically, the Scott Schedule is completed by both the claimant(s)and respondent(s). First, the claimant sets out the basis of itsclaim, including particulars. The claimant also sets out the quantumclaimed, including particulars. Then the respondent sets out itsdefence, including the basis on which the claim is denied or notadmitted, including particulars. Next the claimant sets out itsresponse and the basis on which it responds, including anyparticulars.(18) Clearly, this is best achieved by passing theschedule from party to party in electronic form. Often a column onthe right is left blank for the use of the tribunal.

Parties should approach the task of completing the Scott Scheduleconstructively; the simple denial of a claim unsupported by reasons,for instance, does not assist the tribunal to distil the respondent'sargument.(19) The use of Scott Schedules is endorsed by the ICC:

In the right hands it is a useful tool. It defines thepositions of the parties and ultimately it will or can beused by a tribunal to record its views and decisions.At the pre­hearing stage its main value is that, if

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properly compiled, it establishes the position of eachparty where the existing submissions or pleadings donot already do so adequately.(20)

The ICC Construction Arbitration Report suggests that ScottSchedules be prepared before the parties' evidence is filed.(21) Atthis stage in the proceedings, a Scott Schedule assists indetermining the facts required to be proven in support of the parties'claims. Once the evidence has been filed, however, it may beworthwhile requiring each party to cross­reference the claims set outin the Scott Schedule against their lay and expert evidence. In thisway, claims which are unsupported by the evidence may be quicklyand easily identified. Additionally, as is pointed out in the ICCConstruction Arbitration Report:

If fully and properly completed, these schedules showwhich points are not in dispute and thus irrelevant andwhich have to be decided.(22)

Scott Schedules are of less use where the claimant seeks to bringa global claim. The problems raised with global claims arediscussed in more detail below.

§9.05. Evidence required for common construction claims

[A]. Introduction

Very broadly, claims in construction cases can be divided into twomain classes. Global claims – i.e., claims where the claimant doesnot attempt to identify any direct correlation between individualevents and their effects – and claims arising out of specific events.Each of these broad classes can be further divided into claims for

page "189" additional time and for additional cost. This part ofthis chapter looks at the preparation of evidence for claims foradditional costs, including those arising from delay. Beforediscussing the types of costs recoverable in construction claims, itis worthwhile touching upon the sorts of evidence conventionallyrequired to prove that such costs were or will be incurred.

Depending on the nature of the claim and the facts of the case, aclaimant may claim its actual, reasonable or estimated costs. Forinstance, claims made on a quantum meruit basis are for thecontractor's reasonable costs, whereas claims for defective workare for the employer's estimated costs (in circumstances where therelevant rectification works remain to be carried out). Of course, ifthe works have been carried out, the claim then becomes one forthe employer's actual costs.

In such a case, where the claimant seeks its actual costs then, asa general rule:

…a claimant ought to be required to produce theprimary documents that confirm the amountsclaimed(23) (emphasis added).

The ICC's reference to ‘primary documents' in this regard is areference to the receipts or invoices which evidence the claimant'scosts, which will include its own direct costs and the costs ofsubcontractors, plant hire and the like. Collating the receipts andinvoices underpinning a claim can be a laborious and tediousprocess, especially where the claimant did not have a system formanaging those documents in the first place. So laborious andtedious is this exercise that in many cases the arbitral tribunal(being human) will wish to avoid the need to examine suchdocuments themselves. Thus in many large cases directions will begiven for some form of accounting expert to report on the accuracyof the sums claimed. Indeed, while one party's primary documentsin a large case may (in theory at least) be made available to theother party, it is not unknown for the validity of this evidence to bedemonstrated by examination of a statistically significant sample,rather than of all the documents. The importance of documentmanagement has been discussed in greater detail above and isnowhere more important than in this area. For while, in practice,short cuts of the type described above may be and often areadopted, the theory remains that losses of this type should becapable of being proved by the production of primary evidence. Woebetide any party who cannot, when challenged, satisfy the tribunalof its obligations in this regard.

Where, however, the claim is not for actual but for estimated orreasonable costs, the evidence cannot be the invoices for the workdone. Instead, the evidence of loss is almost always a mixture ofdocumentary and expert opinion. The documentary evidence tendsto include quotes, estimates or tenders for the work to be done orcosts and rates for the materials and trades required for the work inquestion. In every case expert evidence is required to demonstratethe ‘likelihood’ or ‘reasonableness' of a cost claimed. The role ofexperts and expert evidence is discussed in greater detail belowand in Chapters 12 and 13.

page "190"

[B]. Contractors’ Claims for Delay or Disruption

Some of the most common claims found in construction arbitrationsare claims for delay, both by the contractor for delays caused by its

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employer and by the employer (typically for delay liquidateddamages) for late delivery of the project. Of course, once delay isestablished (a topic in its own right) the determination of theemployer's claim requires no particular evidence – at least wherethe contract provides for liquidated damages. The contractor'sclaims, however, require considerably more effort and evidence toestablish. The way these claims are presented often includes thematters set out below.

[1]. Claims for Overheads

[a]. Site Overheads and Preliminaries

Where the contractor suffers delay for which the employer isresponsible, then the contractor may claim the actual costs incurredwhile maintaining an idle presence on site during the period of delay.Where contracts provide a contractual right to these costs, it is notuncommon for the contractor to be required to take reasonablesteps to avoid these costs. The same is effectively true if the claimfor delay is not based on a contractual right for additional paymentbut for damages for breach, when the contractor generally becomesunder an obligation to mitigate its losses. Subject to theseobligations, the contractor's claim for delay will include:

­ the cost of paying salaried or contracted site­staff during theperiod of delay;

­ the cost of leasing site equipment or plant during the delay;­ the cost of maintaining owned site equipment or plant during theperiod of delay (perhaps including ‘lost hire fees' if the contractorcan show the equipment would have been hired out but for thedelay keeping it on site, depreciation and finance charges);

­ the cost of maintaining water and electricity to the site during theperiod of delay; and

­ certain miscellaneous costs including the cost of postage,stationery and/or telephone calls associated with the delay event.

In each case, the contractor will need to show the costs incurred byreference to the relevant invoices or receipts for the costs claimed(see discussion above) including for instance, invoices evidencinghire­charges, stationery or labour costs.

In some cases, however, rather than proving each cost on an item­by­item basis the contractor may choose to claim these costs byextrapolating from the rates for preliminaries set out in its bill ofquantities. This process, which is sometimes referred to as an‘extended preliminaries calculation’, can be regarded as a miniglobal claim and is frequently viewed with some scepticism.(24)

page "191"

[b]. Head­Office Overheads

In addition to costs at the site level, there may be costs incurred atthe head­office level which are recoverable to the extent that theycould not have been avoided by the contractor. Again, such costsinclude the cost of salaried or contracted head­office staff, the costof idle office equipment and other miscellaneous costs such aspostage, stationery and telephone calls incurred or wasted inconnection with the delay. Depending on the terms of the contract,the contractor may also be able to claim certain financing costsincurred by him as a consequence of the delay (where, for instance,he must pay to maintain a bank guarantee or funding during theperiod of delay). Where the contractor chooses to add a claim forfinancing costs it needs to demonstrate not only the additional costbut also the causal connection to the delay.

In fact, demonstrating that the costs incurred are directly referableto the delay is the principal difficulty in claiming head­officeoverheads. Project specific, time­related costs (such as fees for abank guarantee) present no particular problems, but generalfinancing charges, such as the contractor's overdraft, are less easyto demonstrate as losses (or additional costs) caused by the delayto any particular project. Similarly it may be difficult or impossible todemonstrate what proportion of an employee's time was wasted asa consequence of the delay where the relevant individual worked ona number of different projects at the relevant time.

[2]. Net Lost Profits

Where the contract was profitable, the contractor may seek torecover profit lost as a consequence of the delay. Typically, suchclaims are estimated according to formulae which seek to determinethe contractor's lost net profit; that is, gross profit minus site andhead­office overheads.

The most common of these calculations are the Hudson, Emdenand Eichleay formulae. The Hudson formula,(25) for instance,calculates net lost profit as follows:

HO/Profit Percentage X Contract Sum X Period ofDelay100 Contract Period (in weeks)

As is noted in Building Contract Disputes: Practice and Precedents:

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The effect of the formula is to calculate the rate atwhich the contractor would have earned gross profithad the contract run to time and to extrapolate thatrate into the period of delay.(26)

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As with the extended preliminaries calculation, however, there hasbeen some doubt expressed as to the correctness of relying on theHudson formula where better evidence of the claimant's loss isavailable.(27)

In certain circumstances the contractor may wish to claim the netlost profit that would have been made on other contracts, had he notbeen delayed. Generally, the contractor will make this claim wherethe delayed contract was less profitable than other contracts beingawarded at that time. Such a claim requires evidence that othercontracts would have been awarded to the contractor had he notbeen delayed and proof of the profit margins that would have beenrecovered on those other contracts had he carried them out.Obviously, evidence is required to show that other work wasavailable, that it would have been profitable and that the contractorwould have won it. For this reason, evidence of tenders for otherwork with estimates of profit margins based on the tender price areunlikely to be sufficient to demonstrate a good claim for lost profits.

[3]. Increased Costs in Executing Remaining Works FollowingDelay

A contractor may claim for increased costs suffered as aconsequence of delay including, for example, the increased costsinvolved in completing the works in a season or in a market otherthan that contemplated at the time of tendering for the work. Itemsrecoverable might include the increased cost of materials (includinghandling costs), increased labour and plant costs. As with otherclaims, the evidence required is a mixture of documentary andexpert opinion. Where the claim is for working in a season or marketdifferent from that anticipated at the time of the contract, the costsof both the work done in the original circumstances and thoseprevailing as a result of the delay will need to be proven, and thetribunal must be satisfied that any additional cost arises as a resultof the change in circumstances and not for any other matter forwhich the contractor may be responsible.

[C]. Disruption and Acceleration

Where an employer is responsible for disruption to the progress ofthe works (i.e., where he has disturbed progress to items off thecritical path so that the contractor is not delayed in the completionof the work but has suffered additional costs in completing theworks), the contractor may claim the cost of wasted or increasedoverheads incurred as a consequence of the disruption. Likewise,where the contractor is required to accelerate (perhaps on the basisof a ‘constructive’ change order), he may claim the cost ofincreased overheads incurred by him as a consequence of theinstruction to accelerate. As with other claims, the principal problemwith providing evidence in support of such claims is not so much inidentifying the actual cost incurred but in satisfying the tribunal thatany additional cost claimed arises as a result of the event reliedupon. In other words, the challenge is to satisfy the tribunal that, butfor page "193" the disruptive event, the cost to the contractorwould have been less than it actually turned out to be and that thatdifference arose as a result of the disruption.

[D]. Contractors’ Claims for Repudiation

There are occasionally extreme cases where a building contract isterminated in its entirety. Where the contract has been terminated inaccordance with its terms, it is likely that the contract itself willprovide a mechanism for determining what sums are to be paid towhom. Where, rarely, the contract is brought to an end by theemployer for no good reason and outside the contract mechanisms,the contractor will have the opportunity of treating the contract asrepudiated, that is as having been brought to an end by theemployer's actions. In these circumstances, the contractor isgenerally under no further obligation to perform but may claimwhatever loss it can establish as damages on general principles.

[1]. Repudiation before the Date for Possession of the Site

Where a contract is improperly repudiated by the employer beforework commences on site, the contractor may claim the net lostprofit he would have otherwise made on the entirety of the work.Alternatively, the contractor may claim its wasted costs, includingits preparation and mobilisation costs so long as those costs werereasonably known to the employer.

Clearly, the evidence required in support of these two claims iscompletely different and a call ideally needs to be made at the timeof preparing the claim determining which route the contractor willfollow (though it is not impossible to claim in the alternative as asafety measure).

Where the claim is for loss of profit on the completed project, thecontractor will need to show that he would have been able to

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complete the project as anticipated and that he would have made aprofit in doing so. While this claim is a little easier to present than aclaim for lost other work in cases of delay, it still requires satisfyingthe tribunal of the contractor's ability to complete the work in aprofitable manner. Such a claim is also subject to an obligation tomitigate, in this case, perhaps, by obtaining other work. If otherwork is generally available in the market within which the contractoris working, and this work is at least as profitable as the cancelledwork, the impact on the claim may be large. However, in this case,the boot is on the other foot and it is for the employer todemonstrate by its evidence that such other, profitable work existedand would have been available to the contractor. In both cases, theevidence will involve a significant amount of expert opinion inconnection with the likely profit margins of the contractor and theavailability of other work.

Where, perhaps because of the contractor's inability to show that hewould have completed the cancelled project profitably, or perhapsbecause of an upturn in the market leading to other, profitable workbeing freely available, the claim is based on wasted costs, theevidence changes completely. In this case the claim becomes, in

page "194" essence, a simple accounting exercise based onthe primary documentation referred to above.

[2]. Repudiation Subsequent to the Date for Possession of theSite

Where work has been carried out by the contractor prior to theemployer's improper repudiation of the contract (and for which hehas not been paid) then the contractor may claim for such workunder the terms of the contract as well as demobilisation costs andthe lost net profit on the remaining portion of the work.

In this case the evidence is an amalgam of straightforwarddocumentary evidence to demonstrate the amount properly earnedunder the contract to date and, as described above, expert opinionon the amount that the contractor would have earned on theremaining part of the contract, had he been allowed to complete it.

[E]. Global Claims

All of the examples outlined above are based on the premise thatthe claim is being presented in a traditional manner (in other words,that there is one event which, whether under the contract or as aresult of a breach of contract, entitles the contractor to a claim foradditional payment). Where a party makes such a claim he mustdemonstrate that the delay or extra costs complained of werecaused by the event for which the other is responsible (an ‘event’).Of course, in real life it is common for a number of events to occurin the same time period. Despite this, where there are multipleevents the contractor (it is typically the contractor) must show howeach of those events contributed to the delay or the increased costscomplained of.

Occasionally, the contractor will be unable to prove the effect ofeach individual event on progress and costs because, given theircomplexity, it is impracticable or (rarely) impossible to disentanglethe individual effects.(28) This may arise because the contractor hasbeen on the receiving end of so much misfortune that it has becomedifficult to separate out cause and effect, or it may be that as aresult of the failure to maintain adequate site and other records thatat the time of the making of the claim this exercise has become toodifficult (or too expensive) to undertake. Whichever is the correctreason, in such circumstances, contractors are generally inclined tomake a claim for time and costs on the basis of those eventscollectively, requiring the arbitrator to infer that the employer'sbreaches caused the entirety of the delay and extra costs incurred.Such claims are referred to as ‘global’ or ‘rolled­up’ claims.

From the start it needs to be said that global claims are approachedwith a considerable degree of scepticism, because they effectivelyignore the issue of causation in any proper sense.(29) Additionally,pleadings and evidence in support of global claims tend to lackprecision and contain irrelevant or redundant material. This creates

page "195" further work for the arbitral tribunal(30) and allows thecontractor effectively to sidestep much of the evidential burden ofproving its case. In many cases, the presentation of a global claimis seen as an attempt by the claimant to sweep its own failingsunder the carpet whilst laying full responsibility for those failings onthe respondent. However, in more recent times in England (andneighbouring Scotland), there has been judicial acceptance of thesetypes of claims as a matter of principle.(31)

Implicit in the concept of global claims (though not often highlightedin the claim itself) is the fundamental notion that the contractor isnot, itself, responsible in any way for the delay or extra costscomplained of. A typical global claim comprises a litany of matters,all of which are events falling within the employer's responsibility,followed by a simple assertion (normally easily demonstrated) thatthe actual costs exceeded the contractual price by the amount ofthe claim. Consequently, where a global claim is presented theemployer will normally attempt to demonstrate that some or all ofthe delay or costs complained of were caused by events for whichthe contractor is responsible including, for instance, poor projectmanagement, technical failures or a failure properly to scope orprice the work before the contract was entered into. Clearly, any

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such evidence tears the heart out of a global claim and, where thecontractor has not presented any alternative evidence to support itsclaim, is likely to result in the dismissal of the entire claim.

However, this is a risky strategy for an employer if the tribunal isminded to accept the principle of a global claim. This might arise asa result of genuine difficulties in disentangling the effects fromnumerous potential causes, the vast majority of which are probablyones within the employer's responsibility. In such cases, muchdepends on the identity of the member(s) making up the tribunal,their professional backgrounds, their collective prejudices and theirattitudes to strict rules of evidence and of pleading. For thesereasons, an employer faced with a global claim might be welladvised not simply to seek to show that certain of the events setout in the global claim are matters within the contractor'sresponsibility, thereby hoping to pull the entire global claim down.The alternative, though requiring much more evidence and effortfrom the employer, is to undertake the task that (arguably) thecontractor ought to have done, carrying out a blow by blow analysisof the events relied on and their probable effects.

There are, however, problems with this second approach. To startwith, it may well be the case that the employer has insufficientrecords to carry out the exercise, page "196" though to someextent the availability of disclosure from the contractor ought toprovide some of the material required. Of more significance is that,whilst the approach may guarantee the rejection of the global claim,it may well be at the price of establishing for the contractor (but atthe employer's expense) what the contractor's entitlement actuallyis. For these reasons, an employer faced with a global claim needsto consider very carefully its best defence strategy in the light of allthe circumstances, including the likely attitudes of the tribunal tothe claim.

[1]. Preparing a Global Claim

Despite the criticisms of the global claim implicit in the precedingparagraphs, there are occasional instances where a global claim islegitimate. Indeed, it may be the only way to present a case whereit is genuinely impossible to disentangle the effects of multiplecauses. However, because of the potential vulnerability of the globalclaim in the face of a robust tribunal accustomed to strict rules ofevidence and proof of causation, it should be regarded as the lastresort and not the norm. Accordingly, and to the extent that it ispossible and practical to do so, a contractor should start byestablishing a causal link between each event complained of andthe corresponding delay or disruption and costs.(32) Where, followingthis exercise, there remain delays or costs which cannot beattributed to specific events then the contractor might wish to makea global claim in respect of them.(33) In doing so it should take greatcare to remove from this residual global claim any effects which canpositively be identified as flowing from matters within itsresponsibility. If a contractor follows this course it may still notrecover its global claim in the face of a determined attack by theemployer, but its chances of success on the global element of theclaim will have improved and it will, of course, always be able torecover those elements of the claim for which evidence wasproduced showing cause and effect.

[F]. Employers’ Delay Claims

[1]. Loss of Profits

Just as contractor's claims are typically for additional costs(whether as a result of change or delay) in completing the project,employer's claims are typically for the cost to them of delayeddelivery of the project. Where the works are delayed through thefault of the contractor then the employer may be unable to drawrevenue from, or use, those works as from the time originallyintended (i.e., the date for practical completion as adjusted underthe contract). In such circumstances, the employer may (inprinciple) claim the loss which arises fairly and reasonably as anatural consequence of the delay. This might include loss of rent orloss of production depending on the nature of page "197" theworks. To claim these losses, the employer must prove that therelevant circumstances were such that he would have made a profithad he been able to use the works. In addition to these losses,which are potentially recoverable in all circumstances, the employermay also claim for special losses (i.e., losses other than thosewhich arise fairly and reasonably as a natural consequence of thedelay) where he can show that the contractor knew of the specialpurpose to which the project would be put and the likely loss to theemployer as a result of delay.

As has been discussed above, the evidential burden of proving lossof profits is considerable, though perhaps easier for employers incertain circumstances. Where, for instance, the property is to be letfor commercial occupation, the availability of tenants and the likelyrents can be readily established by a mixture of factual (comparator)and expert evidence. So too can the loss of profit for a processplant, based on evidence of the market prices for the feedstock andthe product and expert evidence of the cost of processing.

Despite this, there are circumstances where evidence of actual losswould be difficult to provide, such as the cost to an organisation of

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not being able to move into a new headquarters building. Perhapsfor reasons such as these, it is commonplace for the cost ofemployer delay in the commercial sector to be pre­agreed asliquidated damages. In such cases, no evidence of loss ought to berequired to prove the claim. However, in certain jurisdictions (suchas England) liquidated damages may be recoverable only if shownby the evidence to be a genuine pre­estimate of costs.(34) In otherjurisdictions even more evidence of actual loss may be required.

[2]. Wasted Expenditure

As an alternative to a claim for loss of profits (and in the absence ofagreed liquidated damages) an employer may claim for wasted oradditional expenditure. A claim for wasted expenditure might ariseout of cancelled contracts relating to the occupation of the building,whilst additional expenditure might arise in cases where additionalshort­ term accommodation has to be organised at increased costto take account of the unavailability of the completed building.Similar claims might arise in cases where feedstock had beencontracted for a process plant and had to be sold in the market at aloss, or additional product bought on the open market at higher costwhere the plant was intended for domestic supply. Obviously, theevidence in support of wasted or additional expenditure costs willvary greatly, depending on the circumstances on each case.

[3]. Repudiation by the Contractor

Where the contractor improperly repudiates the contract and itsrepudiation is accepted, then the employer may recover thedifference between the original contract page "198" price andthe actual or estimated cost of carrying out the relevant works(depending on whether or not those works have been carried out). Ineach case, the employer must show that the works were, or will be,completed substantially as originally intended, in a reasonablemanner and at the earliest reasonable opportunity.(35) Generally thenature of the evidence required will depend on whether the workshave been carried out at the time of the claim or are yet to becarried out. Where the works have been carried out in accordancewith the intention of the original contract, the evidence will inessence be purely factual, subject possibly to the need for someexpert evidence as to the reasonableness of the manner in whichthe works had been completed. Where, however, the works havenot been completed the question becomes one for expert evidenceas to the likely future cost of the works.

[4]. Defective Works

Where the works are defective through the fault of the contractor,then the employer may claim either the diminution in property valueor the actual or estimated cost of reinstating the works.(36)

Where the employer claims for reinstatement, he must provideevidence that the work will be (or has been) completed substantiallyas originally intended, in a reasonable manner and at the earliestreasonable opportunity. Where, however, the employer cannot ordoes not intend to reinstate the works, or where the tribunalconsiders that it would not be reasonable to require the contractor toreinstate the works, the employer may claim for diminution inproperty value. Generally, a claim for diminution in value will be nogreater than a corresponding claim for reinstatement. To make thisclaim the employer must show that the value of the work as built isless than the likely value of the work had it been built as originallyintended.

Additionally, where the employer has opted to reinstate the works,he may also claim for any residual diminution in value of the workfollowing reinstatement. Again, to make this claim the employermust show that the value of the work as built is less than the likelyvalue of the work had it been built as originally intended.(37)

The employer may also be able to claim for certain miscellaneousexpenses incurred as a consequence of the defective works,including any increase in insurance premiums and/or the costs ofinspections or reports carried out in identifying, assessing ormanaging the defective works.

In certain instances, the contractor may claim that thereinstatement of the works will cause the employer to get somethingbetter than he bargained for. This argument may be resisted ongrounds that the employer had ‘no reasonable choice’ but to carryout the reinstatement works in the way that he did.

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§9.06. Expert Evidence

[A]. Introduction

While it can be seen that much of a party's preparation forproceedings centres around the collection of factual evidence, aparty to a construction dispute will (as indicated above) almostinvariably need to adduce expert evidence in support of its claim ordefence. For instance, where a party's claim is that the defendanthas not acted in accordance with accepted industry practice, that

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party will need to establish exactly what ‘accepted industry practice’is. Generally, this is done by way of expert opinion based on theknowledge and experience of a person suitably acquainted with therelevant industry.

Expert evidence is also used to make sense of complicated facts.Where, for instance, evidence of a large number of delays isadduced, expert evidence is commonly – if not invariably – used todemonstrate whether and to what extent the events complained ofcaused delay to the claimant (by reference to the effect of thosedelays on the critical path, for instance).(38)

Although, in the context of international construction arbitration, onemight expect members of the arbitral panel itself to possess acertain degree of expertise, it is still very common for severalexperts with knowledge and experience in quite separate fields to berequired for the proper conduct of a complex construction claim. Asthe authors of the ICC Construction Arbitration Report found:

construction disputes often raise a variety of technicalissues, some of which may be highly specialized andlie beyond the competence of an ordinary expert andothers may necessitate a decision between twodifferent schools of thought, towards one of which atribunal member may have a leaning, as a result oftraining or experience.(39)

For example, programming experts may be required to giveevidence in relation to delay claims, accounting (or quantitysurveyor) experts may be required to give evidence on quantum,and expert­engineers may be required to give evidence in relation todefects. The result is that expert evidence in internationalconstruction arbitration is very much the norm.

This section addresses the role of experts in arbitrations, thefactors to be considered when selecting and briefing an expert foran arbitration and the nature and format of expert evidence.

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[B]. The Role of Experts in Arbitration

[1]. Appointing Experts

Where an arbitral tribunal does not possess the expertise necessaryto determine the claim before it then either it, or the parties, mayappoint an expert(s), depending on the terms of the parties'agreement to arbitrate or the terms of reference. Generally, theterms of reference or the agreement to arbitrate will expressly statewhether it is the parties and/or the tribunal who may appoint anexpert. This is certainly the case where the parties have agreed toarbitrate in accordance with one or other of the accepted sets ofinstitutional rules.(40)

Where the matter is not dealt with expressly then the power todetermine how, and in what manner, expert evidence is to beadduced will generally lie with the tribunal as an implied term in theagreement to arbitrate. It may, however, be necessary to refer tothe law of the place where the arbitration is taking place to see whatpowers the arbitrators have to appoint experts or to admit expertevidence.

[a]. Party­Appointed Experts

Parties from common law jurisdictions, who are accustomed toadversarial­style proceedings, typically prefer to appoint their ownexperts to give evidence on the technical aspects of the dispute.Such parties value their ability to consult with the expert as heprepares his evidence to ensure that all relevant facts and mattershave been properly considered.

Where not already provided for in terms of reference, the number ofexperts each party may retain is usually agreed during a pre­hearingconference or direction hearing. The scope of each expert witness'sremit and the manner in which his evidence must be presented isalso commonly agreed by the parties or directed by the arbitraltribunal at this time.

[b]. Tribunal­Appointed Experts

Occasionally, the terms of reference will provide (or the tribunal willdirect) that it is the tribunal and not the parties who may appoint anexpert. These tribunal­appointed experts are also commonly referredto as ‘neutral assessors'. While certain parties (particularly thosefrom civil law jurisdictions, who are accustomed to inquisitorial­styleproceedings) may be comfortable with this arrangement, mostparties from common law jurisdictions are not. Many parties arewary of the inclusion of a further, unendorsed member in theircarefully selected arbitral panel whose opinion and views expressedin private conversations with the tribunal members, although notbinding, are likely to be highly influential on the decision­makingprocess.

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Again, whether or not the tribunal may impose a tribunal­appointedexpert on the parties depends on the terms of reference and/or theagreement to arbitrate. Tribunal­appointed experts are certainlycontemplated in most sets of institutional rules.(41)

Where an arbitral tribunal decides to appoint its own expert, theconsensus is that it should involve the parties in the selectionprocess (by requesting that the parties agree on an expert from alist, for instance). Indeed, consultation is a necessary prerequisiteto the tribunal appointing an expert under the ICC Rules.(42) Theparties should also have the opportunity to see any report providedby the expert to the tribunal, and to question the tribunal's expert atthe hearing.

Whether a tribunal can prevent parties from appointing their ownexperts also depends on the terms of reference. Under the ICCRules for instance, the arbitral tribunal is under no expressobligation to hear party­appointed experts. However, the consensusis that:

Even if they intend to appoint a neutral expert, ICCarbitrators are not well advised to reject thepresentation of expert testimony by the parties.(43)

In this regard it should be noted that an arbitral tribunal may rely onexpert assistance only ‘… to obtain any technical information thatmight guide it in the search for truth’(44) and must not delegate anyof its decision­making powers to the expert. To this end, thetribunal­appointed expert should not participate in the tribunal'sultimate deliberations nor should his opinions be treated as bindingby the tribunal members.

[2]. Tribunal and Party­Appointed Experts

In the case of party­appointed experts, it is for the arbitral tribunal todetermine which expert opinion is to be preferred in the case ofconflicting evidence. This may be difficult where the arbitral tribunallacks the relevant expertise. In these circumstances, the arbitraltribunal may take the view that it requires its own expert adviser (inaddition to those already appointed by the parties) to assist indistinguishing between the varying opinions.

Aside from any concerns they may have as to the influence suchan expert advisor might have on the decision­making process, theparties may resent the cost of an additional expert. Nevertheless, inthe case of highly technical claims, this arrangement may beunavoidable.

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[3]. Selecting an Expert

[a]. Finding Candidates

Most lawyers practising international construction arbitration keeplists of experts in the major fields of expertise (including forinstance, quantum and delay, and programming).

Occasionally, parties require expertise of a more obscure nature; aclaim for defects in connection with steam turbines for instance,would require the expertise of a specialist mechanical engineer. Insuch circumstances and if the client is unable to suggestcandidates, it may be necessary to request the assistance of aninstitution such as the ICC International Centre for Expertise, inorder to locate an appropriate expert.(45)

[b]. Qualifications and Expertise

Ideally, an expert will possess relevant professional qualificationsand current experience in the industry. Additionally, where theexpert is likely to give oral evidence, or to be cross­examined, heshould be able to communicate his opinions in a credible andauthoritative manner. There may, however, be a tension betweenthe possession of up­to­date experience in the relevant field, andthe ability to present fluently and persuasively in the somewhatartificial setting of an arbitration hearing. All too often it is thecurrent day­to­day experience that is lacking, with the emphasisbeing placed on the forensic skills of ‘professional’ expertwitnesses.

There is, in fact, nothing at law which requires expert witnesses topossess any professional qualifications. As Mr Justice Lloyd put it:

…an expert may be qualified by skill and experience,as well as by professional qualifications.(46)

Nevertheless, such qualifications are of undoubted value insofar asthey lend weight to the expert's evidence and credibility, generally.

However, recent industry experience is crucial.(47) Expert evidencemay be entirely rejected if it can be shown that the supposed expertis not:

… someone who had experience of the practices [inthe industry] of the time relevant to the [claim]’(48)

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page "203"

irrespective of the expert's professional qualifications.(49) Likewise,expert evidence will be rejected where it can be shown that theexpert, although possessing expertise, does not have expertise inthe precise area which is the subject of dispute.(50)

The importance of ensuring that the expert possesses expertise inthe appropriate area cannot be overstated. Opinions in relation tomatters in which the expert has no experience are inadmissible ongrounds of irrelevance (in the same way that the opinions of factualwitnesses are generally inadmissible in that regard). As Auld J put itin the context of engineers, architects and surveyors:

… it is only the evidence of the surveyors, Mr Dysonand Mr Greenham, that may be of value in this issue.Mr Shaw (a civil engineer) and Mr Fairhurst (anarchitect), however confident they may be in their ownprofessions cannot speak with authority on what isexpected of an ordinary competent surveyor.(51)

It is important to check the expert's curriculum vitae to ensure thathe possesses qualifications and recent experience in the fieldrelevant to the claim at hand. It is therefore important to note thatexperience as an expert witness does not amount to experience inthe industry. Consequently, it is important to beware of professionalexpert witnesses who have lost touch with current industrypractices.

[c]. Credibility

In most common law courts, expert witnesses owe a duty to thecourt ‘… to offer dispassionate and disinterested assistance andadvice to the court …’ in the court's determination of the factsrelevant to the claim. The courts take a dim view of experts who ‘…take upon their own shoulders the mantle of advocacy andthemselves to seek to persuade the court the desired result’,(52) or‘… consider that it is [their] job to stand shoulder to shoulderthrough thick and thin with the side which is paying his bill’.(53)

While, strictly speaking, it is probably true that an expert owes no‘duty’ to an arbitral tribunal, the greater the apparent independenceof the expert, the more weight the tribunal will give to his evidence.To this extent, the caselaw surrounding the duty of experts in courtproceedings is relevant to the assessment of their credibility inarbitral proceedings.

While an assessment of the candidate's likely credibility is largely amatter of judgment, the following ought to be considered whenselecting an expert witness:

First, does the candidate have any ‘connections' with the client? Ifthe expert is in any way connected with the party which retains him(say for instance, he is an employee or otherwise receives workfrom the client), his credibility will be called into page"204" question. It is therefore important to ensure that there is noconnection, or as little connection as possible between the expertand the client.

Second, does the candidate communicate his opinions credibly?Experts are generally regarded as ‘impressive’ where they refrainfrom acting as an advocate for the party which retains them(54) andshow a willingness to concede points where sensible andappropriate to do so.(55) The views of an expert that arecommunicated authoritatively but dispassionately are more likely tobe adopted than those that are not.

Where possible (and in addition to forming your own opinion on thegeneral demeanour of the expert), where the expert has givenevidence before, it is essential to review any relevant judicial orarbitral decisions for commentary on the candidate's performanceas an expert witness. In particular, when appointing an expert it isimportant to establish that there has been no adverse criticism ofthe expert's performance, integrity or judgment as this will inevitablyimpact adversely on the weight given to his evidence.

[d]. Timing of Appointment

In certain fields, there may be relatively few people who aresufficiently qualified to give an expert opinion. There may be fewerstill, once those who are connected with the client have beeneliminated from the list of candidates. In these circumstances, itmay be wise to identify and retain an expert as soon as possible, toprevent any other party to the proceedings obtaining the services ofthe ‘best’ or (worst still) the ‘only’ expert in the field.

[C]. Briefing an Expert

[1]. Briefing Party­Appointed Experts

The manner in which the expert is briefed is crucial to the case,especially where the expert has never given evidence before (inwhich case he will need to be carefully guided through the task ofpreparing a report and the process of giving oral evidence). Thefollowing are some of the essential points for a party and its

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advisers to consider when putting together a brief to instruct anexpert to prepare a report:

[a]. Scope

As mentioned above, often the scope of the expert evidencerequired to be adduced by the parties is agreed between the parties,or directed by the arbitral tribunal during a pre­hearing conference.Where this is the case, it is important that the expert be requestedto prepare his report within the confines of the scope. Opinions thatventure outside the mandated remit may be inadmissible and awaste of costs. For instance, in page "205" Pozzolanic LytagLtd v. Bryan Hobson Associates,(56) (in proceedings brought underthe English Arbitration Act) it was held that the expert evidenceadduced (the experts' reports directed to issues with which theyshould not have been concerned) by both sides went well beyondwhat the official referee had authorised, everything possible shouldhave been done to discourage this.

Where the scope of expert evidence has not been agreed ordirected, then it will be for the party to define the matters to beaddressed. Usually, the party will define the scope of the expertreport by reference to a series of carefully formulated questions,which assist the expert in directing his attention to the relevantfacts that need to be proven to make out the claim or defence. Informulating these questions take care not to request:

… evidence that really amounts to no more than anexpression of an opinion by a particular practitioner ofwhat he thinks he would have done had he beenplaced, hypothetically and without the benefit ofhindsight, in the position of the defendants, [which] isof little assistance to the Court… that is the veryquestion which it is the court's function to decide. It isoften said that an expert may not be asked the veryquestion which the court has to decide, for the reasonthat that would be to usurp the court's own function.(57)

[b]. What to give the Expert

Depending on the stage of the proceedings, a brief should includethe following documents:

­ all portions of the claim and any corresponding defence;­ all documents and other evidence; and­ all portions of factual witness statements.

that are relevant to the facts which the expert is required to analyse.It is not wise to hold back documents or any witness statement(especially those from the other party) which might be prejudicial tothe client's claim.(58) The other party will be likely to pick up onthese omissions and require the expert to deal with them in cross­examination.(59)

Where certain facts are not known, it may be necessary to preparea list of assumptions upon which the expert must prepare hisopinion. In that case, it is important to ensure that the report isamended and updated as and when the correctness of theassumptions becomes clear.

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[c]. Instructions

Any brief to an expert should include, among other things,instructions in the following terms:

­ The report should be prepared by you alone (the courts haveshown a distaste for expert reports which are primarily preparedby subordinates and with which the ‘expert’ is only vaguelyfamiliar).(60)

­ Answer only those questions which fall within your area ofexpertise (see above as to the importance of expertise).

­ Set out the assumptions upon which your opinion is based (whichshould include any assumptions set out in the brief).(61)

­ Set out the documents considered by you in reaching yourconclusions (which should include all documents accompanyingthe brief and relevant codes and standards).(62)

­ Set out the methodology employed in reaching your conclusions.(63)

­ Advise if you are of the view that more information is neededbefore you can reach a final decision. Place a caveat in yourreport in that regard, stating that your opinions are provisional.(64)

Each of these instructions is aimed at improving the transparencyof the expert's decision­making process so that it may be open toanalysis and review by the other parties. It is this transparencywhich lends credibility to the expert's evidence.

[2]. Directing Tribunal­Appointed Experts

Where the expert is appointed by the tribunal the usual practice is

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for the tribunal to prepare specific questions for the expert toaddress on the basis of the evidence filed by the parties in theproceedings. The consensus is that arbitrators should invite theparties to comment on the questions prior to their submission to theexpert. Likewise, it is common practice to allow parties to commenton the answers provided by the tribunal­appointed expert and toreply with expert evidence of their own. Allowing the parties to beinvolved in determining the tribunal­appointed expert's remit, andanalysing any report prepared by him, will reduce later objections tothat evidence.

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[D]. What Form Does Expert Evidence Take?

As with factual evidence, expert evidence can be written or oral.Generally, the rules of evidence applied by the arbitral tribunal inconnection with the presentation of expert evidence will be identicalto those applied in the case of factual evidence. While the rules ofevidence may vary across proceedings, expert evidence whichstrays beyond the agreed or directed scope is technicallyinadmissible. In such circumstances, the parties may agree, or thetribunal may direct, that the original remit should be expanded onthe condition that each other party be given the opportunity torespond to the additional expert evidence.

[1]. Reports

Written expert evidence is usually presented to the arbitral tribunalin the form of a report. These reports are generally filed with thetribunal after the factual witness statements, since in most casesthe expert reports depend on matters covered by the factual witnessevidence. Occasionally, though rarely, there is a case for expertreports to precede the delivery of the factual witness statements asit can be helpful for the parties to have a full understanding of atechnical matter (for instance the cause of a specific failure) in orderto establish what factual evidence is relevant to the question ofresponsibility for the failure. Whichever sequence is adopted, party­appointed experts may normally prepare additional reports duringthe arbitral proceedings, setting out criticisms of the expertevidence presented by an opposing party or, indeed, defendingcriticisms launched by others. Likewise, tribunal­appointed expertsmay need to prepare additional reports addressing points ofcriticism raised by the parties.

The parties should also give thought to the format of that expertevidence to ensure that: (i) the key issues for the resolution of thedispute are defined; (ii) the evidence is objective and independent;and (iii) the evidence is presented in a way that is cogent and easilyunderstood by the arbitral tribunal. On the latter, some techniquesfor presenting expert evidence are set out below.

In keeping with the instructions discussed above, the expert reportshould include, among other things, the following:(65)

­ a curriculum vitae, setting out relevant professional qualificationsand experience;

­ a list of the documents reviewed by the expert;­ a list of the assumptions relied upon by the expert; and­ a statement of the methodology underpinning his analysis of thefacts.

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[2]. Oral Evidence

An expert will normally be required to submit to cross­examinationon the contents of his report. He may also be required to facequestions from the arbitral tribunal. It is at this point that his generaldemeanour as a witness becomes particularly important.

An increasingly common method of dealing with expert evidence isto arrange expert conclaves or joint expert meetings, which areattended by the experts alone and in which the experts are requiredto identify the points upon which they agree or disagree. In suchcircumstances the experts will prepare a joint report, for submissionto the tribunal (and the parties) setting out the outcome of theconclave. In this way the technical matters in dispute can be refinedquickly. Such conclaves present a number of issues for the partiesand their advisers.

First, given the different expertise of expert witnesses attending aconclave and the differing instructions received by each party­appointed expert, there is the risk that, during conclave, the expertswill engage on matters which are outside one expert's expertise orare not strictly directed to the matters in dispute. As a result, it iscommon (and desirable) for the parties to first engage on thequestions to be put to the experts in conclave.

Second, given the fact that these conclaves are generally notattended by the parties or their advisers, there is a general (if not inmany cases a genuine) concern that the expert may ‘give away’ apart of the case of the party employing him. This is the case eventhough expert conclaves are usually convened on a ‘withoutprejudice’ basis (with that privilege being waived in the final version

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of their joint report) and, unless agreed otherwise, a party is notbound by any admissions made by their appointed expert.

There is no easy way round all aspects of this problem. Issues offact can be dealt with by specifying in advance that the experts arenot permitted to express views on the existence or validity of factson which their opinions depend. This is, after all, a matter for thefactual evidence of the parties and the determination of the tribunal.It is most definitely not for experts to purport to reach adetermination of the relevant facts. The experts' views, however,are not something which the parties can demand are not expressedin these conclaves. Nor would it be appropriate for the parties'representatives to be present to guide the expert in the views heexpresses in the course of the conclave. For this reason there is(from the parties' perspective) a considerable risk inherent in thecourse of expert conclaves which can be managed but noteliminated. In particular, the expert new to the process needs tounderstand the uses to which the product of the conclave (typicallya list of agreed and not agreed issues) may be put. A newcomerneeds to be well briefed as to the legitimate boundaries of theprocess and must understand that it is quite proper both to maintaindivergent views and to resist expressing any views where thefactual matrix necessary to form that view is in dispute between theparties.

In addition (or, perhaps, as an alternative) to expert conclaving,some tribunals require the experts to give oral evidence during thehearing (see Chapter 12 and ‘hot­tubbing’ below for furtherdiscussion). In these circumstances, the experts are required toanswer questions raised by the tribunal and/or the parties and/or theother page "209" expert simultaneously. This method of oralpresentation is useful insofar as it allows the tribunal to considerboth parties' evidence at the same time. As with expertconclusions, this approach may eliminate the need for excessivewritten evidence in reply.

[E]. Techniques for Presenting Expert Evidence

A number of techniques have been developed and are used inEnglish engineering and construction arbitration for presentingexpert evidence. These include the following:

­ Building information modelling (BIM) (discussed in Chapter 4) isgaining traction as a tool to assist in the presentation of expertevidence in English engineering and construction arbitration withsnapshots of the BIM included in the report and the full versionavailable electronically. This is largely because it is becoming amore common feature of construction projects themselves andhence the data is available to use BIM as part of the disputeresolution process. BIM can be used to demonstrate anengineering analysis. For example, a 3D model overlaying themechanical and electrical design on the structural design todemonstrate where there had been a lack of co­ordination by thedesign team. The alternative is to glean this information frommultiple general arrangement, cross­section and detail drawings.BIM can also be used to demonstrate expert programmingevidence by presenting a 4D model showing a comparison of theplanned versus actual construction sequence over time. This ismore comprehensible, and hence persuasive, than expertevidence in the form of multiple versions of 2D programmesshowing potentially thousands of interlinked activities.

­ When considering whether to use BIM to present expertevidence, it is important to be aware that it will be necessary toprove both that the model is based upon facts and that thesoftware does not warp those facts. This latter issue is oftendealt with on a more pragmatic level in arbitration as compared tonational courts and, as a result, it is likely to be more common tosee this tool being deployed in arbitration.

­ Joint reports. In addition to the production of individual reportsfrom party appointed experts, experts of a like discipline meet(usually on a ‘without prejudice’ basis) to identify areas ofagreement and hence disagreement. The outcome of thesemeetings is then presented in a joint report in which any ‘withoutprejudice’ privilege is waived by the experts. For example, inrelation to a delay claim, it is possible that the experts can agreeon the progress data that underpins each expert's programminganalysis. This is a very common tool in English engineering andconstruction arbitration as it can significantly limit the expertissues in dispute.

­ Hot­tubbing. This is where experts of a like discipline presentevidence and are cross­examined together at the hearing. Thispermits the tribunal to hear and test the views of experts onspecific topics at the same time, rather than perhaps weeksapart. An expert taking an extreme (and untenable) position is

page "210" more likely to make concessions when cross­examined in parallel with his/her counterpart as compared withthe conventional cross­examination process. Hot­tubbing isbecoming more common in English engineering and constructionarbitration, particularly where the tribunal is made up ofengineering or construction specialists who have an independentunderstanding of the expert issues and are capable of handling aninquisitorial approach.

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1 ICC, Final Report on Construction Industry Arbitrations, ICC Intl.Court Arb. Bull. 12/No. 2 (2001).2 Ibid., para. 21.3 Ibid.4 Ibid., para. 22.5 Ibid., para. 52.6 Ibid.7 See ICC Construction Arbitration Report, para. 51, whichparagraph presupposes the use of an electronic documentmanagement system.8 The cost of creation of the data for an EDMS where not already ina suitable state is another issue.9 University of California at Berkeley's School of InformationManagement and Systems, How Much Information 2003? availableat, http://www.sims.berkeley.edu/research/projects/how­much­info­2003/ (accessed 10 Sep. 2013).10 ICC Construction Arbitration Report, paras 51 and 52.11 Jan Paulsson et al., International Chamber of CommerceArbitration para. 24.02 (3d ed., Oceana Publications 2000).12 ICC Construction Arbitration Report, para. 53.13 Ibid., para. 52.14 ICC Construction Arbitration Report, para. 53.15 Ibid., para. 51.16 See further below for discussion concerning delay claims.17 See, e.g., s. 5.6 of the Technology and Construction CourtGuide, Second Edition, Second Revision October 2010; andMcGlinn v. Waltham Contractors Ltd [2007] EWHC 149 (TCC),paras 6 and 280–281.18 This approach is endorsed in the ICC Construction ArbitrationReport (paras 36 and 37).19 ICC Construction Arbitration Report, para. 36.20 Ibid.21 Ibid., para. 39.22 Ibid., para. 38.23 ICC Construction Arbitration Report, para. 45.24 Wraight Ltd v. PH & T Holdings [1980] 13 BLR 26.25 I. N. Duncan Wallace, Hudson's Building and EngineeringContracts Vol. I, para. 8­182 (11th ed., 2 vols, Sweet & Maxwell,1995), as originally put forward in the 10th edition of that text, in1970.26 Robert Fenwick Elliott, Building Contract Disputes: Practice andPrecedents, 13th Release, para. 1­422 (Sweet & Maxwell 2004).27 Tate & Lyle Food and Distribution Ltd v. Greater London Council[1982] 1 WLR 149.28 Wharf Properties Ltd v. Eric Cumine Associates (no 2) [1991] 53BLR 1.29 British Airways Pension Trustees Ltd v. Sir Robert McAlpine &Sons [1995] 72 BLR 26 and Holland (John) Construction &Engineering Pty Ltd v. Kvaerner RJ Brown Pty Ltd [1996] 82 BLR81.30 Rugby Landscapes Ltd (Bernhard's) v. Stockley ParkConsortium Ltd [1997] 82 BLR 39.31 In England and Wales: Amec Process and Energy Ltd v. StorkEngineers & Contractors BY [2002] All ER (D) 98 (Feb) (TCC)(although the court determined that the subject claim was not in facta global claim at para. 784), London Underground v. CitylinkTelecommunications [2007] BLR 391 (TCC) (although the partieshad accepted the approach to global claims, with which the courtagreed at para. 141), Petromec Inc v. Petroleo Brasileiro SAPetrobras and others [2007] EWCA Civ 1372 (although in thesecircumstances the court determined that the extra work contentshould be specified with sufficient itemised particularity and that acausal nexus had to be established at para. 40) and Walter Lilly &Co Ltd v. Mackay [2012] EWHC 1772 (TCC), at 474–487 (althoughthe court determined that the subject claim was not in fact a globalclaim at para. 491). In Scotland: John Doyle Construction Ltd v.Laing Management (Scotland) Ltd [2002] BLR 393 (affirmed by theInner House: [2004] BLR 295).32 London Borough of Merton v. Stanley Hugh Leach Ltd [1985] 32BLR 51.33 British Airways Pension Trustees Ltd v. Sir Robert McAlpine &Sons, supra.34 See Dunlop Pneumatic Tyre Co Ltd v. New Garage Motor Co Ltd[1915] AC 79 for the English position.35 Mertens v. Home Freeholds Co [1921] 2 KB 526.36 Ruxley Electronics and Construction Ltd v. Forsyth [1996] AC344.37 George Fischer Holding Ltd (formerly George Fischer (GreatBritain) Ltd) v. Multi Design Consultants Ltd (Roofdec Ltd andothers, third parties) [1998] 61 Con LR 85, 145.38 The critical path and programming are discussed in further detailin Chapter 10.39 ICC Construction Arbitration Report, para. 58.40 Article 27 UNCITRAL Arbitration Rules; Art. 20(4) ICC Rules1998, Art. 25(4) ICC Rules 2012; Art. 12 LCIA Rules; Art. 22 AAARules; and Arts 5 and 6 IBA Rules.41 See, e.g., Art. 21.1 LCIA Rules. See also Art. 20(4) ICC Rules1998, Art. 25(4) ICC Rules 2012 Art. 27 UNCITRAL ArbitrationRules and Art. 22(1) AAA Rules.42 Article 20(4) ICC Rules 1998, Art. 25(4) ICC Rules 2012.43 Paulsson et al., International Chamber of Commerce Arbitration,

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442.44 See Starrett Housing Corp. v. The Government of the IslamicRepublic of Iran, Award No. 314­21­1, para. 264 (14 Aug. 1987) 16Iran­U.S. C.T.R. 112, 196 quoting the ICJ in the Corfu ChannelCase (1948) ICJ Reps 15.45 See, http://www.iccwbo.org/products­and­services/arbitration­and­adr/expertise (accessed 10 Sep. 2013).46 Longley (James) & Co Ltd v. South West Thames RegionalHealth Authority [1983] 25 BLR 56, 62.47 Royal Brompton Hospital NHS Trust v. Hammond (No 7) [2001]EWCA Civ 206.48 Ibid., 166.49 Ibid., 166.50 Whalley v. Roberts & Roberts [1990] 1 EGLR 164 per Auld J.51 Ibid., 169.52 Arab Bank plc v. John D Wood (Commercial) Ltd [1998] EGCS34.53 Cala Homes (South) Ltd v. Alfred McAlpine Homes East Ltd[1995] FSR 818 as per Laddie J. See also London Underground Ltdv. Kenchington Ford plc (Harris & Sutherland, third party) [1998] AllER (D) 555 and Munkenbeck & Marshall v. The Kensington HotelLtd [2000] All ER (D) 561.54 Great Eastern Hotel Co Ltd v. John Laing Construction Ltd[2005] EWHC 181.55 Ibid., para. 111.56 Pozzolanic Lytag Ltd v. Bryan Hobson Associates [1999] BLR267.57 Longley (James) & Co Ltd v. South West Thames RegionalHealth Authority, supra.58 See criticism of an expert for failing to have had regard to all ofthe evidence at in Great Eastern Hotel Co Ltd v. John LaingConstruction Ltd, supra, para. 117.59 As was the case in Great Eastern Hotel Co Ltd v. John LaingConstruction Ltd, supra, para. 128.60 Skanska Construction UK Ltd (Formerly Kvaerner ConstructionLtd) v. Egger (Barony) Ltd [2004] EWHC 1748, para. 415.61 National Justice Cia Naviera SA v. Prudential Assurance Co Ltd,The Ikarian Reefer [1995] 1 Lloyd's Rep 455.62 Ibid.63 Ibid.64 Ibid., and Newman, ‘Expert Witnesses'.65 It should be noted that there are published guidelines on thecontent of expert's reports. For example Art. 5(2) of the IBA Ruleson the Taking of Evidence in International Arbitration providerequirements for the content of party­appointed experts' reports.Guidance can also be taken (particularly when the tribunal is madeup of one or more current/ex English judges) from s. 13 of the CivilJustice Council Protocol for the Instruction of Experts to GiveEvidence in Civil Claims, amended October 2009; and CPR 35.10and PD 35.3.

