An inherent feature of Construction Projects is that they involve a multitude of parties with divergent interests. Therefore, the frequency of multi‐party disputes in the Construction Industry is greater than in other commercial sectors.
A large Construction Project will almost invariably involve multiple parties coming from different jurisdictions with different legal perceptions. These parties include an Employer, a Designer, a Third‐Party Certifier or an Engineer, a Main Contractor, Sub-Contractors, a Project Manager, Suppliers, Lending Banks, Issuers of Performance Bonds, and so forth.
The contractual relations deriving under a complex Construction Project are regulated under multiplicity of Bilateral Contracts. Thus, the Employer will have direct contractual relations with a Main Contractor. The latter will then often sub-contract parts of the work to several Sub-Contractors under the terms of separate sub-contracts.
The Sub-Contractors will have direct relations with Sub‐Sub-Contractors and/or Suppliers, etc. The designing phase of the Construction Project will be completed by an Architect or an Engineer on the basis of a separate contract, which, depending on the structure of the project, can be executed either with the Employer or with the Main Contractor.
Bilateral Disputes arising under some of the abovementioned agreements will inevitably have repercussions on a number of parties different from the ones directly bound by the contract.
A typical example of such a bilateral dispute will be a claim for defects filed by an Employer against a Main Contractor which concerns defects in the Construction Works performed by a Sub-Contractor.
If such a claim is resolved in a Bilateral Arbitration between the Employer and the Main Contractor its outcome will have an impact on the relations between the Main Contractor and the Sub-Contractor. If the Main Contractor is found not to be liable, there will be no need for the latter to invoke the responsibility of the Sub-Contractor. On the other hand, an unsuccessful outcome for the Main Contractor in the Main Contract Arbitration would almost certainly result in a separate claim pursued by the latter against the Sub-Contractor.
Another feature that differentiates Construction Disputes from disputes in other commercial sectors is the impact of sector–specific legislation, which addresses particular practices relevant to the Construction Industry, including in respect of Dispute Resolution.
Thus, if all the relevant parties wish to resolve their dispute in Multiparty Arbitration proceedings, it is safer to enter into a Single (Umbrella) Arbitration Agreement, or to enter into Identical Arbitration Clauses that expressly provide for Multiparty Proceedings under certain circumstances. While Umbrella Arbitration Agreements are not typically used in Construction Contracts, Identical Arbitration Clauses providing for Multiparty Proceedings are not uncommon.
A common disadvantage contended against Arbitration as compared to litigation it that there is not enough time to constitute an Arbitral Tribunal in case urgent relief is needed, such as injunctive relief to prevent the dissolution of assets without furnishing notice. Usually, in such scenarios, the parties would think that only resort left is to approach the Courts for instant relief.
In recent years, this need has been addressed by various leading Arbitration Institutions that have amended their rules to provide that where a party requires urgent interim or conservatory measures in advance of the Arbitral Tribunal being constituted, that party can apply for an Emergency Arbitrator to be appointed to consider its Application.
These rules have been incorporated in order to provide the parties with the opportunity to seek urgent and Interim Award from the Arbitrator Appointment by the Institution in short time.
Further advantage of Emergency Arbitration is that appointment of Emergency Arbitrator is done for the emergency period only and will not be part of the Main Tribunal. Thus, the apparent risk of any prejudgment of the merits is removed.
The relief measures that can be pursued before the Emergency Arbitrator in a Construction Dispute include an Award of security for claim, the preservation of evidence or assets, prevent a party from calling on a performance bond or to suspend the application of liquidated damages.
The role of Dispute Board is different from that of the Emergency Arbitrator. The former has major participation throughout the life of the project and thus considering the proximity of issues, parties have more trust and respect in their opinion. On the other hand, the latter is a predecessor to Arbitration.
Henceforth, it is imperative for the parties to consider such pertinent issues while drafting the Dispute Resolution Clause.
One of the most visible peculiarities of Construction Disputes is the involvement of multiple parties/stakeholders, not through a single agreement but, rather, interconnected through various bilateral agreements.
If a dispute arises under any such bilateral agreement, such dispute(s) as well as the effective resolution thereof would have a real and substantial bearing on the other related bilateral agreements and the parties thereto as well.
Thus, the importance of Multi-Party Arbitration provided for under Umbrella Arbitration Agreements or through Identical Arbitration Clauses under the aforementioned bilateral agreements cannot be undermined at any stage.
Emergency Arbitration, on the other hand, has come handy in increasing the acceptability of Arbitration as the go-to Dispute Resolution Mechanism for Construction Disputes overall. This is because the biggest argument against conventional/generic Arbitration is the long duration of time taken to constitute an Arbitral Tribunal.
Another major advantage to the parties opting for Emergency Arbitration is the negligible to nil risk of bias and/or prejudice in the final adjudication of their dispute, since neither the Emergency Arbitrator nor the Interim Relief granted through Emergency Arbitration shall form part of the main Arbitral Tribunal or its Award.
Our upcoming blog in this series shall further discuss the remedies for breach available to the various stakeholders in such Construction Disputes, along with the landmark judicial pronouncements where the Courts have further propounded their views on the same.
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