Why Construction Arbitration is Complex? (XII)

Major construction projects rarely generate “simple” disputes. Employers, contractors, subcontractors, suppliers and insurers operate within complex contractual webs.

In this new article of the construction arbitration series, I focus on three critical procedural issues as a continuation of the previous articles on how the complexity of construction impacts the arbitration procedure:

• Joinder of additional parties

• Consolidation of arbitrations

• Interim measures and emergency arbitration

5. Joinder of other parties and consolidation of arbitrations.

Although arbitration is by its nature a method for resolving bilateral disputes and is based on the agreement between the parties, in the construction sector, as we have previously seen, there are many parties involved in a project and it may sometimes be advisable to try to resolve disputes affecting all of them in a single arbitration.

In cases where the contractor has a dispute with both the client and a subcontractor, he may wish to have all claims resolved in the same proceedings, thus avoiding conflicting decisions throughout the contractual chain.

It is very difficult to draft the perfect arbitration clause that anticipates this circumstance because it is impossible to predict all the situations that may arise between the parties, especially if there is an element of international contracting.

All parties may have agreed to submit to arbitration, but the contracts may have been entered into at different times and under different arbitration rules or institutions. In general, it is necessary that in each arbitration agreement the parties have submitted to the same institution and that the incorporation of third parties is permitted.

The ICC Rules, for example, allow a request to be made to the Secretariat for a third party to be added to an arbitration before the arbitral tribunal is constituted . To do so after the tribunal has been constituted, the third party must agree to it, accept the Terms of Reference, and the tribunal must consider prima facie that it has jurisdiction over that party.

The ICC Rules also allow, in the case of multi-party arbitrations, each party to make claims against the others, several claims arising from different contracts to be decided in a single arbitration proceeding, and several pre-existing arbitrations to be consolidated into a single arbitration.

The CIIAM Rules also provide for the possibility of additional parties intervening, claims arising from several contracts being joined in one arbitration, or several proceedings being joined into one.

In some countries, such as the Netherlands, Hong Kong or California, the incorporation of a third party or the consolidation of proceedings may be ordered by a judge without the consent of the parties.

The consolidation of two or more arbitrations into one, which has undoubted advantages in terms of efficiency and cost savings, also requires that all arbitrations be between the same parties, that they be subject to the same arbitration rules, and that there be sufficient overlap between the factual and legal issues in dispute.

The consolidation of arbitrations raises less controversy than the incorporation of a third party, but it should be borne in mind that, if the arbitration agreement does not allow it, it could be a reason for refusing to recognise and enforce the award because the constitution of the arbitral tribunal or the procedure has not complied with what was agreed between the parties, as permitted by Article V(1)(d) of the New York Convention.

However, it may not always be in the parties' interest to consolidate several proceedings into one. Sometimes, for strategic reasons, consolidation may not be in the parties' interest. Consider a contractor who is being sued by a client in arbitration for defects in equipment supplied by the contractor. Generally, the contractor will prefer to sue the supplier of the defective equipment in a separate arbitration proceeding.

6.     Interim measures.

In the field of construction arbitration, it is very common for interim measures to be necessary in order to preserve the rights of one of the parties or to preserve evidence.

Thus, it may be requested that the execution of the works or certain parts thereof be suspended or not, that the execution by one of the parties of a guarantee provided by a bank be suspended, or that the execution of the works be temporarily suspended in order to take samples of the work executed with a view to an expert report, especially in the case of work units that will subsequently be hidden.

Precautionary measures may also be requested to maintain the status quo and ensure that the parties continue to fulfil their obligations until the dispute is resolved.

In 2023, the ICC was asked to appoint an emergency arbitrator in twenty-eight cases, bringing the total number of requests since this measure was established in 2012 to 240. The measures requested in 2023 were aimed at obtaining interim or protective measures which, according to the applicants, could not wait for the outcome of the arbitration. In three cases, the measure was granted in full and in nine cases it was granted in part, while in the remaining cases it was denied. Half of the requests related to cases in the construction, engineering and energy sectors.

The possibility of an arbitral tribunal adopting precautionary measures depends on whether it considers that it has jurisdiction to do so and whether the rules of the institution administering the arbitration allow it.

For a precautionary measure to be adopted, the arbitral tribunal must be constituted. If it is not, an emergency arbitrator may be appointed if the rules of the institution allow it.

It should also be borne in mind that interim measures adopted by an arbitral tribunal cannot bind a third party and that if the affected party does not comply voluntarily, the arbitral tribunal has no power of coercion.

It may also be necessary to consider whether it is more appropriate to seek interim measures through the ordinary courts in some cases.

The adoption of a precautionary measure by an arbitral tribunal or an emergency arbitrator has the advantage of confidentiality, but the disadvantage is the lack of coercive power over the party that fails to comply with the measure adopted. On the other hand, a judge has broader powers to decide on the measure requested and the cost is generally lower than the procedure in an arbitral institution, but there will be no confidentiality.

The arbitral tribunal or emergency arbitrator may adopt its decision by means of an order or a partial award. While an order is quicker to adopt than a partial award, the latter has the advantage that it can be enforced before a judge in accordance with the New York Convention.

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