Source

Chapter 10:Programme Analysis inJane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 213 ­ 232

§10.01. Introduction

One of the most common features of any construction project isthat the project takes longer to complete than anticipated. This mayarise as a result of changes in the scope of the work required by theemployer, failures by the employer to provide access or to deliverinformation required by the contractor, failure by the contractor toperform its own obligations as expeditiously as it intended to or(occasionally) just plain bad luck. Whatever the reason, the delayalmost invariably gives rise to a claim by the contractor foradditional payment and/or an extension of time. At the same time itwill also generate a claim by the employer for the costs to it ofdelayed access to the completed project, most often in the form ofdelay liquidated damages.

The performance of the construction industry in achieving on­time(and on­budget) delivery of projects is constantly improving. Despitethis, the nature of the construction process, involving changebrought about as a result of factors both within and outside theparties' control and the inevitable discovery or occurrence of theunexpected, means that there will always be delay to someprojects. As a result, disputes involving the analysis of delays willcontinue to be a feature of construction arbitrations for theforeseeable future.

For this reason this chapter sets out to identify the particular issueswhich delay claims raise in the context of a construction arbitration.In particular this chapter discusses the role of the programme, thesignificance and meaning of critical path analysis and the legal andpractical issues surrounding the thorny questions of concurrentdelay and ownership of ‘float’. To some extent these topics cannotbe examined independently of a system of law or of contract termsand conditions which regulate how the parties intended to deal withspecific matters. However, neither this book nor this chapter isintended to be an authoritative text on such issues, with the result

Chapter 10: Programme Analysis

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that the matters will be approached, where possible, from arelatively theoretical standpoint. This is not to deny the benefits of,for instance, review of the considerable page "213" body ofcaselaw that can be found as a result of construction cases in theUnited States being more commonly determined in the courts thanin private arbitrations. However, the extent to which cases onspecific forms of contract in the light of specific previous decisionswill be recognised as relevant in another jurisdiction remainsuncertain.

§10.02. Date for Completion and the Role of the Programme

The starting point for any party to a construction project that hastaken, or is likely to take, longer than intended is to establish bothwhen delivery of the completed project was to take place and howthat was to be achieved. This involves the determination of at leastthree separate issues, namely, what state was the project to be inwhen delivered to the employer, when was the delivery date andhow was the necessary work intended to be, and actually, carriedout.

The first and second of these three issues might seem to be readilydeterminable. So far as the state the project has to be in to beready for delivery, it is generally recognised that the process ofconstruction means that a construction project need not be 100%finished in order to be complete and ready for delivery to theemployer. Most standard forms of contract contain a conceptequivalent to ‘practical completion’. Though rarely defined in entirelyadequate terms (and in some cases not defined at all) the conceptis immediately recognisable to anyone in the industry. In short, aproject will be complete when everything essential for its use hasbeen completed and shown to work. In addition (and this isimportant), what remains to be finished off must also not affect theuse or operation of the project by the employer, either because ofthe fact that it has not been done or because of the necessarydisruption to the employer's use and occupation of the project whilethe work is completed. Unsurprisingly this concept often gives riseto heated disputes, particularly where loosely defined and where (forinstance in process plants) the execution of the remaining work hasto be carried out in an operational plant subject to a health andsafety regime the construction industry has yet to come close to. Insuch circumstances completion of even minor omitted matters canacquire considerable significance.

Recognising that in some circumstances the definition ofcompletion for the purposes of delivery may be problematic, it oughtat least to be possible to determine when that point should be (asopposed to has been) reached. After all, virtually every standardform (and most non­standard forms) of construction contract willspecify the date when the project is to be completed by. That,however, is only the starting point since it is almost equally true thatalmost every form of construction contract will contain some form ofmechanism for changing the date for completion of the project. Ashas already been discussed in Chapter 2, the original reason for thegranting of extensions of time was in order to protect the employer'sright to claim liquidated damages in circumstances where theemployer had himself delayed the contractor in completion of theproject. Nowadays, extensions of time may be given for any numberof reasons, including matters which might well be regarded as withinthe contractor's risk (such as the availability of labour or materials)as well as for force majeure and page "214" similar eventswhich are generally regarded as relieving both contracting parties oftheir obligations to the extent affected.

As a result, at the time of any arbitration it is likely that there will inthe first instance be a factual question of whether any extensions oftime have already been awarded and, if so, what their effect is.Fortunately, the effect on the completion date of issued awards forthe project is likely to be relatively simple, amounting to no morethan a simple calculation of the additional time the contractor has tocomplete the works subject, of course, to there being no livedispute about the amount of time awarded.

In addition to determination of this simple element of the dispute,the contractor will also be looking for a further extension of time tocover the period between the contractual completion date (asalready extended) and the actual or anticipated completion date forthe project. This statement may be a little unfair, for there may beinstances where a contractor and its advisers recognise, as doesthe employer on equally rare occasions, that it might have hadsomething to do with why the project is late. However, experienceindicates that in this area unless and until a determination of theparties' relative rights and obligations has been made, the debatetends to be almost completely polarised.

From the employer's perspective the delay is usually seen to be alldown to the contractor and the issue is only about when it gets itsdelay liquidated damages (and/or calls on the performance bond forpayment). At the same time, the issue for the contractor is notabout how much the employer has contributed to the delay(normally at least a significant proportion of it) but how muchadditional payment the contractor is entitled to upon the issue of theaward for an extension of time. As a result, based on the samefactual matrix, it is by no means uncommon for each party to beclaiming tens or even hundreds of millions of dollars on a project ofany substance (such as a large power station or a petrochemicalfacility).

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The key elements in the factual matrix relied on by each party arewhat the contractor intended to do and what in fact happened whichaffected its progress in accordance with that plan. Central to thefirst issue is the programme. Unfortunately, despite the hugeadvances in the preparation, presentation and analysis ofprogrammes which has been made possible by the development ofcomputer­based systems, the contractual position in relation toprogrammes is normally unsatisfactory. It is, of course,understandable that in most cases the contractor's actualprogramme should be a matter for it to decide in the light of itsassessment of how best to complete the works on time and in themost efficient and effective manner. That said, where thecontractor's progress relies on input or actions from third parties, itis appropriate for it to have to declare its hand to let the employerknow when the relevant inputs into the process adopted by thecontractor have to be provided. It is not by any means acceptablefor the employer to learn of these requirements as part of its reviewof a claim for delay to the project based on late or inadequatesupply of information.

This does not, however, mean that a contractor should be obliged toprepare a detailed programme and stick to the letter of it, sincespecific key interfaces between the contractor's work and matterswithin the control of the employer, or those it employs or contractswith, can be specified. Where this is impractical (as it probably is

page "215" for matters such as non­critical design approvals orroutine information supply with little or no lead time involved) theinterface can be managed by a process which requires thecontractor to give notice of the need for such inputs on an ad hocbasis, with the employer responding within specified periods. Ifnecessary, differing periods for the giving of notices of need andresponding to those notices can be specified.

For these reasons it is generally not appropriate to makecompliance with a contractor's programme – and certainly not adetailed programme – mandatory. If this were done there would beno flexibility in the management of the project and both thecontractor and the employer would be perpetually in breach of theirobligations, either to perform in accordance with the contract or notto interfere with the other's due progress, and in practice this is thecase. While most contracts contain some form of contractuallybinding programme it is often only a rudimentary bar chart giving notmuch more than a broad indication of what is to happen and thesequence of activities. Where there are key interfaces between theemployer and the contractor, such as access dates, dates fordecisions on long lead time items, dates for delivery of possessionof parts of the works to the employer or a need for the employer toprovide staff, feedstock or energy (in a process plant, for instance)on specific dates, these may be dealt with as activities on the barchart or may be identified in text form in a schedule separate fromthe programme itself.

Despite the fact that there is not normally a detailed ‘contractual’programme, the need for a detailed programme which is kept up­to­date throughout the project is absolutely essential to the analysis ofdelay claims. Again, sadly, this information is rarely available, or ifit is available it is not made available to all participants in aconstruction project.

The reason why this information is essential is that the first twoquestions that an arbitral tribunal has to answer in claims based ondelay is: (i) what actually happened in the course of construction ofthe project; and (ii) how did this impact on its progress? The firstquestion can generally be answered by reference tocontemporaneous records. Traditionally this would be the site logsand the diaries that every engineer (and some others) seem to betrained from birth to keep. Where they exist, these sources ofinformation are extremely valuable, since rarely is there anything ascontemporaneous or as untainted by subsequent ex post facto re­analysis of what happened as a manuscript diary or notepad.However, the likelihood is, on most projects being carried out today,that as much or more information will be found in analysis of theemail traffic which surrounds any significant project. Indeed, sinceemails:

­ are already in a convenient electronic form facilitating collection,review, analysis and presentation of their contents;

­ are quite difficult to erase completely from any significantcorporation's records; and

­ tend to be composed contemporaneously and used in a waywhich makes them inherently more likely to be free from spin.

page "216"

it is emails which are likely to be the richest seam to mine whendetermining what happened in a project on any particular day andwhat the immediate impact of that event was.

The second question – what was the impact of the event – can onlybe answered by a full understanding of where the project was at thetime of the event, what the plan was at that time for the completionof the project and what in fact happened after the event, preferablywith an understanding of not just what happened, but why. Ofcourse, this understanding can, laboriously and expensively, be re­created to some degree by a retrospective delay analysisundertaken in the course of the arbitration.

Generally, re­creation of a project's history is unsatisfactory for two

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reasons. The first is the one just mentioned. It is far easier, cheaperand more accurate for data to be collected and recorded at the timethan it is to re­create the data from miscellaneous records at a laterstage. And the second point derives from the first. It is inevitablethat any retrospective analysis will suffer from a lack of someinformation, both hard data and more subjective data such as theintentions of the parties in response to the event in question. This inturn leads to a need for each party (or its expert) to make a seriesof assumptions or subjective decisions in the course of theretrospective re­creation of events and their analysis.

Where original data is missing and re­creation takes place, theresult is that there is no single, objectively determinable set of factsavailable to the parties from the moment the project is first delayedto the conclusion of any subsequent dispute. What instead happensis that two selective sets of facts supporting each party's expertprogramming (scheduling) evidence are identified and used by eachparty's expert to prepare his expert opinion on the extent to whicheach party is responsible for the delay. Inevitably the expertevidence is prepared before any primary finding of the facts onwhich the analysis is based has been made, occasionally leading toacademically correct analyses being rendered useless as a result ofthe facts relied upon not being accepted by the arbitrator or judge.This, coupled with the lively debate on the correct method ofanalysing delay claims, means that the outcome of the wholeprocess becomes incapable of accurate assessment in advance ofany hearing. In turn this results in unnecessary time and moneybeing spent in the resolution of disputes which, if accurate site datahad been available from the start, could have been avoided.

The answer to this begins with the preparation of an appropriatelydetailed programme at the start of the project. What is ‘appropriate’for a project will depend on the nature of the project, its complexity,the sophistication of the subcontract supply base and the amountsin issue. It is, for instance, not necessary or appropriate for acontractor on a simple project involving nothing more thansequential site clearance, foundation installation, envelopeconstruction and fitting out to be required to have a fully functioningCPM(1) programme (though there would be no argument againsthaving one if the contractor concerned was equipped to produce andoperate one). However, even where a fully detailed programme isnot produced, all key interfaces of the type identified above need tobe recognised in the programme or associated page"217" documentation, so that it is clearly understood whatconstraints there are on the contractor's ability to carry out the work.

Such constraints would not only include matters required by thecontractor to progress the work as­planned but also constraints onits ability to do so; for instance having only limited access to thesite or needing to give early possession of part or parts of the worksto the employer. Traditionally a contractor would only normally beexpected to give early possession irrevocably, in accordance withsectional completion (see Chapter 2). Nowadays a contractor's lifeis made more difficult by sometimes being required to give earlypossession to the employer on a temporary basis. For instance, inmore complex schools PPP projects, temporary possession of part­completed works may need to be given to the employer in order toallow an operational school to continue to function aroundconstruction activities without significant impairment of the servicesoffered to pupils. This raises additional grounds for dispute overboth the condition of the works at handover to the employer and onreturn to the contractor.

As well as being ‘appropriately’ detailed the programme must alsobe accurate. This doesn't mean that the programme must be theprogramme that will actually be carried out by the contractorwhatever the circumstances. On the contrary, change is a fact oflife in construction contracts and the management of change is oneof the main contractor's principal tasks. Rather, the programmemust be accurate in the sense that it must properly reflect thecontractor's genuine proposed scheme for the carrying out of theworks. There is absolutely no purpose or benefit in the contractorpresenting a programme which bears little if any resemblance towhat is proposed to be carried out. Because of this need foraccuracy it is commonplace to find that provisions in constructioncontracts dealing with the preparation and supply of detailedprogrammes frequently refer to the programme being an ‘approved’programme. The rationale for this is obvious. Where the programmeis not supplied at the time the contract is executed (and a fullydetailed programme rarely is), it obviously makes sense from aproject management perspective for the programme offered by thecontractor to be accepted by the employer as the basis on whichthe work will be carried out. In other words, one which the employerand its professional advisers feel properly reflects the contractor'sobligations and expectations and also one which probablyrepresents the likely sequence of construction, all things going toplan.

Despite the obvious common sense of this approach, such clausesoften themselves give rise to further disputes, namely whether theprogramme offered by the contractor is or is not an approved one forthe purposes of the contract. Alternatively, whether, despite theemployer's refusal to ‘approve’ it, the programme shouldnevertheless be regarded as one which should be treated as anapproved programme under the contract. Such issues occasionallyfind their way into construction arbitrations by way of an element ofthe claim – the contractor arguing that the employer's refusal toapprove the programme gave rise to delay. Where this happens the

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number of issues to be determined by the tribunal is increased,rather than, as intended, reduced.

For this reason, among others, it makes little sense to makeemployer ‘consent’ to or ‘approval’ of a detailed programme acontractual requirement. Instead the contract page "218" shouldspell out the objective requirements of the detailed programme.These requirements should include recognition of the keycontractual interfaces, proper reflection of the logic the contractor isworking to and compliance with the level of detail set out in thecontract specification. These are ordinary contractual obligations ofthe contractor, breach of which would carry the usual sanctions.This would possibly include a deduction from sums otherwise due ora limitation on the contractor's remedies under the contract to theextent that the employer would have incurred less cost had theprogramme been properly prepared and the correct informationmade available to the employer. Given such obligations, theemployer or the employer's representative will probably havesufficient ammunition to obtain contemporaneous programminginformation. Assuming that these powers are exercised and a soundinitial programme obtained, the degree of uncertainty in thesubsequent analysis of the effects of delay should be very muchreduced.

Obtaining a sound initial detailed programme was described aboveas the beginning of the solution. Such a programme is helpful,though not in itself sufficient. Building on that initial programme, thecontractor needs to supply regular updates to the detailedprogramme. These updates should reflect not only actual progressto date but also changes to the proposed sequence for completionof the works, whether changed for the contractor's own convenienceor as a reaction to external events, including matters for which theemployer is responsible. The need to have such a programmeseems obvious and, in reality, in most projects one will probablyexist somewhere, if only as a working tool to allow the contractor tomanage the day to day work being carried on by its subcontractors.

After receipt of the first detailed programme, the issue tends torevolve not on whether an updated programme is actually preparedbut on how effectively it is prepared and whether that information isopenly shared with the employer. All too often where the project isdelayed the programmes produced resolutely show completion onthe contractual date and retain the existing logic despite it beingevident that the project is in delay and that something has to give.What then tends to happen in such cases is that activity durationsbecome shortened or (in some cases) activities are omittedcompletely, leading to an increasing disparity between what ishappening at site and what is happening at the ‘contractual’ level.

The answer to this looking­glass situation is to build on theproduction of the initial programme and to require the delivery ofregular updates which demonstrably show where the project actuallyis and how the contractor proposes to complete the works fromwhatever the current position happens to be. Logically, amendedprogrammes should in all circumstances identify the actualanticipated completion date, with any identified delay beingaccompanied by an application for an extension of time, to theextent thought appropriate. To encourage this it would have to beaccepted (in the interests of obtaining accurate information andavoiding inflated claims) that any failure to match anticipated delaywith an extension of time would not amount to an admission by thecontractor that the balance of the delay was for the contractor'saccount.

As with the original programme, it probably doesn't make a greatdeal of sense to require updated programmes to be approved by oron behalf of the employer, since this page "219" will only giverise to as many disputes as it resolves. The solution is, as before,to provide constructive guidance to the parties to participate in goodproject management practices, at the same time providing theparties and any construction arbitrator with the raw data from whicha proper analysis of any delay to the project can be undertaken. Ifboth enlightened drafting and professional project management failto produce a programme which is properly updated, the only option– and one which should certainly be undertaken where a project is indelay in these circumstances – is for the employer to take steps toprocure for the project and its own purposes the programme datanecessary to analyse the causes for delay. While it is true that suchdata will not have the benefit of the contractor's no doubt extensiveprogramming/scheduling resources and will not be able to reflect thecontractor's future intentions (save to the extent obvious fromobjective scrutiny), the collection of contemporaneous ‘as­built’ datawill prove invaluable if a matter has to be referred to arbitration.There is little doubt that someone who can speak authoritativelyfrom a personal and intimate knowledge of the events affectingprogress supported by accurate data will be a much morecompelling witness than an expert subsequently employed who isremote from the action and working from a set of hypotheses andunproven facts.

§10.03. Critical Path and Delay Analysis

Given the relevant data, the next issue is how it is to be analysed.Invariably this will involve one or more experts and it is likely thatthe experts from the various parties will approach the task armedwith a different set of facts and approach the analysis from different– possibly widely different – theoretical bases. Quite what the task

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is will depend on the extension of time and other delay provisions ofthe particular contract. Very broadly, however, the question is likelyto resolve itself into what caused the delay and whether the causeof the delay was a matter within the risk of the employer or thecontractor.

Leaving on one side both the question of the method of analysingthe effects of one or more events whose effects on the projectoverlap, and the thorny and much debated issue of who owns ‘float’in the project, both of which are discussed below, the issue is inessence one of causation. In other words, looking at the regularprocess of the works, what is it that has caused the project not tobe completed by the anticipated date?

Of course, one answer to this is that nothing has happened todisrupt the regular progress of the work and that it was always goingto take longer than anticipated because of an error in thedetermination of the original programme duration. It is notuncommon in analysing tenders for the conclusion to be reachedthat on the basis of the information supplied there is a possibility,perhaps a significant possibility, that the contractor, with theresources and technology identified at the tender stage, will notachieve completion within the contracted timescale. While it wouldbe a reckless employer which went ahead with a contract which ithad analysed as having little or no hope of being completedanywhere near on time, it is normal for projects to proceed on thebasis that there is a probability that there will be some delay.Naturally, from the page "220" employer's risk perspective thiswill be covered in the contract provisions for compensation fordelay. In addition, the employer will also have made an assessmentof the ability of the contractor not just to complete the work but alsoto make good the employer's potential financial losses. Where sucha risk is identified, it will be all the more important that appropriatesteps are taken to provide for proper management of delay and forthe information and data identified above to be collected andretained; as already observed, the chances are that a delay tocompletion will give rise to a claim.

In addition to there being a distinct possibility that the programmeas originally conceived was overly ambitious, with a risk of delayeven without any material adverse problems arising, it is also adistinct probability that the contractor's (or its subcontractors') ownexecution of the works will give rise to some delay. This might ariseeither as a result of matters taking longer to complete than mightreasonably have been expected or as a result of re­work ofdefective parts of the works. Any form of analysis must takeaccount of these possibilities since these are at least as likely to bethe causes for any delay to project completion as the types ofexternal matters typically covered by standard forms on extensionof time provisions.

[A]. The Critical Path

In practice, expert evidence will be submitted which relies onidentifying the ‘critical path’ to completion and the effect thatidentified events have on activities falling on the critical path by oneof a number of recognised forms of analysis. A brief description ofthose more commonly found are set out below. It is, however,important to understand the nature of the critical path and someelements of programming (or scheduling as it is often called) toappreciate the strengths and weaknesses of the various forms ofanalysis.

The critical path in a project can be defined as that series ofconnected activities commencing at the start of the project andfinishing at the end which determines the overall project duration.This is determined by reference to a programme which identifies thenature of the activities, their durations and the logical connectionwith each other. For instance, in a simple project for the fabricationof a house (excluding fit­out) the critical path would lie through: (i)site clearance; (ii) foundation construction; (iii) erection of walls; and(iv) completion of the roof. Delay to any part of these activities islikely to impact on the total time for completion since each of thefour suggested activities relies on completion of the preceding onebefore it can start. Each of these activities is, therefore, on thecritical path or a critical path activity.

However, some other matters which do need to be done before thehouse shell can be complete will not necessarily lie on the criticalpath. For instance, glazing of the windows and hanging of doorsmay be scheduled to take place as part of the construction of thewalls, but delay to these activities will not affect the overallcompletion date as they can be completed either as part of erectionof the walls or while the roof is being put on. Of course, if theseactivities are very much delayed and cannot be completed beforethe roof is complete, then the project will be delayed and theseitems, not formerly on the critical path, will now be critical pathitems on whose page "221" completion project completion willdepend. This simple example demonstrates not only the conceptsof activities and the critical path but also that the critical path, evenon a simple project such as this, is a flexible and variable creature.Of course, most projects are considerably more complex than thisand the identification of one single critical path becomes moredifficult. In practice, more than one critical path may exist as aresult of there being two parallel work streams of the same overallduration. The disentangling of the various strands and theassessment of the impact of various events may be carried out by

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any of the following forms of expert analysis.

[B]. As­planned v. As­built

Perhaps the simplest method of analysis (not actually involvingdetermination of a critical path) is the direct comparison betweenthe original plan and what has actually happened on site. Apart fromknowledge of the original programme and an accurate (andsufficiently detailed) as­built programme, little additional informationapart from the nature of the events alleged to have delayed theproject is required. This makes the process simple but restricts itsability to take account of more complex activities or multiple eventscausing delays. Given a simple project such as the construction ofthe shell of the house referred to above, an as­planned v. as­builtanalysis might be appropriate (bearing in mind the likely size of thesums in issue) and sufficient (as a result of the simple logic flowthrough the limited number of activities). However, even here, thisapproach would only be appropriate where there is a simple andaccepted logic in the as­planned programme which flows throughunchanged into the as­built programme. If this were not the casethis would involve comparing apples with pears.

In addition, in order not to cover up the possible optimism of the as­planned programme and possible inefficiencies in the methods ofworking adopted by the contractor, the as­planned programme mustbe not only logically acceptable but also based on reasonabledurations and resources. Finally it would only be appropriate to usethis form of direct comparison where there were relatively fewidentified events impacting on the project duration with discrete,identifiable results. For these reasons, this technique would not beappropriate for more complex situations, other than, perhaps, as astarting point for a more sophisticated analysis. Such an analysiswould normally be required because a simple comparison betweenplanned and actual activities cannot properly take account of:

­ the consequences of delay (such as re­sequencing of the works)which takes place in a more complex project; or

­ the myriad of factors which in practice account for the differencebetween what was expected at contract inception and what in facthappens before project completion.

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[C]. As­planned, Impacted

A more complex analysis, and one used commonly within theconstruction industry, is the as­planned, impacted method. As itsname suggests, this method of analysis takes the as­plannedprogramme from immediately before the event(s) which is (are) thesubject of the investigation and adds to it, as discrete newactivities, the effects of the events which entitle the contractor to anextension of time. These events, their durations and their correctcategorisation as ‘excusable events' are assessed by the expertfrom the material available to him.

As with all methods of analysis, a considerable degree of subjectiveor expert assessment is required in order to undertake the process.To start with (similar to the process undertaken in relation to the as­planned v. as­built method described above) the available as­planned programme has to be investigated to determine whether itis a proper programme to use as the basis for the further analysis.Assuming that it is, delay events within the employer's risk (i.e.,those entitling the contractor to an extension of time) are identifiedand durations of activities representing the effect of these events onthe programme are determined by the expert. In doing so the expertassumes the use of similar resources planned by the contractor tobe available to it – in other words using the same assumptionsmade by the contractor in preparing the original programme. Thenew activities are then inserted in the programme current at thestart of the delaying events with the appropriate logic and theprogramme re­calculated using the existing logic modified only asnecessary to accommodate the new events. The new end dateobtained then represents the theoretical impact of the delayingevents on the programme. Since, by selection and definition, theadded activities represent events which entitle the contractor to anextension of time, the difference between the new completion dateand the previously planned completion date represents theextension of time that the contractor is entitled to.

This process, though often used, is subject to two principlecriticisms over and above the considerable degree of subjectiveinput the expert is required to make. The first criticism is that itsuse depends on the existence of a reliable programme at the startof the effect of the events being analysed. If the programme is notreliable, either because its logic is not being followed or the durationof its activities are not properly representative of the work to beundertaken, the analysis has no sound foundations on which it mayproceed. In these circumstances, the expert may feel that his firsttask is to reconstruct a reliable as­planned programme which can beused as a base­line. While this may be a more reliable place to startfrom than the available documentation, nevertheless this introducesyet further additional subjective elements into the process and withit more grounds for concern that the result is not reliable.

The second criticism is that the result is entirely theoretical. Theproduct of the as­planned, impacted analysis relies on the

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assumption that the contractor would proceed with the then currentplan subject only to the effects of the events identified by the expertand imposed on the plan in the course of the analysis. The resultdoes not, for instance, take account of the contractor's failure toproceed as fast as anticipated, or, perhaps, to bring additionalresources into play, thereby accelerating its progress.

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For these reasons, as­planned, impacted analysis is only suitablefor relatively simple projects and (perhaps) more complex projectswhere the events causing delay are capable of clear identificationand their effects can be determined with some certainty. Overall thetechnique is regarded as being more theoretical than real, moresuited to determining extensions of time where the work has yet tobe completed than where the project has been completed and onlyrarely appropriate for use in determining, retrospectively, acontractor's entitlement to an extension of time. As a result,particularly where there are records to show what actually happenedin the course of the project, other forms of analysis are likely to findfavour with tribunals.

[D]. As­built, But For

At one level this might be regarded as the opposite process to thatadopted in the as­planned, impacted method of analysis. As set outabove, where the as­planned, impacted method is adopted, thecontractor's programme is taken as the starting point and activitiesare added to reflect matters which entitle the contractor to anextension of time. By way of contrast, the as­built, but for methodtakes what factually happened (i.e., the as­built programme) anddeductions are made from it to reflect matters which are theemployer's responsibility, producing the earliest date at which thecontractor could have completed the work without the effect ofmatters within the employer's risk.

The actual method of carrying out an as­built, but for analysis iscomplicated and outside the scope of this book. The short point isthat the method is very definitely not a theoretical exercise since itis rooted in what actually happened over the duration of the project.For that reason it is generally regarded as being an appropriate toolby which to compare what actually happened with a verifiablealternative programme which maps out what would have happenedhad the contractor's progress not been delayed by events whichentitle it to an extension of time.

Of course, there are weaknesses in the method of analysis. Thesestart with the fact that both the preparation of the as­builtprogramme and the identification and classification of eventsimpacting the proper performance of the work will take aconsiderable amount of time, effort and money. In addition, the as­built programme necessarily contains within it the actual criticalpath to completion determined as at the completion date. Inundertaking and reviewing an as­built, but for analysis it has to berecognised that the critical path and the construction logic atvarious points in time throughout the progress of the works would inall probability not have been the same as they were at the end ofthe project. This creates the potential for there to be differentconsequences to events occurring at early stages in the completionof the works from those indicated in the analysis.

[E]. Time Impact

The final technique discussed here is the time impact analysis. Thisinvolves an assessment, as of the start of the impact of each eventwhich delays the progress of the page "224" works, of theconsequences of the delay caused by that event. The key factorwhich distinguishes this approach from the others is that theanalysis starts from an accurate as­built position determined fromcontemporaneous records, taking account of all delays to theproject and changes in programme logic and critical path activitieswhich have taken place prior to that date. From that solidfoundation, the analysis proceeds by applying the then current as­planned programme for the incomplete part of the works to thestarting position to determine the duration of that part of the worksstill to be completed. Importantly, the analysis identifies theconsequences of events falling within both the employer's and thecontractor's responsibility, providing a complete analysis of whathappened in the course of the project. The process is repeated asoften as is necessary to deal with all delay events. Once theconsequences of the events have been properly analysed, theparties' relative responsibilities can then be determined.

The principal problem with time impact analysis is that if there aremultiple causes of delay each of which needs to be analysedindependently, the process can become extremely complex.Despite this, if as­planned programmes are maintained on afrequent basis and take account not only of major changes to theproject (such as variations) but also the state of progress at regularintervals, the process of time impact analysis can be lesscomplicated than it might otherwise appear.

[F]. Choosing an Appropriate Method of Analysis

As can be seen from the very brief descriptions set out above, thereare radically different approaches to the analyses which may be

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taken. Of course, not all of them will be appropriate for any givenproject, though technically all could probably be applied, givenenough time, effort and ingenuity on the part of the expert. Giventhis, there are three factors which are relevant in determining whichmethod should be chosen.

The first of these is whether the exercise that is being undertaken isan ex post facto determination of what the entitlements should havebeen or a ‘real time’ determination of what the entitlements shouldbe. In practice, in most arbitrations the exercise being undertakenwill be the former, since only rarely will applications for an extensionof time be brought before an arbitral tribunal before the completionof the project renders the exercise a historic one. However, if thearbitration is one of those rare ones where the determination is to beprospective, it is likely that the as­planned v. as­built and as­built,but for methods of analysis will not be appropriate. Either of the tworemaining methods is clearly better suited for a prospectiveanalysis. The corollary is that where a retrospective delay analysisis required, it is more likely that the as­built, but for and the timeimpact methods of analysis will prove to be appropriate andacceptable. Of the two, time impact analysis was identified(2) as thepreferred means of analysing delay and compensation for that delayby the authors of the UK Society of Construction Law's Delay andDisruption Protocol(3) (the Protocol). Care must be taken, page"225" however, when relying on the Protocol in an arbitrationbecause there is no guarantee that it will be followed or approved ofby the tribunal (and, in fact, as noted by the English Court in 2011,it has not been approved in any reported case).(4)

The second factor relevant to the decision is the availability ofrecords to support the analysis. In extreme cases the availability ofrecords – more accurately the lack of available records – virtuallydictates the method of analysis. Thus, for example, where there hasbeen no contemporaneous attempt by the contractor to produce anetworked or any other form of programme, the only form ofanalysis which can sensibly be conducted is the as­built, but for,since this relies only on an as­built programme and such of theproject's records as are in fact available to identify what eventswere impacting on the progress of the works during the period tocompletion. That said, one can only speculate about the quality andreliability of the records that would in fact be available in a projectconducted without a networked or other programme.

At the other end of the spectrum if there was no as­built programme(and it was felt unnecessarily expensive to re­create one from theavailable records) the parties and the tribunal would probablyconclude that the only appropriate method of proceeding would beby way of an as­planned, impacted procedure. Where moreinformation is available, the choice is wider, with both as­plannedvs. as­built and time impact analysis being capable of use, providedboth planned programmes (networked in the case of a time impactanalysis) and as­built records are available. As indicated above, atime impact analysis is the preferred method of the two in virtuallyall cases where the relevant information is available, save where thecost of the exercise would be disproportionate to the sums involved.

The third and final matter to be taken into account in reaching aconclusion on the appropriate method of analysis is the cost of theexercise. Not only must the cost be reasonable but alsoproportionate to the sums in issue. The result of this is that the useof a time impact analysis, though generally recognised as producingthe most reliable results when applied properly, will be a lessobvious candidate (because of its cost) than others in smallprojects. For this reason, although criticised on other grounds, as­planned vs. as­built and as­planned, impacted are more likely to beregarded as appropriate methods for analysis of delay in smallprojects. As­built, but for falls somewhere in­between the twoextremes, since although relatively simple to operate, the emphasison the factual investigation into the logic of the as­built programmewill add to the costs in all but the simplest of cases.

The conclusion that has to be drawn from the wide range ofmethods of analysis (the summary above is only of the mostcommon types) is that it would assist both the parties and thetribunal for there to be a single agreed approach to the methodologyof delay analysis. Once agreed, the parties could then adduceappropriate evidence to establish one common set of facts requiredby the agreed methodology, leaving the experts to debate theapplication of the agreed methodology to the one set of facts.Where this happens the possibility of the tribunal being presentednot only with a choice of methodologies but also an unnecessarilyextended set of facts on which to page "226" rule is eliminated.In fact, the Protocol(5) recommends the agreement of a singlemethodology and goes on to conclude that at the same time theparties should agree on one expert to conduct the agreed method ofanalysis. Given that in the real world there are likely to be somesignificant disagreements not only about the proper methodology tobe adopted but also the identity of the expert to carry out theanalysis, the Protocol's suggestion that the parties will beencouraged to follow this course by the imposition of an appropriatecosts sanction for failure to do so is unlikely to prove sufficient inpractice.

§10.04. Concurrent Delay

One issue which is likely to arise no matter which form of analysisis used is the question of ‘concurrent delay’. The term is commonly

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(though imprecisely) used to cover a fairly wide variety of situations.As noted in Chapter 2, the term is commonly used to describecircumstances where two events, one within the responsibility of theemployer and one within the responsibility of the contractor, mightbe regarded as causing or contributing to delay to the project. Aswill be appreciated, the resolution of which event has in fact causedthe delay to the project is crucial. If the matter is within theresponsibility of the employer then the contractor will be entitled toan extension of time and possibly also to the costs associated withthe delay, depending on the terms of the contract. If, however, thematter is within the responsibility of the contractor, then noextension of time will be granted and the contractor will not onlyhave to bear the additional costs associated with the delay itself,but will also probably be required to pay the employer liquidateddamages for delay. As has been noted earlier, the differencebetween these two situations in any significant project could easilyamount to tens or even hundreds of millions of dollars, makingresolution of this question, when it arises, a very hotly contesteddebate.

To put the matter in context it may help to consider an example ofhow the point may arise. In the construction of a power station, forexample, the employer is commonly responsible for the connectionof the power station to the national grid of the country concerned.This is necessary to export the power produced by the plant(essentially a matter for the employer) but also, and critically,required to allow the contractor to carry out the performance testson which its performance guarantees are, and in some casescompletion of the plant is, dependent. Assume, then, thatcompletion of the plant is dependent on satisfactory completion ofthe performance tests and that at the time specified for completionof the plant (the time from which liquidated damages for delaycommence):

­ the contractor has only completed 80% of the plant for reasonsentirely within its own responsibility; and

­ the employer has failed to secure a connection to the nationalgrid with sufficient capacity to allow the carrying out of theperformance tests.

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In these circumstances the employer will no doubt claim that theproject is delayed for reasons attributable to the contractor (thecontractor is in ‘culpable delay’) and that the employer is entitled toliquidated damages. After all, the plant is only four fifths completedfor reasons entirely unconnected with anything for which theemployer is responsible.

Naturally, the contractor sees things a little differently. From itsperspective it matters not one jot whether the plant is 80%complete, ‘practically complete’ or has been completely finishedand all snags sorted because, it will say, it still could not haveachieved completion and relieved itself of the obligation to payliquidated damages. This, it will say, is because however hard it hadtried it would have been unable to carry out the performance testsfor reasons which were both outside its control and within theemployer's risk. On this basis, the contractor will say that it is unfairfor it to be penalised where, even had it been on time, it:

­ would not have been able to complete the plant for reasonsattributable to the employer;

­ would not have been exposed to liquidated damages; and­ might have been able to recover the costs of any delay before thegrid connection was established and the performance testscarried out.

Failing that, the contractor would commonly argue that since boththe employer and it are in breach, the responsibility for the delayshould be apportioned or shared in some way. One common versionof this is that the contractor should not get additional payment forthe delay period (after all, it is late with the construction), butequally the employer should not be entitled to claim liquidateddamages because it is unable to run the plant because of theinability to complete the necessary tests and, for that matter, aninability to export power in commercial quantities to the grid. Thislatter point may in fact have some significance in jurisdictionswhere recovery of liquidated damages may be limited by referenceto the loss actually suffered at the time of breach.

The first thing to observe about this situation is that although it isvery common for arguments to be raised about concurrent delay,there are very few contracts which attempt to deal with the position.Nor are there many jurisdictions with authorities dealing with theissue squarely. For this reason the question tends to be addressedfrom first principles as a matter of causation, which at leastprovides a mechanism for the determination of an answer even if itdoes not address the inequity that one party suffers as a result ofthe good fortune of the other. Of course, if the matter were felt to besufficiently iniquitous or important the question could be addressedat the contract drafting stage. The fact, as noted above, that thisrarely happens indicates that while the point generates much heatwhen projects are delayed, the issue may be seen more as ameans of avoiding a liability than a genuinely serious issue.

Where the matter is dealt with as one of causation, the questionboils down to what has ‘caused’ the delay. This is a factual

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question. Where there is only one event which impacts the regularprogress of the work, there can be only one of two answers. Eitherthe work was going to be late in any event (and this possibility,though awkward for contractors, must never be forgotten) or theproject has been delayed by the event page "228" in question.Even where there is more than one event affecting the progress ofthe project, there is no real issue of causation if the consequencesof the events all fall to be treated in the same way. In other words,no difficult questions of causation arise if all the events fall withinone class of events, each of which, as a matter of contractualallocation of responsibility, produces the same consequences. Thisis, in essence, the basis of the global claim discussed in Chapter 9and where this occurs it becomes unnecessary to separate out andtrack through cause and effect.

The problem only arises, as in the example described above, wherethe events in question produce different consequences (e.g.,different periods of project overrun) and each of thoseconsequences are the responsibility of a different party. So,returning to that example, is it possible to determine in asatisfactory manner which event has caused the delay? Does it, forinstance, depend on the order in which the events arose? So if itwas apparent from the very start of the project that the employerwould or might have difficulty in procuring the completion of the gridconnection in time, does this (if in fact the grid connection isdelayed) effectively relieve the contractor of all responsibility for anydelays to construction which fall within its responsibility and deprivethe employer of any remedy for the contractor's failings, no matterhow serious and prolonged?

While the sequence of events may have some significance infactually ascertaining the true cause of the delay to completion,there is certainly no hard and fast rule which requires that the firstevent to arise should be treated as the cause of the delay. In amost unsatisfactory manner the answer is that it all depends andthat causation is not a simple matter of chronology. In practice,judges and arbitrators have a reasonably keen sense of what‘caused’ an event, rejecting unlikely hypotheses which do not fit inwith the commercial realities of the situation. Thus it is never goingto be an answer, when there is an obvious failure by one party toperform what might be regarded as one of its primary obligations, forthat party to try to rely on the other's failure to excuse theconsequences of its own failings.

Thus, in the example given, it is likely (but put no higher) that atribunal would regard the cause of the delay as being the fact thatthe plant was, at the contractual completion date, only 80%complete and would reject the argument that the delay tocompletion was the responsibility of the employer for not havingprocured something which the contractor did not, at that point,require. Obviously the analysis changes when the plant has beencompleted to the point where it is safe and ready to undertake thecompletion and performance tests. At that point if the gridconnection is not in place, alternative solutions cannot be found orthe relevant part of the tests are not waived, it seems clear that theemployer would then be responsible for all ensuing delays.

What in fact has happened, is that this situation of superficial‘concurrency’ has been capable of analysis into separate eventswith separate consequences. There is, therefore, no trueconcurrency and no difficult questions arise. And it is this analysiswhich leads to the conclusion that there will in fact be few instanceswhere there is genuine concurrency. In other words while there isconsiderable discussion about the need to resolve the problems of‘concurrent delays', this turns out to be a largely academic andtheoretical discussion since tribunals, applying a degree of common

page "229" sense derived from experience of the constructionindustry, in practice do not find it too difficult to separate out theeffects of differing events, thereby allowing an allocation ofresponsibility to be made on traditional principles of proof of causeand effect. In this they are supported by doctrines such as the‘dominant’ or ‘effective’ cause, which permit a finding of cause andeffect even if there is a small contribution, or a possibility of a smallcontribution, to the consequence from another matter.

Yet despite this, there will be a small number of cases where it isimpossible to separate out the consequences of two or moreeffective causes of the same period of project overrun, which are ofapproximately equal causative potency, where one is within theemployer's responsibility and the other within the contractor's. Inthese cases it is generally accepted that there is a true ‘concurrentdelay’ and that the solution is that the contractor is entitled to claima full extension of time for the combined (but inextricably linked)consequences of the two events.(6) Interestingly this approach runscounter (albeit at the ‘tie breaker’ level) to the general solution to thepresentation of global claims which (absent proof of eachentitlement) only permits recovery where all the events notseparately identified result in the same consequences.

§10.05. Ownership of Float

Another general issue that parties to construction arbitrations andtribunals will have to deal with is the issue of who ‘owns float’ in aprogramme. By this it is meant those periods in a programme whereactivity durations are in fact shorter than the time available to carryout the work without delaying the overall completion. This might beregarded, in programming terms, as the presence of a time

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contingency equivalent to an unallocated amount of money in thecontract price to cover the unexpected, over and above the cost ofall the foreseen work content. The rationale of its inclusion is oftenthe same, namely to provide some protection for the contractoragainst the possibility of not everything going as smoothly aspossible, thereby minimising its potential exposure to liquidateddamages. Arguably, if the programme contained less float thenthere would have to be a larger monetary contingency to guardagainst this possibility, at least if the contractor were to be left withthe same level of risk. Float may be concealed within an activity'sduration (i.e., one which is simply longer than it perhaps needs tobe) or shown as free time between the end of one activity and thenext following activity.

The issue of ownership of this extra time arises because theconcept of entitlements, particularly the contractor's entitlement toextensions of time, is linked to the concept of delay to specifiedevents. Traditional provisions providing for extensions of time, forinstance, do not provide relief to the contractor for increased risk toit in completion of the project. Thus where there is identifiable delayto activities on the critical path of a project, the provisions willoperate and, if their conditions are page "230" satisfied, thecontractor will become entitled to an extension of time tocompensate it for the delay caused to it. The contractor may alsobecome entitled to the additional costs associated with that delay,as well as relief from the imposition of liquidated damages.

However, where the activity delayed is not on the critical path tocompletion because of the existence of float in that activity, delayto that activity will not at first show up as delay to completion butmerely as a reduction of the amount of float. Once the float hasbeen completely consumed (but only then), the activity will lie onthe critical path to completion so any further delay will be reflectedin a delay to completion. In the first phase of this process, whilefloat is being consumed, there is no delay to the project so typicalextension of time provisions will not respond, though the risk to thecontractor is becoming greater because it is now increasinglyexposed to the consequences of its own failure to complete in timethe activity that was ‘in float’. Only when the process enters thesecond phase – when all the float has been consumed and theactivity is on the critical path – do standard clauses offer thecontractor any relief. In other words, where float exists, andparticularly where it has been deliberately introduced to cover acontractor risk, the employer stands to benefit from that provisionwhere it causes delay to the activity in float.

Not unnaturally this point is a matter of considerable contentionsince, as observed above, it may be that float has been deliberatelyintroduced as a means of risk management and as a means ofavoiding the inclusion of a monetary contingency to cover the riskof late delivery by the contractor of that element of the works. As aresult, it is often argued that the existence of float as a means ofprotecting the contractor from the risks inherent in the execution ofthe works should be recognised in delay analysis and preserved inthe determination of extensions of time. The purpose of this is notonly to protect the contractor against delay to the project caused bymatters falling within the employer's control and responsibility, butalso to leave the contractor with the same level of risk in carryingout the work.

The problems with this argument arise in two separate areas. Thefirst is in the fact that typical standard form extension of timeprovisions are phrased in terms that require actual or, if in thefuture, anticipated delays to completion of the whole or a specifiedpart of the works. As a matter of pure semantics, these clauses donot protect the contractor against increase in risk but only againstdelay to critical path activities. For this reason, many attempts atarguing that the contractor should be given the benefit of float fail,because for so long as float exists then, whatever the merits of thecase, there will be no delay to completion and as a result there willbe no entitlement to an extension of time. The second reason whythe problem arises is that float can arise for a number of reasons.For instance, as a matter of construction logic it will normally be thecase that while there are activities which inevitably lie on the criticalpath to completion of the project, there will be others, probablymany others, whose timely completion is not critical to projectcompletion. Not because they are especially sensitive operationsbut only because they are matters which can be carried out withinthe duration of one of several activities on the critical path withoutaffecting the execution of critical path activities or impacting on thecompletion date for the project. These activities are just as much infloat as any other but it is by no means page"231" unreasonable to deny a contractor any relief which consumesfloat relative to these activities as there is no delay to the overallcompletion date and the increase in risk, if any, is (at least at theoutset) marginal.

