Why Construction Arbitration is Complex? (XIII)

In construction arbitration, procedural strategy can be just as important as the legal or technical merits of the case.

In Article 13 of this series on the complexity of construction arbitration, I discuss two key case-management tools.

7.- Bifurcation

This is the power of the arbitral tribunal to divide the proceedings so that certain issues can be decided separately. Generally, the tribunal may decide on a bifurcation when issues of jurisdiction, admissibility, applicable law or limitation periods arise.

In addition, in construction this tool is used when it is considered necessary to separate an initial decision on liability from a subsequent decision on the quantification of damages arise.

The purpose of bifurcation is to save the parties time and money by avoiding the need to defend or pursue claims that may be unfounded, so that it would not be necessary to analyse their quantification.

In construction disputes, it is sometimes worthwhile to separate the proceedings into two phases to first decide on liability, i.e., whether the claim is well-founded and who is liable, for example, for a delay.

If it is determined that the owner is not liable for the delay, there is no point in continuing with the proceedings. It should be borne in mind that, in construction arbitration, quantifying the damage is a very laborious task that involves reviewing and analysing numerous highly technical documents in most cases, as well as analysing complex expert reports.

In determining the damage, not only monetary issues can be decided, but also a possible extension of the contractual term due to delays caused by the owner.

Although the bifurcation of a construction case is usually considered an advantage for the parties, as it avoids the continuation of the proceedings in the event of lack of liability, not all authors agree with this procedure.

It is argued that when bifurcation occurs, the resolution of the case tends to take longer than if it had not. Greenwood reached this conclusion after analysing 174 ICSID cases in 2011, of which 45 involved bifurcations. In 2019, she re-analysed forty-five more cases, of which twelve were agreed to be bifurcated.

The conclusion is that in all bifurcated cases, the duration of the arbitration resolution period was much longer than in the others. Thus, it argues that this tool is really useful in cases where there is a very high probability that the case will be resolved in the first phase, i.e., that the tribunal will decide that there is no merit in the claim, so that it is not necessary to proceed to the second phase. The same could be said in cases of allegations of lack of jurisdiction.

The ICC Report recommends bifurcation as an additional procedural management tool provided that the following factors are considered and weighed up:

• whether it is possible to decide on certain issues, claims or defences without analysing the merits of the entire case;

• the expectations of the parties;

• whether it will delay or expedite the proceedings,

• whether it will increase the cost of the proceedings,

• whether it is a tactic to delay the proceedings on the part of the party requesting it,

• whether, prima facie, the claim of the party requesting the bifurcation is likely to succeed, and

• whether a separate decision on certain issues is necessary for reasons of fact or law, for example, if there are parallel proceedings and the arbitral tribunal must decide promptly whether it has jurisdiction to avoid conflicting awards.

Sometimes, the fact that a decision on liability is made first may encourage the parties to reach an agreement on the quantification of damages without the need to complete the arbitration proceedings.

8.- The case management conference and the procedural timetable.

In construction arbitration, the preliminary conference on the conduct of the case is particularly important due to the complexity of the claims made and the evidence to be used.

The setting of the procedural timetable must take into account that the arbitration must be resolved quickly and efficiently in terms of cost, so that dates for the submission of the various pleadings are set that are reasonable in view of the complexity of the case.

It is necessary to bear in mind that both the arbitrators and the lawyers representing the parties must have sufficient availability to devote themselves to the case and not be delayed by other commitments.

The ICC Report also recommends that, if the parties have not already done so in their initial pleadings, they should submit a chronology of the relevant facts, a list of relevant persons who have been involved in the construction process (dramatis personae) and a glossary explaining terms and definitions.

The chronology is particularly relevant in construction disputes because contracts are often long-term, even lasting years, and it is important to establish how events have unfolded during the life of the project and, more specifically, those that have given rise to the dispute.

On occasion, the arbitral tribunal may request the parties to submit a chronology of events on which they agree. The ICC Report encourages the arbitral tribunal to request the parties to consolidate their respective documents relating to the chronology, list of relevant persons and definitions, as far as possible, to facilitate the arbitral tribunal's understanding of the dispute. Of course, these documents may be amended considering the development of the arbitration proceedings.

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