Why Construction Arbitration is Complex? (XI)

Construction disputes are known for their technical, contractual and evidentiary complexity. Arbitration is often the preferred dispute resolution mechanism — but only if the right decisions are made from the outset.

In this new article of the series on construction arbitration, I explore the key aspects that shape the efficiency and outcome of the proceedings.

The processing of an arbitration proceeding in a construction dispute follows the usual and general procedures of any arbitration, but here we will highlight those special features that must be taken into particular account in view of the complexity of this type of dispute, as we have discussed in previous articles.

1. Selection of the arbitral institution.

Firstly, it is important to choose the right institution to administer the arbitration. There are numerous international institutions to which the parties can entrust the administration of arbitrations. Among the best known and most prestigious are the London Court of International Arbitration (LCIA) , the International Chamber of Commerce (ICC) , the SCC Arbitration Institution in Sweden (SCC), the Hong Kong International Arbitration Centre (HKIAK) , the Singapore International Arbitration Centre (SIAC) or, in the Ibero-American area, the Madrid International and Iero-American Arbitration Centre (CIIAM) .

All of them have rules that allow arbitration proceedings to be conducted efficiently and reliably. In some cases, they also publish guidelines for parties and arbitrators on various matters.

This is an important issue that the parties must resolve when entering into the contract and agreeing on the arbitration agreement.

In addition to the possibility of agreeing to ad hoc arbitration -which is not recommended due to its numerous drawbacks-, it is more common to choose an institution to administer the arbitration. There are several criteria for selecting a suitable institution to administer the eventual arbitration.

The choice is often based on the previous experience of the parties or their lawyers. On other occasions, as we have seen in FIDIC contracts, the model contract itself recommends an institution.

It is important to consider whether the institution has experience in administering this type of arbitration and, above all, for the reasons of complexity that we have analysed, it is important to know whether its rules allow, for example, emergency arbitration or the joinder of additional parties into the arbitration or the consolidation of different arbitration proceedings.

Among other issues, it is also often relevant to consider the cost of administering the arbitration, the list of arbitrators available to appoint emergency arbitrators or tribunal chairpersons in the event of a lack of agreement, and whether the choice of arbitrators must necessarily be made from the institution's closed lists or whether the appointment of suitable persons not included in such lists is permitted.

2. The seat of arbitration

The choice of the seat of arbitration is important because it determines what the lex arbitri will be, i.e. the law applicable to the arbitration proceedings. When the parties have not submitted to an arbitral institution, the arbitration is said to be ad hoc, i.e. the proceedings must be agreed in their entirety between the parties. In such cases, the arbitration law of the chosen seat usually establishes a general framework for the conduct of the proceedings, which may be modified or supplemented by agreement between the parties.

In ad hoc arbitration, the procedural law of the seat is more important than when the parties submit to an arbitral institution because, in cases where there is no agreement between the parties on certain matters (e.g., the choice of arbitrator or chairperson or the challenge of arbitrators), the parties must go to the courts of the seat to resolve such issues, with the corresponding delay, as these incidents could be resolved more quickly and efficiently by the arbitral institution.

The choice of seat is also relevant, even when the arbitration is administered by an institution, because the parties will need the support of the local courts, for example, to request interim measures or to request assistance in taking or obtaining evidence.

Finally, the choice of the seat is also important because it is the local courts that will examine, in accordance with the relevant provisions of local law, any appeal for annulment that may be filed against the award.

The position of the local courts regarding arbitration will be also decisive in the choice of the seat of arbitration.

3. Selection of the arbitral tribunal

In construction cases, it is essential that the tribunal be composed of arbitrators who have sufficient skills and knowledge of the subject matter and the industry to be able to reach the best decision. They must have practical experience in the types of contracts to be discussed and know how construction processes and industry practices work.

It is also important to consider the availability of the arbitrators to devote themselves to the matter so that there are no delays in resolving the dispute, setting hearings or issuing the final award.

It is also necessary to consider how the fact that the arbitrators come from a common law or civil law legal system will affect the conduct of the arbitration, with the procedural implications that this entails, particularly in relation to the production of documents or discovery or disclosure.

It is important to know how potential arbitrators conduct proceedings, their disposition, their dedication, the time they have available, their speed and fairness in decision-making, and the time they usually take to issue an award. It may sometimes be advisable to request that the candidate arbitrator disclose the number of cases in which they are involved as an arbitrator or, where applicable, as counsel.

Of course, the persons appointed must meet the requirements of independence and impartiality. In practice, the IBA Guidelines on Conflicts of Interest in International Arbitration (IBA Guidelines) are often used to assess this matter.

Finally, it is also important to consider whether the arbitral tribunal will consist of one or three arbitrators. Construction disputes are often complex and rely heavily on careful determination of the facts, requiring a thorough, careful and detailed analysis of all the evidence, so an arbitral tribunal composed of three arbitrators is usually more appropriate.

However, if the amount of the claim is not very high, a single arbitrator may be preferable in order not to increase the costs in relation to the amount of the claim.

The 2019 ICC Report on Construction Industry Arbitrations (the ICC Report) recommends Tools and Techniques for Effective Management of these types of arbitrations and identifies several aspects to consider when selecting an arbitrator:

• They must be familiar with the sector and its cultural aspects and have the ability to identify technical issues.

• Consider the arbitrator's familiarity with the applicable law.

• They should have the ability to administer the proceedings, including computer skills to handle large amounts of electronic documentation.

• The arbitral tribunal should be balanced in terms of the capabilities of its members.

• Check the availability of arbitrators, and

• Consider gender, race and ethnic diversity in relation to the commitment to equal representation in arbitration.

4. Selection of counsel to represent the parties.

As we have seen for arbitrators, the counsels representing the parties must be familiar with complex construction disputes and also have sufficient availability to handle these cases so as not to unnecessarily extend the deadlines for the submission of pleadings or the scheduling of hearings. The same considerations noted for arbitrators regarding experience and availability apply to counsels.

The IBA Guidelines also recommend that the arbitral tribunal be informed of any possible relationships that may exist between the solicitors representing the parties and the arbitrators.

Although the IBA Guidelines are not binding rules in the same sense as laws, they are considered soft law, i.e., rules or regulations that operators in the arbitration world consider to be discretionary and that should inspire their conduct.

An important aspect to bear in mind in international arbitration is that if counsels are not familiar with the law of the seat, it may be advisable to seek the support of local lawyers who can complement the legal team to take advantage of all the possibilities that such law offers in support of the arbitration proceedings.

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