The answer, probably, lies in specific drafting to protect float whichdoes not arise by accident of programme logic but whose deliberateinsertion in the programme is for the purpose of risk management.This needs to be coupled with specific identification of this‘protected float’ in a programme produced at the time of contractexecution. Until then, the parties, their advisers and tribunals willhave to continue grappling with the concept of ‘ownership’ of float,with detailed forensic and semantic analysis of contract provisionsproviding an unsatisfactory answer on a case­by­case basis.

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1 Critical Path Method.2 The Protocol (infra), para. 4.8.3 The Delay and Disruption Protocol published by the Society ofConstruction Law, October 2002, reprinted October 2004. At thetime of writing the Society of Construction Law Council has passeda resolution to review the Protocol to decide if it should be updated.4 Adyard Abu Dhabi v. SD Marine Services [2011] EWHC 848,paras 289–290.5 The Protocol, para. 4.17 and 4.18.6 Adyard Abu Dhabi v. SD Marine Services [2011] EWHC 848(Comm) paras 277–288. Also see the Protocol. A different outcome,however, might ensure where there is no extension of time provisionin the contract and the contractor is seeking to set time ‘at large’Jerram Falkus Construction Ltd v. Fenice Investments Inc [2011]EWHC 1935 (TCC) at paras 47–52.

Source

Chapter 11: ProceduralIssues in Jane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 233 ­ 252

§11.01. Introduction

This chapter looks at procedural issues. In essence, arbitrationprocedure is the set of rules that governs the contest between theparties. They bear on the entire arbitration process from beginningto end. For example, procedural rules govern the manner in whichthe arbitration is commenced, the appointment of the arbitrator(s),the role of written submissions (if any), the production ofdocuments, the role of witnesses (if any), hearings (if any) and theprocess by which the arbitrator's award is to be delivered.

§11.02. Objective of Procedural Rules

Procedural rules serve a number of purposes. Key amongst themare foreseeability and equality of treatment.

Whatever their derivation, procedural rules are generally set out inadvance of a dispute.(1) Ideally, the arbitration agreement willidentify the process by which the rules are to be determined – evenif this is no more than granting the arbitrator(s) the discretion tomake the rules so that specific rules can then be set at the outsetof the dispute. This enables parties to know ahead of commencingthe substantive arbitration process the rules by which the arbitrationwill be conducted and the rules by which they and other parties willbe expected to conduct themselves in the arbitration process.Where the arbitration agreement does not specify the proceduralrules, the parties may agree this as between themselves at theoutset of the arbitration. Amongst other benefits, foreseeabilityaffords a level of awareness regarding the approximate cost andlength of the arbitration process, the number and identity of thepersonnel page "233" who may be required to be involved andthe arrangements that need to be made for the various stages in thearbitration process, including any hearings.

Procedural rules should also provide for equality of treatment anddue process between the parties. There may be an expressprotection of such principles in arbitration rules.(2)

§11.03. Derivation of Procedural Rules

Arbitration is by its nature a consensual process and it is thereforeunsurprising that parties are generally free to agree the proceduralrules to be followed in the arbitration of any dispute between themsubject to any applicable mandatory requirements.(3) Parties mayagree some rules ‘up front’ in the arbitration agreement with others(often the more detailed rules) agreed between them at thecommencement of an individual arbitration process once the nature,complexity and quantum of the dispute are known.

In practice, procedural rules derive from a combination of sources.

First, in some jurisdictions there are mandatory proceduralrequirements that apply to all arbitrations seated in that jurisdiction.For example, the provisions set out in Schedule 1 to the EnglishArbitration Act 1996 apply to any arbitration where the seat of thearbitration is England, Wales or Northern Ireland and have effectnotwithstanding any agreement to the contrary. The provisions dealwith matters such as stay of any legal proceedings regarding thesame dispute, the power of the court to remove an arbitrator,determination of the preliminary point of jurisdiction, securing theattendance of witnesses, enforcement of arbitral awards andchallenge to arbitral awards.

Second, procedural rules may be stipulated and set out in full detailin the parties' arbitration agreement. This is most common in thecase of ‘ad hoc’ arbitrations where the arbitration process is to berun without the aid of an institution such as the ICC or LCIA.

Chapter 11: Procedural Issues

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Third, and most commonly, parties may agree in their arbitrationagreement to adopt an established set of rules such as the ICCRules, UNCITRAL Arbitration Rules or LCIA Rules amongst others.Parties may either agree to adopt the established set of rules intheir unamended entirety or to set out agreed amendments to thechosen rules in their arbitration agreement (see Chapter 3).(4)

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Fourth, parties may agree certain procedural rules at the time adispute has arisen. This is normally the case regarding detailedprocedural rules such as the all­important timetable for exchange ofsubmissions and witness statements, hearings and other proceduralsteps. Arrangements for communicating document exchanges (e.g.,by electronic transmission) and translation of documents, ifnecessary, are other practical issues typically addressed at thisstage. The value of a site visit might also be considered at thisstage. In ICC arbitrations, such rules will normally be set out at thetime of agreeing the Terms of Reference.

Lastly, procedural rules may be laid down by the arbitrator(s) – withor without consultation with or agreement of the parties.(5) Arbitrationrules may expressly reserve power to the arbitrator(s) to determineany procedural rules that have not been agreed by the parties.(6)Consultation with the parties at the request of the parties or, wherethe arbitrator(s) deem appropriate, typically takes place prior toand/or during a preliminary conference attended by the arbitrator(s)and parties devoted solely to determination of procedural matters.

A useful reference for both parties and arbitrator(s) in agreeing orotherwise determining procedural matters is found in the UNCITRALNotes on Organizing Arbitral Proceedings. As previously noted, theUNCITRAL Notes on Organizing Arbitral Proceedings are notarbitration rules but aim to provide a checklist of matters whicharbitrators and parties may find useful to consider and decide uponwhen involved in an international arbitration. Some matters addresssignificant procedural issues such as whether hearings will be held,but most are eminently practical matters such as arrangements forexchange of information (electronic or otherwise) and managementof deposits in respect of costs. The UNCITRAL Notes onOrganizing Arbitral Proceedings serve as a useful indication of therange of possible procedural options for each matter. More detailregarding specific aspects of the UNCITRAL Notes on OrganizingArbitral Proceedings is given below under the heading‘Administrative Issues'.

As the majority of arbitration rules cover mechanisms for takingevidence very broadly, another useful reference is the IBA Rulesreferred to in Chapter 8 above. Parties frequently choose to adoptthose rules in part to supplement their chosen arbitration rules(institutional or ad hoc). Alternatively, these rules may be used byparties and/or arbitrators as a helpful checklist of issues that needto be assessed, and as the basis for developing their ownprocedural rules on these issues.(7)

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§11.04. Contrasting Civil and Common Law ProceduralApproaches

[A]. Introduction

An essential feature of international arbitration touched on inChapter 8 above is the meeting of parties from different legalbackgrounds with different philosophies and experiences regardingthe procedural rules that should govern a dispute resolutionprocess. Because arbitration is a flexible forum for disputeresolution and capable of being moulded by those involved, anindividual arbitration may bear characteristics of the legal traditionassociated with the national origins of any of the parties, theircounsel, the arbitrator(s) and/or the seat of arbitration. For example,where each of the parties (or, often more crucially, their legalcounsel) and the arbitrator(s) is from a common law tradition, thearbitral procedure may bear more hallmarks of common law litigationthan would a similar dispute featuring civil law parties (or legalcounsel) and arbitrator(s). A mix of legal backgrounds may createtensions, or at least differing expectations between parties of howan arbitration will be conducted.

Procedural rules differ in a number of respects between commonlaw and civil law traditions. The differences can be encapsulated bythe differing philosophies underlying an adversarial process(typically found in common law jurisdictions) as opposed to aninquisitorial process (typically found in civil law jurisdictions). Incommon law jurisdictions (such as the United Kingdom,Commonwealth countries and the United States), litigation ischaracterised by two adversaries pitted against each other with thetask of presenting their respective cases to the judge who has thetask of deciding between them. In civil law jurisdictions, judges playa more active role in investigating the case before them, with therole of the parties' counsel being to aid the decision­maker in thisprocess. This basic point of distinction between common law andcivil law litigation goes a considerable way to explaining the keyareas of procedural difference between the two.

[B]. Extent of Disclosure

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A key point of difference between the common law and civil lawtraditions is the role of disclosure or ‘discovery’ of documents. Incommon law litigation, parties are generally required to disclose toeach other all documents in their control or possession that arerelevant to the issues in dispute between them, includingdocuments that may be damaging to their cases.(8) This requirementis foreign – often unfathomable – to counsel from civil lawjurisdictions, who are used to producing to the other party (and thedecision­making tribunal) only those documents on which theirclients need to rely to support their cases. Most civil law tribunalsdo have varying degrees of power to compel parties to producedocuments but these extend only to specifically identified page"236" documents or possibly a narrowly described category ofdocuments – a long way short of the common law notion of fulldiscovery.

The extent to which a party's documents may be required to bedisclosed to other parties in international arbitration is also subjectto rules and norms regarding legal privilege and, in somejurisdictions, without prejudice communications. Concepts of legalprivilege or professional secrecy, which prevent documents andother communications from disclosure in proceedings, are widelyrecognised. However, the extent and scope of such concepts varybetween jurisdictions. In most common law jurisdictions, privilege isa rule of evidence and is therefore a procedural issue to bedetermined by the law of the seat of the arbitration. The mostrelevant privilege for arbitration purposes is ‘litigation privilege’which, generally speaking, protects documents created for thepurpose(9) of proceedings (existing or contemplated) from beingdisclosed in the subject proceedings. The other primary head ofprivilege is ‘legal advice privilege’ which applies to communicationsbetween lawyers and clients for the purpose of requesting orproviding legal advice about what should prudently and sensibly bedone in the relevant legal context.(10) In some civil law jurisdictions,however, the notion that certain documents are protected fromdisclosure arises from the ethical obligations of practitioners ratherthan procedural rules. For example, in Germany, a lawyer is obligedto keep confidential everything relating to knowledge gained in theexercise of his profession.(11) In France, correspondence betweenan avocat and his client or between an avocat and the other party'savocat is privileged and cannot be disclosed.(12)

In common law jurisdictions, the concept of without prejudicecommunications may also limit parties' disclosure obligations. Itoperates to keep confidential and protect from disclosure inproceedings, settlement communications. The concept is not widelyrecognised in other jurisdictions. For example, in Austria, it ispermissible to show settlement offers to a tribunal prior todetermination of the substantive dispute, and this is commonlydone to indicate attempts made at settlement. Whilst it is possible,in principle, to agree that settlement communications ought toremain confidential, this is not automatic, and must be specificallyagreed between the parties. Similarly, there is no equivalent to thecommon law ‘without prejudice communication’ concept in manyother civil law jurisdictions around the globe, and counsel will

page "237" regularly put correspondence and draft settlementsbefore the tribunal in a way which would be an anathema to manycommon law practitioners.

[C]. Written Submissions

In contrast to the common law litigation focus on oral argument orpresentation of witness evidence, civil law court proceedings arecharacterised by written submissions. Although there may be shortoral arguments, the principal method by which civil law cases arepresented in court is exchange of detailed written submissionsahead of witness evidence (if any). These tell the whole story fromthe perspective of each party – including allegations and facts. Inaddition, written submissions typically attach copies of alldocuments on which the parties rely. See further Chapter 12.

[D]. Preparation of Evidence

In contrast to the civil law emphasis on written submissions, thecommon law emphasis in court proceedings is upon witnessevidence. Witness evidence is a crucial mechanism by which theparties present their version of the facts to the decision­maker andby which they seek to disprove the case presented by the opposingparty/ies. Witnesses therefore play much more of a central role incommon law litigation than they do in civil law proceedings.Consequently, the rules governing witnesses and their evidencediffer in a number of respects.

Craig, Park and Paulsson have neatly summarised the contrastbetween common law and civil law systems of introducing evidenceinto proceedings as follows:

The continental civil­law system of proof is dominatedby the exchange of documents between the parties.Hearings serve principally as an occasion forarguments based on facts revealed in writtenevidence already submitted. The common­lawsystem, on the other hand, uses hearings to developfacts and to introduce documents into evidence.(13)

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In the common law there is no bar on who may be called as awitness. The only requirements are that the person is competentand that his evidence is relevant to issues in the proceedings.However, civil law procedure typically limits the category of personswho can be called as witnesses to third parties. A party's ownofficers and employees may not be permitted to give evidence incourt proceedings on the presumption that they would be partisan.The common law's response to this risk is to allow extensive cross­examination of witnesses (addressed further below) by the opposingparty with the aim of testing witnesses' credibility, amongst otherthings. The common law tribunal is thereupon called to assess awitness' credibility and the weight to be given to his evidence.

Preparation of witnesses prior to their giving evidence at a hearingis another area of tension between the common law and civil lawtraditions. In civil law jurisdictions, page "238" such as theFrench­speaking Brussels bar, ethical rules prohibit contactbetween counsel and potential witnesses on the basis that it wouldbe improper and because it is for the judge to question the witness.However, witness preparation is the norm in common lawproceedings. Indeed, it would be negligent for common law counselnot to investigate witnesses' responses to issues in the case beforea hearing, although witnesses may not be coached in the sense ofbeing provided with answers, and contact with a witness mustusually cease once his evidence has begun. This approach reflectsthe rigour and scope of common law cross­examination, whichshould be capable of uncovering any improper preparation.Questioning in civil proceedings is more limited, given the greateremphasis on documentary evidence, and the fact that there is nocross­examination in the civil law tradition.

In the context of international arbitration, preparation of witnesses isgenerally acceptable, and widely practiced.(14)

See Chapter 12 for more information on witnesses.

§11.05. Typical Procedural Directions – a Fusion betweenCommon and Civil Law

Whilst arbitral procedure varies greatly, there has gradually evolveda body of international procedural norms that have come to beadopted by parties to international arbitrations with reasonableregularity. As a result there is now a largely settled body of typicalprocedural directions that represents a compromise betweencommon and civil law procedure.(15) From civil law, internationalarbitration practice has adopted the reliance upon writtensubmissions produced together with all the documents relied uponby each party and relatively brief oral submissions and substantivehearings. From common law, it has adopted practices on productionof documents and witness evidence.

[A]. Exchange of Written statements of case

The substantive phase of international arbitrations typicallycommences with the parties exchanging written statements of case.These are usually in narrative form rather than in common lawpleading­style, and are provided in succession, with the claimantbeing required to provide its Statement of Case first and therespondent to follow. This is the process adopted, for example,under the UNCITRAL Arbitration Rules, where the claimant (within aperiod of time determined by the arbitral tribunal) is required toprovide its statement of claim including particulars of the parties, astatement of the facts supporting the claim, the points at issue, therelief or remedy sought, the legal grounds or arguments supportingthe claim and annexing a copy of the relevant contract or other legalinstrument giving rise to the dispute and the page"239" arbitration agreement (Article 20). The statement of claimshould also, as far as possible, be accompanied by all documentsand other evidence relied upon by the claimant, or containreferences to them (Article 20).(16) The respondent is required torespond with a statement of defence replying to the particulars setout in the statement of claim, and again should annex or referencedocuments that are relevant to the claim (Article 21). Article 15 ofthe LCIA Rules is similar. It is increasingly common for arbitratorsto require the parties to submit any factual witness statements andexpert reports together with the statements of claim and defence.The authors of the ICC Construction Arbitration Report give asalutary reminder of the wisdom in arbitrator(s) requiring from partiesin disputes regarding claims for delay and disruption, a chronologyof events in these initial arbitration stages.(17)

The ICC Rules provide for a similar roster of written submissions inArticles 4 and 5. However, they provide for an extra step. Thearbitral tribunal is required to draw up a document defining its Termsof Reference, to be signed by the tribunal and the parties andsubmitted to the ICC Court for approval (Article 23). The approveddocument then defines the parameters of the arbitration. Adherenceto this procedure is necessary to ensure that the arbitral award iseventually enforceable. It is also an important milestone in an ICCarbitration, with the parties needing permission from the Tribunal toinclude additional claims or counterclaims in the arbitration after thisdate. A sample outline Terms of Reference appears at Annex 7.

[B]. Disclosure of Documents

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The typical procedure for international arbitrations regardingdisclosure is a true blend between the common law and civil lawsystems. The standard position is to require some level ofdisclosure of documents, but not anywhere near the scale known tocommon law. Disclosure tends to be restricted to specificallyidentified documents or limited categories of documents that arerelevant to the issues in the case. This said, disclosure is one ofthe areas where the origin of parties and their counsel is particularlydeterminative – although full­blown common law­style discovery isextremely rare in international arbitrations. The authors of the ICCConstruction Arbitration Report caution of the need to prevent‘arbitration proceedings from being swamped by the mass ofdocuments that are inevitably generated by a construction project’.(18) However, the nature of construction disputes is that they arevery fact and document intensive and so, generally, some scope fordiscovery will be important. The IBA Rules accord with generalpractice in not excluding internal party documents from potentialdisclosure.(19)

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The process by which disclosure occurs originates in the powerusually granted to arbitrators to compel production of documents ina party's possession or control. The order to produce documentsmay be made of the arbitrator(s)’ own volition but is more usuallymade upon the request of another party. This is the processadopted in Article 3 of the IBA Rules, which is becoming the normon this aspect of procedure. Article 3 requires each party to submitto the arbitrator(s) and the other parties all documents available to iton which it relies, except those submitted by another party (Article3(1)). This is intended to avoid trial by ambush, so that the opposingparty is aware as early as possible of the documents on which theother party will rely to support its case. In addition, any party maysubmit a request to produce documents including a description ofthe requested documents or of a ‘narrow and specific requestedcategory of documents that are reasonably believed to exist’ and,as a safeguard, a description of the documents' relevance to thecase (Article 3(2)­(3)). The opposing party may either produce therequested documents or object to the request in writing. In the lattercase, the arbitrator(s), in consultation with the parties, mustconsider the issue and may order production of the documents ifthey are relevant to the case, none of the qualifying reasons forobjections applies and the request to produce complies with allformat requirements (Article 3(7)).

In practice, the process is usually progressed by way of exchangeof a so­called Redfern Schedule after the eminent practitioner andarbitrator Alan Redfern. The Schedule sets out in columns, thedescription of the document or class of document requested, thejustification for the request, the opponent's response and whereproduction is resisted the reason for opposing production and finallya column for the Tribunal's determination. An example of a Redfernschedule with typical requests and grounds to resist disclosureappears at Annex 8.

Sanctions for non­production of documents is a difficult area inarbitration law. As a practical matter, an arbitrator(s) may choose todraw adverse inferences if a party refuses to provide the document.Article 9(5) of the IBA Rules expressly entitles arbitrator(s) in suchcircumstances to ‘infer that such document would be adverse to theinterests of that Party’, although in practice it may be difficult toknow what inference to draw. Additionally, many jurisdictions have asupportive regime by which their national courts are empowered tosupport orders of arbitrators. For example, pursuant to section 42 ofthe English Arbitration Act 1996, a court may make an orderrequiring a party to comply with an order made by the tribunal;section 26 of the Swedish Arbitration Act 1999 provides that a courtapplication may be made to order a party or person to produce adocument as evidence or where a party wishes a witness or anexpert to testify under oath; and § 1050 of the German Code of CivilProcedure also provides that the court may assist arbitrators bymaking such orders.

The extent to which concepts of privilege (see above) affectdisclosure obligations varies. This is an area where the maininstitutional rules (ICC, UNCITRAL and LCIA) provide no guidance,which contributes to the lack of a uniform approach to privilege ininternational arbitration. The approach taken by many arbitrators isto analyse the privilege issue on a case­by­case basis, taking intoaccount the circumstances of the case before deciding whether torequire disclosure of a document over which privilege has beenasserted. Article 19(2) of the UNCITRAL Model Law states page"241" that in the absence of agreement by the parties: ‘[The]tribunal may, subject to the provisions of this Law, conduct thearbitration in such manner as it considers appropriate. The powerconferred upon the arbitral tribunal includes the power to determinethe admissibility, relevance, materiality and weight of any evidence.’The IBA Rules address privilege by requiring arbitrators, uponrequest of a party or of their own volition, to exclude from evidenceor production any document or statement which is the subject of aclaim for privilege or other legal impediment under the legal orethical rules determined by the arbitrators to be applicable (Article9(2)). The rules of the American Arbitration Association are anotherset of rules that address privilege, providing that arbitrators are totake into account the applicable rules of legal privilege (e.g.,confidentiality of communications between a lawyer and client).(20)

[C]. Exchange of Witness Statements

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Typical international arbitration procedure regarding witnesses offact again represents a compromise between the common law andcivil law. However, the most commonly adopted procedure in thisarea is more closely aligned to common law expectations thanthose of the civil law.

As indicated earlier in this chapter, there exists a tension betweenthe common law and civil law traditions regarding who may becalled as witnesses of fact. Although civil law principles on thispoint are occasionally applied, the general approach in internationalarbitration is that any person may be a witness, including theparties' own officers and employees. For example, Article 4(2) of theIBA Rules states:

Any person may present evidence as a witness,including a Party or a Party's officer, employee orother representative.

Article 20.7 of the LCIA Rules is to the same effect. Neither the ICCrules nor the UNCITRAL Arbitration Rules specifically address theissue, but in the absence of any prohibition, in practice there is norestriction on who may be called as a witness. Article 4 of the IBARules on the Taking of Evidence provide guidance on the use offactual witness evidence in an international arbitration. Article 4(2)states that: ‘any person may present evidence as a witness,including a Party or a Party's officer, employee or otherrepresentative’. Where parties are permitted to call potentiallypartisan witnesses, the opposing party will have the right to cross­examine witnesses on matters of credibility.

As an alternative, parties may develop and adopt a more hybridapproach to witnesses, such as was used in the Iran US ClaimsTribunal. There, interested parties, described as ‘party witnesses',were entitled to submit witness statements and give ‘information’ tothe tribunal subject to cross­examination, but were not strictlytreated as witnesses giving evidence and their evidence wasafforded less weight.

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It is also now common for counsel to interview potential witnessesabout facts relevant to proceedings, and for the parties to exchangewitness statements some time before the hearing (see Chapter 12).

[D]. Exchange of Expert Reports

Separately from the evidence given by witnesses of fact, arbitrationproceedings frequently involve opinion evidence given by experts.Expert witnesses do not have first­hand experience of the facts orissues in the case, but provide their expert opinions on issues in thecase based on the facts. Again there is a divergence in practice andexpectations regarding experts between common law and civil law.In common law jurisdictions, parties appoint their own experts. Incivil law jurisdictions, experts are appointed by the court or othertribunal.

The role of experts in international arbitration varies. Mostestablished arbitration rules provide for experts to be utilised inaccordance with either or both traditions. For example, Article 25(3)of the ICC Rules permits the tribunal to hear experts appointed bythe parties and Article 25(4) permits the tribunal itself to appoint oneor more experts, define their terms of reference and receive theirreports. Similarly, Article 5 of the IBA Rules contemplates party­appointed experts and Article 6, tribunal­appointed experts. Article21 of the LCIA Rules specifically permits arbitrator­appointedexperts. Party­appointed experts are not prohibited by the LCIARules; they are contemplated by Article 20(7), and are frequentlyused in practice in LCIA arbitrations.

In some arbitrations, there may be a stage of expert conclaves,where the experts appointed by the parties and/or the tribunal meettogether with the aim of agreeing technical issues so as to limitremaining issues in dispute. Article 5(4) of the IBA Rules expresslyprovides for such a process:

It is desirable that independent experts … shoulddiscuss their views with each other before preparingtheir reports, as they should eventually agree aboutmost things if they are truly independent. … Thetribunal must ensure that it is clear whether or notagreements between experts bind the parties.(21)

Where experts are appointed by the parties, their expert reports arenormally filed along with the relevant party's witness statements andthey are subject to cross­examination. Their aim is to lendcredibility to the parties' case by the support of independent expertopinions. Article 5(2) of the IBA Rules provides guidance on thecontents of an expert report.

See Chapter 12 for further information on the use of experts.

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[E]. Exchange of Submissions

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Following the civil law tradition, the principal form of submissions byparties in an international arbitration is written submissions (alsocalled statements, memorials or briefs). If a hearing is held, oralsubmissions and arguments are kept to a minimum, replacedinstead by written submissions. Typically, narrative­style writtensubmissions are delivered to the arbitrator(s) and the opponent partyat least a week before the hearing, sometimes longer. There may bemore than one round of submissions. Service is normally sequentialrather than in parallel. The practice of exchanging writtensubmissions, which can be read by the parties and the tribunal inadvance of the oral hearing, supports shorter oral openings, which,as a practical matter, reduces the length and cost of theproceedings, and therefore the disruption to the parties' andarbitrators' other commitments.

[F]. Hearings

Arbitral rules allow for disputes to be decided on documents alone.Generally, however, parties are given the right to insist upon ahearing, and international arbitration proceedings invariably involveone or more hearings.(22) The manner of conducting a hearing, likeany other aspect of arbitration procedure, is a matter for the partiesand/or the arbitrator(s). Hearings may be split, for example, betweenquantum and liability. This is relatively common in constructiondisputes, where determining quantum is a large and costly exercise,particularly if quantification on a number of alternate cases isrequired before liability is known.(23) The governing factor indetermining the number, length and content of hearings in anarbitration tends to be efficiency – the aim being to organise therequired hearings to promote efficiency for all the people concerned,as well as the process itself.(24) This may mean, for example,organising hearings on the basis of issues so as most efficiently toutilise the availability and involvement of witnesses and expertsconcerned with only some of the issues in dispute. Tribunals willsometimes order split hearings, with certain witnesses or issuesbeing heard at one time and other witnesses or issues being heardsubsequently. For example, one week of hearings might beconducted in February (on contract formation and negotiation) andanother in May (on contract performance and/or damages). Thisapproach sometimes makes sense from a case managementperspective (e.g., hearing expert witnesses after hearing factwitnesses may be very sensible). Nonetheless, it more often entailsa degree of inefficiency and added cost (because the entire

page "244" infrastructure for the hearing must be reconstructed)and tribunals are therefore often reluctant to order split hearings.There may, however, be circumstances where the calendars of thearbitrators, counsel and witnesses allow no alternative.(25)

See Chapter 12 for more detail on the conduct of hearings inarbitration proceedings.

[G]. Closing Submissions

Closing submissions are typically ordered to be served after theclose of the hearing within a timeframe agreed between the partiesor set by the arbitrator(s). The timeframe varies from a few days upto, more typically, a few weeks. Closing submissions are notintended to raise new arguments, but to summarise the argumentsput in previous submissions and at the hearing.

§11.06. Additional Issues

[A]. Preliminary Issues

Consistent with their endeavours to achieve efficiency ininternational construction arbitration, parties may wish to considerwhether there are any issues in dispute between the parties whichmay be suitable for treatment as preliminary issues, to bedetermined ahead of other issues in the case. Normally, an issuewill be suitable for preliminary determination only if its resolution hasthe potential to dispose of some or all of the case. Otherwise,unless strategically beneficial, the fracturing of a case in this way isgenerally inadvisable as it will cause delay and additional cost.

The types of issues which typically lend themselves to preliminarydetermination include whether the parties are bound by thearbitration agreement, whether the tribunal has jurisdiction to hearthe dispute, what is the applicable law of a contract or a dispute,whether an action has been brought within applicable timelimitations or, whether a condition precedent has been satisfied.However, even these questions are not always appropriate forpreliminary determination. For example, sometimes it is moreefficient to hear questions of jurisdiction at the same time assubstantive matters where a detailed understanding of thesubstantive matters is required in order to be able to determinewhether the arbitrator(s) have the relevant jurisdiction, or – as isoften the case in construction arbitrations – where the tribunal'sjurisdiction is challenged in relation to some, but not all, of theclaims referred to arbitration.

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[B]. Security for Costs

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An order for security for costs affords a successful respondentprotection against the circumstances of being awarded the costsincurred in running its defence, where the claimant does not havethe finances to pay such costs. The order requires the claimant toprovide security for the respondent's anticipated costs. Where aclaimant fails to observe such an order, its claims will usually bestayed.

Security for costs orders are historically viewed as common law(outside of the United States) creatures, particularly due to theacceptance by continental Europe of the Hague Conventions onCivil Procedure 1905 and 1954, which prohibit security for costsbeing ordered in relation to nationals of signatory states.

The arbitral institutions have differing attitudes towards orderingsecurity for costs, ranging from express provision of such a powerto a purposive interpretation of the rules. For example the LCIARules specifically provide that the arbitral tribunal shall have thepower to order a party to provide security for costs.(26) Pursuant tothe ICC Rules, the arbitral tribunal has a broad power to order ‘anyinterim or conservatory measure’.(27) Besides these provisions,there is no further guidance on, for example, the procedure by whicha tribunal should enforce an order for security for costs.

Where arbitral tribunals have limited jurisdiction to order security forcosts, parties seeking such an order may be required to apply tonational courts.

However, there has been a shift in the attitudes taken by the courtswith regard to intervening in international arbitrations. In the Englishcase of Bank Mellat,(28) Goff LJ held that where parties merelychoose to arbitrate in England as a matter of convenience, andthere is no more significant connection to England, it would not beappropriate for the English court to order a foreign claimant inarbitration proceedings to provide security for costs, even though ithad power to do so.

This position was revised by the case of Ken­Ren,(29) in which theHouse of Lords held that the English court could order a foreignclaimant in arbitration proceedings to provide security for costs,even where the arbitration has no connection with England exceptfor the fact that it is the chosen seat. It was held that an Englishcourt could support an ICC arbitration in England through its abilityto grant an order for security for costs, although such an ordershould be made only in exceptional circumstances.

Ken­Ren met with widespread disapproval in the arbitrationcommunity, largely because of the damage it was perceived to havedone to London as a seat for international commercial arbitration. Inresponse, when the English Arbitration Act 1996 was enacted thefollowing year, it expressly established that it is the arbitral tribunal,not the courts, that has power to order security for costs in aninternational arbitration, unless the parties agree otherwise.(30) Thisremains the position in England. Section 44 of the EnglishArbitration Act 1996 gives the court the power to grant an page"246" interim injunction but no provision is made for an order forsecurity for costs). However, if a party to an arbitration wishes tochallenge the arbitrators or an award by an application or appeal tothe court, then the court may require that party to provide securityfor the costs of the application or appeal.(31)

[C]. Interim Measures

Interim measures (also known as preservation orders orconservation orders) are made in order to protect parties' rightspending the final settlement of the dispute. They are interimmeasures to prevent a party from incurring any disadvantage duringthe period from the start of the arbitral proceedings to theimplementation of the award. These orders protect the parties'interests until the award is recognised or enforced. It should,however, be noted that (unlike most court orders of this nature) thejurisdiction of the arbitral tribunal extends only to the parties to theagreement; the tribunal has no power to bind third parties or tocompel them, directly or indirectly, to comply with any direction,award or order it may make.

Upon a request for such measures, the tribunal will initially assesswhether it has jurisdiction to grant the relief by examining theparties' agreement. The power may be expressly conferred in theparties' agreement to arbitrate or may be contained in institutionalrules incorporated into that agreement. For instance, the power togrant interim or conservatory measures is given to tribunals by theICC Rules,(32) the LCIA Rules(33) and the UNCITRAL ArbitrationRules,(34) unless the parties have agreed otherwise.

However, the arbitrators' power to grant interim relief is alwayssubject to the mandatory laws of the country in which the arbitrationis taking place. In addition, a general power contained in institutionalrules may be restricted by limitations contained in the parties'agreement. As a result, a tribunal faced with an application forinterim relief will have to look at the relevant arbitration rules and theapplicable law, as well as to the agreement to arbitrate, in order todetermine whether in fact it has the necessary jurisdiction to grantthe order requested.

Unfortunately there is a lack of uniform guidance as to the type ofrelief available in relation to these measures. Under international

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arbitration rules there is little or no specific direction. Accordingly,arbitrators ‘can either use the rules available under the lawapplicable to the arbitration, or settle the issue without making anyreference to the applicable law’.(35) The latter is the more commonapproach, in which the arbitrators evaluate the facts directly tomake their decision on whether or not to grant the relief page"247" sought. Urgency is a prerequisite for the ordering ofconservatory measures, in that such measures will not be grantedwhere no irreparable damage will be caused to the property or therights of the parties by waiting for the final resolution of the dispute.

The enforcement of such orders is through the issuing of remindersby the tribunal where a decision is disobeyed. If such disobediencepersists, the tribunal is generally ‘empowered to take a failure toobey an order for interim measures into account in its final decision,particularly in any assessment of damages'.(36) Despite this, it isgenerally considered that a tribunal – unlike a court – does not havepower to make adverse orders in default of compliance, though inpractice failure to comply is unlikely to endear the party in default tothe tribunal, or to result in any favours being granted to it.

In addition to the powers conferred on tribunals, national courtsgenerally retain residual authority, both before and after the tribunalis constituted, and in their supporting role. However, it is more likelythat the arbitral tribunal will exercise its power in suchcircumstances where expressly provided for in the internationalarbitration rules. Nevertheless, the arbitral process is oftenconsidered ill­suited to dealing with conservatory relief because, forexample, it may take weeks or months to appoint a tribunal, orwhere there is a need to make an order binding on a third party(e.g., banks in the context of a freezing order) as the tribunal has nojurisdiction to bind anyone other than the parties to the arbitrationagreement.

In fact, the whole area of the availability of interim relief inarbitrations has been under intensive – and often heated – review by‘Working Group II (Arbitration)’, a group established by UNCITRALto consider the working of the Model Law in this area and to makerecommendations for changes to it. The result is a greatly expandedArticle of the UNCITRAL Model Law (Article 17) dealing with interimmeasures, which confirms and sets out in more detail a tribunal'spowers to make such orders – possibly even including the power tomake ‘anti­suit’ orders. Unlike the previous version, the currentArticle 17 spells out the elements that a party must demonstrate tothe tribunal's satisfaction before obtaining an order for interim relief.This includes satisfying the tribunal that the requesting party has areasonable chance of succeeding on the merits, that damageswould not be an adequate remedy and that any harm caused to thesubject party by making the order would be substantially outweighedby the harm caused to the requesting party if the order was notmade. All of this is very familiar from an English perspective, as tooare the requirements that the requesting party notify the tribunal ofany change in circumstances on which its application was made,and that the requesting party be responsible for any harm caused tothe subject party if the tribunal subsequently finds that the ordershould not have been made. All of this was (relatively)uncontroversial.

By way of contrast, a most heated issue was the availability of exparte interim relief. In most countries, some form of urgent relief isavailable from the courts on the application of one party in theabsence of the other. In England, for instance, injunctions toprevent specified actions are routinely available from a judge on the

page "248" application of one party without notice to the otherparty. The advantage of this process is that notice need be given tothe other party only after obtaining the order – by which time it is (intheory) too late for that party to do the act prohibited by the court.At the very least, any attempt to do so will normally attractpotentially severe sanctions from the court for breach of its order.

There are a number of issues about extending this procedure intoregular commercial arbitrations. Stripped of the rhetoric, these canbe reduced into two distinct classes of objections. The first is purelyphilosophical, the second practical.

The principal philosophical objection is that arbitration is aconsensual process and it is fundamentally wrong in principle forone party to have access to the arbitrator on a private basis.Indeed, if this were to take place in other circumstances it would inall probability amount to misconduct, which would form the basiseither for a challenge to the validity of the process or award in thecourts of the place of the arbitration, or as a basis for resistingenforcement of an award at a subsequent stage.

The practical objections are perhaps more compelling. To start with,the most common purpose for applying to a court for an injunction –particularly an ex parte injunction – is that the respondent cannot betrusted and needs to be restrained from subverting the disputeresolution process. However, while it is helpful if the court makingthe order has personal jurisdiction over the respondent and cantherefore fine or imprison it (or its officers, if a company) if the orderis breached, the real benefit of an injunction is that third parties willalso recognise the effect of the injunction and comply with itsterms. Thus, a court order preventing the disposition of therespondent's funds should be respected by the respondent but willbe respected by any bank or other financial institution within thecourt's jurisdiction given notice of the order. Similarly, an orderpreventing the removal of an aircraft or ship from the jurisdiction will

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be respected by those authorities responsible for providing air trafficcontrol or pilots, and aircraft and port services. In other words, thereal benefit of an injunction lies not in its direct effect on the personwho is the subject of the order, but in its indirect effect via thirdparties who control the movement of the item which it is sought torestrain. No arbitration order can possibly have this effect withoutenforcement by a court – in which case, a party would be betterserved by starting in court.

Another powerful concern is in reproducing in the context of anarbitration the checks and balances on the process of obtaining exparte awards which have been built into the procedures for obtainingthem. Taking the English process as an example again, an ex parteinjunction can be obtained only if supported by sworn testimony inrespect of all the relevant facts, including not only the facts thatsupport the application, but all the facts relevant to whether theapplication should be made. Failure by the applicant to give ‘full andfrank’ disclosure of the relevant circumstances is a ground forimmediate lifting of the injunction, and possibly for sanctions on theapplicant.

The seriousness of the process is also supported by therequirement that the applicant must in all circumstances give anundertaking to the court to make good any damages the respondent(or others) suffer as a result of the applicant obtaining an injunctionin circumstances where it was not entitled to. This undertaking may,in certain cases, have to be backed up by the provision of tangiblesecurity. Moreover, not only is an injunction only ever obtained for arelatively short period before further page "249" review by ajudge (hearing both the applicant and the respondent), but it isalways open to the respondent to go back to the judge who madethe order (or another judge) before that time to explain why theinjunction should immediately be lifted.

The practical objections to arbitrators exercising the same powersto grant injunctions as judges can therefore be summarised asfollows. First, the powers are in principle ineffective because anaward (even if it can be obtained quickly, bearing in mind the needto establish the tribunal) has no coercive effect on the third parties,on whose assistance it is in practice normally so dependent,(37)absent enforcement by a court. Second, granting such powers(even if largely ineffective) to arbitrators, without the comprehensivearray of checks and balances built up over years by national courts,is extremely unsatisfactory, even more so when it is consideredthat any general extension of arbitrators' powers will be capable ofbeing exercised not only by retired judges and other experiencedinternational arbitrators but by any arbitrator, no matter how(in)experienced. Finally, there must be legitimate doubts overarbitrators' ability (or even willingness) to be available at very shortnotice to hear arguments from the respondent as to why any ordermade should be lifted.

Despite these powerful objections, the UNCITRAL Model Law wasamended to allow arbitrators to issue some form of ex parte orders.The Model Law incorporated many of the suggestions made by theWorking Group at its 43rd session in October 2005. Some of thekey elements from the Model Law (as amended in 2006) are asfollows:

­ Unless otherwise agreed by the parties, a party may, withoutnotice to any other party, make a request for an interim measuretogether with an application for a preliminary order directing aparty not to frustrate the purpose of the interim measurerequested.(38)

­ The arbitral tribunal may grant a preliminary order provided itconsiders that prior disclosure of the request for the interimmeasure to the party against whom it is directed risks frustratingthe purpose of the measure.

­ Immediately after the arbitral tribunal has made a determination inrespect of an application for a preliminary order, the arbitraltribunal shall give notice to all parties of the request for theinterim measure, the application for the preliminary order, thepreliminary order, if any, and all other communications, includingby indicating the content of any oral communication, between anyparty and the arbitral tribunal.(39)

­ The following provision has been retained: ‘at the same time, thearbitral tribunal shall give an opportunity for the party againstwhich any preliminary order is directed to present its case at theearliest practicable time’. This is because the Working Groupaccepted that there was a distinction between the obligation ofthe arbitral tribunal to decide on the preliminary order as page"250" promptly as required under the circumstances and theobligation of the party against whom the preliminary order wasdirected to present its case at the earliest practicable time.

­ A preliminary order will expire after twenty days, but the arbitraltribunal may issue an interim measure adopting or modifying thepreliminary order after the party against whom the preliminaryorder is directed has been given notice and an opportunity topresent its case.

­ The arbitral tribunal shall require the applying party to providesecurity in connection with such preliminary order unless thearbitral tribunal considers it inappropriate or unnecessary to doso.

­ The applicant shall have a continuing obligation (until the partyagainst which the application has been made has presented itscase) to disclose to the tribunal all circumstances relevant to the

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grant of a preliminary order.­ A preliminary order shall be binding on the parties, but shall notbe subject to enforcement by a court (unlike an order for interimmeasures which is to be recognised and enforced by nationalcourts ‘irrespective of the country in which it was issued,’ andsubject to the provisions of Article 17(I)(40) unless otherwiseprovided for by the arbitral tribunal(41) ).

Overall the changes made in the revised UNCITRAL Model Law arein many ways radical and offer claimants new opportunities toadvance their cases. However, the changes are unlikely greatly toaffect the construction industry, either immediately or at all. It isenvisaged that in those countries where the legislative process islengthy, it is unlikely that a change of this relatively minor (but atthe same time controversial) nature will attract much parliamentarytime. In fact, there had been no case law reported on section 2 ofChapter IV A of the UNCITRAL Model Law which deals with theapplication for, and conditions for the granting of, preliminary ordersas at the time of the 2012 Digest of Case Law on the Model Law onInternational Commercial Arbitration.(42)

Perhaps as importantly, the reality is that it is unusual forapplications for injunctions to be made in construction cases, andthose that are made are normally best handled by the courts, as inthe Channel Tunnel case,(43) where Eurotunnel sought an injunctionpreventing its contractor from stopping work on an element of thetunnel works which was critical for the timely completion of theproject. This case provides a good example of the difficultiesinherent in these sorts of applications. In addition to the basic issueof whether the English courts had jurisdiction under the then currentlegislation to make any such order (now resolved), there wereserious questions about whether it was appropriate to make an ordereffectively compelling the contractor to page "251" continue itswork. The judge at first instance indicated he was prepared to makesuch an order (in response to which the contractor agreed to carryon working), but the Supreme Court (following House of Lords) – theultimate Court of Appeal – finally determined that it wasinappropriate to make such an order on a temporary basis. This wasbecause, as a result of the time taken to go first to a disputeresolution board and then to arbitration, making such an order wouldhave the effect of finally determining the question, which the courtfelt it should not be doing in the light of the parties' agreement toarbitrate.

[D]. Site Visits

Construction arbitrations lend themselves particularly well to sitevisits, which can be an effective way of engaging the tribunal withthe subject matter of a particular dispute. The IBA Rules explicitlyauthorise this procedure:

Subject to the provisions of Article 9.2, the ArbitralTribunal may, at the request of a Party or on its ownmotion, inspect or require the inspection by a Tribunal­Appointed Expert or a Party­Appointed Expert of anysite, property, machinery or any other goods,samples, systems, processes or Documents, as itdeems appropriate. The Arbitral Tribunal shall, inconsultation with the Parties, determine the timing andarrangement for the inspection. The Parties and theirrepresentatives shall have the right to attend any suchinspection.(44)

The LCIA Rules also explicitly contemplate site visits:

Unless the parties at any time agree otherwise inwriting, the Arbitral Tribunal shall have the power, onthe application of any party or of its own motion, but ineither case only after giving the parties a reasonableopportunity to state their views: … to order any partyto make any property, site or thing under its controland relating to the subject matter of the arbitrationavailable for inspection by the Arbitral Tribunal, anyother party, its expert or any expert to the ArbitralTribunal.(45)

Given the broad discretion given the parties and the tribunal inorganising the arbitration process, such a procedure should also bepermissible even under arbitration rules that do not explicitly refer tosite visits.

§11.07. Administrative Issues

There are also a number of practical or administrative issues thatmust be given consideration, including the appropriate venue for thehearing, provision of transcription and translation services. Theseare addressed in more detail in Chapter 12.

1 Although, on occasions, parties may agree to amend certainprocedural rules during the course of a dispute.2 For example, Art. 22(4) ICC Rules (2012) states: ‘In all cases, the

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arbitral tribunal shall act fairly and impartially and ensure that eachparty has a reasonable opportunity to present its case’.3 As discussed below, the parties' choice of arbitration seat (forexample, England and Wales or Paris) will almost always attractsome mandatory procedural requirements that apply as matter oflaw to any arbitrations seated in that jurisdiction.4 A common amendment is to provide the parties with additionalscope to choose the arbitrators, with the institution appointing onlywhere the parties (or one of them) have failed to do so within theagreed period of time. As a note of warning, amending certainfundamental features of institutional rules may not be permitted bythe institution who could refuse to administer any resultingarbitration. For example the ICC will typically refuse to administerany arbitration under the ICC Rules which does not includeproduction of a Terms of Reference document and/or allow for thereview of the award by the ICC Court. The International CommercialArbitration Court at the Russian Chamber of Commerce andIndustry (ICAC) does not allow for the seat of arbitration not to beMoscow, although it is permissible for hearings to take placeelsewhere. Material amendments will undermine the value of usinginstitutional rules, which lies in part in the confidence that such triedand tested rules will assist enforcement of the ultimate award.5 Section 34 of the Arbitration Act 1996 (UK) provides for a verywide statutory discretion to be vested in the arbitrator in relation toprocedural and evidential matters for arbitrations seated in England,Wales or Northern Ireland.6 For example Art. 19 ICC Rules (2012) states: ‘The proceedingsbefore the arbitral tribunal shall be governed by the Rules, andwhere the Rules are silent, by any rules which the parties or, failingthem, the arbitral tribunal may settle on, whether or not reference isthereby made to the rules of procedure of a national law to beapplied to the arbitration’. Art. 1(5) IBA Rules is of similar effectregarding procedure governing the taking of evidence.7 Another source that is referred to on occasion is the Final Reporton Construction Industry Arbitrations produced by the ICC, [2001]ICLR 644.8 Subject to legal privileges such as lawyer­client, legal advice orlitigation privilege which protect the documents against disclosure.9 Either the sole purpose or the dominant purpose, depending onthe jurisdiction.10 Three Rivers District Council and Ors v. Bank of England [2004]UKHL 48.11 In Germany, arbitrators are prohibited from ordering disclosureand the parties must seek assistance from the national courts. Thecourt may order the production of documents in the possession ofthe adversary or even a third party, if one of the parties has referredto such documents in its pleadings.12 This does not apply in the case of in­house lawyers in France,hence communications between a company's lawyer and othermembers of the company are not privileged. The same is true in theNetherlands. In Akzo Nobel Chemicals Ltd and Akcros ChemicalsLtd v. Commission (Case C­550/07 P) [2010] the ECJ confirmedthat in­house lawyers do not have a claim to legal professionalprivilege in competition investigations. The ECJ reached thisconclusion on the basis that in­house lawyers are not sufficientlyindependent, being too closely tied economically to their employers,and cannot ignore their employers' commercial strategies.Accordingly, the ECJ maintained that in­house lawyers are less ablethan external lawyers to deal with conflicts between theirprofessional obligations and the aims of their client.13 Paulsson et al., International Chamber of Commerce Arbitration,427–429.14 See, e.g., Art. 4(3) IBA Rules and Art. 20(6) LCIA Rules.15 See Lucy Reed & Jonathan Sutcliffe, The Americanization ofInternational Arbitration, 16 Mealey's Intl. Arb. Rept. 37 (April 2001).16 It is suggested that the Statement of Case and supportingevidence should be prepared at least in draft well in advance of aclaimant commencing arbitration. This is practically sensiblebecause it alleviates the pressure on the claimant to perform to atimetable that is not of its own choosing (International CommercialArbitration: Could do better, Richard Fernyhough QC, paper no.D139 published by the Society of Construction Law, September2012).17 ICC Construction Arbitration Report, para. 21.18 Ibid., para. 52.19 IBA Rules on the Taking of Evidence, 29 May 2010.20 The AAA Rules do not require compliance with legal rules ofevidence, except that they direct the arbitrator(s) to consider anyapplicable principles of legal privilege (R­31, AAA Rules).21 Ibid., para. 61.22 For example, Art. 25(6) ICC Rules provides that the arbitraltribunal may decide the case of documents alone, unless any partyrequests a hearing. Art. 19 LCIA Rules also contemplatesdocuments­only arbitrations. The UNCITRAL Model Law providesthat, unless the parties have agreed otherwise, the tribunal candecide whether to hold a hearing or to conduct a documents­onlyarbitration (Art. 24(1)).23 ICC Construction Arbitration Report, para. 49 provides guidanceon whether cases should be split in this way.24 Section 1(a) Arbitration Act 1996 states that ‘the object ofarbitration is to obtain the fair resolution of disputes by an impartialtribunal without unnecessary delay or expense’.25 Procedures in International Arbitration – F. Procedural Conductof International Arbitral Proceedings in Gary B. Born, International

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Commercial Arbitration 1782–1873 (Kluwer L. Intl. 2009).26 Article 25.2 LCIA Rules.27 Article 28 ICC Rules.28 Bank Mellat v. Helleniki Techniki SA [1984] QB 291.29 SA Coppée Lavalin NV v. Ken­Ren Chemicals and Fertilizers Ltd[1995] 1 AC 38.30 Section 38(3) English Arbitration Act 1996: ‘The tribunal mayorder a claimant to provide security for the costs of the arbitration’,as long as the order is not based on the claimant's residenceoutside the UK. This is subject to s. 38(2), which provides that thetribunal's power can be removed by agreement of the parties.31 Section 70(6) English Arbitration Act 1996 and see Gater AssetsLtd v. Nak Naftogaz Ukrainiy [2008] 1 All ER (Comm) 209 paras 39–45.32 Article 28 ICC Rules.33 Article 25 LCIA Rules.34 Article 26 UNCITRAL Rules.35 Julian Lew, Commentary on Interim and Conservatory Measuresin ICC Arbitration Cases, 11 ICC Intl. Court Arb. Bull. para. 21(2000).36 See Final award (1998) in case 9593 (available in Extracts fromICC Awards referring to Interim and Conservatory Measures, 11 ICCIntl. Court Arb. Bull. 107 (2000).37 This is in addition to the general concern that any temporaryorder of this sort may not be treated as an ‘award’ and thereforemay not be enforceable internationally pursuant to the terms of theNew York Convention. See Ch. 8 above.38 Article 17B(a) of the UNCITRAL Model Law.39 Article 17C of the UNCITRAL Model Law.40 Article 17 (I) of the UNCITRAL Model Law sets out the groundsfor refusing recognition of enforcement.41 Article 17H(1) UNCITRAL Model Law.42 2012 Digest of Case Law on the Model Law on InternationalCommercial Arbitration found athttp://www.uncitral.org/pdf/english/clout/MAL­digest­2012­e.pdf(accessed 10 Sep. 2013).43 Channel Tunnel Group Ltd and another v. Balfour BeattyConstruction Ltd and others [1993] AC 334.44 Article 7 IBA Rules.45 Article 22.1(d) LCIA Rules.

