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  • Writer's pictureRicardo Cuesta

Challenges in Construction Arbitration



In this post I am summarizing the thoughts I shared at the Panel on Arbitration in the Construction and Engineering Industry that took place on March 21, 2024, at the Conference on Arbitration in Real Estate and Construction and Engineering Law organized by the MULTISECTORAL ASSOCIATION OF WOMEN MANAGERS AND ENTREPRENEURS (AMMDE).

 

I discussed about the challenges currently facing arbitration in general and construction arbitration in particular.


A very relevant feature of arbitration is that it is a "private" way of resolving disputes, without the intervention of the courts. This gives arbitration great FLEXIBILITY and an enormous capacity to ADAPT to new circumstances as they arise.


Arbitration has always worked this way since the first arbitrations in which two merchants in the Middle Ages who had a dispute went to a third party who they trusted because of his knowledge of the matter under discussion or because of his prestige. The parties, together with the arbitrator, established the rules that would govern the procedure to settle the dispute.

And this is still the case. There are now numerous institutions administering arbitration that have rules for conducting the procedure. But these rules remain a framework that the parties, with their autonomy, can complete or modify as they see fit (for example, the scope of documentary production, a subject always under discussion).


In recent times we are seeing new circumstances arise, mainly due to technological developments, which affect and will affect the way in which arbitrations are conducted. Parties, their counsels and arbitrators must adapt to meet the demands of today's economic world. In this way, arbitration will continue to be an efficient and fast way to resolve disputes.

I am referring mainly to the emergence of new technologies that are emerging today and of which we are constantly hearing about.


I am going to point out 10 challenges, without going into each of them in depth, to remind you of some of the challenges facing arbitration today, and also construction arbitration:


1.      First of all, the emergence of Artificial Intelligence. We are all amazed by the capabilities of this new technology and even a little worried (let's confess it) about whether it is going to make the work of lawyers disappear, or even that of arbitrators.


It must be recognized that this technology, on the one hand, provides us with new options to facilitate our work. Let us think about reviewing documents, searching for and classifying documents in document production, etc.


But on the other hand, ethical and procedural questions also arise:


  • What about the possibility of creating false evidence such as photographs or documents, for example? We are all aware of recent cases of pleadings filed in some courts that had been drafted with artificial intelligence and contained case law citation apparently invented by the artificial intelligence.

  • Is it permissible for arbitrators to use artificial intelligence to assist them in the drafting of the award?

  • Should the use of artificial intelligence by arbitrators or lawyers in drafting their briefs be subject to disclosure?

 

2.      Cryptocurrencies. Although they are not officially recognized as means of payment as they are not backed by any Central Bank, it is possible that in private transactions the parties may agree to make payment with these instruments. Perhaps in the future they will be admitted as a means of payment. Lawyers and arbitrators must be updated on how they work.

 

3.      Blockchain. These are contracts whose terms are in a shared, unalterable database. How does an arbitrator deal with a contract executed on blockchain? How is the evidence going to be presented?

 

4.      BIM (Building Information Modeling). This technology particularly affects construction and centralizes all the information of a project in a collaboratively created digital information model that covers the entire life of a construction site. We need to understand how it works as we will soon see the introduction of this technology in arbitration hearings as a means of evidence.

 

5.      New construction methods such as 3D printing. Who has not seen videos in which a building is constructed with a kind of printer? Surely this technology and its consequences must also be understood by those involved in arbitrations. Several questions can be raised: Will the perception of delays and construction defects change? Who is the constructor? What is the role of the Engineer?

 

6.      Virtual hearings. Today they are widespread in the field of arbitration. The COVID pandemic has made this form of communication widespread. At first glance it seems a way to facilitate hearings and to reduce costs because it saves on travel costs, renting of hearing facilities, etc. But there are also problems:

 

  • How to ensure that a witness is not being "assisted" in his or her testimony by another person.

  • What happens if technology fails in the middle of a hearing.

  • Do lawyers or arbitrators have the same ease to hold conferences or exchange views with each other?

  • Can arbitrators assess the veracity of a witness' testimony in the same way through the screen as in person?

 

7.      Data Protection. The use of virtual platforms or "clouds" to store the documentation made available to the arbitration tribunal and the parties presents problems of protection of the personal data stored there, problems of security of the information contained therein to prevent cyber-attacks and theft of information that may be sensitive or confidential for the parties (think of the use of patented construction procedures, for example). Let us not forget that one of the advantages of arbitration is confidentiality, which allows confidential matters to be settled in a discreet environment without the need for publicity.