Source

Chapter 12: TheConduct of the Hearingin Jane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 253 ­ 272

§12.01. INTRODUCTION

Arbitration is a consensual process, so with the agreement of theparties and of course the acquiescence of the tribunal – the hearingcan take essentially any form, provided that it allows an opportunityfor the fair consideration of the parties' respective contentions.Consider the following provisions of major sets of arbitration rules:(1)

UNCITRAL Arbitration Rules: ‘Subject to theseRules, the arbitral tribunal may conduct the arbitrationin such manner as it considers appropriate, providedthat the parties are treated with equality and that at anappropriate stage of the proceedings each party isgiven a reasonable opportunity of presenting itscase.’(2)

ICC Rules: ‘The proceedings before the arbitraltribunal shall be governed by the Rules and, where theRules are silent, by any rules which the parties or,failing them, the arbitral tribunal may settle on,whether or not reference is thereby made to the rulesof procedure of a national law to be applied to thearbitration.(3)

In all cases, the arbitral tribunal shall act fairly andimpartially and ensure that each party has areasonable opportunity to present its case.’(4)

LCIA Rules: ‘The parties may agree on the conduct oftheir arbitral proceedings and they are encouraged todo so, consistent with the Arbitral Tribunal's generalduties at all times: (i) to act fairly and impartially asbetween all parties, giving each a reasonableopportunity of putting its case and dealing with that ofits opponent; and (ii) to adopt procedures suitable tothe circumstances of the arbitration, avoidingunnecessary delay or expense, so as to provide a fairand efficient means for the final resolution of theparties' dispute.’(5)

Unless otherwise agreed by the parties under Article14.1, the Arbitral Tribunal shall have the widestdiscretion to discharge its duties allowed under

page "253" such law(s) or rules of law as theArbitral Tribunal may determine to be applicable; and

Chapter 12: The Conduct of the Hearing

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at all times the parties shall do everything necessaryfor the fair, efficient and expeditious conduct of thearbitration.(6)

American Arbitration Association InternationalArbitration Rules: ‘Subject to these rules, the tribunalmay conduct the arbitration in whatever manner itconsiders appropriate, provided that the parties aretreated with equality and that each party has the rightto be heard and is given a fair opportunity to presentits case’.(7)

At one end of the spectrum, arbitration hearings have proceededwith nearly the degree of formality common in court proceedingswhilst at the other extreme, there are those which are difficult todistinguish at a glance from a conversation around a conferencetable. In fact, if the parties agree, a dispute submitted to arbitrationmay even be decided without a hearing. Although a ‘documentsonly’ proceeding is an option under most sets of arbitration rules,and it undoubtedly offers the advantage of efficiency, it must besaid that it is unusual for an international construction dispute to beresolved in this way, and a hearing will be held if either partyrequests it or the tribunal so determines.(8)

That being said, there is enough commonality among arbitrations inthe general run of things that comment can usefully be made aboutthe likely phases of an arbitration hearing and issues that mightarise in preparing for and conducting such a hearing.

The use and presentation of documents, submissions, andpresentation of evidence (witness and expert) during the hearing areconsidered in the first three sections of this chapter. The finalsection deals with hearing practicalities and other issues that mightarise.

It is worth first making two general points about the conduct of thehearing which underscore the likely form and duration of eachprocedural step in an arbitration. First, in general the procedures andevidentiary rules that are applied in arbitration are more flexible thanin court proceedings. Even the most technical of disputes are heardover the course of a more limited duration than they would be in acommercial court. An agreed approach which makes best use of theavailable hearing time requires careful planning and consideration byboth parties presenting the case.

Second, there will be fundamental differences between practitioners,clients and arbitrators as to the way in which certain proceduralaspects should be conducted. That will depend on the backgroundof those involved in the dispute (for the parties and the tribunal) bothin terms of their qualifications and training, and also (and perhapsmost significantly) the practice in their jurisdiction. Typically, andcertainly ideally, the hearing will be the culmination of a period ofeducating the tribunal about the dispute. It will follow the exchangeof pleadings and written factual and expert evidence. Some typicaldifferences between approach are dealt with below.

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This chapter deals with the conduct of the hearing itself, whereasChapters 7, 8 and 11 deal with the procedural steps leading up tothe hearing (such as the statements of case and collection ofevidence).

§12.02. Documents

[A]. Bundles

Key to any arbitration hearing is an agreed set, or bundle, of therelevant documents. This results from the disclosure/documentexchange process outlined in Chapter 11 above, and shouldrepresent a carefully selected subset of those documentsexchanged between the parties.

The first point to make about bundles is obvious: the parties need tomake sure that all the documents they may want to refer at thehearing or in written submissions are included. Although bundlescan be, and often are, supplemented up to and during the hearing,they should be provided to the tribunal sufficiently in advance of thehearing to enable the arbitrators to spend some time gainingfamiliarity with those documents the parties have identified as key.If important documents are not included, obviously the opportunityfor the tribunal to begin taking those documents into considerationin their thinking about the case is lost.

The second point is equally basic, if not so obvious: the partiesmust be careful not to include so many (tangentially relevant)documents in the bundles that they become unwieldy and keydocuments are buried amid unnecessary volume. Indeed, as isaddressed in Chapter 11, the extent of documentation that has beendisclosed and available to the hearing will depend on the extent ofdocumentation produced in the disclosure process. In some casesdisclosure may ultimately be no more than the documents theparties themselves have identified as those they wish to rely uponand annexed to their submissions at the earliest stages of theproceeding. Ideally, although in complex cases this may be lessfeasible, by the end of the process the tribunal will have gainedsignificant familiarity with the key documents – the arbitrators will

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know their way around the bundles. Being selective and organisedin the presentation of documents in the bundles makes this easy forthe arbitrators and facilitates the presentation of the parties' cases.In addition, witnesses and experts will also, insofar as possible,need to make themselves familiar with the documentation in thebundle prior to testimony.

Thought should be given to making the bundles easy to use, withconsecutive numbering of files and documents, and clear labellingof files. This not only has direct impact on the efficiency of theproceedings, and therefore on cost, but it can also have strategic orsubstantive significance, if for no other reason than that good pointselicited on cross­examination can lose much of their impact if ittakes time to locate the relevant documents to support the points.

It is often sensible to arrange the core documents that ‘tell thestory’ chronologically, with perhaps other series of bundlescontaining collected documents on specific themes or of a specifictype. Even in those complex cases where there are a potentially

page "255" large number of documents, it is usually the casethat there are key documents referred to time and time again bysubmission/pleading and various witnesses and experts. Achronological ‘core bundle’ of documents with duplicates removed towhich the various pleadings, witness statements and expert reportshave referred allows for substantial reduction in the size of thebundle. In construction projects there are certain types ofdocuments for which a full set may be necessary, such as monthlyprogress reports. These are the type of documents are potentiallybest placed in a separate sub­bundle of their own.

That being said, it is possible for bundles to be too user­friendly. Inorganising subsets or thematic bundles, especially, take care thatyou are not thereby rendering transparent strategies that are betterrevealed during the hearing.

One other matter that bears some thought is the manner in whichdocuments will be referred to in the proceedings. One suggestionfrom the UNCITRAL Notes on Organizing Arbitral Proceedings is to‘keep a table of contents of the documents, for example, by theirshort headings and dates, and provide that the parties will refer todocuments by those headings and dates'.(9) This may not be such asimple suggestion to implement unless there are very fewdocuments. The simplest possibility may be to number each pageof the bundles consecutively, so that each page of each documentmay be referred to by a single unique number throughout theproceedings. If this approach is adopted, it is good practice to havethe bundles agreed and numbered in this fashion as early in theprocess as possible, and certainly before the parties make any pre­hearing written submissions. Any additional documents handed upto the Tribunal during the hearing can be identified and numberedconsecutively (e.g., Claimant 1, Respondent 1 etc.)

[B]. Authenticity of Documents

Generally, arbitral practice avoids the formality of courtproceedings, and the hearing proceeds on an unspoken assumptionof the authenticity of documents (without the necessity of elicitingwitness evidence concerning authenticity), unless authenticity isspecifically challenged. In any event, authenticity is one issue thatmay, and ideally will be resolved by agreement of the parties onbundles. As the UNCITRAL Notes on Organizing ArbitralProceedings suggest:

The parties may consider submitting jointly a singleset of documentary evidence whose authenticity isnot disputed. The purpose would be to avoid duplicatesubmissions and unnecessary discussionsconcerning the authenticity of documents, withoutprejudicing the position of the parties concerning thecontent of the documents.(10)

A slightly more formal, but still efficient approach to the issue of theauthenticity of documents is also suggested in the same Notes:

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It may be helpful for the arbitral tribunal to inform theparties that it intends to conduct the proceedings onthe basis that, unless a party raises an objection toany of the following conclusions within a specifiedperiod of time: (a) a document is accepted as havingoriginated from the source indicated in the document;(b) a copy of a dispatched communication (e.g., letter,telex, telefax or other electronic message) is acceptedwithout further proof as having been received by theaddressee; and (c) a copy is accepted as correct. Astatement by the arbitral tribunal to that effect cansimplify the introduction of documentary evidence anddiscourage unfounded and dilatory objections, at alate stage of the proceedings, to the probative valueof documents. It is advisable to provide that the time­limit for objections will not be enforced if the arbitraltribunal considers the delay justified.(11)

[C]. Presentation of Documentary Evidence

The manner in which documentary evidence is to be presented in a

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given case will largely depend on the particular facts, and the stateof the evidence, in that case. As with everything in internationalarbitration, however, the presentation of documentary evidence willrequire a fine balance between drawing key documents to thetribunal's attention and wasting precious hearing time. The oldEnglish tradition of extensive oral presentation of evidence –including the reading of documents into evidence is out of place ininternational commercial arbitration. It is very costly, and it may notbe very effective advocacy. It will far more often be the case thatthe advocate will bring key documents to the attention of thetribunal, and will then be able to ‘let the document speak for itself’.

To the extent, however, that a case turns on a close reading of aparticular document, or comparison of the terms of a fewdocuments, it may be worth considering whether visual aids –projecting relevant language on a screen or depicting it on a large­scale exhibit, a simple comparison chart on a sheet of paper, or amore technologically advanced presentation of the materials –would be appropriate for the case. In making this determination, akey consideration will be the background and experiences of theindividuals making up the arbitral tribunal.

§12.03. Submissions

[A]. Who May Appear?

Generally speaking, each party to arbitral proceedings will berepresented by a lawyer or, depending on the complexity of thecase, a team of lawyers, who will give oral submissions on itsbehalf. However, whilst this is the most common situation, it is notthe case that only lawyers can represent a party at a hearing.Indeed, parties can usually nominate any person they choose astheir representative. The English Arbitration Act 1996 provides, onthis point, as follows: page "257"

Unless otherwise agreed by the parties, a party toarbitral proceedings may be represented in theproceedings by a lawyer or any other person chosenby him.(12)

Similarly, the LCIA Rules state as follows:

Any party may be represented by legal practitioners orany other representatives.(13)

The UNCITRAL Arbitration Rules contain a similar provision.(14)

Accordingly, while, e.g., engineers or businessmen are usuallycalled upon at a hearing as expert or fact witnesses, it may, insome circumstances, be more time efficient for them instead toaddress the arbitral tribunal directly as representatives of theparties.

However, there is one caution with regard to advocacy. Localcounsel should always check or be requested to confirm preciselywho has standing in that country under local law of the seat topresent and argue the case on the behalf of the parties.

[B]. The Form and Timing of Submissions – Oral Presentationof Evidence

As a rule, arbitral hearings tend to be relatively short (at least fromthe perspective of common law practitioners), for a number ofreasons. That remains the case in complex construction andtechnical disputes. First, a three­member tribunal constituted ofsenior figures from the arbitration world or elsewhere will havelimited availability to meet for extended periods of time. In addition,considerations of cost (the parties will literally be paying for everyhour the tribunal sits) play their part in keeping hearing time limited.Finally, whilst common lawyers may be used to and expect longhearings, civil lawyers do not. Thus, even large and complexdisputes may have merits hearings lasting only a week or so.

In addition to the natural restraints placed upon parties' time at thehearing, the arbitral tribunal may place time limits (either before or atthe beginning of the hearing) on each side's opening submissions,examination­in­chief and re­examination of its own witnesses (in theevent that there is any), cross­examination of the other side'switnesses, and closing submissions. Generally, the tribunal willallow each side the same aggregate amount of time to present theircase, and tribunals will generally make the parties stick to the timesallotted to them in order to avoid the risk of one party being left withinsufficient time to conclude its presentation and, therefore, run therisk of being prejudiced. This is often done by agreement of theparties to use the ‘chess clock’ method whereby each side isallotted 50% of the hearing time to do with as they wish. Thetribunal will not want to give one party the opportunity at a later dateto have the award set aside on the grounds of any alleged unequaltreatment accorded to it during the proceedings.

page "258"

If this is the case, then a three­day opening speech is clearly anineffective use of the time available. Further, it is unlikely that anextended presentation of every single point or document in oneparty's case will have the persuasive impact of a carefully focused

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presentation that sets up the case that the party's representativeswill be building upon over the course of the hearing.

[C]. Determining the Overall Procedure for the Hearing

Arbitration rules typically allow the tribunal more or less todetermine the procedure relating to oral submissions at the hearing,including the order of submissions and whether the parties shouldpresent opening and closing submissions. However, in practice theparties have a great deal of control to agree the procedure theythink appropriate (note that the ICC Rules cited above placesparticular emphasis on the parties' agreement).

Practices differ depending on the composition and background ofparties and the tribunal, but a not uncommon practice is to allow abrief opening statement by each party, followed by evidence of eachside's witnesses. This may involve a short examination­in­chief(even where the witnesses have submitted witness statementswhich are standing as the evidence­in­chief of those witnesses),with the main focus being on the cross­examination of eachwitness. Most tribunals will then allow re­examination of thewitness. Some tribunals will then allow short closing submissions,whilst others may prefer written post­hearing briefs to be submittedby the parties, whether on specific issues or on each side's case asa whole.

Practice differs as to whether the claimant or the respondent hasthe last word (common law practice, for example, is that it is for theclaimant to have the last word).

Clearly the content and length of the oral submissions at the hearingwill also depend on the extensiveness of any prior writtensubmissions as well as any directions the tribunal may have givenas to specific issues it wishes the parties to address.

[D]. Written Submissions

As noted in Chapter 11 above, practice differs between commonand civil law practitioners as to whether notes are submitted to thetribunal summarising the oral pleadings or not. Some counsel areused to giving pleading notes to the tribunal and the other side atthe time of the hearing or shortly beforehand. Other (typicallycommon law) counsel submit detailed skeleton arguments inadvance of the hearing and go through the key points in theirsubmissions. In the latter case, the tribunal and the partiesgenerally agree upon this course of action in advance of thehearing. It is also common for detailed post­hearing submissions tobe provided to the tribunal, pulling together each party's case in thelight of the evidence as it develops at the hearing.

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[E]. Visual Aids and Other ‘Bells and Whistles’

The arbitral process has the potential to be used more creativelythan court proceedings. It is, however, a matter of carefully judgingthe tribunal and assessing what will be the most effective way ofpresenting a case. Visual aids such as PowerPoint presentationsand video clips can be very effective with the right audience, butsome tribunals may find them a distraction from the real issues tobe grappled with. In addition, there is a very real danger of a partylocking itself into a particular form of presentation when using suchaids. Particularly when responding, or with an impatient tribunal,having to follow a pre­ordained path does not have the flexibility onesometimes needs in a fast­moving hearing – which can havedamaging results.

§12.04. Presentation of Witness Evidence

[A]. Witness Statements

In the majority of arbitrations, the evidence of a witness will first bepresented in a written witness statement. Presentation of witnessevidence by oral testimony alone is much more likely to occurwhere the tribunal and parties involved are civil lawyers. Writtenstatements may be take the form of sworn affidavits, although moreoften they are documents signed by the witness based only upon astatement of truth.(15)

The IBA Rules(16) provide the following helpful guidance on thepreparation of a witness statement:

The Arbitral Tribunal may order each Party to submitwithin a specified time to the Arbitral Tribunal and tothe other Parties a written statement by each witnesson whose testimony it relies … (the ‘WitnessStatement’). If Evidentiary Hearings are organized onseparate issues (such as liability and damages), theArbitral Tribunal or the Parties by agreement mayschedule the submission of Witness Statementsseparately for each Evidentiary Hearing.

Each Witness Statement shall contain:

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(a) the full name and address of the witness, his orher present and past relationship (if any) with anyof the Parties, and a description of his or herbackground, qualifications, training andexperience, if such a description may be relevantand material to the dispute or to the contents ofthe statement;

(b) a full and detailed description of the facts, and thesource of the witness's information as to thosefacts, sufficient to serve as that witness'sevidence in the matter in dispute;

(c) an affirmation of the truth of the statement; and(d) the signature of the witness and its date and

place …’.

The preparation of a witness statement will, in all but the mostexceptional cases, be a process in which the party's lawyers will beclosely involved. However, it is important page "260" that thisinvolvement be limited to assisting the witness to express hisknowledge and recollections clearly and with a view to addressingthe issues in dispute in the arbitration (see further below). The mosteffective witness statements are those which read as though theywere written by the person who is giving the statement, and there isnothing more transparent – and less convincing – than a group ofwitness statements which appear to recite an agreed ‘party line’ thathas been drafted by lawyers, rather than tell their own stories.

[B]. Witness Preparation

Preparation of a witness begins with the drafting of the witnessstatement, a process which should be based on identifying anddiscussing with the witness his recollections about the events indispute and all of the relevant documents and other evidence whichhas come to light in respect of which he is likely to have relevantknowledge. In construction cases, the key document in this processwith most engineers is his log or diary – often a manuscriptdocument but almost always written contemporaneously beforeevents have had a chance to become clouded. This process of thelawyers educating themselves about the witness' role in, andknowledge of, the relevant events, and of the witness, asappropriate, re­familiarising himself with the relevant events, lays asolid foundation for preparing a witness to give oral testimony. If forsome reason a written witness statement has not been preparedand submitted, then this process needs to be undertaken inanticipation of the witness's direct testimony.

The witness preparation process will depend to some extent uponthe approach that is to be taken to witness examination, discussedbelow. The amount of time that can and should be devoted topreparation will depend upon a number of factors, including thewitness's availability and the relative significance of the witness inthe larger context of the case. Nevertheless, a few general pointscan be made.

First, there is (subject to applicable ethical rules) no impropriety in aparty and its lawyers interviewing and helping to prepare a witnessto give oral evidence. Although the rules of some national courts orlocal ethical rules (predominantly in civil law jurisdictions) frown onthis practice,(17) it is accepted in many other jurisdictions(18) andcommonplace and appropriate in international arbitration.(19) TheLCIA Rules, for example, expressly provide:

Subject to the mandatory provisions of any applicablelaw, it shall not be improper for any party or its legalrepresentatives to interview any witness or potential

page "261" witness for the purpose of presentinghis testimony in written form or producing him as anoral witness'(20)

and the IBA Rules state:

It shall not be improper for a Party, its officers,employees, legal advisors or other representatives tointerview its witnesses or potential witnesses.(21)

Accordingly, one commentator concludes:

it is clear that few, if any arbitral tribunals wouldconsider proper witness preparation to beobjectionable. Indeed the procedural requirement forparties to submit written witness statements from allwitnesses they intend to call, which has becomewidespread in international commercial arbitration,effectively necessitates that some form of witnesspreparation will take place prior to any hearing. In viewof this fact, it is undoubtedly preferable that lawyers,who are subject to rules of professional conduct, carryout such witness preparation.(22)

What exactly does interviewing a witness for the purpose ofpresenting his testimony mean? Mock cross­examination iscommonplace in the context of international arbitration. Howevermany practitioners will take the view that the prohibitions that applyto this practice in the context of court litigation should equally behonoured in arbitration. That causes a problem in internationalarbitration where the other party considers this practice both usual

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and a key tool for witness preparation. Nonetheless, some form ofmock examination is an opportunity for a witness to experiencecross­examination and to practice the skills – careful listening to thequestion asked, thinking and only then thoughtfully responding –that will make their oral evidence most effective at the hearing.

Second, the purpose of witness preparation is twofold: to ensure thewitness's familiarity with the matters in dispute on which he is likelyto be examined and to ensure the witness's familiarity and (as muchas possible) comfort with the process in which he will participate.As another commentator advises:

The role of counsel should be to assist witnesses indeveloping the confidence and clarity of thoughtrequired to testify truthfully and effectively based upontheir own knowledge or recollection of the facts. Itshould be borne in mind that being examined in the‘witness box’ is, for most witnesses, an unfamiliar andintimidating experience’.(23)

There is no one right way to fulfil this dual function, but it will beimportant to provide the witness with all of the pleadings andevidence (including the statements of other page"262" witnesses and documentary evidence) relevant to the matterson which he will give evidence. These should be independentlyreviewed by the witness, and then gone over again in detail inconversations with counsel. The witness should be informed of thestrategy each party to the arbitration is likely to be pursuing. Thishas the benefit not only of making the witness feel (and be) part ofthe team, but also of equipping the witness to give thoughtfulanswers to questions raised on examination.

It is also important to make sure that the witness knows exactlywhat he may expect, in terms of the setting in which he will begiving evidence, the process, and whether he will be asked to swearan oath or affirm the truth of his statement. He should be informedof his ‘rights' in the process, including the right to ask forclarification of questions and to review documentary evidence thatis referred to in his examination, and of his responsibility to answerquestions truthfully and to the best of his knowledge. It can behelpful to have a witness sit in the hearing for a brief period prior togiving evidence in order to familiarise himself with the flow of theproceedings. Obviously, if this is permitted under the agreedprocedure, it can also be of substantial significance to havewitnesses observe the hearings and provide commentary andreactions to the evidence that is being developed as theproceedings unfold.

[C]. Witness Examination

[1]. Order of Presentation

The IBA Rules set out the three standard phases of witnessexamination: direct examination (or ‘examination­in­chief’), cross­examination and re­examination, and the order in which each party'switnesses ordinarily appear:

The Claimant shall ordinarily first present thetestimony of its witnesses, followed by theRespondent presenting testimony of its witnesses,and then by the presentation by Claimant of rebuttalwitnesses, if any. Following direct testimony, anyother Party may question such witnesses, in an orderto be determined by the Arbitral Tribunal. The Partywho initially presented the witness shall subsequentlyhave the opportunity to ask additional questions onthe matters raised in the other Parties' questioning.(24)

As the IBA Rules note, this normal manner of proceeding may bevaried by agreement of the parties or order of the tribunal.(25)Ultimately, failing party agreement, the tribunal will determine theorder in which the witnesses are to appear and the manner in whichthe examination will take place.

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[2]. Oath or Affirmation of Truthful Evidence

The first thing that ordinarily occurs when a witness appears to giveevidence is that the chairman of the tribunal (or the sole arbitrator)either asks the witness to swear that he will give truthful evidenceor states the requirement that the witness must tell the truth.Practice differs as to which of these approaches will be adopted.The following comment on the practice in ICC arbitrations is valid inrespect of international commercial arbitration generally:

[I]n many cases it does not occur to the ICC arbitratorto put a witness on oath (i.e., to instruct the witnessto swear under oath that the testimony about to begiven is true). The practice may be more frequent insome common law jurisdictions where witnesses inarbitrations routinely give testimony under oath.(26)

In fact, national law in many jurisdictions, especially common lawjurisdictions, empowers arbitrators to administer an oath.(27) Thatbeing said, ‘it is much more frequent practice … for the chairman or

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sole arbitrator to inform the witness that he has a duty to givetruthful testimony and that he may be subject to criminal penaltiesfor false testimony, and to secure the witness' acknowledgement ofthis duty’.(28)

[3]. The Process of Examination

[a]. Direct Examination

Following the procedure outlined in the preceding section, the directexamination of the witness will commence. Usually, a witnessstatement having been submitted, direct examination will consistonly of the witness being asked to identify and affirm the truthfulcontents of his written statement (which will stand as his evidence­in­chief). Occasionally, the witness will need to make corrections orclarifications to the evidence contained in his statement, and, lessfrequently, additional direct evidence will be elicited by questions ona topic that had not come to light at the time the witness statementwas prepared.

Additional direct evidence would not normally be elicited duringdirect examination (as that evidence would not be something thatthe opponent has had an opportunity to consider). However, therecan be, depending on a tribunal, a much more relaxed approach towhether indeed an advocate can ask its witnesses leadingquestions in the course of examination­in­chief.

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[b]. Cross­Examination

In international commercial arbitration, the main focus of thepresentation of witness evidence is on the next stage, cross­examination of the witness by the party with which it is not affiliated(or on behalf of which its evidence has not been submitted).Although legal traditions vary among common law and civil lawsystems, which can give rise to different approaches to cross­examination (with common lawyers being known for more searchingexamination that may focus as much on issues of credibility as onthe factual evidence being elicited in a fashion that would not beusual for those from the civil law tradition), it is easy to overstatethis distinction. As distinguished commentators on the ICCarbitration process observe:

Contrary to the rumor that cross­examination isanathema to continental arbitrators, the authors'experience has been that most ICC arbitrators,irrespective of their origin, allow counsel a fairmeasure of cross­examination on all significant issuesbrought up in the witness' main statement.(29)

Nonetheless, consideration should be given not only to thebackground of the tribunal but the background of the witness whenplanning an approach to cross­examination. The style of a witness'sresponse to cross­examination (whether it be a particular manner ofspeaking, or non­verbal cues) may be completely understood andindeed credible to a culturally sensitive arbitral tribunal. Aggressivecross­examination which may be effective in a US Court may repela tribunal unused to such techniques.

[c]. The Role of the Tribunal

There may be a more significant difference between common andcivil lawyers is in the degree to which the tribunal will activelyengage in questioning the witness. No matter what the backgroundof the arbitrators, you should expect that they will have questionsfor the witness, and prepare the witness for that possibility.However, arbitrators schooled in the continental tradition may bemore likely to take quite an active role in directing the examinationof the witness. In Austria, Germany and the Netherlands, it is notuncommon for the tribunal to take the lead in questioning along thelines of a more inquisitorial model, with questions by the partiescoming only after the tribunal's examination. In the United Kingdomand the United States this would be unusual – more often in these(and other common law) jurisdictions the tribunal will play asupplemental role in examining witnesses, certainly interjectingquestions as necessary for clarification, but otherwise allowing theparties to conduct the examination and saving any extensivequestioning on other topics until the parties have concluded theircross­examination.

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[d]. The Scope of Examination

Due to the time constraints usually imposed on the arbitral process,and the more relaxed procedural environment, the scope ofexamination of witnesses in an arbitration is likely to be morefocused than it would be in, say, English court proceedings. It wouldordinarily be practically unworkable for the hearing to proceed on thebasis that the advocate for one party has to put each and everypoint it wishes to plead to the other party's witnesses. That beingsaid, it will often be the case that ‘[a]rbitral tribunals … give greaterweight to the evidence of a witness that has been tested by cross­

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examination, or by an examination by the arbitral tribunal itself’.(30)

Not all tribunal members (particularly those from civil jurisdictions)will necessarily give the same weight to oral evidence. Testing(factual and expert) evidence through cross­examination is thefocus of all common law lawyers. However a tribunal with a civil lawbackground will tend to favour the contemporary documentaryrecord over witness testimony. Nonetheless, the principal subjectmatter for cross­examination should be those key factual matters indispute in the case.

[D]. Witness Conferencing

In some arbitrations, witnesses may be asked to confer with oneanother in order to narrow the issues in dispute between them. TheIBA Rules further contemplate that, by party agreement or upon theorder of the tribunal, this conference (referred to in some sources as‘confrontation’) should occur as part of the examination of thewitnesses before the tribunal:

The Arbitral Tribunal, upon request of a Party or on itsown motion, may vary this order of proceeding,including the arrangement of testimony by particularissues or in such a manner that witnesses presentedby different Parties be questioned at the same timeand in confrontation with each other.(31)

The advantage of witness conferencing is that it allows on the spotchallenge of evidence by those with a factual and technicalknowledge (to remove the need for counsel to refer another witnessto a statement in a transcript of evidence given earlier in thehearing). The aim is to clarify issues more directly and to shortenthe hearing time as the questioning of a series of witnesses on thesame issue is avoided. Witness conferencing is a relatively newdevelopment, however. There may be the risk of chaos if theprocedure is not well controlled with witnesses speaking out of turnor descending into arguments. It is important that the tribunal shouldprepare in advance and have a clear understanding of the facts andtechnical issues so as to be able to orchestrate effectivequestioning. The tribunal here will act as a ‘ring­master’ not a‘referee’. As the procedure is relatively novel and there areobviously different ways of approaching it, the tribunal must setclear guidelines to ensure both counsel and the witnessesunderstand how the process is to work. A pre­hearing meeting withcounsel page "266" to agree ground rules is sensible. It is alsoimportant that the tribunal should ensure that each side's counselhas a fair opportunity of asking questions, and strict control must beexerted to ensure that witnesses do not speak at the same time orbecome unduly aggressive or domineering.

Arguably, an inherent disadvantage of this process is the fact thatfactual witness evidence is based in large part on subjectiverecollections and views on events which occurred. Witnesses maynot feel they can successfully confer unless they essentiallychange their own story, thereby making themselves appear lessreliable.

[E]. Expert Witnesses

As noted in Chapter 9, expert witness evidence becomes relevant incases in which, in order to resolve the dispute presented to them,the tribunal must evaluate not only factual evidence and legalsubmissions, but matters of opinion on subjects other than the law.This is very often the case in construction disputes, with the resultthat hearings of construction disputes almost always involve somedegree of expert evidence.

The evidence of party­appointed expert witnesses is ordinarilypresented and tested by examination in a manner similar to thatoutlined above. In some cases, however, the tribunal may find itnecessary, to prevent the ‘battle of the experts' becoming a war ofattrition, to limit the number of expert witnesses each party maycall. In order to limit the issues to be addressed at a hearing, it iscommon practice for the experts to meet before the hearing, on awithout prejudice basis, to identify those areas in their respectivereports where they agree the issues. There may be a direction for ajoint report identifying those areas where they have reachedagreement and those which remain in dispute, with a briefdescription of their respective views. Oral evidence at the hearingwill then be limited to the outstanding issues.

Alternatively, it may be agreed, or the tribunal may order, that theexperts should be heard together. Counsel can then cross­examinethe opposing experts on the same issues rather than taking theevidence of each expert sequentially. An extension of this approachis for the experts to ask questions of each other. This procedure issometimes referred to as ‘hot­tubbing’ and can have the advantageof clarifying the issues and shortening the procedure as thequestions are not all routed through the parties' counsel. As withwitness conferencing with witnesses of fact (addressed above), thetribunal needs to ensure that the process is properly managed andcontrolled.

[F]. Video Conferencing

If a witness cannot be present at the hearing, he can give evidence

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by video conferencing, although this can only be recommended (andpossibly not even then) for relatively less important witnesses and ifit is absolutely impossible for the witness to attend as, generallyspeaking, a witness will be more effective in person. Additionalproblems may include the transmission being disrupted mid­flow, anunseen third party feeding answers to a witness, or concernsregarding the confidentiality of the page "267" testimony. All inall, without a broadcast standard video link and supervision of thewitness at the remote studio, the process of examining and cross­examining a witness by video link is far from ideal.

Nevertheless, video conferencing is fully compatible with a numberof institutional rules.(32) It will be important, however, to check themandatory rules at the seat of arbitration allow for videoconferencing. If they do not allow for video conferencing but suchprohibition is overlooked, this may jeopardise the enforcement ofthe award.

Practical considerations surrounding witness video conferencinginclude agreeing a date, time and place with the witness; ensuringthat the equipment works (possibly by conducting a test run);assessing the approximate duration of the conference; and agreeingwhether it is necessary for there to be supervisors present with thewitness at the time of his testimony.

§12.05. Practicalities and Other Issues

[A]. Attendance

Arbitration hearings take place in private. Access to the hearings isgenerally restricted to the parties, their representatives and anywitnesses and experts during their testimony, as well as the tribunaland any secretary to the tribunal. Hearings are not open to thepublic and outsiders may be present only if both parties and thetribunal agree. This position is reflected in, for example, the ICSIDarbitration rules, which state as follows:

The Tribunal shall decide, with the consent of theparties, which other persons besides the parties, theiragents counsel and advocates, witnesses and expertsduring their testimony, and officers of the Tribunalmay attend the hearings (emphasis added).(33)

A party cannot be excluded from the hearing unless it disrupts thehearing so much that the tribunal deems it impossible to continue inan orderly fashion.

It will be a matter for agreement between the parties (failing whichan order of the tribunal) whether those who are called as witnessesmay be present in the hearing prior to giving their evidence.

[B]. Scheduling of the Hearing

[1]. Duration

The length of the hearing has already been discussed above.Another point to consider, however, is whether to opt for a singlehearing or several separate hearings (e.g., issues of contractualinterpretation or preliminary issues, or dividing quantum andliability). page "268" Single hearings are generally preferable ifall the issues can be heard in a relatively short period of time, asthey involve less travel costs and the opportunity for the tribunal tofully immerse itself in the case. However, for hearings that will takelonger, it may be difficult to schedule a single hearing and having anumber of hearings may be preferable where the dispute raises anumber of issues and/or multiple parties, which can easily bedivided between separate hearings.

[2]. Cancellation Penalties

At the outset of the arbitration in the course of agreeing thearbitrators' fees the tribunal will usually notify the parties of theirintention to charge for time reserved for hearings that do not, forwhatever reason, take place. These cancellation penalties are arecognition of the fact that, the arbitrators having blocked time to siton one case, cannot often at short notice arrange for other work tofill that time if the hearing is cancelled or postponed.

The amount of cancellation penalties tends to differ depending onthe amount of notice the parties give to the arbitrators (e.g., 50% ofthe tribunal's fees to be paid upon cancellation of the hearing with amonth's notice, 80% with a couple of week's notice, etc.). The issueof cancellation fees is, however, a sensitive one. It is by no meansuniversal for cancellation fees to be requested or, if requested,agreed. Arbitrators who are professionals in their principal field ofpractice will not, of course, suffer any loss of earnings throughhaving a case collapse or settle if they are in full time salaried (orequivalent) employment. Not all arbitral institutions recognise thepractice. It is, however, difficult for only one of two parties to take astand on this issue, particularly where the arbitrator is a full time,sole practitioner and the relevant institutional rules permit (or do notprohibit) it.

[C]. Logistics of the Hearing

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[1]. Who Organises the Hearing?

One or both of the parties may be responsible for the organisation ofthe hearing (normally the claimant, with the agreement of the otherparty). Alternatively, this task may fall to the sole or presidingarbitrator or to an individual designated by the tribunal as secretaryto the tribunal. Sometimes, but less frequently, in the case of anarbitration administered by an institution such as the LCIA or ICC,the institution makes the arrangements for the hearing.

The cost and task of organising a hearing should not beunderestimated. For example, a hearing will typically involveorganising a number of rooms (breakout rooms for both sides, thetribunal and the transcribers, as well as the hearing room itself) inaddition to accommodation for each side, their witnesses andexperts, as well as the tribunal, the tribunal's secretary, thetranscribers and any translators.

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[2]. Venue for Hearing

When considering the venue for the hearing there are numerousfactors to be taken into account. Most importantly, are theconference facilities suitable and adequate? Factors to bear in mindinclude the size of the room, the availability of breakout rooms forthe parties, arbitrators and possibly witnesses, facilities for mealsand refreshments, availability of equipment such as projectors andscreens/wide screen TVs, DVD players, telephones, faxes,photocopiers and PCs with Internet access, as well as techniciansto deal with any problems that may arise. Access to law librariesmay also be available.

It is worth considering how long the venue is open, includingevening and weekend access as many locations have very specifichours with no room to manoeuvre, whereas others are happy toaccommodate circumstances in which hearings may overrun orwhere the parties specifically wish to have use of the venue beyondnormal office hours.

Issues in relation to the payment of a deposit need to be borne inmind as most venues will require such a payment. The cancellationpolicy needs to be reviewed as some venues require substantialnotice to be given if payment is to be returned.

At the most basic of levels, the location of the venue itself needs tobe chosen with care so as to ensure it is convenient for all parties,their witnesses and the arbitrators. Travel time and costs need to beconsidered in relation to the location of the accommodation.

Security is also an issue, in order to avoid having to removedocument bundles at the end of each day.

[3]. Arrangement of Hearing Room

The hearing room itself should be spacious with separate longtables for each of the counsel teams, party representatives and thetribunal. The transcribers and translators may also need separatetables and, in our experience, the transcribers often also take up aseparate room as their equipment can be disruptive to the hearing.

The room will need to accommodate several sets of the hearingbundles (the arbitrators', the parties' and one for the use of thewitnesses). Each side's counsel will need enough room behind itstable to be able to keep its documents readily to hand.

[4]. Stenographers or Transcribers

It is not essential to have a transcript of the hearing and in somecases the tribunal may instead prepare a summary (which tends notto include the testimony of the witnesses). However, in ourexperience, in large complex disputes it is generally a good idea tohave professional transcribers prepare a verbatim record of thehearing – occasionally this facility is dispensed with, if the venue isill­suited to accommodating the necessary equipment.

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In the event that transcribers are used, it is a good idea to providethem with a list of parties and key names and terms before thehearing as well as any handouts as the hearing progresses.

Another consideration is whether the parties require the transcribersto produce a daily transcript of the hearing or, instead, whether a fulltranscript after the hearing has ended is sufficient. Althoughgenerally more expensive, the first option enables counsel to reviewhow the day has gone, as well as preparing for submissions goingforward.

Generally, the parties will review the transcript and provide thetranscribers with amendments, which the transcribers will use toproduce a correct, agreed, version. This process, whilst seeminglystraightforward, can become difficult if parties attempt to use it asan excuse to literally re­write the record.

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The costs of the transcribers are added to the costs of thearbitration.

[5]. Translators

It is usually the responsibility of the party whose witness is in needof a translator to make the necessary arrangements. In somecases, the parties may agree on a translator who can provideservices for witnesses presented by both sides.

Testimony of witnesses will tend to be more reliable if given in theirmother tongue and, therefore, if all of the members of the tribunal donot understand that language, it may be preferable to have atranslator. Some witnesses, however, may not speak the languageof the arbitration perfectly, but may speak it well enough to giveevidence directly. It is a matter for the parties and their advocatesto judge.

The choice of interpreter is important, as it will be from that personthat the tribunal will be hearing the witness's evidence. Therefore, itis important to choose someone who has experience of internationalarbitration, who is competent and also independent (it will do yourparty no good if the tribunal is given the impression that thetranslator is partial).

You will also need to consider whether translation should besimultaneous or consecutive.

[D]. Ex parte Hearings

[1]. What Is an Ex parte Hearing?

If one party refuses or fails to appear, the hearing can proceed exparte.(34) Refusal by a party can be express, e.g., where a partyrefuses to respond to correspondence or states that it will notparticipate in the arbitration, or implied, e.g., where the party doesnot say outright that it will not attend the hearing but, instead,creates an unreasonable delay that the tribunal decides to treat as arefusal or an abandonment of the right to page "271" participate.What constitutes an unreasonable delay for these purposes is amatter for the tribunal.

The tribunal will, in any event, set out in the award thecircumstances surrounding the non­appearance of the party inquestion, in order to demonstrate that the party was given ampleopportunity to appear and that the award is still enforceablenotwithstanding the ex parte nature of the hearing.

[2]. What Is the Procedure in an Ex parte Hearing?

Arbitral tribunals cannot render awards similar to default judgments.A tribunal has to consider the merits of the dispute in front of themand come to a considered and reasoned decision on the same.Thus, even if one party does not appear, the other party still has toprove its case to the satisfaction of the tribunal. This means that ahearing may be necessary, albeit a shorter one than would be thecase if both parties were appearing.

Where an ex parte hearing does take place, there is no need for thetribunal to represent the non­appearing party. However, it is thecase that, in such circumstances, the tribunal will often test thearguments of the appearing party more rigorously than it wouldotherwise have done.

1 These rules will apply by virtue of the parties' agreement, whetherin the original arbitration agreement or at the time that a disputearises and is submitted to arbitration.2 UNCITRAL Arbitration Rules (as revised in 2010), Art. 17(1).3 ICC Rules of Arbitration (2012), Art. 19.4 Ibid., Art. 22(4).5 LCIA Rules of Arbitration (1998), Art. 14.1.6 Article 14.2.7 Article 16(1).8 See, e.g., Art. 25(6), Art. 24(1) and Appendix 4 ICC Rules, Art.19.1 LCIA Rules, and Art. 17(3) UNCITRAL Arbitration Rules. TheAAA International Arbitration Rules, seem to presuppose that therewill be a hearing (see Art. 20).9 UNCITRAL Notes on Organizing Arbitral Proceedings, n. 53.10 See n. 53.11 See n. 52.12 Section 36 English Arbitration Act 1996.13 Article 18.1 LCIA Rules.14 Article 5 UNCITRAL Arbitration Rules.15 See, e.g., Art. 20.3 LCIA Rules (‘subject to any order otherwiseby the Arbitral Tribunal, the testimony of a witness may bepresented by a party in written form, either as a signed statement oras a sworn affidavit’).16 Article 4.4 IBA Rules.17 Examples include the Code of Professional Ethics of the

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Geneva Bar Association (Art. 13); the Austrian Rules on theExercise of the Legal Profession, Supervision of the Duties ofAttorneys and Training of Attorney Trainees (Art. 8); and the BelgianBar Association Rules.18 See, e.g., Rule 4.03 Rules of Professional Conduct, The LawSociety of Upper Canada and Rule 5­310 Rules of ProfessionalConduct, State Bar of California. Even when contact with witnessesprior to their giving oral evidence is not prohibited, of course,lawyers remain subject to other rules of professional responsibilityand ethical standards.19 Interestingly, Belgian law, which generally prohibits counsel'sapproach to a witness prior to the witness giving oral evidence,allows this to occur if this is allowed under the procedural lawsgoverning the arbitration.20 Article 20.6 LCIA Rules.21 Article 4(3) IBA Rules.22 D. Roney, Effective Witness Preparation for InternationalCommercial Arbitration: A Practical Guide for Counsel, J. Intl. Arb.20, 429, 430 (2003). This art. sets forth a useful six­step guide onwitness preparation. See also Georg von Segesser, ‘WitnessPreparation in International Commercial Arbitration’, Bulletin del'Association Suisse d'Arbitrage 20 (2002) 222–228; and John P.Madden, ‘How to Present Witness Evidence in an Arbitration:American Style’, Bulletin de l'Association Suisse d'Arbitrage 11(1993) 438­445.23 Redfern and Hunter, International Commercial Arbitration, para.6­87.24 Article 8.2 IBA Rules.25 Ibid., (‘The Arbitral Tribunal, upon request of a Party or on itsown motion, may vary this order of proceeding….’).26 Paulsson et al., International Chamber of Commerce Arbitration,435.27 See, e.g., s. 38(5) English Arbitration Act 1996 and s. 7 USUniform Arbitration Act (enacted in various forms in many of theStates of the United States of America).28 Paulsson et al., International Chamber of Commerce Arbitration,435, n. 1.29 Paulsson et al., International Chamber of Commerce Arbitration,439.30 Redfern and Hunter, International Commercial Arbitration, para.6­88.31 Article 8.2 IBA Rules. See also the ICC Construction ArbitrationReport at para. 66.32 See, e.g., Art. 24(4) ICC Rules.33 The UNCITRAL Arbitration Rules also provide that Hearings shallbe heard in camera unless the parties agree otherwise (Art. 28(3)).34 See, Art. 30(2) ICC Rules, Art. 15.8 LCIA Rules, and Art. 30(2)UNCITRAL Arbitration Rules.

Source

Chapter 13: Effect ofthe Award in JaneJenkins , InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 273 ­ 304

§13.01. Introduction

In the absence of a settlement between the parties, the culminationof the arbitral process is the tribunal's decision. Broadly, for thisdecision to be enforceable – particularly internationally – it needs tobe in the form of an ‘award’. However, there is no internationallyaccepted definition of when a decision of the tribunal constitutes anaward. Obviously, if the decision is not enforceable the wholearbitration has almost certainly been an expensive waste of time.The question of when a tribunal's decision constitutes an award is,therefore, worthy of consideration.

To start with, it is worth observing that a tribunal may makenumerous decisions in the course of an arbitration, not all of whichwill be awards. In addition, there may be several different types ofawards. For instance, during the course of an arbitration and beforethe final decision is reached, a tribunal may make interim or partialawards, covering a wide range of issues. These issues may includethe jurisdiction of the tribunal to determine the dispute, interimmeasures (such as the protection or preservation of the subjectmatter of the dispute pending its determination) or orders for theprovision by one party of security for the other's costs of thearbitration. The tribunal may also make procedural orders, whichcan be distinguished from awards.

There is an accepted proposition that awards are decisions of thetribunal which ‘finally determine the substantive issues with whichthey deal’.(1) An award must also result from an agreement toarbitrate. Administrative decisions by an arbitral institution, ordocuments executed by those other than the tribunal (e.g., thesecretary) are not ‘awards'. It is also clear that only an instrumentthat the tribunal intends to be the final expression of its decision onsome or all of the parties' claims can be regarded as an award. Anaward need not deal with all of the issues in dispute (in which caseit might properly be described as a ‘partial award’) but the essenceof an award is that it page "273" must be dispositive of one ormore of the substantive issues between the parties. So, typically,an early decision on whether the tribunal has jurisdiction to

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determine the dispute would be given as a (partial) award onjurisdiction, the intention being that on this point the tribunal has(from its own perspective) finally ruled on its own ability todetermine the disputes referred to it. This degree of finality withinthe arbitration allows the parties to proceed with the rest of theproceedings, secure in the knowledge that at some later stage thetribunal will not turn around and effectively bring the proceedings toan end by deciding that, after all, it had no jurisdiction to embark onthe process.

[A]. Types of Awards

Although monetary awards are the most common remedy grantedby arbitral tribunals, they are not the only remedy available.(2)Arbitral awards may also grant extensions of time; correct interimcontractual decisions by engineers, architects and the like; orderrestitution, specific performance, declaratory relief, permanentinjunctions, punitive damages (where the jurisdiction permits); adaptcontracts, fill gaps in contracts; order rectification of contracts andmake decisions on interest and costs.

[B]. Res judicata Effect of the Award

A valid award will bind the parties to the arbitration. Usually, anaward has no effect whatever on those who were not parties to thearbitration, and neither confers rights nor imposes obligations uponthird parties. However, there are exceptions. Arbitration awards canbind third parties, but only in circumstances where those parties'rights depend on the rights of the parties to the arbitration. Forinstance, an assignee of a contract is generally regarded as beingbound by the terms of any arbitration clause contained in theassigned agreement even though (as a matter of English and someother laws) an assignee can take only the benefit of a contract andis not bound to perform its terms. Similarly, an insurer exercising itsrights of subrogation would be bound to resolve disputes inaccordance with any arbitration agreement the insured had enteredinto, and would be bound by the results of any such arbitration asregards subrogated rights.

As between the parties, the award has the effect of res judicata.(3)This is the principle that a matter, finally adjudicated by acompetent court or arbitral tribunal, may not subsequently bereopened or challenged by the original parties or their successors ininterest. This doctrine, found in many common and civil lawsystems (the page "274" principle is codified in the laws of thelatter),(4) prevents any of the parties to a dispute trying to reopenlitigation by bringing another action against the same party inrespect of the same issues as those determined in the originalproceedings. The doctrine of res judicata is based on public policyconsiderations, including the desire to ensure that there is aconclusion to the dispute and that a party to the dispute is nottroubled more than once in relation to the same issue, and thusgenerally to promote efficient and final dispute resolution. Indeed, inthe English legal system it is not only matters which were actuallyresolved in proceedings which are treated as having this degree offinality but also matters which could and should have been resolvedin the proceedings.(5) The full rigour of this principle probably appliesonly to proceedings in the English courts, but its potentialapplication to arbitration proceedings should not be ignored inEnglish law/English seat arbitrations. The principle of res judicata isof course consistent with the fundamental principles of the NewYork Convention, that is, that the parties' arbitration agreement andthat arbitral awards be recognised as binding.

The precise extent to which a Court applies the principle of resjudicata in respect of a dispute determined by arbitration (or indeedby the Courts) is dependent upon national laws and thedevelopment of precedent in each jurisdiction. In turn this raisesquestions as to which jurisdictional forum's rules apply to such adetermination – the law of the seat where the award was handeddown, or the forum where a party attempts to re­litigate (or re­arbitrate) the issue? An international approach to the application ofthis principle giving due regard to the aim of arbitration and the NewYork Convention, has been argued the appropriate approach,concluding that The New York Convention forbids actions to annulan award except in the state where it was ‘made’ or ‘under the lawof which’ it was made.(6)

The corollary to the principle of res judicata is that there is (it hasbeen said) no concept of precedent (or stare decisis)(7) inarbitrations, domestic or international. A prior decision by onearbitral tribunal has no binding legal authority beyond its effect onthe parties to the arbitration (and those claiming through them) asres judicata. It is binding only on the parties to that particulararbitration and does not form a part of some greater whole to berelied upon by another party in a similar situation. That said, it isoften the case that prior arbitration awards are cited in subsequentarbitrations between different parties, albeit with varying degrees ofsuccess. The need for this can be found in a number of differentareas. For instance, for many years the FIDIC suite of contractshas required disputes under those standard forms to be resolved byarbitration in accordance with the ICC Rules. As in many casesthese international standard page "275" forms are not amendedto allow disputes to be determined – in public – by courts, the onlysource of materials on their interpretation is in arbitration awards.

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Another need for the introduction of the decisions of earlier tribunalsarises out of the (fortunately relatively rare) forms of arbitrationclauses where the substantive law of the contract is defined as (oras including) the decisions of international tribunals.(8)

There are at least two obvious problems with the practice ofreferring to previous arbitration awards. The first is that arbitrationsare generally regarded as being private matters with, theconsequence that there is no systematic recording and publicationof awards. Therefore, the number of accessible decisions is alwayslimited, with an additional concern being that the cases that arepublished and available for future reference may well have enteredthe public domain for reasons unconnected with their significanceas potential legal authorities (e.g., because the successful partypublishes the award to advertise its success).

The second problem is that there is no quality control over the vastmajority of arbitral awards.(9) Since they have no need to beconcerned about the establishment of a coherent, internallyconsistent set of principles, arbitrators (rightly) are free to determinea case entirely on its merits, the peculiarities of that specific case,and the requirements of the arbitration clause and the substantiveand the procedural law. This combination of factors is specific toindividual decisions and is clearly not conducive to the developmentof a reliable system of precedent, as is found within common lawsystems, by the appeal process and judged according not only tothe level at which the decision was made (first instance, firstappeal, second appeal etc.) but also by the reputation of thespecific judge or judges in the area of law or practice giving rise tothe dispute.

Only, perhaps, in the emerging body of law relating to theinterpretation of bilateral investment treaties (BITs) are theseproblems addressed. This arises out of the increasing availability ofa published set of awards on a series of similar BITs governed notexclusively by national laws but by the principles of internationallaw. A further element is the fact that where such BIT disputes areresolved by arbitration in accordance with the ICSID ArbitrationRules, there is an internal review process which, while expresslyintended not to be an appeal on the merits of the case, does providea degree of quality control and consistency across a number ofcases.(10)

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[C]. Notification of the Award

Once the award has been made, most international and institutionalrules of arbitration provide for the delivery of the award to theparties.(11) Normally this is only after payment of all sums due to thearbitrators and the arbitral institution. Where this is not done, theparties, or at least the party who expects to win, will no doubt makeit his business to obtain a copy and notify the other side, payingwhatever is necessary to settle outstanding fees if advances paid todate have not proved to be sufficient.

Of course, this may not be the end of the matter. In somecountries, steps must be taken to register or deposit the award tomake it effective and advice should always be taken on this andother local requirements of the place where the arbitration is takingplace. If the arbitration award is not complied with voluntarily (andwhile many awards are honoured, the trend is, perhaps, for more tobe resisted), enforcement against the assets or the officers of thelosing party will become necessary. This is considered in furtherdetail below.

[D]. Options for the Losing Party

A party who receives an unfavourable award has four options.These are:

(i) to accept the award and comply with its terms;(ii) to attempt to use the award as a basis for settlement;(iii) to challenge the award with a view to having it set aside; or(iv) to do nothing wait until the winning party brings enforcement

proceedings, and then to resist enforcement of the award.

This chapter considers options (iii) and (iv) in some depth. Littleneed be said about the first two options. The first option is self­explanatory, while the second turns on the commercial realities ofthe situation the parties find themselves in at the end of thearbitration, such as whether they might have common commercialinterests in the future, the possibility of challenge to the award, thechances of the losing party resisting enforcement and, of course,the ability of the losing party to meet the award or (if not a monetaryaward) to perform its terms.

§13.02. Challenging the Award

[A]. The Meaning of ‘Challenge’

The term ‘challenge’ encompasses both the common law notion ofan ‘appeal’ against an award, and the civil law notion of ‘recourse’ to

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a court of law against an award.(12)

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[B]. The Purpose of a Challenge

Challenging an award affords the losing party a means of attemptingto have the award modified or even set aside. If an award is setaside by the court of the place where the arbitration takes placethen it is usually treated as invalid and should be unenforceable.This is certainly true of enforcement in the country where the awardhas been set aside and may also be true where the winning partytries to enforce the award in another jurisdiction. For instance,Article V(1)(e) of the New York Convention provides that recognitionand enforcement of an award ‘may’ be refused if the award hasbeen ‘set aside or suspended by a competent authority of thecountry in which, or under the law of which, that award was made’.However, courts in certain jurisdictions such as France and theNetherlands have all enforced awards which have been set aside bythe courts of the place where they were made.(13) The approach inthe US appears to be somewhat mixed. It seems more likely thatannulment of an award will be disregarded where it is contrary to USpublic policy or where, for example, the annulment was based on asubstantive review of the merits of the award (and therefore contraryto the arbitration agreement that the award be final and binding).(14)

Of course, one reason for the adoption of arbitration as a means ofdispute resolution is to obtain a final and binding award without therisk of being mired down in additional proceedings, whether in thecourts of one or other of the parties, the courts of the place ofarbitration or the courts of the place of enforcement. Accordingly,the bases for challenge to the substance of the award are becomingincreasingly limited and narrowly delineated, as a result ofconverging internationally accepted standards. After all, everysubmission to arbitration contains an implied (or, in the case ofsome institutional arbitrations, express) promise by each party toabide by the award of the arbitrator, and to perform his award. It ison this promise that the claimant proceeds when he takes action toenforce the award.(15) A challenge against an award should not,therefore, consist of a review of the relative merits of that award,although where the arbitration process has failed, perhaps as aresult of bias or other lack of due process in the proceedings,correction of the injustice is obviously appropriate and normallyavailable.

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[C]. Prior Exhaustion of Other Available Options

Before making an application for challenge of the award to therelevant national court, the challenging party must first considerwhether there are any other available remedies which it would besensible to consider. Indeed, in some cases it may even be aprerequisite to an application for challenge that all other remedieshave been exhausted. Examples of these other remedies can befound in the rules governing the arbitration or the national laws ofthe place of the arbitration, which may provide a mechanism for thetribunal that made the award (or in some cases the institution oranother tribunal) to correct it in some way or to provide an additionalaward.

However, in most cases, the provisions under which a tribunal cancorrect parts of the award are necessarily limited in scope. Forexample, under Article 35 of the ICC Rules, a tribunal may correct,‘clerical, computational or typographical errors or any errors of asimilar nature contained in an [a]ward’.(16) The UNCITRAL ArbitrationRules contain similar provisions for correction of minor errors andinterpretation.(17) So too does the UNCITRAL Model Law (Article 33),which forms the basis for an increasing number of national laws onarbitration.(18)

Slightly different is the power in the ICC Rules for the arbitraltribunal to issue an ‘interpretation’ of the award upon the request ofany party. The UNCITRAL Rules have a similar provision forinterpretation of the award and also permit the parties to requestthat the tribunal make an award which deals with ‘claims presentedin the arbitral proceedings but omitted from the award.’ This issubject to the tribunal considering that the omission ‘can be rectifiedwithout any further hearings or evidence.’(19) Whilst this type ofprovision is obviously helpful, this is not a route by which to seek tochallenge the conclusion of the award – it permits the tribunal onlyto interpret the award given.

In principle it may also be possible that the institutional rulesapplicable to the arbitration in question permit a review of the meritsof the award. This is however uncommon in the arbitration rules ofthe major commercial arbitration institutions and specialist rules forthe resolution of construction disputes.

It should also be noted that a party dissatisfied by an ICSID tribunalaward may apply to have the award interpreted, revised or annulled.(20) This is dealt with further below at Chapter 14. Indeed, ICSIDarbitral awards are particularly noteworthy as this internal reviewmechanism is the only method of challenging the award: a partycannot page "279" bring a separate challenge in court.(21)

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However, despite this extensive array of powers to adjust awardsand the provision of an internal ‘appeals' procedure, even thissystem falls short of a full review of the merits. The power tointerpret an award, whether by the same tribunal or, where that it isnot possible (perhaps because of the death or incapacity of atribunal member), by a separate tribunal,(22) is not dissimilar to thepowers to correct minor errors found in the rules referred to above.The power to revise is an unusual one, depending on thesubsequent discovery by the applicant of a fact which woulddecisively affect the award and which was not known to theapplicant at the time of the award. In addition, the applicant mustnot have been negligent in not knowing about that fact. Suchsituations are, understandably, rare.

This leaves only the power of annulment. The ICSID ArbitrationRules make it clear that this power is about procedural failings bythe tribunal. The grounds for annulment are: the tribunal was notproperly constituted, the tribunal has ‘manifestly exceeded itspowers', there was corruption on the part of a member of thetribunal, there was a serious departure from a fundamental rule ofprocedure or the award failed to state the reasons on which it wasbased. While successful annulment applications were oncerelatively common and their availability remains a useful check onthe conduct of tribunals and the development of principles ofinternational law, the trend appears to be for successful applicationsto be on the decline. This is so notwithstanding the ingenuity of thearguments of losing parties to bring substantive review of the meritsof the case into one of the permitted grounds for annulment, mostparticularly that a tribunal in failing to apply the law properly ortaking proper account of the evidence put before it in reaching thecorrect decision on the facts ‘manifestly exceeded its powers'.

[D]. Challenging an Award in Court

If, having considered the provisions for interpretation or correction ofthe award or the internal review procedures (or indeed, if there areno internal review procedures), a party is still not satisfied, thatparty must then consider upon what grounds it can bring a challengein court.

[1]. In Which Court Should an Application Be Made?

It is conventional wisdom that a challenge to the award must bemade in the national courts that have jurisdiction. This is usually thecourts of the place where the award was made, which is to say, theseat of the arbitration.(23) Indeed, legislation of several page"280" countries specifies that the courts of that country may onlyannul an arbitral award where that country was the ‘seat’ of thearbitration.(24)

From time to time, however, courts of countries other than the placeof the arbitration have determined that they too have jurisdiction todecide upon the validity of the award. Thus, prior to the passing ofthe Indian Arbitration and Conciliation Act 1996, the Indian courtshad determined that the previous arbitration law gave themjurisdiction to review the conduct of arbitrations taking place outsideIndia, at least where the agreement to arbitrate was governed byIndian law.(25) On essentially the same wording in their ownarbitration laws, the courts in Pakistan adopted a similar position.(26)With the adoption of the UNCITRAL Model law in both thesecountries the position has been brought into line with internationalnorms, though no doubt from time to time similar cases will arise inother jurisdictions as international arbitration is introduced but beforeit becomes widely accepted. Certainly, in India it is now clear thatIndian courts should not assert jurisdiction in applications to setaside foreign awards purportedly pursuant to section 34 (publicpolicy) of the 1996 Act.(27)

[2]. When Should an Application be Made?

If a party is considering challenging an award in a national court, itmust act promptly or it could lose the right to challenge. It isimportant to take local legal advice on this point as the time limitsvary greatly from country to country. For example, an application tohave the award set aside in a country which has adopted theUNCITRAL Model Law without amendment has to be made withinthree months of the date upon which the party making theapplication received the award (Article 34). Yet if an application forcorrection or interpretation has been made under Article 33, timedoes not start to run for any challenge until the application forcorrection or interpretation has been disposed of by the tribunal,giving a considerable time for a challenge to be mounted. By way ofcomparison, English law provides that a challenge made on theaward must be made within twenty­eight days of the award.(28) Foran international perspective, in domestic arbitrations in Hong Kong,any challenge must be made within thirty days of the award;(29) andin municipal French arbitrations, there is a one­month time limit tolodge the appeal.(30)

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[E]. The Grounds for Challenge Under the UNCITRAL ModelLaw

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A party challenging an award in court must prove one of the groundslisted in the relevant arbitration law. Accordingly, this is again anarea which requires the advice of local counsel when a party isconsidering its ability to challenge the award. There are, however,several generic grounds upon which a challenge may usually bebased. With the increasing acceptance of the UNCITRAL ModelLaw either in its entirety or as the checklist against which othernational laws are drafted it is worth looking at the specific groundsset out in the UNCITRAL Model Law as being representative of thetypes of challenge which can generally be made.(31) It is also nocoincidence that there is a high degree of commonality between thegrounds for challenge to an award contained in the UNCITRALModel Law and the New York Convention grounds on whichrecognition and enforcement of an award may be refused (seefurther below). However, the New York Convention does not purportto limit the grounds on which an arbitral award may be annulled –this remains a matter of local law.

[1]. Application for Setting Aside Under the UNCITRAL ModelLaw

Article 34(2)(a) and (b) UNCITRAL Model Law provide an exclusivelist of grounds under which a party may set aside an arbitral awardin court (It is instructive to examine the grounds of challenge of anarbitral award which are provided for in the UNCITRAL Model Law,as the local law governing grounds for challenge of arbitral awardsoften mirrors it). The UNCITRAL Model Law intended only the courtsof the place of the arbitration to have jurisdiction over the validity ofthe arbitration award. It also intended that the normal remedy wasfor the award to be set aside, although Article 34(4) does providethat the award may be remitted to the tribunal for furtherconsideration in appropriate cases.

Under the UNCITRAL Model Law, there are four grounds pursuant towhich a party can apply to a court to have an award set aside.(32)The grounds are based unequivocally on the existence (orotherwise) of an agreement to arbitrate, natural justice andprocedural fairness (or, as it is sometimes called, ‘due process' or‘legality’). These grounds are discretionary, not mandatory; i.e., acourt may overturn or annul an award if one of these grounds exists,but it is not required to. In particular, these grounds are, as ageneral matter, construed narrowly. Looking at each in turn:

[a]. Existence of Valid Arbitration Agreement

Article 34(2)(a)(i) allows for an application to set aside an awarewhere: page "282"

a party to the arbitration agreement referred to inarticle 7 was under some incapacity; or the saidagreement is not valid under the law to which theparties have subjected it or, failing any indicationthereon, under the law of this State.

This is obviously a reflection of the basis of arbitration which,depends on there having been an agreement between the parties toresolve their disputes in this way. The validity of the arbitrationagreement is governed by the law chosen by the parties. However,absent such an express (or implied) choice of law, an arbitrationagreement's validity is to be judged according to the law of theplace of arbitration.(33) This can lead to rather arbitrary results if, forinstance, the parties not only failed to identify the law governing theagreement to arbitrate but also the place of arbitration. In such acase the ICC, for instance, would select the place of arbitration andthus not only the court to which challenges would be made but alsothe standards by which the validity of the agreement to arbitratewould fall to be determined by that court.(34)

[b]. Lack of Procedural Fairness

Article 34(2)(a)(ii) allows an award to be set aside if:

the party making the application was not given propernotice of the appointment of an arbitrator or of thearbitral proceedings or was otherwise unable topresent his case.(35)

Lack of due process is possibly one of the most important groundsfor recourse against an arbitral award and amounts to violation ofthe principles of fairness. It is vital that minimum proceduralstandards are observed to ensure that the parties are treated withequality and are given a fair hearing, with a full and properopportunity to present their respective cases. It is a differentquestion to whether the tribunal has administered the arbitration inaccordance with the agreements made by the parties as toprocedure. Difficulties normally arise not because basic proceduralprinciples are contested but as a result of disagreement over howthese principles are implemented. For instance, tribunals often wishto restrict the length of hearings by giving each party the same(limited) time to present its case. Yet is it fair, if one party has threetimes as many witnesses as the other and its witness statementshave been admitted as evidence, for its opponent to be given onlythe same amount of time to present its case, despite the page"283" fact that this will require the cross­examination of three timesas many witnesses? As is so often the case, the principles are

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easy to state but often difficult to apply in practice.

For this reason, national courts are left to determine, in an ad hocfashion, exactly what is required to constitute a ‘fair hearing’.Standards may vary from country to country, further emphasisingthe need for cultural awareness of the norms of both the placewhere the arbitration takes place (for the purposes of maintaining orresisting a challenge) and the possible place of enforcement.(36)Those standards will usually be applied based on local requirementsfor procedural fairness when a court is considering whether to annulan award. However it does not follow that, absent compliance withevery procedural rule that might apply to court litigation in thatjurisdiction, an award may be annulled. Rather, local rules provideguidance as to fundamental requirements for ensuring a fair hearing.For example, in the United States, lack of an oral hearing may beregarded as a breach of due process and a sufficient ground to setaside the award. Yet, instructively, American courts have held thata US corporation's due process rights were not infringed by atribunal's decision not to reschedule a hearing for the convenienceof the American corporation's witness(37) and that a respondent'slack of participation in an arbitration did not infringe its due processrights under US law where it received notice of the proceedings butoffered no explanation of its failure to participate.(38)

This ground for challenge in particular is something which must begiven due regard not only after receipt of the award, but throughoutthe arbitration. Any objection to a procedural ruling should be madepromptly during the arbitration. Failure to do so carries with it asignificant risk that such an objection will later be deemed to havebeen waived. It should be noted that English judges labour to upholdarbitral awards and a ‘high threshold’ of irregularity is required for thecourt to intervene.(39)

[c]. The Award Exceeds the Tribunal’s Jurisdiction

Article 34(2)(a)(iii) allows an award to be set aside where:

the award deals with a dispute not contemplated by ornot falling within the terms of the submission toarbitration, or contains decisions on matters beyondthe scope of the submission to arbitration, providedthat, if the decisions on matters submitted toarbitration can be separated from those not sosubmitted, only that page "284" part of the awardwhich contains decisions on matters not submitted toarbitration may be set aside.

The arbitral tribunal's duty to restrict its ruling to the ambit of thedispute at hand can be found in Article 16 of the UNCITRAL ModelLaw, which is concerned with the tribunal's jurisdiction orcompetence. It is noteworthy, however, that Article 16(2) alsorequires that a party which discovers that the arbitral tribunalexceeded its jurisdiction must immediately raise an objection (andno later than the submission of the statement of defence). A partyfailing to comply with Article 16(2) risks being precluded from relyingon this ground for annulment.(40)

Article 34(2)(a)(iii), therefore covers situations where an award wasmade by a tribunal with jurisdiction but which exceeded its powersunder that jurisdiction. This argument most often arises where thesubject matter of a case develops, either at the instance of theclaimant or the respondent, after the matter has first been referredto arbitration. Of course, the ICC and other arbitration rulesprescribe how this ‘case creep’ is to be dealt with. The ICC Rules,for instance, broadly lock the parties into the cases they havepresented prior to the agreement of the Terms of Reference, withthe addition of subsequent claims only being permitted with theconsent of the tribunal, taking all the circumstances – including thestage at which the new claims are raised – into account.(41)

This ground may also apply where the arbitrators have ruled onmatters that in fact were never presented to them by the parties. Itmay also apply in certain instances where the tribunal has failed todecide upon issues that were in contention and argued before them.

However, as a general matter, courts are slow to question an arbitraltribunal's interpretation of the scope of its mandate.

[d]. Arbitral Procedure Was Not in Accordance with the Parties’Agreement

Finally, Article 34(2)(a)(iv) provides for set aside where:

the composition of the arbitral tribunal or the arbitralprocedure was not in accordance with the agreementof the parties, unless such agreement was in conflictwith a provision of this Law from which the partiescannot derogate, or, failing such agreement, was notin accordance with this Law.

Again reflecting the contractual, consensual nature of the arbitrationprocess, the tribunal must be composed in accordance with theagreement of the parties or the governing law of the arbitration.Similarly, due regard must be had to the parties' agreement as tothe procedure governing the conduct of the arbitration itself. Againhowever, both institutional rules and the parties' agreement will

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leave considerable discretion to the tribunal in deciding the properconduct of the proceedings. In any page "285" event, minordepartures from the parties' agreed procedure, unless prejudicial toa party, are unlikely to result in a successful challenge.

[e]. The Award Deals with a Dispute That Is Not Capable ofSettlement by Arbitration

In addition to the above four grounds, there are a further two thatmay be raised either by a party or by a national court seised of thematter on its own initiative.(42) The first is that:

the subject matter of the dispute is not capable ofsettlement by arbitration under the law of the placewhere the arbitration took place.

If the court of the place of arbitration finds that ‘the subject­matterof the dispute is not capable of settlement by arbitration’ under itsdomestic laws, it can set the award aside. It should be noted that itis the law of the place of the arbitration that determines this issueand not the law chosen to govern the arbitration agreement or thelaw governing the agreement giving rise to the dispute. What doesand does not fall within the class of matters not capable of beingresolved by arbitration varies from place to place. However, somematters which typically may not be resolved by arbitration are thesewhich involve the status of things as against third parties, e.g.,patents and land rights.(43) Also generally regarded as being outsidethe scope of arbitration are matters which involve the resolution ofmatters regarded as being in contravention of the criminal law of thecountry in which the matter complained of took place and/or againstthe criminal law of the country in which the arbitration is beingconducted. This ground has all too often been seen to be a fertileway for respondents to escape their obligations to resolve theirdisputes by international arbitration, with many claims, not allspurious, of illegal conduct being raised by way of ‘defence’ andthen relied on as a means of avoiding the agreement to arbitratealtogether.

[f]. The Award is Contrary to Public Policy

The last ground Article 34(2)(b)(ii) allows an award to be set asidewhere ‘the award is in conflict with the public policy’ of the seat ofthe arbitration. The term ‘public policy’ has no accepted internationaldefinition.(44) Indeed, when adopting and interpreting the UNCITRALModel Law every state can, quite legitimately, have its own conceptof what is required by its ‘public policy’.(45) Further, even where thereis no page "286" specific statutory basis for a challenge on thisground, some jurisdictions have recognised this as a ground thebasis for which is the common law (e.g., the US). Although inspiredby the French concept of ‘ordre public’, the term ‘public policy’ iswider than the French doctrine because it covers more than merelythe principles of procedural justice or fairness (or legality). Despitethis considerable uncertainty, however, it is generally accepted thatthat the term should cover only those principles of law and justice(both substantive and procedural) that are fundamental to theprinciples of the state concerned. That said, the boundaries of thisground for challenge are not well defined and the tendency in somejurisdictions is now to interpret the public policy in question as‘international public policy’. Along with the ‘not arbitrable’ grounddiscussed above, public policy has been used to protect the publicinterest in matters which parties might, perhaps, wish to keepprivate. Thus a US court has recorded that public policy has beenused as a reason for limiting the domain of arbitration in antitrustcases.(46) Antitrust issues apparently are not solely a private matterbut affect millions of people; so, while a court may allow an antitrustarbitration to continue, it will not countenance the breaching of thelegitimate interest in the enforcement of those antitrust laws.

The records of the discussions leading up to the adoption of theUNCITRAL Model Law(47) also make it clear that the public policyprovision is intended, among other things, to cover the possibility ofsetting aside an award if the arbitral tribunal has been corrupted insome way, or if it has been misled by corrupt evidence. This was,apparently, considered necessary because doubts were raised as towhether the other provisions adequately covered all thecircumstances in which awards might be set aside. It must be bornein mind, however, that, what one national court considers publicpolicy may not be the same as the public policy of another nationalcourt.

[F]. Other Grounds for Challenge

The potential grounds for challenge will not always be limited tothose in the UNCITRAL Model Law. Every losing party will thereforeneed to consider to what extent the national laws of the country inwhich the challenge is to be made provide for a measure of controlover the arbitral process.

The extent of this control will vary from country to country, taking itbeyond the scope of this chapter to discuss all the different ways inwhich challenges may be made around the world. However, in orderto give a flavour of what may or may not be possible, in civil lawcountries it is uncommon for a court to have the power to review themerits of a case.(48) In contrast, in some common law countries,such as England, page "287" there is the possibility of a

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challenge on a point of law,(49) though parties to both domestic andinternational arbitrations taking place in England may – andfrequently do – contract out of this provision, for instance by theadopting certain of the institutional arbitration rules.(50) It is also astatutory requirement that before leave to appeal is given by anEnglish court (unless the application is made by consent of all theparties) the court will have to be satisfied that the tribunal had in allprobability reached the wrong conclusion or that the question of lawis one of general public importance and the conclusion reached bythe tribunal is open to serious doubt. These threshold requirementsseriously limit the possible impact of this section on the finality ofmost arbitration awards in England.

Other grounds for challenge may include:

­ partiality or bias on the part of the arbitrators (though this may bebrought under a challenge for lack of procedural fairness or failureto appoint the tribunal in accordance with the arbitrationagreement);

­ fraud (i.e., intentionally fabricated evidence given in theproceedings).

As a result of these varying criteria, it is important that a partywishing to bring a challenge to the award takes local law advice assoon as possible after the award is rendered if it suspects groundsfor challenge may exist.

[G]. Remedies Available as a Result of a Successful Challenge

As noted above, the basic remedy on a challenge to an award is tohave the award rendered a nullity, leaving the parties to resolve theunderlying dispute before another tribunal, with the attendant timeand cost disadvantages that this will entail. Although Article 34(4) ofthe UNCITRAL Model Law (which permits the court to allow thetribunal to take such steps as would eliminate the grounds the courtmight otherwise have for setting aside the award) mitigates to someextent the ‘all or nothing’ approach of the UNCITRAL Model Law,under which an award is either set aside or left to stand, thepotential remedies depend on the powers and provisions of thenational laws which the court applies.

Possible options available as a result of a successful challenge(51)adopted in various jurisdictions around the world include the court:

­ rejecting the challenge and confirming the award. Once the awardis confirmed, the winning party can proceed to enforcement;

­ varying the award;­ accepting the challenge and remitting or referring it back to thearbitral tribunal for reconsideration, amendment or clarification(this is in addition to page "288" the power contained inArticle 34 of the UNCITRAL Model Law, referred to above, toallow time – before the court rules on the challenge – for thetribunal to put its house in order);(52) or

­ setting aside the award (either completely or in part).

The practice of remitting the award to the tribunal for further reviewis more widespread in countries where the common law has hadsome influence including, for instance, Bermuda, Hong Kong, Eire,Malaysia, and Sri Lanka. In England, for example, setting aside anaward is considered a drastic measure, in view of theconsequences of such an action, and would be justified only ifremission – the primary method of judicial intervention under theEnglish Arbitration Act 1996(53) – did not achieve a just result.(54) Incivil law jurisdictions remission is less common, but there areexamples, including Germany.(55)

Setting aside an award in its entirety is the most common remedyfollowing a successful attack on an award. If the award is set aside,it becomes unenforceable in the country in which it was made.Usually it will also be unenforceable elsewhere, although, as notedabove, there are cases where the award has been set aside in onecountry (the seat of the arbitration) yet was still enforceable inanother country.(56)

If the award has been set aside, the parties need to considerwhether they are still bound by the arbitration agreement. This maydepend on the grounds on which the award has been set aside. Ifthe court has held that the arbitration agreement is invalid then theparties will no longer be bound. However, if the court has only setaside the award for procedural, jurisdictional or permittedsubstantive grounds, the arbitration agreement may still beeffective.

[H]. Conclusion

As can be seen, challenging an award is not a straightforwardprocess and the grounds for challenge, the timing and the procedurevaries considerably from jurisdiction to jurisdiction. There is,however, a definite drift towards harmonisation of the rulesgoverning the challenge of awards. There are three possibleexplanations for this development. First is the hope that a betterunderstood set of grounds for challenge will reduce the scope forerrors in the arbitral process, which in turn will reduce the need

page "289" and opportunity for judicial review. Second (though

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not unconnected), is the pervasiveness of international conventionssuch as the UNCITRAL Model Law and the New York Convention,which champion ‘arbitrator autonomy’ and also provide an increasingdegree of conformity across jurisdictions. Third, countries' interestin attracting arbitration business to their territories drives a lessinterventionist approach to meet actual or perceived desires forfinality in the arbitration process. The corollary of this is, of course,that scope for challenge based on peculiarities of national laws islikely to decline.

§13.03. Enforcement of the Award

It is thought that the vast majority of arbitral awards are (still)performed voluntarily – perhaps saying as much about theperceived effectiveness of the various national and internationalprocedures for compelling enforcement as about the nature of theparties engaged in resolving their disputes through arbitration. Whileit is difficult to provide precise statistics because arbitration is aprivate process, it is generally reckoned that at least 75 % ofawards are performed voluntarily.(57)

When, however, the losing party refuses to carry out the award, orengages in delaying tactics, the successful party will have to takesteps to enforce performance. As has already been observed,arbitration awards are not generally self­executing. A tribunal usuallyhas no power to enforce the award; only in exceptionalcircumstances does the arbitral process also involve some form ofactual or perceived coercion. For instance, pressure may be appliedby the threat of adverse publicity. For example, it is not uncommonin disputes in the commodity sector for notices to be given to allmembers of the relevant association informing them of anymember's refusal to abide by an award made under theassociation's rules. Similarly, a losing party to an ICSID arbitrationmay be concerned that by failing to perform the award, its statuswith the World Bank could be adversely affected and its access tofunds made more difficult as a result. The construction industryhowever is not made up of a sufficiently coherent body ofinstitutions as to allow effective non­judicial process to take place.

Despite these exceptions, the basic position is that arbitral tribunalscannot themselves compel compliance with their awards; once thefinal award has been validly handed down, the tribunal's role is at anend. An arbitrator's award, unlike an order or judgment of a court,does not at once entitle the successful party to levy executionagainst, say, the assets of the unsuccessful party. Judicialintervention of some sort is almost always required.

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[A]. Methods of Enforcing an Award

As might be imagined, the steps required to enforce an award varyfrom country to country. The party seeking enforcement shouldtherefore take legal advice from lawyers in the relevantjurisdiction(s), i.e., the jurisdiction(s) in which the losing party (or itsofficers, if a company) or its assets are located. What follows,therefore, is a review of the general provisions applicable to therecognition and enforcement of awards.

[B]. ‘Recognition’ and ‘Enforcement’

Although the terms ‘recognition’ and ‘enforcement’ are often used inthe same breath, they are in fact distinct concepts and, frequently,distinct procedures. Indeed, there are cases in which an award hasbeen recognised but not enforced.(58) There may also becircumstances in which a successful respondent may wish to havethe award in its favour recognised (e.g., as determining the disputeor for use as a shield to other proceedings on the same matter)even though there can be no question of enforcement of the awardin the particular circumstances.

Recognition refers to the process by which a national courtacknowledges the existence of the arbitration, and recognises thedecision of the tribunal in the award rendered. In many cases thesewill be summary proceedings confirming the award (often calledexequatur). By having a court recognise an award, a successfulclaimant will establish that it is in a position to enforce it. Asuccessful respondent will do the same, as well as preventing theclaimant from successfully bringing court proceedings in respect ofmatters that have already been decided by the award.

Enforcement usually occurs at the same time as recognition orfollows shortly thereafter.(59) When a court is asked to enforce anaward, it is not merely recognising its legal effect but also ensuringits terms are carried out. Enforcement therefore goes one stepfurther than recognition, introducing an element of compulsion: thelosing party must perform its obligations. At this point, theprocesses of court litigation and arbitration merge, since anarbitration award is almost invariably enforced in the same way as ajudgment of the court concerned. Thus, a money award will be bothrecognised and enforced as a money judgment and enforcementmay take any of the usual forms including the attachment and saleof assets, the transfer of debts owed to the losing party, theappointment of court officers over the assets of the losing party togather in and realise sufficient sums to meet the award or, in

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extreme cases, the insolvent liquidation of the losing party.

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[C]. Domestic and Foreign Awards

A distinction must also be drawn between domestic and foreignawards.

[1]. Domestic Awards

Enforcement of an award in a domestic arbitration (i.e., one whereall of the parties are resident in the place of the arbitration) isgoverned solely by the national law of the country in which thearbitration is taking place. However, domestic enforcementprovisions may still be relevant to international arbitration, inasmuchas awards arising from international arbitration may be enforcedunder the procedures used for domestic awards.(60) Such a situationwill arise where the winning party seeks to have the arbitral awardrecognised or enforced in the country that was the seat of thearbitration.

Recognition and enforcement procedures under national laws areusually fairly straightforward, with the requirements for enforcementof domestic awards often simpler and less onerous than for foreignawards.(61) Again, it is important to seek local legal advice as to theexact requirements as these will vary from country to country. InEngland, for example section 66 of the English Arbitration Act 1996provides for automatic recognition of an arbitral award so the onlyproceedings necessary are for enforcement. In other countries,however, this is not the case. As an example, under French law anapplication for recognition has to be made before enforcement(62)and in Switzerland the award must first be deposited and thenregistered with the relevant court or state authority before itbecomes enforceable. If the recognition or enforcement of adomestic award is refused, this may lead to the setting aside of theaward.(63)

[2]. Foreign Awards

An award is ‘foreign’ in a particular jurisdiction if that award hasbeen made in a different state. In turn, an award is ‘made’ at theseat of the arbitration. Unlike foreign court decisions (which aregenerally not easily enforceable outside certain well defined blocksof countries, such as the European Union and the BritishCommonwealth), foreign arbitration awards can – at least in theory –be readily enforced across national boundaries. This is as a resultof the large number of states which have acceded to the New YorkConvention. This treaty, agreed in 1958 and now acceded to by over130 page "292" countries,(64) now largely governs therecognition and enforcement of foreign awards, to the virtualexclusion of earlier treaties(65) and, although to a slightly lesserextent, the limited number of bilateral and ‘local’ multinationaltreaties dealing with the same matters.

§13.04. The New York Convention

The New York Convention is a significant improvement on earlierarbitral protocols and conventions. The enforcement mechanism ofthe New York Convention is dealt with in Articles III through VI.

The New York Convention simplified the enforcement of foreignarbitral awards by:(66)

­ shifting the burden of proof from the party seeking enforcement tothe party opposing it;(67)

­ limiting the defences available to a party resisting enforcement tothose listed in the New York Convention itself; and

­ eliminating the old ‘double­exequatur’ requirement of the GenevaConvention, which required that an award had to be recognised inthe court of the country in which the award was made and also bythe country that was enforcing the award.

The New York Convention now constitutes the backbone of theinternational regime for the recognition and enforcement of foreignarbitration awards. Various aspects of the New York Convention areconsidered in more depth below.

[A]. Scope of Application of the New York Convention

The scope of application of the New York Convention is set out inArticle I(1). Broadly, the New York Convention applies to all foreignawards, that is, all those awards ‘not considered as domesticawards in the State where their recognition and enforcement aresought’.(68) Thus, the New York Convention potentially appliesregardless of page "293" whether the award was rendered insideor outside another Contracting State's territory.(69)

However, despite this potentially wide reaching application, ArticleI(3) permits Contracting States to make two ‘reservations', as theyare called, so that in that state the New York Convention onlyapplies:

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­ on the basis of reciprocity (i.e., only to arbitration awards made inanother New York Convention Contracting State); and

­ to awards rendered in commercial matters, ‘considered ascommercial under the national law of the State making suchdeclaration’.(70)

Seventy two countries acceding to the New York Convention havemade the reciprocity reservation. Despite this, the large number ofcountries which have now signed up to the New York Conventionmeans that the potential adverse affects of this reservation havebecome very much reduced, with few economically significantcountries not within its ambit. Even so, problems do occasionallyarise as a result of the relevant country not having acceded to theNew York Convention(71) or (more difficult to identify) that a countryhas not properly incorporated the provisions of the New YorkConvention into its domestic law, even where it has acceded.(72)

[B]. Recognition and Enforcement

The New York Convention requires both recognition andenforcement of awards to which it relates. Contracting states boundby the New York Convention are obliged to respect the bindingeffect of the awards and so to enforce awards to which the NewYork Convention applies in accordance with their national proceduralrules. In this connection, Article III of the New York Conventionimposes an obligation on Convention states not to impose greaterinconvenience or larger fees for such enforcement than page"294" are imposed in connection with the recognition andenforcement of domestic awards of the relevant country.

[C]. Formalities for Enforcement

The formalities specified in the New York Convention for recognitionand enforcement of a foreign award are straightforward.(73) The partyseeking recognition and enforcement must provide to the relevantcourt:

­ the duly authenticated(74) original award or a duly certified copythereof;(75) and

­ the original agreement to arbitrate or a duly certified copy thereof.

Where the award and the arbitration agreement are not in the officiallanguage of the country in which enforcement and recognition arebeing sought, Article IV(2) of the New York Convention alsoprovides that certified translations must be provided. Once thesedocuments have been supplied, the New York Convention requiresthat award should be enforced – unless the party against whichenforcement is sought can bring itself within the scope of one of theexclusive grounds for non­enforcement listed in the New YorkConvention.

[D]. Resisting Enforcement Under the New York Convention

Before listing the exclusive grounds for the refusal to recognise andenforce an award under the New York Convention, the followingthree points should be noted:

­ the New York Convention does not permit any review of themerits of an award to which it applies;(76)

­ even if one or more of the of the grounds for non­enforcementexists, the enforcing court is (arguably) not bound to refuseenforcement – it ‘may’ refuse enforcement;(77) and

­ the grounds were intended to be applied restrictively because thegeneral rule is that foreign awards must be recognised andenforced.

The word ‘may’ in (ii) above has been placed in italics becausealthough in the English and Spanish text of the New YorkConvention the language used implies that the judges may use theirdiscretion, the wording of the French version implies that the judgeshave no discretion.(78) This is unfortunate, considering the thrust ofthe New York Convention page "295" is to achieve uniformityand no doubt arises out of the difficulty in achieving exactlyequivalent meanings in each one of the five equally authentic texts– Chinese, English, Spanish, French and Russian – in which theNew York Convention has been drafted.

Overall, the New York Convention is clearly recognised as having apro­enforcement bias, with the effect that the grounds for non­enforcement are to be construed narrowly and only accepted inserious cases.(79) Consequently, the preferred view is that the courtin which an application for enforcement is made is not under anobligation to refuse recognition or enforcement if it finds that any ofthe grounds under the New York Convention are proved to exist. Itsimply has the discretion to do so. That said, where a ground fornon­enforcement is proved to the satisfaction of the enforcing court,enforcement will in fact normally be refused.

Lastly, a note of caution must be sounded. It should be observedthat it is somewhat inevitable that the grounds in the New YorkConvention are liable to be interpreted divergently by variousdisparate courts seized in any particular matter. This has been

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brought to the attention of UNCITRAL, which has set up acommittee to review compliance with the New York Convention bythose States which have acceded to it. Despite this, currentdifferences in interpretation will continue to exist and new ones willno doubt arise. As with other areas, local law advice needs to beobtained whenever an application is made or resisted. UNCITRALis, at the time of writing, working with others to prepare a Guide onthe New York Convention.(80) The Guide ‘aims to promote theuniform and effective interpretation and application of the New YorkConvention with a view to limit the risk that State practice mightdiverge from its spirit.’(81)

[E]. The New York Convention Grounds for Refusal ofRecognition and Enforcement

There are seven grounds listed in the New York Convention for therefusal of recognition and enforcement of an arbitral award. Asmentioned earlier in this chapter, there is a pleasing symmetry (withonly a slight variation only in the wording used) between Article 34of the UNCITRAL Model Law (which deals with challenges to anaward in the place of the arbitration) and Article V of the New YorkConvention. As the New York Convention makes these sevengrounds the only permitted ones for non­enforcement, the courts ofa contracting state may not base their refusal to enforce an awardon any other grounds. Those courts should also interpret thespecified grounds restrictively, to give effect to the pro­enforcementbias of the New York Convention discussed above.

page "296"

The New York Convention provides that recognition andenforcement may be refused if the resisting party can prove theexistence of one or more of the grounds set out below:

[1]. The Arbitration Agreement is Invalid

First, Article V(1)(a) provides for refusal where:

the parties to the [arbitral agreement] were, under thelaw applicable to them, under some incapacity, or thesaid agreement is not valid under the law to which theparties have subjected it or, failing any indicationthereon, under the law of the country where the awardwas made.

This first ground relates to the material or formal (in)validity of thearbitration agreement and concerns both capacity and formality. TheNew York Convention cannot and does not set out to establishwhether parties to the agreement to arbitrate have the requisitecapacity to enter such agreement. This issue is to be decided bythe laws applicable to them, in practice the laws of their place ofdomicile or incorporation or the laws of the place where thearbitration is taking place. It is, however, for the court conductingthe enforcement procedure to determine (adopting its own conflictsof laws rules) what it regards as the law applicable to the parties forthese purposes.

The formal validity of the arbitration agreement may also be invokedas a ground for refusal to enforce. The parties' contractualautonomy is preserved by their freedom to choose an applicable lawto govern their agreement to arbitrate being respected. However, aswith the equivalent provision of the UNCITRAL Model Law,(82) thisprovides a default position in the event of their failure to do so. Thedifference in the default position between the UNCITRAL Model Lawand the New York Convention could, in unusual circumstances (i.e.,where the award is made in a different country from the countrywhere the arbitration took place) give rise to differing results to achallenge based on this ground and an application to refuseenforcement. Interesting though these differences are, in practice,this ground has rarely been a ground for non­enforcement of anaward.

[2]. Lack of Procedural Fairness

The second New York Convention ground (Article V(1)(b)) applieswhere:

the party against whom the award is invoked was notgiven proper notice of the appointment of the arbitratoror of the arbitration proceedings or was otherwiseunable to present his case.

Like the UNCITRAL Model Law (discussed above), this is oftenconsidered the most important ground for refusal of enforcementunder the New York Convention. The main thrust of this provision isto ensure that the requirements of ‘due process' are page"297" observed and that the parties are, put simply, given a fairhearing. Due process can be described as the existence of thoseelements necessary to ensure that the arbitration itself is properlyconducted, with proper notice given as to the appointment of anarbitrator and procedural fairness afforded to the parties. This latterpoint incorporates the right to a fair hearing conducted in acompetent manner (namely, notice of the hearing; an opportunity toattend the hearing; the right to be present throughout the hearing; anopportunity to present one's argument and evidence; and theopportunity to controvert an opponent's case). Under the New York

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Convention the question arises as to what local law or practice dueprocess should be measured against. Arguably, this is aninternational standard which affords parties these fundamentalrequirements.

Only serious breaches of fairness will provide grounds for non­enforcement under this head.(83) A serious breach would include, forexample, where a party is unable to present its case(84) or where anarbitral tribunal refuses to allow a party to cross­examine expertsappointed by the tribunal.(85)

[3]. The Award Exceeds the Tribunal’s Jurisdiction

Article V(1)(c) of the New York Convention allows refusal ofrecognition and enforcement where:

the award deals with a difference not contemplated byor not falling within the terms of the submission toarbitration, or it contains decisions on matters beyondthe scope of the submission to arbitration, providedthat, if the decisions on matters submitted toarbitration can be separated from those not sosubmitted, that part of the award which containsdecisions on matters submitted to arbitration may berecognised and enforced.

This ground will include instances where the tribunal ruled on issuesnot presented to them by the parties' submissions in the arbitrationand where they have gone beyond the scope of the parties'arbitration agreement (potentially even where the parties have madesubmissions on those issues). Although a ground that has rarelybeen successful in the past,(86) invoking questions of jurisdiction isbecoming ever more frequent as the first port of call in relation tothe grounds for a refusal of enforcement of an arbitral award,provided the relevant part of the award cannot be separated fromthe parts that do not comply with the terms of the arbitrationagreement. If only separable parts of the award go beyond thetribunal's jurisdiction, the remaining parts may be recognised andenforced.

page "298"

Jurisdictional issues as a ground for challenging an award arediscussed above in respect to the UNCITRAL Model Law;(87) and ithas been noted that the right to raise an issue of jurisdiction may belost if the matter became apparent in the course of the arbitrationand no objections were taken at the time.

[4]. Procedure Was Not in Accordance with the Parties’Agreement

Under Article V(1)(d), recognition and enforcement may be refusedif:

the composition of the arbitral authority or the arbitralprocedure was not in accordance with the agreementof the parties, or, failing such agreement, was not inaccordance with the law of the country where thearbitration took place.

An agreement by the parties regarding the composition of thearbitral tribunal or the arbitral proceedings supersedes the nationalrules of the country where the arbitration took place, except,perhaps, where it conflicts with that country's fundamental legalprinciples. The law of the country where the arbitration took placeusually comes into play only in the absence of an agreement.(88)

Again, this ground is not an opportunity to review in detail everyprocedural determination made by an arbitrator. Arbitrators retainbroad discretion to make procedural rulings and, absent anobviously prejudicial ruling, successful resistance of enforcementon this ground is rare.

[5]. The Award Has Been Annulled in the Seat

Finally, Article V(1)(e) allows a court to refuse to recognise orenforce an award where:

the award has not yet become binding on the parties,or has been set aside or suspended by a competentauthority of the country in which, or under the law ofwhich, that award was made.