 

8.      Sustainability. It is an obvious concern in today's world to take care of our activities so that they are more sustainable in environmental terms and cause the least impact on the natural environment. With its virtues and disadvantages, virtual hearings save pollution by avoiding travels and some people are able to measure the savings in CO2 emissions if a face-to-face hearing is avoided by avoiding the displacement of many people. There is a campaign called the Green Pledge to promote more environmentally sustainable arbitration practices, to neutralize the carbon footprint of arbitration activities and to promote energy efficiency in the places where hearings are held and, in general, to promote more sustainable and environmentally friendly arbitration practices.

 

Here again, the advantages of virtual versus face-to-face hearings and meetings can be discussed and their respective advantages and disadvantages can be assessed for the best and most efficient development of the arbitration proceedings, but also taking into account the interests of the parties involved. One of the parties may perhaps understand that there will be a more effective arbitration proceeding if there is a face-to-face hearing because it considers that the evidence will be better presented, and the arbitrators will be in a better position to understand and assess the problem. In short, his problem.

 

9.      Diversity. No one doubts the great strides that have been made in recent years to increase diversity in our society, especially gender diversity, by promoting opportunities for women to become increasingly involved in activities in which men predominate. But when we talk about diversity in arbitration, we are not only referring to the appointment of more women as arbitrators, but diversity also extends, especially in international arbitration, to geographical, cultural, age and ethnic or racial diversity, under the principle that an arbitral tribunal could be in a better position to make a decision if its members come from different cultures,-not only legal-, and different ways of thinking and of approaching and solving problems are applied.

 

10.  Specialization of Construction arbitrators. Since we are talking about construction arbitration, one of today’s challenges is to have arbitrators who really know the construction and engineering sector and how the different types of contracts that are used, especially in the international arena, work. And they must have proven experience in this sector.


Contracts are becoming increasingly complex (NEC4, FIDIC, JCT, Collaborative contracts, Alliance, etc. ....), and the projects and infrastructures are also becoming more complex. Arbitrators need to understand how these projects are developed, the relationships between owner-contractor-designers-subcontractors and lenders, if any, and other parties involved in the construction process.


This enumeration is a wake-up call about the challenges that await us in the very near future. In fact, we are already facing them.


The advantage of arbitration as a private means of dispute resolution is, as I said above, FLEXIBILITY and ADAPTABILITY.


Arbitration does not depend entirely on the existence of laws regulating it. It is true that there are arbitration laws in each country, but in general terms, we can say that arbitration does not need them as an imperative of its existence.


I will give some examples of flexibility and adaptation.


Until we were unfortunately caught by surprise by the COVID pandemic, arbitration hearings were mostly held in person and only some preliminary conferences to establish schedules, etc. were held virtually or by telephone.


But the pandemic locked almost everyone down. However, the players in the arbitration world soon reacted and virtual hearings began to become widespread. The agreement of the parties was enough for that purpose. There was no need for a law passed by the relevant parliament to establish and authorize it. The parties, the lawyers and the arbitrators immediately provided the means and will to do so ... and they did it.


Soon, the arbitration institutions began to draw up protocols for the holding of virtual hearings, for the examination of witnesses, etc. The arbitration world was quickly up and running and it worked.


Another example is the use of Artificial Intelligence. Although this technology is still in its first stages, there are already arbitral institutions that are thinking of providing guidelines for its use in arbitral proceedings. This is the case of the draft "Guidelines on the Use of Artificial Intelligence (AI) in International Arbitration" published by the Silicon Valley Arbitration and Mediation Center in August 2023. It aims to provide best practice guidelines on the use of AI in arbitration. We will see what its conclusions are when the final text is released.


With these reflections I intend to draw the attention of the arbitration community to these new challenges, which we must stop and reflect on because the urgency of our daily work can lead us to overlook them.


The flexibility and adaptability of arbitration will ensure that the incorporation of new technologies and the solution of the challenges I have mentioned will be done progressively and as problems and difficulties arise, as has always been the case.


It is not necessary to take a break and start thinking about how to solve these problems, or future problems that we do not yet know if we will have, but the flexibility of arbitration will allow the arbitration community to find solutions and put them into practice little by little. This is the way things are done in the arbitration world: when there is a problem, a solution is sought, it is adopted, and everyone adapts immediately to it.


Therefore, I understand that we must be concerned about these challenges, but without scaremongering and proceeding with caution, since the interests of the parties who submit their dispute to the decision of the arbitrators and the guarantee of the effective protection of their rights are paramount.

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