This ground for refusal of recognition and enforcement of an arbitralaward (which, like the others, also appears in the UNCITRAL ModelLaw) has given rise to more controversy than any of the previousgrounds. This ground has led to the situation in which an award thathas been set aside, and so is unenforceable in its country of origin,may be refused enforcement under the New York Convention in onecountry, but granted enforcement in another.

This problem arises because – unlike Article 34 of the UNCITRALModel Law examined above – the New York Convention does not inany way restrict the grounds on which an award may be set aside orsuspended by the courts of the country in which, or under the law ofwhich, that award was made. The burden is, however, on the party

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resisting enforcement to: page "299"

… prove that the suspension of the award has beeneffectively ordered by a court in the country of origin.The automatic suspension of the award by operationof law in the country of origin…is not sufficient.(89)

Even then, given the discretion allowed to the enforcing court not torefuse enforcement even where a ground is made out, there isscope for the enforcing court to exercise its own value judgmentswhen faced with resistance on this ground. It is by no meansunknown for such a court to form its own view on the merits of thegrounds relied on by the courts of the country which set the awardaside.

As to the requirement that an award be ‘binding’, given thepresumption in favour of enforcement of awards, and the absence ofany need to take further administrative steps to validate or finalisean award once made, it is not clear what this term is intended tomean. Parties would be well advised to provide in their arbitrationagreement that any award made pursuant to the arbitrationagreement will be final and binding.

[6]. Arbitrability of the Dispute

In addition to the grounds discussed above, the New YorkConvention provides that recognition and enforcement of an arbitralaward may also be refused if the competent authority in the countryin which enforcement is sought finds that:

the subject­matter of the difference is not capable ofsettlement by arbitration under the law of that country.(90)

The preliminary question to be addressed is what is the lawgoverning arbitrability?(91) Again, unlike the position in relation to achallenge in a country which has adopted the UNCITRAL Model Law(where arbitrability is governed by the law of the place of thearbitration and challenge) the non­arbitrability of an award as aground for non­enforcement of an award under the New YorkConvention is determined according to the law of the country whererecognition and enforcement is sought. Thus, to survive a challengeto a successful arbitration a party must be able to demonstrate thatthe subject matter of the dispute is arbitrable not only in the place ofthe arbitration but also in every place that enforcement may takeplace. Fortunately, while increasingly raised as a ground forchallenge or as a means of resisting enforcement, the number ofoccasions where a construction dispute is genuinely not arbitrable inaccordance with accepted norms will be few and far between.

page "300"

[7]. Award is Contrary to Public Policy

Lastly, the New York Convention allows recognition andenforcement to be refused where the competent authority in thecountry where recognition and enforcement are sought finds that:

the recognition or enforcement of the award would becontrary to public policy of that country.

Public policy has been discussed as one of the grounds permittinga challenge to an arbitration award in the courts of the place of thearbitration. Here again, an unsuccessful party has ‘another bite ofthe cherry’ if it can manage to persuade the relevant court that theaward would be contrary to the public policy of the country in whichenforcement is sought. Often, though not invariably, this will be theplace where the unsuccessful party is domiciled or incorporated.

Putting to one side the occasional, less justifiable instances whenthis ground has been successfully employed, and accepting that theterm ‘public policy’(92) is difficult to define,(93) it can be adequately,though not comprehensively, summed up as the:

fundamental rules of natural law, the principles ofuniversal justice, [the central rules of] publicinternational law and the general principles of moralityaccepted by what is referred to as civilised nations.(94)

Public policy is neither a ground for a review of erroneous legalreasoning or misapplication of law – it is not an opportunity toreview the merits of the award under a veil of ‘public policy’.(95)Decisions from courts in some parts of the world have shown areadiness to limit –occasionally severely – the public policy defenceto enforcement.(96) Nonetheless, the boundaries of national publicpolicy are mutable and this is perhaps why the public policyexception is the most frequently invoked basis for refusal of anarbitral award because of its potentially broad, amorphous slope.Courts, however, have generally taken a narrow view of the publicpolicy exclusion.(97) For an English perspective, see the Soleimanycase,(98) concerning the illegality of a contract under English law.This is believed to be the first case in which the English courts – inthis case, the Court of Appeal – have refused to enforce an arbitralaward on the grounds of page "301" public policy in arbitrationmatters. The case has been criticised for failing to recognise thedistinction between foreign and domestic public policy.(99)

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Put plainly, the twin grounds of arbitrability and public policyeffectively ‘free’ the forum from being obliged to enforce an award itviews with distaste, and that is so even if the arbitral award inquestion was untainted by procedural shortcomings.

§13.05. Other Bilateral and Multilateral Conventions

While the New York Convention is regarded as the primary vehiclefor the recognition and enforcement of foreign arbitration awards,there do exist other international agreements that are potentiallyapplicable. This section is intended to serve only as an introductionto some of these conventions. This review is not intended to beexhaustive and parties are advised to take local law advice toconsider whether there are any other regional conventions that maybe helpful if there is any doubt about the applicability of the NewYork Convention to their particular circumstances.

[A]. Bilateral Conventions

In addition to the multilateral conventions referred to above andbelow, certain States have executed bilateral conventions on therecognition and enforcement of arbitral awards. Switzerland, forinstance, has executed such bilateral conventions with Spain,Czechoslovakia (as was), Germany, Italy, Sweden, Belgium,Austria and Liechtenstein.(100) The result is that bilateralconventions may be useful when trying to enforce an award inanother contracting country.(101) These conventions usually operateon the basis of reciprocity, and form an extensive network of rightsand obligations.

The use of bilateral conventions generally arises in twocircumstances. The first is in the (increasingly rare) circumstanceswhere the New York Convention does not apply. The second,perhaps less common, is where the criteria for enforcement underthe bilateral convention are more favourable than under the NewYork Convention. Given the pro­enforcement bias of the New YorkConvention the number of instances where this might occur arelikely to be limited.

page "302"

[B]. Multilateral Conventions

[1]. The 1965 Washington Convention

In 1965, the Washington Convention established ICSID. Its purposewas to provide a mechanism for the resolution of internationalinvestment disputes. The Washington Convention provides its ownenforcement procedures.(102) These procedures provide that eachcontracting state must recognise and enforce an ICSID award as ifit were a final judgment of its own national courts.(103) TheWashington Convention is of considerable value when within itsstrict jurisdictional criteria but provides no assistance to parties toarbitrations not conducted in accordance with its terms.

[2]. The 1975 Panama Convention (104)

This Convention relates to South and Central American countriesand the US.(105) The Panama Convention appears to have beenheavily influenced by the New York Convention and many of theprovisions are identical.(106)

[3]. The Amman Convention

This Amman Convention(107) is modelled closely on the WashingtonConvention of 1965. The Amman Convention, which created theArab Centre of Commercial Arbitration, was adopted with the activeinvolvement of all the Arab countries and on the basis of each oftheir respective recommendations. The seat of the Centre is Rabat,Morocco. As all pleadings and submissions must be in Arabic, it islargely inaccessible on an international sphere where English is theprevailing language.

Broadly speaking, the Amman Convention provides that the HighCourt of each contracting state has jurisdiction to grant enforcementof arbitral awards. The Amman Convention provides that awardsmay only be refused enforcement by the courts of a contractingstate where the award is contrary to the public policy of thatcontracting state. The Amman Convention further provides that anaward made by the Rabat Centre is not subject to appeal before thejudicial authorities of the country where enforcement is sought. Onlythe Centre that made the award can set it aside.

The Amman Convention provides three reasons for setting asideawards. The first is, that the arbitral tribunal clearly acted ultra viresits powers, the second, that a court page "303" judgmentestablishes that there is an extant fact which would substantiallyalter the arbitral award (this will be construed contra proferentem)and the third, that there was undue influence on one (or more) of thearbitrators, which could have affected his decision.(108)

[4]. The Arab League Convention 1952 and the Riyadh

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Convention 1983(109)

The Arab League Convention and the Riyadh Conventions are quitesimilar to the New York Convention. The Arab League Conventionand the Riyadh Convention are both primarily concerned with therecognition and enforcement of foreign judgments, rather thanawards.

However, neither apply to awards that seek enforcement based oninternational conventions or bilateral treaties (such as The New YorkConvention). Where two states are parties to either the Arab LeagueConvention or the Riyadh Convention as well as the New YorkConvention (or any other bilateral agreement), The New YorkConvention (or other bilateral agreement) will prevail on the basisthat it is exclusively concerned with the enforcement of awards,rather than the enforcement of foreign judgments.

§13.06. Conclusion

In view of the above discussion, it is difficult to deny that therecognition and enforcement of an arbitral award is greatly assistedby a plethora of arbitral Conventions – notably the New YorkConvention. Parties are advised to consider the question of therecognition and enforcement of an award at the outset of the arbitralprocess to avoid the unenviable situation of receiving a favourableaward that subsequently cannot be enforced.

1 Redfern & Hunter, International Commercial Arbitration, para. 9­09.2 For a fuller discussion on remedies, see John Collier & VaughanLowe, The Settlement of Disputes in International Law: Institutionsand Procedures 248–253 (Oxford U. Press 1999); and MichaelSchneider & Joachim Kroll, Performance as a Remedy: Non­monetary Relief in International Arbitration, ASA Special Series(2011).3 Literally ‘the thing has been judged’.4 For example, Art. 1476 of the French NCPC, Art. 1703 of theBelgian Judicial Code, Art. 1059(1) of the Code of Civil Procedure inthe Netherlands and Art. 1055 of the Common Code of CivilProcedure in Germany.5 Henderson v. Henderson (1843) 3 Hare 100, 115.6 Articles V(1)(e) and VI of The New York Convention. See Born,International Arbitration, Law and Practice Ch. 16, 307 (Kluwer2012).7 Literally ‘to stand by that which is decided’. This is the principlethat in deciding the case before him, a judge, in certaincircumstances, is bound to stand by previously decided cases andto accept and follow the principles of particular precedents. It differsfrom res judicata in that it relates to a principle or rule of law beingtreated as settled, whereas res judicata relates to the finality of adecision of a particular dispute between particular parties.8 For instance, the contract for the construction of the cross­Channel tunnel link between England and France contained agoverning law clause which (in material part) said ‘The construction,validity and performance of the Contract shall in all respects begoverned by and interpreted in accordance with the principlescommon to both English law and French law, and in the absence ofsuch common principles by such general principles of internationaltrade law as have been applied by national and internationaltribunals’.9 The ICC Court scrutinises awards before they are delivered to theparties, but it is the only one of the major commercial arbitralinstitutions to do so.10 Reed, Lucy, Jan Paulsson & N Blackaby, Guide to ICSIDArbitration, (Kluwer L. Intl. 2010).11 For example, Art. 34(1) ICC Rules provides that, ‘[o]nce anAward has been made, the Secretariat shall notify to the parties thetext signed by the Arbitral Tribunal provided always that the costs ofthe arbitration have been fully paid to the ICC by the parties or byone of them’. See also Art. 34.6 UNCITRAL Arbitration Rules andRule 48(1) ICSID Arbitration Rules.12 Other terms that the reader may come across are, for example,‘review’ or ‘annul’.13 See Hilmarton where the French Courts recognised an awardmade and annulled in Switzerland. For a more detailed discussion ofthe public policy and other issues in this area, see Hamid G.Gharavi, The International Effectiveness of the Annulment of anArbitral Award, Intl. Arb. L. Library, 15, 77–117 (Kluwer L. Intl.2002). See also Petrochilos, Procedural Law in InternationalArbitration, ch. 7; and Georgios Petrochilos, Enforcing awardsannulled in their State of Origin under the New York Convention,Intl. & Comp. L. Q. 48, 856 (1999). See also Chris Koch, TheEnforcement of Awards Annulled in their Place of Origin: TheFrench and US experience, 26 J. Intl. Arb. 267–292 (2009);Compare this with the English approach, where awards annulled inanother jurisdiction will not be enforced in England: Yukos CapitalSARL v. OJSC Rosneft Oil Company [2012] EWCA Civ 855.14 For example, see Chromalloy Gas Turbine Corp v. Arab Republicof Egypt. 939 F. Supp. 907 (D. D.C. 1996).15 See generally Bremer Oeltransport GmbH v. Drewry [1933] 1 KB

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753.16 Article 35.2 ICC Rules also allows a tribunal to issue aninterpretation of the award at the request of one of the parties.17 Articles 37–39 UNCITRAL Arbitration Rules.18 See also, for instance, Arts 17.1 and 27 LCIA Rules. In Englandthis power to correct trivial typographical errors is conferredexpressly by s. 57 English Arbitration Act 1996. Likewise, theUnited States Federal Arbitration Act provides that the relevantdistrict court may make an order modifying or correcting errors (s.11 (as amended 1970)).19 UNCITRAL Rules Arts 35 and 36; ICC Rules (2012), Art. 35.20 Articles 50–52 ICSID Arbitration Rules.21 Article 26 Washington Convention provides that ‘Consent of theparties to arbitration under this Convention shall, unless otherwisestated, be deemed consent to such arbitration to the exclusion ofany other remedy’.22 Interpretation of an ICSID award by a separate tribunal wascarried out in the case of Wena Hotels Limited v. Arab Republic ofEgypt (Case No. ARB/98/4).23 This is also the position adopted by Art. 34 UNCITRAL ModelLaw. The award may only be set aside by the ‘competent authority’specified by the state (see Art. 6).24 English Arbitration Act s. 2(1); US Federal Arbitration Act s. 10.25 See the Indian Supreme Court decision in National ThermalPower Corporation v. The Singer Co 3 Supreme Court Cases 551–573 (1992).26 Hitachi Limited et al. v. Mitsui & Company Deutschland andRupali Polyester et al. [1998] Supreme Court Monthly Review 1618–1687.27 See Bharat Aluminium Co v. Kaiser Aluminium TechnicalServices Inc, Civil Appeal No. 7019 of 2005. In India, domesticarbitration awards can however be challenged under s. 34 of theIndian Arbitration Act (for contravention of ‘public policy’), providedthat such challenge is not expressly or impliedly excluded byagreement between the parties.28 Section 70(3) English Arbitration Act 1996.29 Rules of the Supreme Court of Hong Kong, Order 73, Rule 5.30 Article 1489 New Code of Civil Procedure.31 For a more detailed discussion or other possible grounds ofchallenge, see generally Lew, Julian et al., ComparativeInternational Commercial Arbitration paras 303–316 (Kluwer L. Intl.2003); and Garnett et al., A Practical Guide, 113–121.32 Article 34(2)(a)(i)­(iv).33 A recent case, Arsanovia v. Cruz [2012] EWHC 3702, addressedthe questions regarding which law is applicable to an arbitrationagreement where none is selected and where the tribunal hasjurisdiction under one law, but not under the other. Arsanoviadecided that it is the applicable law of the matrix contract, ratherthan the law of the seat which applied. This decision was followed inSulamerica [2012] EWCA 638 where the court looked first for animplied choice of law and second to the choice of law with theclosest and most real connection to the arbitration agreement.34 A further example is found in Jianlong v. Golden Ocean [2013]EWHC 1063 where the question arose as to whether the invalidity ofthe underlying contract would also ‘sweep away’ the arbitrationclause. It was decided that an arbitration agreement is a distinctcontract from the main contract and the invalidity of the latter willnot of itself invalidate the former.35 Article 18 UNCITRAL Model Law regulates the parties' equaltreatment and affords them full opportunity to present theirrespective cases.36 See further below for an analysis of the parallel grounds in theNew York Convention.37 Parsons & Whittemore Overseas Co. v. Societe Generale deL'Industrie du Papier, RAKTA 508 F 2d 969 (2d Cir 1974).38 Biotronik Mess­und Therapiegeraete GmbH & Co. v. MedfordMedical Instrument Co. 415 F. Sup. 133, 140 (DNJ 1976).39 An example of this is seen in ABB v. Hochtief Airport [2006] 1AllER (Comm) 529, where the court did not intervene simply becausethe reasoning in the award was ‘compressed, possibly confused andcertainly confusing’ and in Petrochemical Industries v. DowChemical [2012] EWHC 2739, where despite the fact that Dow hadassured Petrochemical Industries that it was not relying on funds tocomplete an acquisition, an award was made to compensate Dowfor the same. The courts held that while the tribunal had not referredto Dow's assurances, it was ‘unable to infer that the tribunaloverlooked the evidence’.40 See Report of the United Nations Commission on InternationalTrade Law on the work of its eighteenth session, 3–21 Jun. 1985,(A/40/17), para. 288, available at:http://www.uncitral.org/uncitral/en/commission/sessions/18th.html(accessed 10 Sep. 2013).41 Article 23 ICC Rules.42 Article 34(2)(b)(i) – (ii) UNCITRAL Model Law.43 For example, claims for relief against forfeiture under Landlordand Tenant legislation in England and Wales.44 See, e.g., Duncan Miller, Public Policy in InternationalCommercial Arbitration in Australia, Arb. Intl. 9, 167–196 (1993).45 See below for the New York Convention's public policy provision.For a very detailed discussion on public policy, see VesselinaShaleva, The ‘Public Policy’ Exception to the Recognition andEnforcement of Arbitral Awards in the Theory and Jurisprudence ofthe Central and East European States and Russia, Arb. Intl. 19 67–

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93 (2003).46 Mitsubishi Motors Corp. v. Soler Chrysler­Plymouth Inc. 473 US614, 628 (1985).47 See the report of the UNCITRAL Secretary­General, Analyticalcompilation of comments by governments and internationalorganisations on the draft text of a model law on internationalcommercial arbitration, (A/CN.9/263), paras 29–35, available at:http://www.uncitral.org/uncitral/en/commission/sessions/18th.html(accessed 10 Sep. 2013).48 See the NCCP in France (Art. 1483) and Portuguese Law No31/86 (Art. 29).49 Examples of countries that allow for challenge of an award on apoint of law also include Australia, Singapore and Abu Dhabi.50 Section 69 English Arbitration Act 1996.51 Although there is no statistical data, it is generally accepted thatmost challenges are unsuccessful.52 Note that the ICC Rules 35(4) anticipate remission of the awardby the National Court. However, this issue depends greatly on thelaws of the seat.53 Sections 68(3) and 69(7) English Arbitration Act 1996.54 Jurisdiction to remit an award also exists under the EnglishArbitration Act 1996 where a challenge to the award has been madefor serious irregularities (s. 68(3)(a)) or error of law (s. 69(7)(c)).55 German law allows the Court where appropriate to set aside theaward and remit it to the Tribunal s. 1059(4) German Civil Code ofPractice.56 For example, in France (see Omnium de Traitement et deValorisation v. Hilmarton, Cour de Cassation, 10 Jun. 1997, YBCAXXII (1997), 696–698 and the United States (see Chromalloy GasTurbine Corp v. Arab Republic of Egypt supra). See also Redfernand Hunter, International Commercial Arbitration, Chapter 10.57 PriceWaterhouseCoopers: International Arbitration, CorporateAttitudes and Practices 2008:http://www.academia.edu/262767/PricewaterhouseCoopers_International_Arbitration_Corporate_Attitudes_and_Practices(accessed 10 Sep. 2013).58 See, e.g., Dallal v. Bank Mellat [1986] 1 All ER 239 in which theCourt held that an award was not enforceable under the New YorkConvention but should be recognised as the valid judgment of acompetent tribunal; Bank Mellat v. Helleniki Techniki SA [1983] 3All ER 428; Fidelitas Shipping Co Ltd v. V/O Exportchleb [1965] 2All ER 4.59 For example, Art. 34(6) ICC Rules states that ‘the partiesundertake to carry out any Award without delay’ (emphasis added).60 Although it must be noted that it is up to the country in questionto determine whether it considers an award to be domestic orinternational in nature.61 For example, German law requires only submission of a copy ofthe domestic award (§1064(1) ZPO). See also the Netherlands Codeof Civil Procedure (Art. 1063), which limits the grounds for refusal toenforce an award.62 See Art. 1498 Code of Civil Procedure 1981.63 For example, under s. 66 English Arbitration Act 1996.Nevertheless, there is still a chance, in limited cases, that an awardset aside in one country may still be enforced in another. See n. 13.64 There are currently 149 counties who have ratified theconvention. For a complete list of ratifications, see,http://www.uncitral.org/uncitral/en/uncitral_texts/arbitration/NYConvention_status.html(accessed 10 Sep. 2013).65 For instance, the Geneva Protocol on Arbitration Clauses of1923 and the 1927 Geneva Convention on the Execution of ForeignArbitral Awards. For a fuller historical perspective, see Redfern andHunter, International Commercial Arbitration, paras 10–20ff.66 See generally Albert Jan Van Den Berg, Non­domestic arbitralawards under the 1958 New York Convention, Arb. Intl. 2, 191–219(1986); Michael Pryles, Foreign awards and the New YorkConvention, Arb. Intl. 9, 259–273 (1993).67 Reversing the burden of proof from that in the Convention on theExecution of Foreign Arbitral Awards signed at Geneva on 26 Sep.1927 (the Geneva Convention of 1927).68 Article I(1) New York Convention.69 It may be noted that Art. 1 of the New York Convention providesthat it will apply not only to foreign awards but to awards ‘notconsidered as domestic awards in the state where their recognitionand enforcement are sought’, i.e. ‘non­domestic’ awards.Accordingly, although enforcement may be sought in the seat, andtherefore the award apparently domestic, it may be that ajurisdiction treats a particular award as ‘non­domestic’, because forexample, the parties have their principal place of business outsidethat jurisdiction. This is a matter of the particular local law, however,and will depend upon the circumstances. The overwhelming majorityof jurisdictions will treat awards as domestic if they have beenmade in that jurisdiction.70 The Convention does not define a ‘commercial matter’ as can beseen; this is determined by the laws of the enforcing court. See theTunisian case in which a contract relating to professional serviceswas not characterised as ‘commercial’, Taieb Haddad and HansBarett v. Société d'Invesstissement Kal, Tunisian Cour deCassation, 10 Nov. 1993, excepts published in Yearbook ofCommercial Arbitration XXIII (1998), 770–773.71 See, for instance, Texaco Pananma Inc. v. Duke PetroleumTransport Corp., 3 Sep. 1996 95 Civ. 3761 (LMM); InternationalArbitration Report 11(9) (1996) pp. D1 – D2, ‘The New YorkConvention of 1958 relied on by the respondent does not apply,since [sic] respondent is a Liberian corporation and Liberia is not a

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signatory party to that Convention’.72 For example, Pakistan was an early signatory to the New YorkConvention but did not amend its domestic law to reflect its termsuntil 14 Jul. 2005.73 See Art. III New York Convention.74 Which is to say that the signature must be attested to begenuine.75 Which is to say that the copy must be attested to be a true copyof the original.76 Article V New York Convention. Arts 35 and 36 UNCITRALModel Law governing recognition and enforcement of awards arealmost identical to the New York Convention. The UNCITRAL ModelLaw does not permit a review on the merits either (see above).77 Article V(1) and (2) New York Convention.78 See generally Jan Paulsson, May or Must Under the New YorkConvention: An Exercise in Syntax and Linguistics, Arb. Intl. 14,227–230 (1998).79 See further below. See also Parsons & Whittemore OverseasCo. v. Société Generale de L'Industrie du Papier supra (where it wasargued that an award may not be enforceable because it was madein manifest disregard of the law).80 The Secretariat is working on a draft text in collaboration withtwo experts, Professors George Bermann and Emmanuel Gaillard. Itis anticipated that the draft text can be presented to theCommission in 2014.81 http://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=5&id_rubrique=41 (accessed 10 Sep. 2013).82 Article 34(2)(a)(i).83 See Albert Jan Van den Berg, The New York ArbitrationConvention of 1958 298 (Kluwer 1981).84 See Iran Aircraft Industries v. Avco Corp., 980 F 2d 141 (2ndCir. 1992) – cf Geotech­Lizenz AG v. Evergreen 697 F. Supp 1248,1253 (EDNY 1988).85 See Paklito Investment Pty Ltd. v. Klockner East Asia Ltd.[1993] 2 HKLR 39 (Hong Kong).86 See Virgilio De Agostini and Loris and Enrico Germani v. MilliolSpA, Pia and Gabriella Germani and Andrea De Agostini Corte diAppello di Milano, 24 Mar. 1998; Yearbook Commercial ArbitrationXXV (2000), pp. 641–1164, 739–50; Dimitri Santoro, Forum NonConveniens: A Valid Defense under the New York Convention? 21ASA Bull. 713–735(2003).87 See supra n. [40]. In relation to the New York Convention, seegenerally Redfern, Jurisdiction Denied: The Pyramid Collapses, 1 J.Bus. L. 15–22 (1986).88 See Chen Hang Chu v. China Treasure Enterprise Ltd [2000] 2HKC 814.89 Van den Berg, The New York Arbitration Convention of 1958,352.90 Article V(2)(a) New York Convention.91 See Homayoon Arfazadeh, Arbitrability under the New YorkConvention: the Lex Fori Revisted, 17 Arb. Intl. 73–87 (2001). Whatis or is not arbitrable is therefore going to be governed by nationallaws.92 See Hans Smit, Comments on Public Policy in InternationalArbitration, 13 Am. Rev.Intl. Arb. 65–67 (2002).93 See supra.94 Van den Berg, The New York Arbitration Convention of 1958,361.95 Inter Maritime Mgt SA v. Russin & Vecchi XXII Y.B. Comm.Arb. 789 (Swiss Federal Tribunal Judgment of 9 Jan. 1995); AdvisoNV v. Korea Overseas Constr. Corp XXI Y.B. Comm. Arb. 612(Korean S. Ct) (1996).96 See Corporacion Transnacional de Inversiones SA de CV v.STET International SpA [2000] 49 O.R. (3d) 414, O.J. No. 3408 (tobe contrary to public policy, the award must ‘fundamentally offendthe most basic and explicit principles of justice and fairness……orevidence intolerable ignorance or corruption on the part of thetribunal’). See also ‘Enforcement of foreign awards’, Arbitration LawMonthly 1(4) (May 2001), 6–7.97 See Troy L. Harris, The ‘Public Policy’ Exception toEnforcement of International Arbitration Awards under the New YorkConvention, 24 J. Intl. Arb.9–24 (2007).98 Soleimany v. Soleimany [1999] 3 All ER 847.99 See Seriki, Enforcement of foreign arbitral awards, 203. See alsoWestacre Investments Inc. [1999] 3 All ER 864 involving purchasesof military equipment in Kuwait pursuant to a contract governed bySwiss law. The English Court of Appeal held that the award shouldbe enforced because although it may be contrary to the publicpolicy of Kuwait, it was not contrary to the public policy ofSwitzerland.100 See Pierre­Yves Gunter, Enforcing Arbitral Awards, Injunctionsand Orders. In the United States, similar (as opposed to identical)conventions are known as Friendship, Commerce and Navigationtreaties.101 See generally Rudolf Dolzer & Margrete Stevens, BilateralInvestment Treaties ch. 5 (Brill Academic Publishers 1995).102 Articles 53 and 54 Washington Convention.103 Article 54(1) Washington Convention.104 Inter­American Convention on International CommercialArbitration 1975, done at Panama on 30 Jan. 1975, available at:http://www.jurisint.org/en/ins/154.html (accessed 10 Sep. 2013).105 It has been signed and ratified by 19 States (YearbookCommercial Arbitration XXVVII (2012), pp. 451–452). An annually

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updated list of the Contracting States is reproduced in Part V­D ofeach Yearbook.106 Note that the Panama Convention refers to ‘execution’ of anaward rather than enforcement.107 Arab Convention on Commercial Arbitration 1987, done atAmman on 14 Apr. 1987, available at:http://www.jurisint.org/en/ins/155.html (accessed 10 Sep. 2013).108 See generally Abdul Hamid El­Ahdab, Enforcement of ArbitralAwards in the Arab Countries, 11 Arb. Intl. 169–181 (1995).109 The effect of the application of the Riyadh Convention is thatthe Arab League Convention ceases to apply between the stateswhich became Member States to the Riyadh Convention.

Source

Chapter 14: Investor­State Arbitration withinthe ConstructionSector in Jane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 305 ­ 316

§14.01. Introduction

Participating in construction projects in foreign jurisdictions exposesinternational contractors to additional risks above and beyond thoseexperienced when carrying out work domestically. In addition to theremedies available under the construction contract, internationalcontractors working outside their ‘home’ jurisdictions may be able tobenefit from protections available to foreign investors, seekingremedies by way of an investor­state arbitration against thegovernment of the state where the construction project is located(often referred to as the ‘host state’), if these protections areviolated.

Traditional ‘commercial’ construction arbitrations proceed pursuantto arbitration agreements set out in the dispute resolution provisionsof the construction contract. In contrast, investor­state arbitrationsare founded on the host state's unilateral agreement to have certaindisputes determined in international arbitration. A qualifying investorcan rely on the host state's unilateral agreement to arbitrate andmake a claim in international arbitration against the host state.

It is a somewhat curious concept that allows a private foreigninvestor to rely on principles of international law to sue a state –often for huge sums of money – in response to the state takingaction which may be lawful within the state itself. It is certainly avery political issue, with a number of states (in particular, stateswho have received repeated unfavourable rulings in investor­statearbitrations) considering that the process is an unwarrantedinfringement of their sovereignty, and seeking to withdraw from theprocess.

With a few notable exceptions, the construction industry wasinitially slow to embrace the notion of investor­state arbitration.Increasingly, however, international contractors are starting to takeadvantage of this alternative route to seek redress. There are anumber of factors driving this development. First, there is simplybetter page "305" awareness of this potential route tocompensation. Second, the global economic turbulence of recentyears has forced host states to face difficult decisions balancingthe obligation to fulfil international obligations to foreign investorsand the need to meet the expectations of their electorate. Third, theincreased use of long­term project structures such as Build­Own­Operate, PPP concessions and the like, has resulted in a greaternumber of situations in which investor protections may be violated.Finally, the sheer scale of international projects, combined with theincreased use of lump sum contracting, and limited contractualrights to additional payment, has left many international contractorswith significant losses and no prospect of recovery throughtraditional contract claims. We have yet to see how many of thiswave of arbitrations will result in contractors successfully recoveringmonies by way of enforceable arbitration awards, as opposed tonegotiated settlements.

A detailed review of the law and practice of investor­state arbitrationis beyond the scope of this book. Rather, the aim of this chapter isto provide an initial introduction to assist the reader make apreliminary assessment as to whether investor­state arbitration maybe relevant to their particular situation.(1)

§14.02. What Are the Basic Requirements for an Investor­StateArbitration?

The basic requirements for investor­state arbitration are thefollowing:

(1) An investor protection regime which:(a) defines what is a qualifying investment;(b) defines who is a qualifying investor;(c) sets out the protections to be afforded to the qualifying

investor; and(d) includes the host state's submission to arbitration.

Chapter 14: Investor­State Arbitrationwithin the Construction Sector

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(2) A claimant who meets the definition of a qualifying investor.(3) An investment which meets the definition of a qualifying

investment.(4) A violation of the protections afforded to the qualifying investor.

[A]. Identifying the Relevant Investment Promotion Law orTreaty

Investor protection regimes are typically found in a local investmentpromotion law or international treaty.

Investment promotion laws operate unilaterally. A host state seeksto encourage foreign investors to invest within its nationalboundaries, and introduces an investment promotion law into thelocal statute book, promising certain protections to qualifyinginvestors if they invest in qualifying investments in the host stateand page "306" consenting to the determination in internationalarbitration of disputes in relation to violation of the protections.

Investment treaties operate bilaterally (when entered into by twostates, in which case the treaty is referred to as a bilateralinvestment treaty or BIT),(2) or multilaterally (when entered into bythree or more states, in which case the treaty is referred to as amultilateral investment treaty or MIT).(3) The basic premise of bothBITs and MITs is that (a) the contracting states agree to provideinvestors from the other contracting states with certain protectionson a reciprocal basis, and (b) investors from the other contractingstates to the BIT or MIT may claim recompense from the host stateif these protections are violated.

Identifying what investment promotion laws and investment treatiesare in force at any given time may not be straightforward. Manystates publish domestic legislation on government websites, butthese are not always freely accessible, or may not be up­to­date.The situation is more complicated vis­à­vis BITs and MITs. In manyjurisdictions, the mere signing of the investment treaty isinsufficient to give the treaty legal force in the host state. The treatymust be ratified by the host state in accordance with local lawbefore it becomes legally binding. Finally, it is possible for states toamend or repeal domestic legislation, or to withdraw from aninvestment treaty. While certain institutions publish lists ofinvestment treaties thought to be in force at any given time,(4) themost reliable method to confirm what laws are in force is to contactthe office of the Attorney General of the host state, the treatysection of the relevant Ministry of Foreign Affairs and/or the hoststate embassy.(5)

The relevant investment promotion law or treaty will set out who is aqualifying investor, what is a qualifying investment and whatprotections are afforded to the qualifying investor. While eachrelevant law or treaty must be reviewed to identify the specificitiespeculiar to that regime, there is a significant degree of uniformitybetween many regimes.

[B]. Who Is a Qualifying Investor?

Almost without exception, the criteria which determine who is aqualifying investor are the nationality or citizenship of the investor.Investors can be natural persons or legal entities (corporations andthe like).

Investment promotion laws will typically frame the definition in thenegative, requiring that the qualifying investor is not associated withthe host state. In contrast, investment treaties will typically framethe definition positively, requiring that the page "307" investormust be associated with the other ratifying contracting state orstates in order to qualify for protection.

For natural persons, the investment treaty will typically require thatthe investor has the nationality or is a citizen of one of the othercontracting parties to the treaty. Natural persons who hold jointcitizenship of both the host state and one or more of the othercontracting parties to the treaty will often be excluded. In addition,some investment treaties require the investor to be resident in theother contracting state. Whether a natural person is a national,citizen or resident of a particular state will usually be determined, inthe first instance, by reference to that law of that state.

For legal persons, relevant factors in determining nationality include:

­ the place where the investor is constituted or incorporated;­ the place from where the entity is controlled;­ the place where the seat of the management of the entity islocated.

In addition, and in response to investors planning the structure ofinvestments so as to benefit from protections that would nototherwise have been available to them, investment treaties mayrequire that the entity has a further connection to the othercontracting state. For example, the investment treaty may requirethat the entity carries out ‘business activities' or ‘substantialeconomic activities' in the territory of the other contracting state, orthat the management of the investor is seated in that territory.

It is common practice for international contractors to set up a locally

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incorporated special purpose vehicle or similar to undertakeconstruction works in the host state. This may be a requirement ofthe local laws of the host state, or allow for the recovery of locallycharged value added tax and similar costs by the internationalcontractor. Many investment treaties recognise the validity of thisbusiness structure and include such entities in the definition ofqualifying foreign investors, provided that the locally incorporatedentity is controlled directly or indirectly by nationals of anothercontracting state.

[C]. What Is a Qualifying Investment?

The ICSID Convention did not define an investment, preferring toleave this to the consent of the parties, expressed by means ofcontract, national legislation or treaty. The Report of the WorldBank's Executive Directors explicitly states that ‘no attempt wasmade to define the term ‘investment’ given the essentialrequirement of consent by the parties'.(6) Most BITs define the termbroadly. Assessing whether or not an international contractor'sinterest in a particular international project meets the qualifyinginvestment criteria will therefore involve a careful analysis ofpreviously decided investor­state arbitrations in light of the specificwording of the relevant law or treaty.

page "308"

By way of general guidance, tribunals and commentators have oftenreferred to the following indicators when determining if a particularcommercial endeavour is a qualifying investment:(7)

­ the endeavour should continue over an appropriate duration;(8)

­ the endeavour should be capable of generating a profit or otherreturn for the investor;

­ the investor should assume an element of risk in participating inthe endeavour;

­ the endeavour should involve a substantial commitment on thepart of the investor;(9) and/or

­ the endeavour should contribute to the economic development ofthe host state.

A further issue which can be of relevance to internationalcontractors is the requirement that the investment must comply withthe laws of the host state. It is increasingly common for tribunals todecline jurisdiction on the basis that the investment was not madein accordance with the law, for example, as a result ofdiscrepancies during the procurement of the contract. Given that itis not uncommon for allegations of corruption to arise duringinternational arbitrations in the construction sector in relation toprocurement of the construction contract and/or during execution, apotential claimant would be well advised to make appropriateinvestigations in advance of commencing an investor­statearbitration.

While early reported arbitration decisions reveal disagreement withininvestor­state arbitral tribunals and commentators as to whetherconstruction contracts are capable of being qualifying investments,there is now a body of decisions broadly supporting the inclusion ofconstruction contracts within this category. Each of these decisionsis specific to the relevant law or treaty and underlying facts andcannot be viewed as determinative for all similar endeavours. Byway of guidance only, the following commercial endeavoursinvolving construction works have been found to be qualifyinginvestments:

­ the construction and operation of a hotel;(10) page "309"­ a concession for the mining of metals and minerals;(11)

­ the renovation, construction and operation of airport terminals;(12)

­ a real estate development including construction of residentialaccommodation, social and commercial infrastructure;(13)

­ the development of a tourist resort;(14)

­ dredging operations;(15)

­ the development of a hazardous waste landfill facility;(16)

­ the design and construction of public roads.(17)

In contrast, the following endeavours have been found not to bequalifying investments:

­ a letter of intent to construct a proposed power project;(18)

­ pre­development negotiations relating to a hydroelectric powerplant;(19)

­ bank guarantees relating to a phosphate mining project;(20)

­ a previous settlement agreement or arbitral award.(21)

§14.03. The Protections Available to a Qualifying Investor

An international contractor – provided they meet the qualifyinginvestor / qualifying investment criteria – may be entitled to claimagainst the host state if the protections laid down in the investmentlaw or treaty are violated. Potential violations relevant toconstruction contracts include:

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­ the host state passing legislation nullifying or modifying theunderlying construction or concession contract; page "310"

­ the host state interfering with the performance of the contract, forexample, by occupying part of the construction site or failing toassist the contractor in removing unlawful occupiers from thesite;

­ the host state – as Employer under the construction contract –failing to perform its obligations under the contract;

­ expropriation of the contractor's plant, equipment and/ormaterials, or the entire project.

The protections typically available to a qualifying investor are setout below.

[A]. The Right to Receive ‘Fair and Equitable Treatment’ fromthe Host State

One of the primary protections afforded to qualifying investors is theentitlement to receive ‘fair and equitable’ treatment from the hoststate. The host state need not be the Employer under theconstruction contract in order for the contractor to invoke thisprotection. For example, a contractor who is thwarted in enforcingits contractual rights in the host state's courts through a so­calleddenial of justice may be able to invoke this protection. Likewise, acontractor who is denied essential building permits for arbitraryreasons or in a manner inconsistent with the contractor's legitimateexpectations based on assurances and/or prior experience, may beable to claim that it was not receiving ‘fair and equitable treatment’.For example, MTD v. Chile concerned an investment by Malaysianinvestors to develop real estate in Chile.(22) The Chilean ForeignInvestment Commission (FIC) approved the investment, despite itbeing against the Chilean government's urban policy. Afterexpending considerable sums buying land and developing theproposal, the investors were refused the necessary permit to beginconstruction. The Tribunal found that FIC's approval of aninvestment that was against government policy was a breach of theobligation to treat an investor fairly and equitable under the relevanttreaty.

In Metalclad v. Mexico, a US investor was denied a municipalconstruction permit to develop and operate a hazardous wastetransfer station and landfill in Mexico after it had receivedassurances from federal officials that its existing federal and statepermits allowed for the construction. In addition, the localgovernment issued an Ecological Decree creating an ecologicalreserve over the site barring the operations permanently.(23) TheTribunal found that the lack of transparency regarding the relevantlegal requirements and the municipality's failure to arrive at itsdecision to deny the permit in an orderly and timely mannerconstituted unfair treatment.

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[B]. Protection from Expropriation of the Investment

Qualifying investors will normally receive protection fromexpropriation of the investment or measures tantamount toexpropriation, except under specified conditions and with paymentof prompt, adequate and effective compensation by the host state.The expropriation may be partial (e.g., expropriation of thecontractor's equipment, plant and/or materials) or the entireinvestment may be expropriated. The expropriation may also bedirect (e.g., by way of nationalisation) or indirect (e.g., by cancellinga license and thus depriving the investor of the use and enjoymentof its investment). For example, ADC v. Hungary concerned anindirect expropriation.(24) ADC had been awarded contracts torenovate, construct and operate terminals at Budapest airport.Several years into the project, the government legislated to changethe legal and regulatory regime applicable to the airport, and ADC'scontracts were voided. The Tribunal held this to be an unlawfulexpropriation as it was neither in the public interest noraccompanied by adequate compensation.

[C]. The Right to Receive Full Protection and Security for theInvestment

Many investment laws and treaties provide that the qualifyinginvestor is entitled to have their investment protected from physicaldamage. The host state may be liable if the investment is damagedthrough the actions of the host state, or by the host state's failure totake appropriate measures to prevent damage being caused byothers.

Tribunals are generally slow to impose a strict liability on the hoststate, or to be overly prescriptive as to the level of protectionrequired to be provided by the host state, with the more usual testbeing one of due diligence. Further, a claimant in an investor­statearbitration is under the same duty to mitigate loss as a claimant in atraditional commercial arbitration. As such, an internationalcontractor would be well advised to maintain their own security forthe construction site, and not assume that the host state'sobligation to provide ‘full protection and security’ requires the hoststate to provide site security for the works.

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An illustration of this limb of protection is provided by AAPL v. SriLanka which concerned investment by a Hong Kong company in ashrimp farm in Sri Lanka.(25) The farm was subsequently destroyedand a number of employees were killed by Sri Lankan securityforces operating against rebel forces. The Tribunal found that SriLanka had failed to provide the required protection to the investorand its employees.

Similarly the investor in AMT v. Zaire, a US company, sufferedlosses as a result of looting and destruction of industrial andcommercial complexes by Zairian soldiers.(26) The Tribunal foundthat the government had therefore breached its obligation ofvigilance having taken no action to protect the claimant's property.

page "312"

[D]. Protection from Discrimination

A further common protection in investment promotion laws andtreaties is protection from discrimination. This protection often hastwo aspects. First, the right to receive the same treatment asdomestic investors of the host state (the concept of ‘nationaltreatment’). Second, the right to receive the same treatment asforeign investors from other states, notwithstanding that the hoststate may have agreed more favourable protections for investorsfrom that other state (the ‘most favoured nation’ or MFN treatment).For example, in MTD v. Chile, the Malaysian investor was able toinvoke the MFN provision in the Chile – Malaysia BIT to rely onmore favourable provisions in Danish and Croatian BITs entered intowith Chile in respect of obligations to grant necessary permits.(27)

[E]. Free Transfer of Investments and Returns

A further protection commonly available to qualifying investors isthe ability freely to transfer investments to others and to repatriatereturns generated by investment to the investors' ‘home’ jurisdiction.The latter protection has become of increased concern tointernational contractors in recent years, with a number of countriesintroducing or threatening to introduce currency controls and/orunable to pay international contractors in foreign currency given theglobal economic crisis. Some BITs reserve to the host state theright to restrict transfers during periods of crisis.

At the time of writing, the authors are not aware of any investorhaving successfully pleaded an unlawful violation of this limb ofprotection before an ICSID Tribunal in the construction sector.

§14.04. Commencing an Investor­State Arbitration

The applicable treaty will set out the procedure an investor needs tofollow to bring a claim. Some common issues are set out below.

[A]. Cooling­Off Period

Most investment treaties prescribe a period (usually three to twelvemonths) during which claims cannot be brought pending settlementattempts. The investor typically starts the negotiation period bysending a ‘trigger letter’ to the central authorities of the host state,summarising the dispute and requesting negotiation. Upon expiry ofthe period without settlement, the investor is free to commencearbitration. However, non­compliance with a cooling­off period willnot necessarily preclude a tribunal from hearing a claim, forexample, in circumstances where negotiation is obviously futile.(28)

page "313"

[B]. Exhaustion of Local Remedies

Some treaties require the investor to have presented its claim to thecourts of the host state before proceeding to arbitration. Theinvestor is entitled to commence arbitration only if the domesticcourt does not issue a decision within a specified period of time.

[C]. ‘Fork in the road’ Provisions

Investment treaties typically present the investor with a series ofoptions for pursuing its claim after the cooling­off period hasexpired. These most commonly include ICSID arbitration, ad hocarbitration, references to the ICC and sometimes the domesticcourts of the host state. ‘Fork in the road’ provisions stipulate thatonce an investor chooses a particular procedure, he is preventedfrom electing any of the others.

§14.05. ICSID

While a detailed review of the Convention on the Settlement ofInvestment Disputes between States and Nationals of Other States(the ICSID Convention) and the Arbitration Rules of the InternationalCentre for Settlement of Investment Disputes (ICSID and ICSIDarbitration) is beyond the scope of this book, a brief mention iswarranted.(29)

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The ICSID Convention provides a neutral forum for the resolution ofinvestor­state arbitrations pursuant to the Arbitration Rules of theInternational Centre for Settlement of Investment Disputes.(30)Parties may consent to ICSID arbitration in their contract, or thehost state may have consented to ICSID arbitration in theinvestment promotion law and/or investment treaties.

The main steps in an ICSID arbitration are as follows:

­ Commencement: the investor submits a written request forarbitration, and the ICSID Secretary­General sends anacknowledgment of receipt and either registers the request orrefuses it.

­ Constitution of the Tribunal: the parties attempt to agree on thenumber of arbitrators, to be one or an odd number. If they cannotagree then the default formula is that each party names onearbitrator and the two parties then agree on the third arbitrator,who becomes president of the Tribunal. If the parties fail toconstitute the Tribunal within the agreed time, then either partycan ask ICSID to appoint the panel. page "314"

­ Proceedings: the Tribunal holds its first session within sixty daysof its constitution, at which it will decide on procedural issues andtry to narrow the issues in dispute. The parties submit writtenpleadings (including at least a ‘memorial’ and ‘counter­memorial’,and an additional ‘reply’ and ‘rejoinder’ if ordered or agreed). TheTribunal has a broad power to order disclosure. Hearings follow,at which the parties make oral submissions and witnesses andexperts are heard. The Tribunal declares the proceedings closedwhen the parties have completed their presentation of the case.

­ Award: if the claim is not discontinued or settled (both common),closure of the proceedings triggers a 120­day period for theTribunal to render a written award. The award can be published bythe Centre only with the consent of both parties, although partiesusually publish awards unilaterally.

­ Costs: the Tribunal assesses and allocates the parties' costs aspart of the award.

1 Prior to advising a client (or taking action) in this area, werecommend that the reader consults one of the many specialistworks in this area. For example, ‘Guide to ICSID arbitration’ WoltersKluwer 2011, Reed, Paulsson and Blackaby.2 As of writing, more than 2,500 BITs are in force globally.3 Examples of MITs include the Energy Charter Treaty and theNorth America Free Trade Agreement (NAFTA).4 For example, the International Centre for the Settlement ofInvestment Disputes or ICSID, within the World Bank in WashingtonDC.5 There may be strategic reasons for not contacting these offices,or doing so through an intermediary, if the potential claimant doesnot want to ‘tip off’ the host state as to a potential claim.6 Report of the Executive Directors on the ICSID Convention, 1ICSID Reports, at 28; and comments thereon by Christoph H.Schreuer, The ICSID Convention: A Commentary (2001), at 121–134.7 This has been referred to as the ‘Salini test’, by reference to theaward in Salini Costruttori S.P.A.& Italstrade S.P.A. v. Kingdom ofMorocco (Jurisdiction) ICSID Case No ARB/00/4 (ICSID, 2001,Briner P, Cremades & Fadlallah). See also ICSID Case NoARB/07/21 (ICSID, 2009, Paulsson).8 A dredging contract lasting twenty three months was deemed tobe of sufficient duration in Jan de Nul NV & Dredging InternationalNV v. Arab Republic of Egypt (Jurisdiction) ICSID Case NoARB/04/13 (ICSID, 2006, Kaufmann­Kohler P, Mayer & Stern). Thetribunal also accepted the Claimant's submission that investment inthe construction industry commenced when the contractor startedexpending monies on the pre­qualification process.9 For construction projects, the importing of skilled personnel, plantand machinery in order to perform the construction works mayevidence that this indicator has been met. See, e.g., TotoCostruzioni Generali S.P.A. v. The Republic of Lebanon(Jurisdiction) ICSID Case No ARB/07112 (ICSID, 2009, van HoutteP, Feliciani & Moghaizel, supra).10 Amco Asia Corporation & others v. Republic of Indonesia(Jurisdiction) ICSID Case No ARB/81/1 (ICSID, 1983, Goldman P,Foighel & Rubin).11 Vannessa Ventures Ltd v. Bolivarian Republic of VenezuelaICSID Case No ARB(AF)/04/6 (ICSID, 2013, Lowe P, Brower &Stern).12 ADC Affiliate Limited and ADC & ADMC Management Limited v.Republic of Hungary ICSID Case No ARB/03/16 (ICSID, 2006,Kaplan P, Brower & Van Den Berg).13 MTD Equity Sdn Bhd & anor v. Republic of Chile ICSID Case NoARB/01/7 (ICSID, 2004, Sureda P, Lalonde & Oreamuno Blanco).14 Waguih Elie George Siag and Clorinda Vecchi v. Arab Republicof Egypt (Jurisdiction) ICSID Case No ARB/05/15 (ICSID, 2009,Williams P, Orrego Vicuna & Pryles).15 Jan de Nul NV, supra n. 8.16 Metalclad Corporation v. United Mexican States, supra.17 Salini Costruttori S.P.A.& Italstrade S.P.A. v. Kingdom ofMorocco supra; Bayindir Insaat Turizm Ticaret Ve Sanayi AS v.

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Islamic Republic of Pakistan (Jurisdiction) ICSID Case NoARB/03/29 (ICSID, 2005, Kaufmann­Kohler P, Berman &Böckstiegel); Pantechniki S.A. Contractors & Engineers (Greece) v.The Republic of Albania.18 Mihaly International Corporation v. Democratic Socialist Republicof Sri Lanka ICSID Case No ARB/00/2 (ICSID, 2002, Sucharitkul P,Rogers & Suratgar).19 Zhinvali Development Ltd v. Republic of Georgia ICSID Case NoARB/00/1 (ICSID, 2003, Robinson P, Jacovides & Rubin).20 Joy Mining Machinery Limited v. Arab Republic of Egypt(Jurisdiction) ICSID Case No ARB/03/11 (ICSID, 2004, OrregoVicuna P, Weeramantry & Craig).21 GEA Group Aktiengesellschaft v. Ukraine ICSID Case NoARB/08/16 (ICSID, 2011, Van Den Berg P, Landau & Stern).22 MTD Equity Sdn Bhd & anor v. Republic of Chile, supra n. 13.23 Ibid.24 ADC Affiliate Limited and ADC & ADMC Management Limited v.Republic of Hungary, supra.25 Asian Agricultural Products Ltd (AAPL) v. Republic of Sri LankaICSID Case No ARB/87/3 (ICSID, 1990, El­Kosheri P. Asante &Goldman).26 American Manufacturing and Trading Inc v. Republic of ZaireICSID Case No ARB/93/1 (ICSID, 1997, Sucharitkul P, Golsong &Mbaye).27 MTD Equity Sdn Bhd & anor v. Republic of Chile, supra n. 13.28 See, e.g., Biwater Gauff (Tanzania) Limited v. United Republic ofTanzania ICSID Case No. ARB/05/22 (ICSID, 2008, Hanotiau P,Born & Landau).29 As of writing, more than 250 disputes referred for determinationby ICSID arbitration had been determined, with a further 169pending resolution. Readers are referred to Reed, Paulsson &Blackaby, Guide to ICSID Arbitration, (2d ed., Wolters Kluwer 2011)for a comprehensive review of ICSID arbitration.30 While other forums are available, ICSID remains the mostcommonly used forum for resolution of investor­state arbitrations.For example, the Energy Charter Treaty provides for investors tochoose between ICSID, the Stockholm Chamber of Commerce orarbitration pursuant to the UNCITRAL Arbitration Rules.

Source

Chapter 15: ClosingThoughts in JaneJenkins , InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 317 ­ 322

§15.01. Introduction

The previous chapters describe the manner in which arbitrationsarising out of construction disputes are conducted today, with (insome cases) indications of where innovation is occurring. Clearlythere have been changes over the last fifteen or twenty years, withthe greatest change being in the reduction, though not, perhaps, thecomplete demise, of the construction cases where oral hearings ranfor months rather than weeks. The days when (in one of the authors'experience) a construction case settled after seventy sitting daysare now largely behind us. What, then, does the future hold in store?That there will be further change is not in doubt. Change, likely asnot, will come about in three areas.

§15.02. The Response to ADR

The first area of change will be the response to the continuedpressure from end users – clients – to improve efficiencies, withalternative dispute resolution procedures making further inroads intothe number of cases resolved in arbitration if efficiencies are notdelivered. It is, perhaps, illuminating that in a text addressinginternational construction arbitration as it is practised today asignificant number of chapters of this book have focused on stagesprior to an arbitration. In the authors' experience this reflects verymuch an existing trend towards finding alternative ways of resolvingdisputes and, during the progress of the project, looking for ways toavoid disputes and manage claims resolution effectively. Thereasons are obvious: participants in the industry wish to avoid thecosts and wasted time involved in protracted dispute resolution andto find ways to facilitate the settlement of disputes at the earliestopportunity wherever possible.

As a result, the challenge is for lawyers and arbitrators to respondto the market's pressures to devise more efficient procedures. Asexamined in this book, in the authors' page "317" view suchissues should be addressed at the outset when drafting theconstruction contract. Attention should be given to techniques forclaims administration and appropriate dispute resolution procedures.Alternatives to arbitration should be addressed and discussed withclients at this stage. And great care should be taken in draftingdispute resolution provisions to avoid pitfalls that may slow downthe process or which lead to jurisdictional wrangles. There is littleworse or more unproductive than a dispute about how a dispute is tobe resolved, a process which, in addition, invariably favours theparty without the merits on its side. If, however, alternative disputeprocedures fail, lawyers and the tribunal should be creative indevising efficient and cost­effective techniques for managing thearbitration so as to achieve a fair and speedy resolution of the

Chapter 15: Closing Thoughts

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disputes.

In the light of this it is unsurprising that arbitral institutions haveresponded to market pressures. We have seen the development ofrules and guides for the use of Dispute Review Boards (discussedin Chapter 5). Arbitral institutions now also offer standard wordingand supporting services for mediation, conciliation, expertise orother forms of dispute resolution as described in Chapters 3 and 6.Arbitration institutions are also recognising that the ‘traditional’period of eighteen months to two years for a standard constructiondispute is too long and are looking at ways in which theiradministration – and the administration of the arbitrators theyappoint – can be improved so as to achieve a swifter result. Asnoted in Chapter 3, the International Centre for Dispute Resolution,the international division of the American Arbitration Association,prides itself on is choice of arbitrators and the speed with whichthey are appointed and aims for a cycle time from start to finish ofits arbitrations of under a year.(1)

Similarly, new techniques have been developed by tribunals and theparties' advisors for reducing the cost and time spent in hearings.Written submissions now play a significant role with oral openingand closing submissions being confined to summaries of the keypoints. Some arbitrators favour the use of witness conferencing tobring together all of the witnesses relevant to a particular issue atthe same time rather than hearing witnesses on a sequential basis(discussed in Chapters 8 and 12). So­called hot tub procedures areanother example, again discussed in Chapter 12 whereby theexperts are questioned by the tribunal and opposing counseltogether with the possibility for the experts to ask each otherquestions on matters in disputes.

As a result, reports of the sudden death of construction arbitrationare exaggerated. Indeed statistics demonstrate internationalarbitrations are increasing. One key reason is the advantage thatarbitration has over litigation, as discussed in Chapter 3. The keypoints are the ease of enforcement under international conventionsand the opportunity to select a neutral tribunal in a neutralarbitration­friendly venue. Another reason is an increasing trendtowards parties' use of the arbitration provisions of BilateralInvestment Treaties (see Chapter 14), some of which will, insubstance, be construction claims. The future of internationalarbitration as a tool for resolving disputes in the construction andproject sector therefore looks assured. The challenge page"318" is, as indicated above, to deliver in terms of efficiency andeconomics in the period prior to the issue of the award whatinternational arbitration largely delivers once an award has beenmade.

§15.03. Introduction of New Technology

The second area of change, perhaps complementing the first, is theimpact that improved communications and new technology will – atleast if accepted by the parties, witnesses and tribunals – have onthe process. Properly deployed new technology can reduce theinherent difficulties in assembling everybody together in one placefor a hearing. This is not to say that the technology is in placealready. Anyone who has attempted to interview a witness over astandard commercial video link – or, worse, a ‘web­cam’ from anout­of­the­way site – will appreciate the difficulties. Little short of afull scale broadcast quality link provides the necessary intangibleinformation to the audience to enable a proper assessment of thewitness's demeanour and the weight to be put on his responses. Forthis reason, video and teleconferencing facilities are best restrictedto procedural matters where what is relevant is the strength of thearguments and not an assessment of the likely veracity of thespeaker. Even then, a party physically present in the same room asthe tribunal has a considerable advantage over his remote opponentas a result of feedback gleaned from the body language andinstinctive responses of the tribunal. These are almost invariablymissed over even the best telephone or video connections.

But this is not to say that the technology will not (soon) be availableto allow remote management of full hearings. Only that it is not hereyet. What is here is the electronic or ‘virtual’ case file, where all thepapers are filed electronically on a secure server and accessed bythe parties and the tribunal over an Internet link from wherever theyhappen to be. Even if the human factor means that for some thekey documents will be downloaded, printed out, highlighted with ayellow marker and annotated in multi­coloured inks, this is still agreat advantage for all concerned who are prepared to work on atleast this basis. No longer is it necessary for the tribunal, theparties, their counsel or any of the witnesses to be co­located withthe hard copies of voluminous files – still less for them to be all inthe same location at the same time for the case to proceed.

One example of the current state of the technology can be found inthe ICC's NetCase, which is offered at no additional charge by theICC for any ICC arbitration provided the parties – and all thearbitrators – agree. The ICC is at pains to make it clear that this isnot an ‘online arbitration’ system but a technology aid to assist theparties to a conventional arbitration. Thus it is not intended (assome online arbitration systems are) fully to replace the existingprocedures, with all aspects of the case being heard as if anelectronic ‘paper arbitration’. Instead its objectives are to provide asecure (encrypted) medium for the transfer and filing of and accessto the arbitration documents. In addition it provides instant up­to­

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date information on the status and progress of the case, withmatters such as the procedural timetable and directions and state ofthe payments made to the ICC being immediately available. Thoughof page "319" potential considerable value in their current form,systems such as NetCase are also ripe for development intointernational case management and presentation tools, with fulldocumentation being made available – and searchable – in a formatcommon to all participants.

Technology will also impact on the preparation of cases in anotherway when the electronic file is preceded by the fully electronicproject. Only fifteen or so years ago it was relatively uncommon forproject documents to be available (except to the party whichcreated them) in electronic format. The result, unless relativelyunambitious systems were put in place from the project's inception,was that any attempt to produce an electronic database for thepurposes of dispute resolution was, if not doomed to failure,inordinately expensive. Indeed, it was not unknown for attempts tointroduce electronic document management systems after disputesbecame apparent to be severely scaled back or abandoned as thetask of dealing with the backlog of paper based documents becameoverwhelming. Today that has all changed, with (as discussed inChapter 10) the vast majority of project documentation in majorprojects being both created and transmitted in electronic, fullymachine­readable formats. This paradigm shift in the way projectsare documented means that whilst overall volumes of documentshave probably improved (the curse of both email and the ease withwhich drafts can be created but not destroyed), the tools to assessand deploy these documents with reduced human intervention arerapidly becoming more sophisticated.

And in one key area – that of programme or schedule analysis – thepotential exists for shared online, up­to­date programminginformation. This will provide parties keen to embrace thepossibilities this offers with a sound foundation on which delayanalysis can be quickly, reliably and economically undertaken.

§15.04. Cultural Contributions

The third and final area of change will come about as a result ofcultural contributions from parts of the world where construction –and inevitably construction disputes – will feature largely in the nextfifteen or twenty years. The emergence of China as the world's thirdlargest economy with a vibrant domestic and internationalconstruction industry is one such area. The other, arising out of theneed to create large amounts of energy related infrastructure, isformed by those countries influenced by the Sharia.

There will, however, be no resulting step change in the nature or useof arbitration since the practice of arbitration in both areas is deep­rooted and of great antiquity. Most likely, changes will come aboutas a result of the fusion of traditional means of resolving disputeswith arbitration as it has recently been practiced in an internationalcontext.

Of the two areas, Chinese practices are the more likely to have animmediate impact. Not least this is because there is an establishedarbitration centre in China which has, by numbers if by no othermetric, a larger case load than any other international arbitrationinstitution. In particular, the ability of the arbitrator to mediatedisputes at the instance of either party in the course of anarbitration without prejudice page "320" to his continued abilityto function as the arbitrator may well strike a chord with someparties. Indeed, quite probably with the parties to the case whichsettled after seventy sitting days referred to above. That casesettled at that moment (and only at that moment) because thearbitrator of his own volition applied some fairly heavy­handedreality checking to the parties by indicating what he thought hewould rule on one key point in the case. It seems unlikely that thatcase would have been allowed to continue for so long nowadaysand certainly not if run as a CIETAC arbitration. And so much thebetter, might be a proper conclusion.

1 Note that the ICDR caters for a wide range of commercialdisputes including those arising out of construction and projectagreements.

Organization

International Federationof Consulting Engineers

Source

ANNEX 1. Dispute Resolution under the FIDIC Silver Book

Annex 1: Dispute Resolution under theFIDIC Silver Book

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Annex 1: DisputeResolution under theFIDIC Silver Book inJane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 323 ­ 324

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(1)

page "323"

page "324"

1 If neither of the parties has paid in full the invoices submitted byeach member pursuant to clause 6 of the Appendix, the DAB shallnot be obliged to give its decision until such invoices have beenpaid in full.

Source

Annex 2: DisputeResolution under NEC3Option W1 and W2 in

ANNEX 2. Dispute Resolution under NEC3 Option W1 and W2

Dispute Resolution under NEC3 Option W1

Annex 2: Dispute Resolution under NEC3Option W1 and W2

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Jane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 325 ­ 328

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page "325"

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page "326"

DISPUTE RESOLUTION UNDER NEC3 OPTION W2

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(2)

page "327"

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page "328"

2 Time periods stated in this option exclude Christmas Day, GoodFriday and bank holidays (W2.2(2)).

Organization

International Court ofArbitration of theInternational Chamber ofCommerce

Organization

London Court ofInternational Arbitration

Organization

United NationsCommission onInternational Trade Law

Source

Annex 3: SampleInstitutional Flowchartsin Jane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 329 ­ 336

ANNEX 3. Sample Institutional Flowcharts

ICC ARBITRATION (2012 RULES) FLOWCHART

Annex 3: Sample Institutional Flowcharts

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page "329"

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(3)

page "330"

LCIA ARBITRATION FLOWCHART

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page "331"

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(4) (5)

page "332"

UNCITRAL ARBITRATION (2010 RULES) FLOWCHART

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page "333"

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page "334"

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page "335"

page "336"

3 The ICC court may fix a different time limit based on theprocedural timetable established pursuant to Article 24(2).4 The time limits for challenging awards under the Arbitration Act1996 run from date of award (section 70(3)).5 Where the seat is in London and the Arbitration Act 1996 applies,awards can be challenged pursuant to section 67 (lack ofsubstantive jurisdiction) and section 68 (serious irregularity) (bycontract section 69 is not mandatory).

Source

Annex 4: ImportantDraftingConsiderations forDispute ResolutionClauses in Jane Jenkins, InternationalConstruction ArbitrationLaw (Second Edition),

ANNEX 4. Important Drafting Considerations for DisputeResolution Clauses

The following is a non­exhaustive list of some of the more importantconsiderations and issues that may need to be addressed indrafting dispute resolution clauses in contracts relating tointernational construction projects. A more detailed discussion ofthese and related issues is contained in Chapter 3.

Annex 4: Important DraftingConsiderations for Dispute ResolutionClauses

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Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 337 ­ 340

Preliminary issues

– How many tiers of dispute resolution should there be? What tiersshould be included?

Negotiation

– Should there be a provision for mandatory face­to­facenegotiations? If so, should the contract identify the negotiatorsfor each party, or should they be decided upon at the time of thedispute? Should there be more than one level of negotiation?What will happen if one party refuses to negotiate within the timeallowed for such negotiations?

ADR

– Should there be ADR (Alternative Dispute Resolution)procedures included the contract? If so, when is the ADRprocedure deemed to commence? If it is after court or arbitralproceedings have already commenced, what is the effect of theADR procedure on any ongoing proceedings? Will they bestayed? If so, how and when can they be restarted in the eventthat the ADR procedure breaks down?

– Should there be a bona fide attempt to make ADR a conditionprecedent to proceeding to the next stage in the disputeresolution process? (Note: if the provisions of the UKConstruction Act 1996 (discussed above) apply to the project, itis impossible to prevent a party ‘leapfrogging’ to adjudication atany time.)

– Should the dispute resolution clause itself designate (and define)a specific ADR procedure such as mediation, conciliation, mini­trial or expert opinion, or leave the exact nature of the processfor subsequent agreement and simply state that the parties shallagree the exact form of ADR once a dispute arises? (Note: insome jurisdictions, including England, such an ‘agreement toagree’ may not be legally enforceable, though the appointment ofa third body (such as CEDR) to make the decision on the parties'behalf generally will be recognised as binding). page "337"

– What mechanism should be used for agreeing/appointing theneutral? Should that person's qualifications be identified/agreedin advance? Should the clause provide for an outside agency tobe involved in appointing the person in question?

– Should the clause set out bespoke detailed procedural rules forthe ADR process, adopt those of an outside agency/serviceprovider, or leave procedural matters for subsequent agreementby the parties or the person they appoint?

– Should there be joint or separate meetings between the partiesand the neutral person they appoint?

– Will the neutral person appointed to assist in the ADR beallowed, or required, to make recommendations or evaluations ofthe parties' respective cases and the likely outcome of anysubsequent litigation or arbitration?

– Should the ADR clause contain express confidentiality provisionsand/or specifically reserve the parties' strict legal rights in casethe ADR procedure breaks down?

– Depending upon the nature of the dispute, should there beexpress provision for parties to continue to perform theirsubstantive obligations during the ADR procedure (e.g. requiringthe contractor to continue working, pending resolution of thedispute)? Will such clauses be enforceable under the relevantlaws? Will such a clause have the (possibly unintentional) effectof preventing the exercise of termination rights during thecurrency of the process?

– Is an express provision restricting the use of informationdisclosed in the ADR process in any subsequent court orarbitration proceedings required (e.g. restricting its use to theenforcement of any resulting settlement agreement)?

– Should there be an express provision limiting the role of theneutral in any subsequent court or arbitration proceedings?

– Should the clause deal expressly with the authority of the parties'representatives to negotiate, make admissions, etc during theADR process?

– What is the timetable for the procedure, and what are thespecified procedural steps?

– Should the clause exclude particular types of disputes and/orremedies from the ADR procedure?

– How are the costs and fees of the chosen form of ADR to bedealt with?

Adjudication

– Should there be adjudication? If so, should it be an individual orpanel of qualified people?

– Should the adjudicator or panel be identified in the contract (i.e. astanding panel or board) or should there be a mechanism toappoint an adjudicator/panel at the time each dispute arises (adhoc)?

– Will the adjudicator/panel make interim binding decision or onlynon­binding recommendations?

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– Will the parties create their own bespoke adjudication provisionsor adopt those of an institution (e.g. the ICC DB Rules)?

– How will the costs and expenses of the adjudicator/panel beallocated? page "338"

– To what extent will the adjudicator/panel have the power to takethe initiative in ascertaining and investigating facts and lawrelated to the dispute?

– How much time will the adjudicator/panel have to provide itsdecision?

– Will the adjudicator/panel be required to make regular visits tosite during the duration of the project?

– Will the adjudicator/panel be entitled to appoint its own advisorsto assist on matters of legal interpretation or areas outside itsexpertise? If so, will prior consent of the parties be required?

– Will the adjudicator/panel have the power to award interest and/orcosts?

– What, if any, powers will the adjudicator/panel have in the eventthat one party refuses to participate in a reference?

– What, if any, provisions will be included in respect ofconfidentiality and the ability of the adjudicator/panel members toact as witnesses in subsequent proceedings?

Arbitration

– Should there be arbitration or litigation as the final tier? (Relevantconsiderations include the enforceability of an arbitral award,which in turn involves considering the location of assets againstwhich you may want to enforce.)

– If arbitration is successful, how many arbitrators should therebe?

– Should the qualifications of the arbitrator(s) be specified?– Who should appoint the tribunal in default of agreement by theparties?

– Should the procedural rules of the arbitration be ad hoc orinstitutional?

– Where should the seat of the arbitration be located? How do thecourts in that jurisdiction approach intervention in arbitralproceedings?

– Should there be an express provision addressing confidentiality?– How should possible rights of appeal be addressed?– Should consolidation and joinder provisions be included?

Litigation

– Should disputes be resolved in the court(s)?– If so, which court(s)?– How will a judgment be enforced?– You will also need to address submission to exclusive/non­exclusive jurisdiction of the court(s), and make provision for anagent for service of process (where necessary).

Other considerations

Issues on which it may be necessary to seek local law adviceinclude:

– Is the jurisdiction that is to be the seat of arbitration a signatoryto the New York Convention? What about the jurisdiction(s) inwhich you are likely to want to enforce an arbitral award?

page "339"– Does the law of the place of performance, or the governing law, ifit is different, provide rights to suspend performance, despitecontractual provisions to the contrary (for example, in a situationof non­payment)?

– If a state or state agency/emanation is the counterparty, arethere any relevant bilateral or multilateral treaties? If so, howbest might you exploit treaty protection? For example, can theproject vehicle be incorporated in a state that enjoys goodinvestor protection arrangements under BITs or MITs with thestate in which the project is to take place?

page "340"

Source

Annex 5: Sample Multi­Tiered DisputeResolution Provisionsin Jane Jenkins ,

ANNEX 5. Sample Multi­Tiered Dispute Resolution Provisions

Negotiation

Annex 5: Sample Multi­Tiered DisputeResolution Provisions

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InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 341 ­ 352

[.1] In the event of any dispute or difference between the Employerand the Contractor arising out of or in connection with thisAgreement whether before or after repudiation or termination of thisAgreement (a Dispute) the Dispute shall first be referred by noticein writing to the Chairman or Chief Executive of the Parties whoshall meet and endeavour to resolve the Dispute by negotiation.

Expert Determination

[.2] If the Dispute is not so resolved within [7] days of the noticereferred to in Clause [.1], where the Dispute has arisen during theprogress of the Works (but not after the issue of the [MaintenanceCertificate] [Certificate of Making Good Defects] for the whole of theWorks or after abandonment of the Works or termination or allegedtermination of the Agreement, then such Dispute shall at theinstance of either the Employer or the Contractor be referred inwriting to and be settled by a panel of three persons (acting asindependent experts but not as arbitrators) (the Panel) under theprocedure set out in Appendix [ ] (the Expert Determination). ThePanel shall state its decision in writing and give notice of the sameto the Employer and the Contractor within a period of 90 days fromthe reference to Expert Determination. The Panel shall perform itsduties and reach its decision in accordance with the terms of thisAgreement (including the procedure set out in Appendix [ ]).

[.2.2] The Panel shall be constituted in the following manner:

(i) a President of the Panel shall be appointed by the Parties byagreement within [28] days of the date of this Agreement orfailing such agreement shall be selected on the request ofeither Party by [the Centre for Expertise of the InternationalChamber of Commerce, 38 Cour Albert ler 75008 Paris,France];

(ii) each Party shall within 28 days of the date of this Agreementnominate for the approval of the other Party one person to thePanel and an alternate for such person or failing suchnomination by either Party the other Party may apply to [theCentre for Expertise of the International Chamber ofCommerce, 38 Cour Albert ler 75008 Paris, France] to make anomination; and page "341"

(iii) no person shall be nominated by either Party or selected by[the Centre for Expertise of the International Chamber ofCommerce, 38 Cour Albert ler 75008 Paris, France] who is not:(a) wholly independent of the Parties and of any sub­

contractor, subsidiary or associated company of eitherParty; and

(b) professionally qualified in the field of [civil and/ormechanical and electrical engineering.] [Considerinvolvement of lawyers.]

unless the Parties so agree.

Effect of the Panel’s decisions

[.2.3] The Panel's decision shall be final and binding unless anduntil the Dispute is finally determined by arbitration pursuant toClause [.4] or is resolved by agreement, and both Parties shall giveeffect forthwith to the Panel's decision unless and until the decisionis revised in arbitration or resolved by agreement.

Notice of Arbitration

[.2.4] If either Party is dissatisfied with the Panel's decision then itmay within [56] days after receiving notice of such decision, notifythe other Party that the Dispute is to be referred to arbitration. If nosuch notice of arbitration has been served by either Party withinsuch period, the Adjudicator's decision shall be final and binding onthe Parties.

Alternative Dispute Resolution

[.3] If either Party has served notice of arbitration in accordancewith Clause [.2.4] above, the Parties shall seek to resolve theDispute amicably before the commencement of arbitration by usingthe following procedure:

[.3.1] the Parties shall submit the Dispute to a neutraladviser appointed by agreement between the Partiesto assist them in resolving the Dispute. Either Partymay give written notice to the other proposing thename of a suitable person to be appointed. If no suchperson is appointed within 14 days after such notice isgiven, either Party may request [the Centre forExpertise of the International Chamber of Commerce,38 Cour Albert ler 75008 Paris, France] to appoint aneutral adviser acceptable to both Parties;

[.3.2] the Parties shall, with the assistance of theneutral adviser appointed in accordance with Clause[.3.1], seek to resolve the Dispute by using analternative dispute resolution procedure (the ADRProcedure) agreed between the Parties or, in defaultof such agreement, established by the neutral adviser;

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[.3.3] if the Parties accept any recommendationsmade by the neutral adviser or otherwise reachagreement as to the resolution of the Dispute, suchagreement shall be recorded in writing and signed bythe Parties (and, if applicable, the neutral adviser),whereupon it shall become binding upon the Parties;

page "342"

[3.4] in the event that the Dispute proceeds toarbitration in accordance with Clause [.4], then:

(i) any neutral adviser involved in the ADRProcedure shall not take part in the arbitration,whether as a witness or otherwise, and anyrecommendations made by him in connection withthe ADR Procedure shall not be relied upon byeither Party without the consent of the other Partyand the neutral adviser;

(ii) neither Party shall make use of or rely uponinformation supplied, or the arguments raised, bythe other Party in the ADR Procedure;

[.3.5] the costs and fees associated with the ADRProcedure shall be borne equally by the Parties.

Arbitration

[.4.1] Any Dispute:

in respect of which either Party has served notice of arbitrationpursuant to Clause [.4.1];

or

which has arisen after issue of the [Maintenance Certificate][Certificate of Making Good Defects] for the whole of the Works orafter abandonment of the Works or termination or allegedtermination of the Agreement (including the breach, termination orinvalidity thereof)

shall be referred to and finally resolved by arbitration under theRules of the [Centre for Expertise of the International Chamber ofCommerce, 38 Cour Albert ler 75008 Paris, France] which Rules aredeemed incorporated by reference into this Clause. The tribunalshall consist of [one]/[three] arbitrator[s]. The language of thearbitration shall be [English] and the seat and place of the arbitrationshall be [London, England].

[.4.2] Neither Party shall be limited in the arbitration to the evidenceor arguments previously put before the Panel to obtain its decision.The arbitrator[s] shall have full power to open up, review and reviseany decision, approval, recommendation or determination made,notice or certificate given by the Employer and/or the Employer's[Engineer]/[Representative] and the decision of the Panel in respectof the Dispute referred to arbitration.

Performance to Continue During Dispute

[.5] Unless this Agreement has already been terminated or theWorks have already been abandoned the Parties shall continue toperform their obligations under the Agreement regardless of thenature of the Dispute and notwithstanding the referral of the Disputefor resolution pursuant to this Clause [ ].

page "343"

Recourse to the Courts

[.6] Nothing in this Clause [ ] shall prevent either Party at any timeseeking any interim or interlocutory relief in aid of the ExpertDetermination or arbitration or in connection with enforcementproceedings.

Confidentiality

[.7.1] Subject to Clause [.7.2] the Parties shall keep the fact that:

(i) any negotiation pursuant to Clause [.1];(ii) any Expert Determination pursuant to Clause [.2]; or(iii) any ADR Procedure conducted pursuant to Clause [.3].

is taking place and the outcome of any such procedure (theConfidential Procedure) is confidential. All documentation,information, data, submissions and comments disclosed whether inwriting or otherwise by either Party, the neutral adviser or the Panel(and if necessary its appointed advisers) for the purposes of theConfidential Procedures either in connection with or in consequenceof any Confidential Procedure shall be regarded and treated asconfidential (the Confidential Material) and such ConfidentialMaterial shall remain the property of the Party disclosing the sameand all copies shall be returned to such Party on completion of therelevant Confidential Procedure.

[.7.2] The obligations of confidentiality do not extend to any of the

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Parties for the purpose of:

(i) consulting legal advisers in connection with the Dispute;(ii) consulting any expert or technical consultant in connection with

the Dispute;(iii) disclosure to [credit providers] in accordance with the [finance

documents for the project]; or(iv) as otherwise required by law.

page "344"

APPENDIX 1:. PROCEDURE FOR EXPERT DETERMINATION

REFERENCE OF A DISPUTE TO EXPERT DETERMINATION

1. Either Party may give notice (the [Notice to Refer) to the otherParty of its intention to refer a Dispute which has arisen duringthe progress of the Works [(but not after the issue of the[Maintenance Certificate] [Certificate of Making Good Defects]for the whole of the Works or after abandonment of the Works ortermination or alleged termination of the Agreement)] to ExpertDetermination by the Panel. The Notice to Refer shall set out:(i) the nature and a brief description of the Dispute;(ii) the names and addresses of the Parties involved; and(iii) the nature of the relief sought,

and shall be accompanied by the referring Party's writtenStatement of Case detailing the grounds upon which the case isbased and a copy of those documents upon which the referringParty wishes to rely.

A copy of the Notice to Refer and accompanying documentsshall be sent simultaneously to the President of the Panel.

Constitution of the Panel

2. Within 7 days of the receipt of the Notice to Refer the Presidentshall constitute the Panel by appointing the two persons firstnominated or, if the President of the Panel shall so decidehaving regard to the nature of the Dispute, the alternate of suchperson in his place. The two persons appointed by the Presidentand the President shall comprise the Panel for the Dispute thesubject of the Notice to Refer. The President shall forthwithnotify both Parties in writing of the constitution of the Panel.

Procedure for the Expert Determination

3. The other Party shall have the right to submit a written responsewithin 28 days of receipt of the documents referred to inParagraph 1 (or such longer period up to a maximum of 42 daysas may be granted by the President in his discretion havingregard to the complexity of the matters raised in the Statementof Case), together with copies of any documents upon which hewishes to rely, to the Panel, and shall, at the same time, send acopy of all such materials to the referring Party.

4. The Panel shall have full power to take the initiative inascertaining the facts and the law. In particular, the Panel shallhave power to:(i) request clarification or additional information from either or

both of the Parties;(ii) make such site visits and inspections as it considers

appropriate;(iii) convene meetings upon reasonable notice to the Parties at

which both Parties shall be entitled to be present; page"345"

(iv) appoint its own advisers to advise on matters of legalinterpretation or expertise outside the area of expertise ofeach of the members on which the Parties are not agreed;

(v) open up, review and revise any decision, approval,recommendation or determination made, notice orcertificate given by the Employer and/or the Employer's[Engineer]/[Representative]; and

(vi) make use of the specialist knowledge of each of themembers.

5. Without prejudice to such powers, the Panel shall convene ameeting at the request of either Party to give the Parties theopportunity to make oral submissions before the Panel reachesits decision.

6. If either Party fails to submit any written statement or respond toany request for clarification or information or fail to attend anymeetings convened by the Panel, the Panel shall proceed withthe Expert Determination on the basis of the informationsupplied by the other Party. Any communications passingbetween a Party and the Panel shall be copied to the otherParty.

The Panel’s decision

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7. The Panel shall reach its decision within 90 days of receipt bythe President of the Notice to Refer. The Panel may extend theperiod of 90 days by up to 14 days with the consent of theParties. The Panel's decision shall be in writing and shall set outthe reasons for the decision. The President shall serve on bothParties a copy of the decision (which may be unanimous or amajority decision). The President shall have the power to correctany clerical error or mistake in the decision notwithstanding theexpiry of the 90 days referred to above.

Costs

8. Each Party shall bear its own costs in relation to any referenceof a Dispute to the Panel. The reasonable costs and expensesof the Panel in carrying out the Expert Determination shall beborne by the Parties in equal shares.

Involvement in arbitration or court proceedings

9. The Parties agree that no members of the Panel shall be calledas a witness to give evidence concerning any Dispute in respectof which he was appointed to the Panel in any arbitration orcourt proceedings pursuant to the Agreement. Further, nomember of the Panel shall accept appointment as an arbitratorin any arbitration in respect of a Dispute arising under or inconnection with this Agreement.

The President’s role

10. The President shall be responsible for the proper andexpeditious conduct of the Panel's business including securingthe availability of members and alternates to ensure that aPanel shall at all times be constituted in accordance withClause [.2.2] page "346" of the Agreement and to ensurethat any Panel so constituted will discharge its duties. Themembers and their alternates shall under the direction of thePresident keep the President informed at all times as to theirwhereabouts and availability.

11. All communications between the Parties and the Panel shall beaddressed to the President.

12. The President shall without delay, appoint one of the membersor alternates as Vice­President to take over the powers andduties of the President in the event that the President isunavailable to carry out his duties. The President shallforthwith notify both Parties of this nomination. The Presidentmay not so delegate his powers for a period or periodsexceeding a cumulative total of 45 days in any consecutiveperiod of 12 months.

Incapacity and Replacement of the President and Members of aConstituted Panel

13. If any member or alternate serving on a constituted Panel shallbecome incapable of performing his powers and duties for aperiod or periods amounting to a cumulative total of 10 days,then the President may, if in his opinion such incapacity willrender it impossible for the Panel to reach a decision within 90days, substitute such member or alternate with anothermember or alternate. Such substitution shall not affect thecontinuation or validity of the constituted Panel and thesubstitute shall continue to serve on the constituted Panel untilthe decision is reached. The President shall forthwith informboth Parties in writing of any such substitution, and may at hisdiscretion adjourn the proceedings for such a reasonable periodof time in order that the substitute may familiarise himself withthe issue being considered by the constituted Panel.

14. If the President shall become incapable of carrying out hisduties and obligations whilst serving on a constituted Panel fora period exceeding 10 days, then he shall be replaced asPresident of the constituted Panel by the Vice­President if inthe opinion of the other members of the constituted Panel suchincapacity will render it impossible for the Panel to reach aunanimous decision within 90 days. If at the relevant time theVice­President is serving on the same constituted Panel as thePresident, the Vice­President shall appoint another member oralternate to that constituted Panel and such substitution shallnot affect the continuity or validity of the constituted Panel.The Vice­President shall continue to serve as President on theconstituted Panel until the decision is reached and shallforthwith inform both Parties of his substitution for thePresident.

The Replacement of President, Members and Alternates

15. If the President or any member or alternate shall retire or havehis appointment terminated in accordance with the terms of hisappointment, then the Parties shall jointly appoint areplacement within 30 days. If the Parties shall fail to agree ona replacement, then either Party may apply to the Centre forEffective Dispute page "347" Resolution to decide on thereplacement, and any appointment made in accordance with

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this Paragraph 9.1, shall in any event be subject to theprovisions of Clause [.2.2] of the Agreement.

16. In any event of the President retiring or having his appointmentterminated, as provided for in Paragraph 11.1, the Vice­President shall exercise the powers and duties of the Presidentuntil a permanent replacement is appointed. If the Vice­President is serving as President of a constituted Panel, heshall continue to fulfil that particular function until the decisionis reached, notwithstanding the appointment of a newPresident.

page "348"

APPENDIX 2:. TERMS OF APPOINTMENT OF PANEL MEMBER

THESE TERMS OF APPOINTMENT OF PANEL MEMBER AREMADE BETWEEN:

(1) [name of Employer] of [address of Employer] (Employer);(2) [name of Contractor] of [address of Contractor] (Contractor);

and(3) [name of Panel Member] of [address of Panel Member] (Panel

Member).

WHEREAS

A. The Employer and the Contractor (the Parties) have on the [ ]day of [ ] entered into an agreement for [ ] (the Agreement).

B. By Clause [ ] of the Agreement provision is made for an expertPanel to settle, in the first instance, all disputes arising out of orin connection with this Agreement (the Expert Determination).

C. The Panel Member has agreed to serve on the terms set outherein.

NOW IT IS HEREBY AGREED as follows:

1. The Panel Member shall act impartially as an independentexpert and not as an arbitrator. The Panel Member shall beunder a continuing duty to disclose in writing to each Party anyfact or circumstance which might call into question hisimpartiality or independence [and in particular any appointmentas director, office holder, any employment or personalengagement in providing services or acting as a consultant toeither Party, sub­contractor, subsidiary or any associatedcompany of either Party].

2. The Panel Member shall, together with the other members of thePanel, decide any dispute referred to him under the Agreementand agrees to conduct the Expert Determination in accordancewith Clause [ ] and Appendix [ ] of the Agreement and theapplicable law.

3. The Panel Member shall have full power, together with the othermembers of the Panel, to take the initiative in ascertaining thefacts and the law. In particular, the Panel Member shall havepower to:(a) request clarification or additional information from either or

both of the Parties;(b) make such site visits and inspections as he considers

appropriate;(c) convene meetings upon reasonable notice to the Parties at

which both Parties shall be entitled to be present;(d) appoint his own advisers to advise on matters of legal

interpretation or expertise outside his own area of expertiseon which the Parties are not agreed;

(e) open up, review and revise any decision, approval,recommendation or determination made, notice or certificategiven by the Employer and/or the Employer's [Engineer]/[Representative];

(f) use of his own specialist knowledge.

page "349"

Without prejudice to such powers the Panel shall convene ameeting at the request of either Party to give the Parties theopportunity to make oral submissions before the Panel reaches itsdecision.

4. Panel Member, together with the other members of the Panel,shall reach its decision within 90 days of receipt by him of theNotice to Refer, or within the time allowed, in accordance withAppendix [ ]. The Panel's decision shall be in writing and shallset out the reasons for the decision.

5. The Party shall bear its own costs in relation to any referenceof a dispute to the Panel. The reasonable costs and expensesof the Panel Members in carrying out the Expert Determinationshall be borne by the Parties in equal shares.

6. The Parties shall be jointly and severally liable for the fees andthe reasonable costs and expenses of the Panel Member incarrying out the Expert Determination as follows:(i) the Panel Member shall be paid a fee at the [hourly/daily]

rate of £[ ] in respect of all time spent upon or inconnection with the Expert Determination (includingtravelling time);

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(ii) the Panel Member shall be reimbursed in respect of alldisbursements reasonably and properly incurred upon orin connection with the Expert Determination including thecost of secretarial services, telephone calls, couriercharges, faxes, travel expenses, hotel and subsistencecost upon production of a receipt in respect of suchdisbursements;

(iii) the Panel Member shall be paid a fee advance of £[ ].The Panel Member shall be entitled to deliver an invoicein respect of the fee advance immediately following hisappointment to each of the Parties in the amount of theirrespective share. This fee advance shall be deductedfrom the final statement of any sums due under items (i)and (ii) above. If the final statement is less than the feeadvance the balance shall be refunded to the Parties;

[(iv) the Panel Member [is]/[is not] currently registered forVAT;]

[(v) where the Panel Member registered for VAT it shall bepayable at the rate applicable at the date of any invoice;]

[(vi) all payments shall become due 21 days after receipt ofthe Panel Member's invoice thereafter interest shall bepayable at 5% per annum above the[ ] Bank base rate forevery day the amount remains outstanding.]

7. The Parties agree that the Panel Member shall not be liable foranything done or omitted in the discharge or purporteddischarge of his functions as Panel Member unless the act oromission is in bad faith and any employee or agent of thePanel Member shall be similarly protected from liability. TheParties undertake to each other and to the Panel Member thatthe Panel Member shall not be called as a witness to giveevidence concerning any Dispute in respect of which he wasappointed Panel Member in any arbitration or court proceedingspursuant to the Agreement. Further, no member of the Panelshall accept appointment as an page "350" arbitrator in anarbitration in respect of any Dispute arising under or inconnection with this Agreement.

8. The Parties and the Panel Member and the Panel's appointedadvisers, if any, shall keep the fact that the ExpertDetermination is taking place and its outcome confidential, andall documentation, information, data, submissions andcomments disclosed whether in writing or otherwise by eitherParty to the Panel Member (and if necessary its appointedadvisers) either in connection with or in consequence of theexpert determination shall be regarded and treated asconfidential (the Confidential Material). Such ConfidentialMaterial shall remain the property of the Party disclosing thesame and all copies shall be returned to such Party oncompletion of the relevant expert determination. Theobligations of confidentiality do not extend to the Parties or thePanel Member for the purpose of:(i) consulting legal advisers in connection with the Dispute;(ii) consulting any expert or technical consultant in

connection with the Dispute;(iii) disclosure to [credit providers] in accordance with the

[finance documents for the project]; or(iv) as otherwise required by law.

9. The Panel Member's appointment shall be terminated:(a) if he fails to act in accordance with the terms and

procedure as set out in this Appointment;(b) by reason of misconduct of the Panel Member;(c) if he is unable for whatever reason to perform his

obligations under this Appointment; or(d) at any time at the joint election of the Parties.

Where the termination of the appointment is due to the defaultor misconduct of the Panel Member, the Parties shall not beliable to pay the Panel Member's costs and expenses and thePanel Member shall return any advance paid pursuant toClause 6(iii) within 21 days of the date of termination thereafterinterest shall be payable at 5% per annum above the [] Bankbase rate every day the amount remains outstanding.

10. For all purposes relating to this Appointment the Parties' andthe Panel Member's addresses are as follows:(a) the Employer: [](b) the Contractor: [](c) the Panel Member: []

11. This Appointment shall be governed by, and shall be construedin accordance with, the laws of [England and Wales].

12. All disputes, controversies or claims arising out of or inconnection with this Appointment including the breach,termination or invalidity thereof, shall be finally settled underthe Rules of the [Centre for Expertise of the InternationalChamber of Commerce, 38 Cour Albert ler 75008 Paris,France] which Rules are page "351" deemed incorporatedby reference to this clause. The tribunal shall consist of onearbitrator appointed in accordance with the said Rules (seenote 6). The language of the arbitration shall be [England] andthe seat and place of the arbitration shall be [London, England].

Signed by, forand on behalf

……………………………………………………….

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of theEmployer

……………………………………………………….

in thepresence of:

……………………………………………………….

…………………………………………………….…

Signed by, forand on behalfof theContractor

……………………………………………………….

………………………………………………….……

in thepresence of:

……………………………………………………….

……………………………………………………….

Signed by, forand on behalfof the PanelMember

……………………………………………………….

……………………………………………………….

in thepresence of:

……………………………………………………….

……………………………………………………….

page "352"

Organization

London Court ofInternational Arbitration

Source

Annex 6: ExampleOutline for Request forArbitration under theLCIA Rules (1998) inJane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 353 ­ 358

ANNEX 6. Example Outline for Request for Arbitration underthe LCIA Rules (1998)

LONDON INTERNATIONAL COURT OF ARBITRATION

LCIA Ref. [ ]

If single entity is the Contractor / Supplier [CONTRACTORNAME]

Claimant

OR

If Contractor / Supplier is an unincorporated Joint Venture /Consortium [1. CONTRACTOR NAME, 2. CONTRACTOR NAME,3. CONTRACTOR NAME together the Joint Venture /Consortium]

Claimants

­v­

EMPLOYER NAME

Respondent

REQUEST FOR ARBITRATION

[Date]

[Request by Contractor for additional time and money]

page "353"

1. Pursuant to Article 1 of the 1998 edition of the LCIA ArbitrationRules (the LCIA Rules), the Claimant, [name], hereby submitsits Request for Arbitration.

I.. Particulars of the Parties to the Arbitration

2. The particulars of the Claimant are as follows:

[Formal name] (Shorthand Name or the Contractor)

[Address]

[Phone number]

[Fax]

[Email]

[Contact person]

3. The particulars of the Respondent are as follows:

[Formal name] (Shorthand Name or the Employer)

[Address]

[Phone number]

Annex 6: Example Outline for Request forArbitration under the LCIA Rules (1998)

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[Fax]

[Email]

[Contact person]

II.. Particulars of Counsel

4. The particulars of counsel for the Claimant are as follows:

[Law firm name]

[Address]

[Phone number]

[Fax]

[Contact people]

[Email addresses]

5. The particulars of counsel for the Respondent are believed tobe:

[Law firm name]

[Address]

[Phone number]

[Fax]

[Contact people]

[Email addresses]

III.. The Nature and Circumstances of the Dispute

6. [Brief description of the issues giving rise to the Dispute.]

page "354"

A.. Background

7. The contract at issue in this Arbitration is a “design and build”contract dated [date] for the [description of the Project] (theProject), signed by the Claimant (as Contractor) and theRespondent (as Employer) (the Construction Contract).(1)

8. The Construction Contract provided for the [description of theWorks] (the Works) to be completed by the Contractor:(a) for [price / basis of payment], and(b) within [period] i.e., on or before [date].

9. [Brief description of the Project.]10. [Brief description of the relevant allocations of risk.]

B.. The Contractor was prevented from progressing the Worksas planned

11. As noted above, the Contractor should have completed theWorks on or before [date]. In order to achieve this completiondate, the Contractor planned to execute the Works as follows:

12. [Brief description of the Contractor's original planned approachto the Works.]

13. The Contractor was prevented from progressing the Works asplanned. By way of illustration only, the Contractor refers to thefollowing:

[Very high level bar chart comparing plan to actual progresssplit into main activities.]

14. The Contractor was prevented from meeting its plan for theProject by a number of matters for which the Employer hasaccepted responsibility under the Construction Contract. Thesematters are referred to in this Request as the Relief Events. Inbrief:

15. [Brief statements as to what prevented the Contractor meetingthe plan – identifying each Relief Event.]

16. Each of the Relief Events are matters for which the Contractoris entitled to relief (both time and money) under theConstruction Contract and/or as a matter of law. TheContractor's preliminary assessment of the relief due is asfollows:(a) Additional time: [estimate by Relief Event if possible],(b) Additional payment: [estimate by Relief Event if possible],(c) Interest and financing charges: preliminary estimate [ ]

page "355"17. The Contractor sets out its Request for Relief at paragraphs [ ]

of this Request below.

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IV.. The Arbitration Agreement

18. The arbitration agreement is found at Clause [ ] of theConstruction Contract, a copy is provided as Exhibit [ ] to thisRequest.

V.. The Claimant’s comments on the Appointment of theTribunal

19. [If not clearly stated in the arbitration agreement, set outproposal for number of arbitrators and mechanism forappointing.] or [As stated in the arbitration agreement set outabove, the Parties have agreed that the Arbitral Tribunal will beconstituted of a sole arbitrator / three arbitrators. The Partieshave agreed / the Claimant proposes that the Tribunal shouldbe appointed as follows: proposal]

20. [If the arbitration agreement provides for party nomination]Pursuant to Article 1.1(e) of the Rules, the Claimant nominates[name] as arbitrator. The contact details for [name] are set outbelow:

[Name]

[Contact details]

21. To the best knowledge of the Claimant, [name] is independentof the Parties.

VI.. The Claimant’s comments on the Place of Arbitration,Applicable Law and Language of the Arbitration

22. [If stated in the Construction Contract or otherwise agreed setout. If not, propose suitable locations, law and language withreasons; in default LCIA rules provide that the seat shall beLondon (Article 16).]

VII.. The Relief sought by the Claimant

23. In this Arbitration, the Claimant seeks the following relief:(a) a declaration that the Claimant is entitled to an Extension

of Time to complete the Works of [ ] days, or such otherduration as the Tribunal may determine;

(b) a declaration that the Claimant is entitled to additionalpayment of [ ], or such other amounts as the Tribunal maydetermine;

(c) an order that the Respondent is to pay the Claimant thecosts of the Arbitration including legal costs and all feesand other expenses incurred in connection with thearbitration, pursuant to Article 28 of the Rules;

(d) interest at the contractual rate of [ ]% from the datepayments fell due under the contract; and

(e) such additional and other relief as may be just and properunder the law.page "356"

24. The Claimant reserves the right to amend and supplement itsclaims and request for relief as appropriate during the course ofthe arbitration.

25. The Claimant reserves the right to request such provisionalmeasures and/or preliminary issues be determined as arerequired for the protection of their rights and the efficientdisposal of the Arbitration.

Dated: [date]

[location]

________________________________

[Names]

page "357" page "358"

1 The Construction Contract is based on the FIDIC Conditions ofContract for Plant and Design­Build, for Electrical and MechanicalPlant, and for Building and Engineering Works, Designed by theContractor, First Edition 1999, the form of contract commonlyknown as the “Yellow Book”. The Contract consists of: the Form ofAgreement, [date]; the General Conditions of Contract (GCC); theConditions of Particular Application (COPA); the Specification andAppendix to Tender.

OrganizationANNEX 7. Example Outline Terms of Reference under the ICC

Annex 7: Example Outline Terms ofReference under the ICC Rules (2012)

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International Court ofArbitration of theInternational Chamber ofCommerce

Source

Annex 7: ExampleOutline Terms ofReference under theICC Rules (2012) inJane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 359 ­ 368

Rules (2012)

INTERNATIONAL COURT OF ARBITRATION

INTERNATIONAL CHAMBER OF COMMERCE

ICC Case No. [Reference]

NAME

Claimant[s]

­v­

NAME

Respondent[s]

__________________________________________________________

TERMS OF REFERENCE

_________________________________________________________

[date]

These Terms of Reference are prepared in accordance with Article23 (1) of the ICC Rules of Arbitration in force as from 1 January2012 (ICC Rules (2012)).

A.. THE PARTIES

The Claimant

1. The Claimant is [NAME], [brief description, place ofincorporation, registered office, address etc] (the Claimant).

page "359"2. The Claimant is represented in this Arbitration by:

[names]

[firm]

[address]

[telephone / fax / emails]

The Respondent

3. The Respondent is [NAME], [brief description, place ofincorporation, registered office, address etc] (the Respondent).

4. The Respondent is represented in this Arbitration by:

[names]

[firm]

[address]

[telephone / fax / emails]

* * * * *

5. The Claimant and the Respondent may be referred to in theseTerms of Reference as the “Parties”, and each of themindividually as a Party.

6. Each Party confirms that the representatives listed herein areduly authorised to act on its behalf. Powers of Attorneyproviding such authorisation are annexed to these Terms ofReference.

7. [The Parties agree that they will not instruct counsel who are inthe same chambers or firm as a member of the ArbitralTribunal.]

B.. THE ARBITRAL TRIBUNAL

8. The details of the Arbitral Tribunal in this Arbitration are:

The President

[name]

[firm]

[address]

[telephone / fax / email]

[Mrs. X]’s [NAME] appointment as President, [uponthe joint nomination of the Parties / upon the jointnomination of the co­arbitrators, was confirmed] bythe Secretary­General of the ICC International Court ofArbitration (ICC Court), pursuant to Article 13(2) of the

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ICC Rules (2012), on [DATE].

page "360"

The Co­arbitrators

[name]

[firm]

[address]

[telephone / fax / email]

[Mr. X]’s [NAME] appointment, [upon the nominationof the Claimant, was confirmed] by the Secretary­General of the ICC Court, pursuant to Article 13(2) ofthe ICC Rules (2012), on [DATE].

[name]

[firm]

[address]

[telephone / fax / email]

[Mr. X]’s [NAME] appointment, [upon the nominationof the Respondent, was confirmed] by the Secretary­General of the ICC Court, pursuant to Article 13(2) ofthe ICC Rules (2012), on [DATE].

* * * * *

9. By the execution of these Terms of Reference, the Partiesconfirm that they know of no basis or reason to challenge orotherwise object to the appointment of the arbitrators.

10. A Party shall inform the Arbitral Tribunal, the Secretariat andthe other Party about any direct or indirect relationship betweenthat Party (or a company in the same group as the Party or acompany in which a Party has a material interest) and anymember of the Arbitral Tribunal. The Party shall provide thisinformation on its own initiative as soon as the Party becomesaware of such relationship.

C.. COMMUNICATIONS AND NOTIFICATIONS

11. All written notifications and communications to or by theParties and the Arbitral Tribunal (including correspondence,[further material as agreed]) shall be valid if sent by email tothe representatives of the Parties to the addresses shown insection A.

12. The Parties shall not copy the Arbitral Tribunal correspondencepassing between their legal representatives unless thecorrespondence relates to a matter upon which the ArbitralTribunal is requested to take action by one or more of theParties.

13. [Agreed mechanism for filing submissions.] Options availableinclude use of a secure extranet, email, searchable andhyperlinked CDs / DVDs, hard copies (A5 or A4). Increasinglytribunals encourage the use of electronic exchange ofsubmissions to minimise the creation of multiple copies ofmaterial.] page "361"

14. [Agreed format for filing submissions.] Considerable efficiencycan be achieved through the requirement that all calculations,schedule analysis and other technical workings that arereferred to in expert reports are to be filed in native format atthe same time as the corresponding expert report.]

15. Any change to the registered offices, places of business orcontact details of a Party or the Parties' representatives mustbe immediately notified to the Parties; the Arbitral Tribunal; andto the Secretariat of the ICC International Court of Arbitration(the Secretariat). Prior to such notification having beenreceived, any communication or notice sent to the detailsspecified in these Terms of Reference will be regarded asvalid.

16. Notifications or communications shall be deemed to bereceived on a day if received by email before 18:00 hours [localtime to the President or other agreed location] on that day,provided that this is a business day at the place of receipt.Notifications or communications received after such time shallbe deemed to have been received on the next business day(unless agreed otherwise by the recipient).

17. A copy of any communication by any Party to the ArbitralTribunal shall be sent simultaneously and by the same meansto the other Party and to the Secretariat at:

The Secretariat of the ICC International Court of Arbitration(Attention [NAME OF ALLOCATED COUNSEL])

38 cours Albert 1er

75008 Paris

France

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Tel.: [###]

Fax: [###]

Email: [###]

18. There shall be no ex parte communication with the ArbitralTribunal or any member thereof by the Parties or any one ofthem.

D.. THE ARBITRATION AGREEMENT AND APPLICABLE LAW

19. The agreement to arbitrate (the Arbitration Agreement) is setout in [contract reference] of the construction contract dated[DATE] (the Construction Contract) for the [brief descriptionof the subject matter of the contract] as follows:

[insert Arbitration Agreement in full]

20. The applicable law of the Construction Contract [and theArbitration Agreement] is [STATE] [as set out in [contractreference] of the Construction Contract as follows:

[insert provision identifying applicable law]

page "362"21. [If different] The applicable law of the Arbitration Agreement is

[STATE] [as set out in [contract reference] of the ConstructionContract as follows:

[insert provision identifying applicable law]

E.. PROCEDURAL HISTORY

22. On [DATE,] the Claimant filed the Request for Arbitration (theRequest for Arbitration) with the Secretariat in Paris.

23. The Respondent submitted an Answer [and Counterclaims] (theAnswer and Counterclaim) dated [DATE]; and the Claimantsubmitted a Reply to the Answer (the Reply to the Answer)[and Counterclaims] dated [DATE].

F.. SUMMARY OF THE PARTIES’ RESPECTIVE CLAIMS ANDRELIEF SOUGHT

24. [The Tribunal may attempt to draft this section of the Terms ofReference based on the Request, Answer and Reply. It is moreusual however, for the Tribunal to invite the Parties to preparethe following sections, noting that neither Party accepts thedescription of the claims and relief put forward by the otherParty.]

25. The purpose of the summaries set out below is to fulfil therequirements of Article 23.1(c) of the ICC Rules (2012) withoutprejudice to any further allegations, arguments or contentionscontained in the pleadings or submissions filed to date or to befiled.

26. No factual or legal statement or omission in the summary ofeither Party is to be interpreted as waiver of any issue of factor law. By signing these Terms of Reference, neither Partysubscribes to, nor acquiesces in, the summary of the otherParty's position set forth below, [nor the jurisdiction of theTribunal over any issue raised, claim or counterclaim identified,or relief sought].

Summary of the Claims put forward by the Claimant in theArbitration

27. The following summary has been prepared by the Claimant.28. [Claimant to prepare summary of case. It is a matter of

strategy for the Parties' counsel as to how claims, relief anddefences are presented in this section of the Terms ofReference.]

Relief sought by the Claimant in the Arbitration

29. The Claimant seeks the following relief from the ArbitralTribunal:

30. [Claimant to draft. This may be a direct copy of the Request forRelief section in the Request for Arbitration, or may have beenupdated to reflect additional and/or amended claims.] page"363"

31. The Claimant reserves the right to amend and supplement itsclaims and its request for relief as appropriate during thecourse of the Arbitration.

Summary of the Respondent’s Defence to the Claimant’sClaims

32. The following summary has been prepared by the Respondent.

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33. [Respondent to prepare summary of defence.]

Summary of the Respondent’s Counterclaims in the Arbitration[if required]

34. The following summary has been prepared by the Respondent.35. [Respondent to prepare summary of counterclaims.]

Relief Sought by the Respondent

36. The Respondent seeks the following relief from the ArbitralTribunal:

37. [Respondent to draft. This may be a direct copy of the Requestfor Relief section in the Answer [and Counterclaims], or mayhave been updated to reflect additional and/or amendedclaims.]

38. The Respondent reserves the right to amend and supplementits counterclaims and its request for relief as appropriate duringthe course of the Arbitration.

39. The Respondent reserves the right to amend and supplementtheir Defences, and its request for relief as appropriate duringthe course of the Arbitration.

Summary of the Claimant’s Defence to the Counterclaims [ifrequired]

40. The following summary has been prepared by the Claimant.41. [Claimant to prepare summary of defence to counterclaims.]

G.. ISSUES TO BE DETERMINED

42. The Tribunal will determine all relevant issues of fact and lawarising from the statements of case submitted by the Parties,including but not limited to those raised by the Parties inrespect of the claims set out above, but subject in particular toArticle 23(4) of the ICC Rules.

43. Without prejudice to the generality of the foregoing, the Tribunalwill determine the following principal issues: [summary of keyissues]

page "364"

Preliminary Issues

44. The Claimant has identified [no / the following] preliminaryissues:(a) [list]

45. The Respondent has identified [no / the following] preliminaryissues:(a) [list]

H.. PLACE AND LANGUAGE OF ARBITRATION

46. Pursuant to Clause [ ] of the Construction Contract the place ofArbitration is [ ].

47. [Subject to the applicable laws, including likely place ofenforcement] Without prejudice to the place of Arbitration, andsubject to consultation in accordance with Article 18(2) of theICC Rules (2012), hearings and meetings may be held in anyvenue which is convenient to the Parties and the ArbitralTribunal. If the Parties are unable to agree on the place of anyhearing or meeting it shall be fixed by the Arbitral Tribunal in itsabsolute discretion (subject to consultation in accordance withArticle 18(2) of the ICC Rules (2012)). The Arbitral Tribunalshall also be free to conduct video or telephone conferencecalls to determine procedural and other issues with the lawyersrepresenting the Parties if considered appropriate for theorderly progress of the procedure in this Arbitration. Anyactions or decisions of the Arbitral Tribunal taken in venuesother than [ ] shall be deemed to have taken place or to havebeen made in [ ].

48. [Subject to the applicable laws, including likely place ofenforcement] The award or awards in this Arbitration (interim,partial or final) shall be made in [ ], but may be signed by thearbitrators elsewhere than in [ ]. No Party shall rely upon anyargument to the effect that any award or procedural decisionshall be of limited validity or that any award or awards are notmade in [ ] because they were signed elsewhere than [ ].

49. The language of the Arbitration shall be [ ] in accordance withClause [ ] of the Construction Contract. All communicationsbetween the Arbitral Tribunal and the Parties and any hearingshall be conducted in [ ]. Documents in a language other than [] shall be submitted in their original language with an [ ]translation.

I.. THE PROCEDURAL RULES

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50. The rules governing these Arbitration proceedings shall be theICC Rules, and such other mandatory rules applicable to aninternational commercial arbitration taking place in London asthe seat of arbitration, and, when these rules are silent, suchother rules as may be agreed in writing by the Parties, or, inthe absence of such agreement, as may be determined by theTribunal. page "365"

51. The Tribunal shall refer to the 2010 edition of the IBA Rules onthe Taking of Evidence in International Commercial Arbitration(the IBA Rules) for guidance as to matters therein, but shallnot be bound by the IBA Rules.

52. The Parties and the Tribunal have agreed upon and adoptedthe Provisional Timetable attached hereto as Procedural OrderNo [X]. The Tribunal shall have the right to modify suchProvisional Timetable as it deems appropriate in thecircumstances.

53. Procedural Orders issued by the Tribunal may be signed by theChairman on behalf of the Tribunal. In case of urgency, timelimits and other administrative matters may be addressed bythe President of the Tribunal alone.

54. If either Party fails within the prescribed time to present itscase or comply with any direction of the Arbitral Tribunal at anystage of the proceedings, the Arbitral Tribunal may, of its ownvolition or at the request of the other Party, after givingreasonable notice to the Parties, proceed with the Arbitrationand make an award.

55. In general, evidence and arguments submitted shall be inwritten form. The Parties shall provide all written submissionsin both electronic form and hardcopy. Electronic submissionsshall be provided on a searchable hyperlinked DVD or USB.Hardcopy submissions shall be provided in A5 form, and shallbe transmitted by courier within two business days after thefiling of the electronic version.

56. [The Parties shall be afforded equal time to present theirarguments in all substantive hearings on a “chess clock” basis.The Parties shall be free to determine how to apportion theirallotted time to the presentation of their case.]

57. A written statement of a witness that has been signed by thatwitness shall be admissible in evidence, subject to the right torequire the witness to attend a hearing to be cross­examinedunless appearance of the witness is waived.

58. Any person may present evidence as a witness, including aParty's officer, employee or other representative. It shall beproper for a Party's counsel to interview prospective witnesseswhom the Party expects to call.

59. A full written record in the form of a verbatim transcript shall bemade of all hearings, and may be made of meetings ifrequested by the Arbitral Tribunal. The costs of such writtenrecord shall be paid equally between the Parties, but shall beallocated as part of the costs of the Arbitration.

60. The Parties agree that the time limit for the Arbitral Tribunal torender the final award shall be determined in accordance withArticle 30 of the ICC Rules (2012).

page "366"

J.. VALUE ADDED TAX

61. Under Article 2.13 of the Appendix III to the ICC Rules (2012),“amounts paid to the arbitrators do not include any possiblevalue added tax (VAT) or other taxes or charges and impostsapplicable to the arbitrator's fees. Parties have a duty to payany such taxes or charges; however, the recovery of any suchcharges or taxes is a matter solely between the arbitrator andthe parties.”

62. To the extent that VAT might be due on any of the arbitrators'fees under the applicable tax rules, the Parties undertake topay the applicable VAT upon request and receipt of an invoiceaddressed to them by the Arbitral Tribunal or any arbitrator.

63. Each Party will pay an advance of one­half on such VAT, uponreceipt of a letter on behalf of the Arbitral Tribunal containingthe details of the amounts and the banking instructions. Suchpayments are based on the understanding that the final settlingbetween the Parties of any advances on VAT paid by them willbe made, on the basis of the outcome of the case, directlybetween them or in accordance with any award. The Partiesagree that any such VAT shall be treated as part of the costsof the Arbitration and the Arbitral Tribunal shall have the powerto order, in any award, which Party shall bear any such VAT.

64. [The Arbitral Tribunal reserves the right to use the ICC as adepository for VAT

K.. EXCLUSION OF LIABILITY AND INDEMNITY CLAUSE

65. The Parties agree not to hold any of the current or formermembers of the Arbitral Tribunal liable for any act or omissionin connection with the Arbitration and release each current orformer member to the fullest extent permitted by law, except inthe case of fraud.

L.. AGREEMENT TO TERMS OF REFERENCE

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66. These Terms of Reference are signed in [ ] originals on thedates as shown below for the Claimant by [NAME] and for theRespondent by [NAME].

67. [Without prejudice to the provisions of Articles 23(3) and 30(1)of the ICC Rules (2012), the date of the President's signatureon these Terms of Reference shall be for all purposes the dateof these Terms of Reference.]

Place of Arbitration: [PLACE]

Claimant RespondentBy By

Date Date

page "367"

Arbitral Tribunal[NAME] (President) [NAME] [NAME]Date Date Date

page "368"

Organization

International Court ofArbitration of theInternational Chamber ofCommerce

Source

Annex 8: ExampleRedfern Schedule forDisclosure Requests inJane Jenkins ,InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 369 ­ 386

ANNEX 8. Example Redfern Schedule for Disclosure Requests

RequestNumber

Document(s) orcategory ofDocument(s)requested

Dates Reason whyDocument(s) arerelevant andmaterial to theoutcome of thecase

Response tothe Request

Tribunal’sruling

EXAMPLEWELLDEFINEDREQUESTS

1 WorkingDocumentsinternal to theContractor,includinginternal reports,correspondence,notes ofmeetingsrelating todiscussions andothercommunicationbetween theContractor, theEmployer and /or the ProjectManagerconcerning theProject prior tothe issuing ofthe Invitation toTender.

[daterange]

It is theContractor's casethat it was inducedto enter into theContract on theterms agreed, and/ or at all, byvarious allegedmisrepresentationsgiven during theperiod [date todate] [Statementof Case paragraphreference].

The dealings ofthe Parties and theProject Managerprior to contractsignature arerelevant andmaterial

To be provided. page"369"

2 WorkingDocumentsinternal to theContractor,includinginternal reports,correspondence,notes ofmeetings, ‘go /no go’assessmentssensitivity and /or other riskanalyses andany otherDocuments,includinganalysescreated inpreparation ofthe tendersubmissiondated [date].The incremental

[daterange]

to this aspect ofthe Contractor'scase. It is theEmployer's casethat the Contractorsubmitted anunrealistic tender[Defenceparagraphreference]. TheContractor deniesthis [Replyparagraphreference].Accordingly theRequestedDocumentsevidencing thebuild­up to thetenders and itsvarious revisionsare material toestablishing thesufficiency of the

With respect tothe request forthe ‘go / no go’assessments,no suchanalyses titledas such wereperformed bythe Contractor.

All otherDocumentsrequested to beproduced.

page"370"

Annex 8: Example Redfern Schedule forDisclosure Requests

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revisions of thetender build­up.Thesedocuments areto include theworkingDocumentscreated duringthe preparationof the Bill ofQuantities andtenderprogramme,including:

(a) rate buildups;

(b) resourcesallocationsincludingmanpowerhistograms orequivalent;

(c) estimates forthe levels oflabour,resources andequipmentrequired toexecute theWorks; and

(d) estimates ofwork volumesper activity.

tender, andaccordingly arerelevant andmaterial to theoutcome of theArbitration.

3 Daily recordsshowing workdone on a tradeby trade basis,prepared by theContractor andthe followingsubcontractors:

[list by nameand / or trade].

[daterange]

The Contractorseeks anextension of timeand additionalpayment in relationto the identifiedtrades and theoverall Project.[Statement ofCase paragraphreference]

The requestedDocuments arenecessary for theEmployer toassess theContractor's delayand disruptionanalyses.

To be produced. page"371"

4 Periodicprogress reportsincluding nativeformatschedules /programmesand otheranalysessubmitted to theContractor bythe followingsubcontractors:

[list by nameand / or trade].

[daterange]

The Contractorseeks anextension of timeand additionalpayment in relationto the identifiedtrades and theoverall Project.[Statement ofCase paragraphreference]

The requestedDocuments arenecessary for theEmployer's expertto assess theContractor's delayand disruptionanalyses.

To be produced. page"372"

5 Periodicprogress reportsfor the Projectincluding nativeformatschedules /programmesand otheranalyses andassociatedcorrespondencesubmitted bythe Contractorto its HeadOffice (orequivalent)together withany responses

[daterange]

The Contractorseeks anextension of timeand additionalpayment in relationto specific allegedevents and theoverall Project.[Statement ofCase paragraphreference] TherequestedDocuments arerelevant to theassessment of theContractor's claim.

To be produced. page"373"

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thereto fromHead Office,addressing: (a)the progress ofthe works; and

(b) the financialstatus of theworks includingprojected time /cost tocomplete.

6 All programmesfor the Worksand / or theProjectproduced by theContractor (orany other party)and thefollowingsubcontractors:[name and / ortrade].

[daterange]

The Contractorseeks anextension of timeand additionalpayment in relationto specific allegedevents and theoverall Project.[Statement ofCase paragraphreference]

The Employerstates that theContractor's failureto plan and / ormanage the Workss ufficiently was asignificantcontributor to thealleged delay.[Defenceparagraphreference]

The requestedDocuments arerelevant to theassessment of theContractor's claim.

To be producedto the extentavailable. TheContractornotes that itwas standardpractice tooverwriteprogrammes ona monthlybasis, such thatonly laterversions maybe available.

page"374"

7 All claims foradditional timeand / orpaymentreceived by theContractor fromthe followingsubcontractors,including allassociatedcorrespondence,assessmentsprepared by theContractor,notes ofmeetings etc.[list by nameand / or trade]

[daterange]

The Contractorseeks anextension of timeand additionalpayment in relationto the identifiedtrades and theoverall Projectincluding passthrough ofsubcontractorclaims. [Statementof Case paragraphreference]

The requestedDocuments arenecessary for theEmployer's expertto assess theContractor's delayand disruptionanalyses andsubcontractorclaims.

To be produced. page"375"

EXAMPLEREQUESTSWHICH WEREOBJECTED TO/ DENIED

8 All Documentsconcerning theemployer'sappointment ofthe consultant,including (butnot limited to)prequalification,tenderdocuments, thecontractbetween theemployer andthe consultantand thequalificationsand experienceof keyindividuals.

[daterange]

The consultantwas appointed bythe engineer toprovideconsultancyservices includingdesign and projectmanagementservices for theWorks.

Throughout thecourse for theWorks, fromdesign stage toconstruction, theconsultant advisedthe employer on anumber of keyissues in thiscase, including:

This request isdenied pursuantto Art. 9(2)(a)and (e) of theIBA Rules.

The Respondentobjects to theproduction ofthe requesteddocuments onthe basis ofrelevance.Further, and inany event, theClaimant'srequest isoverly broad,even were thisissue relevantto the issues indispute in this

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(a) the design ofthe Works;

(b) defects in theWorks; and

(c) the contractor'soverallperformance of theWorks which theemployer pleadscontributed to itsdecision toterminate theContract forcause.

Given the centralrole that theconsultant playedthroughout thecourse of theWorks theContractor isentitled to see therequestedinformation toestablish theparameters /scope of theconsultant'sappointment bythe employer toprovide theservices for theProject and itsqualification/experience toperform suchservices.

Arbitration. Therequesteddocuments arenot required inorder to

page "376"establish theconsultant's“qualification/experience” toperform theservices. Norare theyrequired to inorder toestablishwhether in factthe Respondentcomplied withits obligationsas set out in itscontract withthe Claimant.

page "377"

Finally, theRespondentobjects todisclosure ofthesedocuments onthe grounds thatthe terms of thecontract withthe consultantarecommerciallysensitive andsubject toconfidentialityundertakingswithin thecontract.

9 Documentsconcerning theemployer'sdecision toamend thespecification of[piece ofequipment]during thetender period.

The specificationof the [piece ofequipment] is afundamental partof the design ofthe Works.[Statement ofCase paragraphreference] Thisamendment istherefore of vitalimportance to theProject.

The Respondentobjects to thisrequest on thebasis ofrelevance. TheClaimant hasnot at any stagemade referenceto thespecification ofthe [piece ofequipment] inits pleadings.Accordingly, therequesteddocuments arenot relevant tothe issues indispute.

page"378"

10 E mailcorrespondencebetween Mr Xand Mr Y inrelation to aspecific eventduring thecourse of theproject.

[daterange]

The Claimant'sposition is that thespecific event wasrelevant to theProject.[Statement ofCase paragraphreference] TheRespondent'sdisclosure doesnot containinformation inrelation to thatspecific event.

Given the reliancethat Claimantplaces on thisissue to supportits case, theClaimant isentitled to see therequestedinformation.

The Respondenthas alreadyprovided allrelevantdocumentationin itspossessionwhich respondsto this request.Relevantdocumentsalready providedby theRespondentinclude thefollowing:

[Insertexamples ofrelevantdocuments].

page"379"

11 Documents inrelation to orarising out of aspecifictelephoneconversationbetween Mr Xand Mr Y on

[daterange]

One of the centralarguments to theClaimant's case isthat theRespondentinstructed theClaimant toproceed with the

The Respondentis not inpossession ofany documentsconcerning thetelephoneconversationbetween Mr X

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[date] regardingthe decision toproceed with theWorks.

Work despite thewarnings that theremay be difficultiesin completing theWork. [Statementof Case paragraphreference] It is theClaimant's positionthat the instructionto proceed with theWork was givenduring thistelephoneconversation.

There is asignificant disputebetween theparties in relationto the content ofthe discussion thattook place duringthe telephoneconversationbetween Mr X andMr Y.

and Mr Y at[date]. page"380"

12 Copies of sitediaries for therelevant periodof the dispute.

[daterange]

These documentsare relevantbecause theyshow the relevantfacts and recordsof conversationsas at the date ofthe dispute.

This request isdenied pursuantto Art. 9(2)(d) ofthe IBA Rules.

The Respondentobjects todisclosure offurtherdocumentationin relation tothis Request.Most of theworks on theproject tookplace over 6years ago in[PLACE]. Thevast majority ofthesedocumentshave beendestroyed and /or it is notpossible tolocate them.

page "381"

Any documentsthat are relevantand that doexist have beendisclosed.

13 All documentsrelating to a[specific sectionof the Works].

[daterange]

One of the centralarguments to theClaimant's case isthat there wereissues in relationto this [specificsection of theworks] due todecisions made bythe Employer.[Statement ofCase paragraphreference]

This request isdenied pursuantto Art. 9(2)(c) ofthe IBA Rules.

The Respondentobjects toproduction ofthe requesteddocuments onthe grounds thatthe scope of theRequest is (i)overly broadand (ii)unreasonablyburdensome onthe Respondent.

page "382"

The Respondenthas alreadyprovided asignificantnumber ofdocuments inrelation to [thissection] of theProject.

This Requestfails to identifywith anyspecificity thedocumentsconcerning thissection of the

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Works thatcouldreasonably besaid to berelevant to thisissue ascurrentlypleaded.

14 All internalminutes ofmeeting, internalmeeting recordsand notes ofeach and everyinternal meetingbetween theconsultant andthe Employer inrelation to[specific issuee.g. progress,delay,disruption,manpower andresource levels].

The issues indispute traversethe entire project.

Contemporaneousrecords of theEmployer's internalmeetings inrelation to thespecified issuesare relevant.

This request isdenied pursuantto Art. 9(2)(b) ofthe IBA Rules.

page "383"

The Respondentprocured theservices of theconsultant toprovide legaland contractualadvice on theissues affectingthe Project incontemplationof legalproceedings.TheConsultant'sscope ofservices was toprovide inter alia“legalassistance” tobe delivered by“Legal andContractexperts”.Attached is aredacted copyof the tendermemorandumdated [date]which wasprepared for thepurpose ofretaining theservices of theConsultant.

page "384"

15 All documents,including logbooks orregisters,recording thedelivery of[goods] inregard to theWorks.

The late deliveryof the [goods] isthe key cause ofdelay. [Statementof Case paragraphreference]Documentsevidencing theplanned deliveryand actualdeliveries will berelevant to thisissue.

This request isoverly broad.The dates uponwhich [thegoods] weremade availableto the Claimant,together withthe planneddates vis­à­visthe Claimant(which are bothalready knownby the Claimant)are relevant tothe dispute. TheRequestedDocuments arenot.

However, in theinterest ofavoiding time­consumingdiscoverydisputes, theRespondentproduces thefollowingdocuments:

[Insertdocumentsproduced]

page"385"

16 WorkingDocumentsinternal to theRespondent,includinginternal reports,correspondence,notes ofmeetingsrelating todiscussions with

It is theRespondent's casethat it was inducedto enter into theContract on theterms agreed, and/ or at all, byvarious allegedmisrepresentationsgiven during theperiod [date].

It is theRespondent'sview that thesedocumentshave previouslybeen providedto the Claimant.Notwithstandingthis, theRespondent hasinstructed us to

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the Claimantand / or theconsultantconcerning theProject prior tothe issuing ofthe Invitation toTender for theperiod [insertdate range].

[Defenceparagraphreference]

The previousdealings of theParties and theconsultant inrelation to theProjects arerelevant andmaterial to theRespondent'sassertion ofreliance andvicarious liability.

provide theClaimant withaccess to itsdocuments atits site office in[location].

page "386"

Source

Table of Cases in JaneJenkins , InternationalConstruction ArbitrationLaw (Second Edition),Arbitration in ContextSeries, Volume 3(© Jane Jenkins; KluwerLaw International 2013)pp. 387 ­ 392

A, B and C v. D, Schweizerisches Bundesgericht, 17 Dec. 2002,4P.196/2002, 175

ABB v. Hochtief Airport [2006] 1All ER (Comm) 529, 284

ADC Affiliate Limited and ADC & ADMC Management Limited v.Republic of Hungary ICSID Case No ARB/03/16 (ICSID, 2006,Kaplan P, Brower & Van Den Berg), 310, 312

Adviso NV v. Korea Overseas Constr. Corp., XXI Y.B. Comm. Arb.612 (Korean S. Ct) (1996), 301

Adyard Abu Dhabi v. SD Marine Services [2011] EWHC 848, 226,230

AJU v. AJT [2011] 4 SLR 739, 160

Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v.Commission (Case C­550/07 P) [2010], 237

Amco Asia Corporation & others v. Republic of Indonesia(Jurisdiction) ICSID Case No ARB/ 81/1 (ICSID, 1983, Goldman P,Foighel & Rubin), 309

Amec Process and Energy Ltd v. Stork Engineers & ContractorsBY [2002] All ER (D) 98 (Feb) (TCC), 196

American Manufacturing and Trading Inc v. Republic of Zaire ICSIDCase No ARB/93/1 (ICSID, 1997, Sucharitkul P, Golsong & Mbaye),312

Arab Bank plc v. John D Wood (Commercial) Ltd [1998] EGCS 34,204

Arsanovia v. Cruz [2012] EWHC 3702, 283

Asian Agricultural Products Ltd (AAPL) v. Republic of Sri LankaICSID Case No ARB/87/3 (ICSID, 1990, El­Kosheri P. Asante &Goldman), 312

ASM Shipping Ltd of India v. TTMI Ltd of England [2005] EWHC2238 (Comm.) (Q.B.), 145

Attorney General for the Falkland Islands v. Gordon ForbesConstruction (Falklands) Ltd (No. 2) [2003] BLR 280, 2

Baese Pty Ltd v. R A Bracken Building Pty Ltd [1989] 52 BLR 130,40

Balfour Beatty Construction Limited v. Lambeth London BoroughCouncil [2002] BLR 288, 101, 117

Balfour Beatty v. Docklands Light Railway Limited [1996] 78 BLR42, 27

Bank Mellat v. Helleniki Techniki SA [1983] 3 All ER 428, 291

Bank Mellat v. Helleniki Techniki SA [1984] QB 291, 246

Bank Saint Petersburg PLC v. ATA Insaat Sanayi ve Ticaret Ltd, 2Mar. 2001, ASA 3/2001 531, 172

page "387"

Bayindir Insaat Turizm Ticaret Ve Sanayi AS v. Islamic Republic ofPakistan (Jurisdiction) ICSID Case No ARB/03/29 (ICSID, 2005,Kaufmann­Kohler P, Berman & Böckstiegel), 310

Beaufort Developments (N.I.) Ltd v. Gilbert­Ash N.I. Ltd [1998] 2 AllER 778, 29

Bernhard Schulte GmbH & Co KG and others v. Nile Holdings Ltd[2004] EWHC 977, 101

Bharat Aluminium Co v. Kaiser Aluminium Technical Services Inc,

Table of Cases

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Civil Appeal No. 7019 of 2005, 281

Biotronik Mess­und Therapiegeraete GmbH & Co. v. MedfordMedical Instrument Co. 415 F. Sup. 133, 140 (DNJ 1976), 284

Biwater Gauff (Tanzania) Limited v. United Republic of TanzaniaICSID Case No. ARB/05/22 (ICSID, 2008, Hanotiau P, Born &Landau), 313

Bramall & Ogden Ltd v. Sheffield City Council [1983] 29 BLR 73, 35

Bremer Oeltransport GmbH v. Drewry [1933] 1 KB 753, 278

British Airways Pension Trustees Ltd v. Sir Robert McAlpine &Sons, [1995] 72 BLR 26, 195, 197

British Sugar plc v. NEI Power Projects Limited [1997] 87 BLR 42,41

Bulgarian Foreign Trade Bank Ltd v. Al Trade Finance Inc, SwedishSupreme Court, 27 Oct. 2000, Case No. T 1881–99, 157

Cable & Wireless plc v. IBM United Kingdom Ltd [2002] EWHC2059, 121

Cable & Wireless plc v. IBM United Kingdom Ltd [2003] BLR 89, 51

Cala Homes (South) Ltd v. Alfred McAlpine Homes East Ltd [1995]FSR 818, 204

Cellulose Acetate Silk Co Ltd v. Widnes Foundry (1925) Ltd [1933]AC, 41

Channel Tunnel Group Ltd v. Balfour Beatty Construction Ltd [1993]AC 334, 51, 78, 80, 251

Chen Hang Chu v. China Treasure Enterprise Ltd [2000] 2 HKC 814,299

Chromalloy Gas Turbine Corp v. Arab Republic of Egypt , 939 F.Supp. 907 (D. D.C. 1996), 278, 289

Corporacion Transnacional de Inversiones SA de CV v. STETInternational SpA [2000] 49 O.R. (3d) 414, O.J. No. 3408, 301

Courtney & Fairbairn Ltd. v. Tolaini Brothers (Hotels) Ltd [1975] 1All ER 716, 53

CRW Joint Operation v. Perusahaan Gas Negara (Persero) TBK[2011] SGCA 33, 115, 116

Dallal v. Bank Mellat [1986] 1 All ER 239, 291

Discain Project Services Ltd v. Opecprime Development Ltd. [2001]BLR 285, 117

Dunlop Pneumatic Tyre Co Ltd v. New Garage Motor Co Ltd [1915]AC 79, 198

Edinburgh Magistrates v. Lownie [1903] 5 F (Ct of Sess) 711, 145

Egmatra A.G. v. Marco Trading Corporation [1999] 1 Lloyd's Rep862, 175

Esso/BHP v. Plowman [1995] 128 ALR 391, 71

Fidelitas Shipping Co Ltd v. V/O Exportchleb [1965] 2 All ER 4, 291

page "388"

Gao Haiyan and another v. Keeneye Holdings Ltd and anotherCACV 79/2011, 134

Gater Assets Ltd v. Nak Naftogaz Ukrainiy [2008] 1 All ER (Comm)209 paras 39–45, 247

Gbangbola and another v. Smith & Sherriff Ltd [1998] 3 All ER 730,174

GEA Group Aktiengesellschaft v. Ukraine ICSID Case NoARB/08/16 (ICSID, 2011, Van Den Berg P, Landau & Stern), 310

George Fischer Holding Ltd (formerly George Fischer (Great Britain)Ltd) v. Multi Design Consultants Ltd (Roofdec Ltd and others, thirdparties) [1998] 61 Con LR 85, 145, 199

Geotech­Lizenz AG v. Evergreen 697 F. Supp 1248, 1253 (EDNY1988), 298

Gleeson (M J) (Contractors) Ltd v. London Borough of Hillingdon[1970] 215 Estates Gazette 165, 29

Glencot Development and Design o Ltd v. Ben Barrett & Son(Contractors) Ltd [2002] BLR 207.218, 101

Great Eastern Hotel Co Ltd v. John Laing Construction Ltd [2005]EWHC 181, 205, 206

Guardcliffe Properties Ltd v. City & St James Property Holdings[2003] EWHC 215 (Ch), 173

Hadley v. Baxendale [1843­60] All ER Rep 461, 39, 40

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Hassneh Insurance Co of Israel v. Mew [1993] 2 Lloyd's Rep 243,71

Henderson v. Henderson [1843] 3 Hare 100, 115, 275

Henry Boot Construction Ltd v. Alstom Combined Cycles Ltd [2000]BLR 247, 2

HIM Portland, LLC v. Devito Builders, Inc., 211 F.Supp.2d 230 (1stCir. 2002), 51

Hiscox Underwriting Ltd v. Dickson Manchester & Co Ltd [2004]EWHC 479, 169

Hitachi Limited et al. v. Mitsui & Company Deutschland and RupaliPolyester et al. [1998] Supreme Court Monthly Review 1618–1687,281

Holland (John) Construction & Engineering Pty Ltd v. Kvaerner RJBrown Pty Ltd [1996] 82 BLR 81, 195

HSBC Institutional Trust Services (Singapore) Ltd (trustee of StarhillGlobal Real Estate Investment Trust) v. Toshin DevelopmentSingapore Pte Ltd [2012] SGCA 48, 121

Humber Oil Terminal Trustee Ltd v. Harbour and General Works(Stevin) Ltd [1991] 59 BLR 1, 2

Inter Maritime Mgt SA v. Russin & Vecchi XXII Y.B. Comm. Arb.789 (Swiss Federal Tribunal Judgment of 9 Jan. 1995), 301

Iran Aircraft Industries v. Avco Corp., 980 F 2d 141 (2nd Cir. 1992),175, 298

Jan de Nul NV & Dredging International NV v. Arab Republic ofEgypt (Jurisdiction) ICSID Case No ARB/04/13 (ICSID, 2006,Kaufmann­Kohler P, Mayer & Stern), 309

Jerram Falkus Construction Ltd v. Fenice Investments Inc [2011]EWHC 1935 (TCC) at paras 47–52, 230

Jianlong v. Golden Ocean [2013] EWHC 1063, 283

Jivraj v. Hashwani [2011] UKSC 40, 144

John Doyle Construction Ltd v. Laing Management (Scotland) Ltd[2002] BLR 393, 196

page "389"

Jones v. Sherwood Computer Services plc [1992] 2 All ER 170, 116

Joy Mining Machinery Limited v. Arab Republic of Egypt(Jurisdiction) ICSID Case No ARB/ 03/11 (ICSID, 2004, OrregoVicuna P, Weeramantry & Craig), 310

Kalmneft JSC v. Glencore International AG [2002] 1 All ER 76, 178

Kemiron Atlantic, Inc. v. Aguakem International, Inc., 290 F. 3d1287, 1290 (11th Cir. 2002), 51

Laminoirs­Tréfileries­Cableries de Lens, SA v. Southwire Companyand Southwire International Corporation, United States DistrictCourt, N.D. Georgia, Newnan Division, 18 Jan. 1980, 484F Supp1063, 1067, 175

London Borough of Merton v. Stanley Hugh Leach Ltd [1985] 32BLR 51, 197

London Underground Ltd v. Citylink Telecommunications Ltd [2007]EWHC 1749, 174, 196

London Underground Ltd v. Kenchington Ford plc (Harris &Sutherland, third party) [1998] All ER (D) 555, 204

Longley (James) & Co Ltd v. South West Thames Regional HealthAuthority, [1983] 25 BLR 56, 62, 203, 206

Macob Civil Engineering Ltd v. Morrison Construction Ltd [1999]BLR 93, 101

McGlinn v. Waltham Contractors Ltd [2007] EWHC 149 (TCC), 187

Mertens v. Home Freeholds Co [1921] 2 KB 526, 199

Mihaly International Corporation v. Democratic Socialist Republic ofSri Lanka ICSID Case No ARB/00/2 (ICSID, 2002, Sucharitkul P,Rogers & Suratgar), 310

Mitsubishi Motors Corp. v. Soler Chrysler­Plymouth Inc. 473 US614, 628 (1985), 287

Morelite Constr. Corp. v. N.Y.C. Dist. Council Carpenters’ BenefitFunds, 748 F.2d 79 (2d Cir.1984), 145

MTD Equity Sdn Bhd & anor v. Republic of Chile ICSID Case NoARB/01/7 (ICSID, 2004, Sureda P, Lalonde & Oreamuno Blanco),310, 311, 313

Munkenbeck & Marshall v. The Kensington Hotel Ltd [2000] All ER(D) 561, 204

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Mvita Construction Co Ltd v. Tanzania Harbours Authority [1989] 46BLR 19, 2

National Justice Cia Naviera SA v. Prudential Assurance Co Ltd,The Ikarian Reefer [1995] 1 Lloyd's Rep 455, 207

National Thermal Power Corporation v. The Singer Co 3 SupremeCourt Cases 551–573 (1992), 281

Northern Regional Health Authority v. Derek Crouch ConstructionCo. Ltd [1984] 26 BLR 1, 29

OAO Northern Shipping Co v. Remolcadores deMarin SL (theRemmar) [2007] 2 Lloyd's Rep. 302(Comm. Ct.), 173

Omnium de Traitement et de Valorisation v. Hilmarton, Cour deCassation, 10 Jun. 1997, YBCA XXII (1997), 289

Pacific Associates Inc. v. Baxter [1988] 44 BLR 33, 2

Pacific China Holdings Ltd v. Grand Pacific Holdings Ltd, 174

page "390"

Pacol Ltd v. Joint Stock Co Rossakhar [1999] 2 All ER (Comm)778, 173

Paklito Investment Pty Ltd. v. Klockner East Asia Ltd. [1993] 2HKLR 39 (Hong Kong), 298

Pando Compania Naviera SA v. Filmo SAS [1975] 2 All ER 515,138

Pantechniki S.A. Contractors & Engineers (Greece) v. The Republicof Albania, 310

Parsons & Whittemore Overseas Co. v. Société Generale deL’Industrie du Papier, RAKTA 508 F 2d 969 (2d Cir 1974), 175, 284,296

PC Harrington Contractors Ltd v. Systech International Ltd [2012]EWCA Civ 1371, 101–102

Peak Construction (Liverpool) Ltd v. McKinney Foundations Ltd[1970] 1 BLR 114, 36

Petrochemical Industries v. Dow Chemical [2012] EWHC 2739, 284

Petromec Inc v. Petroleo Brasileiro SA Petrobras and others [2007]EWCA Civ 1372, 196

Pozzolanic Lytag Ltd v. Bryan Hobson Associates [1999] BLR 267,206

Rapid Building Group Ltd v. Ealing Family Housing Association Ltd[1984] 29 BLR 5, 36

RC Pillar & Sons v. Edwards and another [2001] All ER (D) 232, 177

Royal Brompton Hospital NHS Trust v. Hammond (No 7) [2001]EWCA Civ 206; 76 Con LR 148, 203

RSL (South West) Ltd v. Stansell Ltd [2003] EWHC 1390, 117

Rugby Landscapes Ltd (Bernhard’s) v. Stockley Park ConsortiumLtd [1997] 82 BLR 39, 196

Ruxley Electronics and Construction Ltd v. Forsyth [1996] AC 344,199

SA Coppée Lavalin NV v. Ken­Ren Chemicals and Fertilizers Ltd[1995] 1 AC 38, 246

Saipem SpA & Ors v. Rafidain Bank & Ors [1994] CLC 252, 45

Salini Costruttori S.P.A.& Italstrade S.P.A. v. Kingdom of Morocco(Jurisdiction) ICSID Case No ARB/00/4 (ICSID, 2001, Briner P,Cremades & Fadlallah), 309, 310

Sanghi Polyesters Ltd (India) v. International Investor KCSC(Kuwait) [2000] All ER (D) 93, 172

Sellar v. Highland Railway Company [1919] SC (HL) 19, 145

Shell UK Ltd v. Enterprise Oil plc [1999] 2 Lloyd's Rep 456, 116

Siemens v. BKMI and Dutco, Cour de Cassation 7 Jan. 1992, 149

Skanska Construction UK Ltd (Formerly Kvaerner Construction Ltd)v. Egger (Barony) Ltd [2004] EWHC 1748, para. 415, 207

Smith (Paul) Ltd v. H & S International Holding Inc [1991] 2 Lloyd’sRep 127, 53

Société BKMI et Siemens c/ Société Dutco, Cour de Cassation, 7Jan. 1992, 159

Soleimany v. Soleimany [1999] 3 All ER 847, 160, 301

Stanor Electric Ltd v. R Mansell Ltd [1988] CILL 399, 35

Starrett Housing Corp. v. The Government of the Islamic Republic

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of Iran, Award No. 314­21­1, para. 264 (14 Aug. 1987), 202

Sulamérica CIA Nacional de Seguros SA and others v. EnesaEngenharia SA and others [2012] EWCA Civ 638, 121, 157

Surrey Heath Borough Council v. Lovell Construction Ltd and HadenYoung Ltd (third party) [1990] 48 BLR 108, 40

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Taieb Haddad and Hans Barett v. Société d’Invesstissement Kal,Tunisian Cour de Cassation, 10 Nov. 1993, 294

Tang Chung Wah v. Grant Thornton [2012] EWHC 3198, 51

Tate & Lyle Food and Distribution Ltd v. Greater London Council[1982] 1 WLR 149, 193

Temloc Ltd v. Errill Properties Ltd [1987] 39 BLR 30, 41

Texaco Pananma Inc. v. Duke Petroleum Transport Corp., 3 Sep.1996 95 Civ. 3761 (LMM), 294

Three Rivers District Council and Ors v. Bank of England [2004]UKHL 48, 237

Toto Costruzioni Generali S.P.A. v. The Republic of Lebanon(Jurisdiction) ICSID Case No ARB/ 07112 (ICSID, 2009, van HoutteP, Feliciani & Moghaizel, supra), 309

Unidentified v. Unidentified: Swiss Federal Tribunal 7 Jan. 2011,172

Ust­Kamenogorsk Hydropower Plan JSC (Appellant) v. AES Ust­Kamenogorstk Hydropower Plant LLP (Respondent) 2013 UKSC 35,78

Vannessa Ventures Ltd v. Bolivarian Republic of Venezuela ICSIDCase No ARB(AF)/04/6 (ICSID, 2013, Lowe P, Brower & Stern), 310

Virgilio De Agostini and Loris and Enrico Germani v. Milliol SpA, Piaand Gabriella Germani and Andrea De Agostini Corte di Appello diMilano, 24 Mar. 1998, 298

Waguih Elie George Siag and Clorinda Vecchi v. Arab Republic ofEgypt (Jurisdiction) ICSID Case No ARB/05/15 (ICSID, 2009,Williams P, Orrego Vicuna & Pryles), 310

Wah (Aka Alan Tang) and another v. Grant Thornton InternationalLtd and others [2012] EWHC, 121, 135

Walford v. Miles [1992] 2 AC 128, 53

Walter Lilly & Co Ltd v. Mackay [2012] EWHC 1772 (TCC), 196

Wena Hotels Limited v. Arab Republic of Egypt (Case No.ARB/98/4), 280

Whalley v. Roberts & Roberts [1990] 1 EGLR 164 per Auld J, 204

Wharf Properties Ltd v. Eric Cumine Associates (no 2) [1991] 53BLR 1, 195

Woods Hardwick Ltd v. Chiltern Air Conditioning [2001] BLR 23, 117

Wraight Ltd v. PH & T Holdings [1980] 13 BLR 26, 191

Yukos Capital SARL v. OJSC Rosneft Oil Company [2012] EWCACiv 855, 278

Zhinvali Development Ltd v. Republic of Georgia ICSID Case NoARB/00/1 (ICSID, 2003, Robinson P, Jacovides & Rubin), 310

Zornow (Bruno) (Builders) Ltd v. Beechcroft Developments Ltd[1989] 51 BLR 16, 35

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