Arbitration In IndiaConstruction Arbitration – Part VIII

This Blog as a part of the series on Construction Arbitration shall discuss and elaborate the international perspective of Construction Arbitration, and the various Awards which are passed during Construction Arbitration.

INTERNATIONAL PERSPECTIVE

From a global perspective, construction industry has undoubtedly become one of the primary sectors utilizing arbitration for resolution of international disputes.

As defined by the International Chamber of Commerce (“ICC”) Commission on International Arbitrations (“ICC Report on Construction Industry Arbitrations”), international construction disputes refer to the specific kind of disputes which arise out of projects related to construction work, particularly regarding issues concerning the execution of service and implementation of the project. International Construction Arbitration is an efficient mode of dispute resolution for resolving international construction disputes.

Construction disputes are widely intricate and complex in nature arising out of equally detailed and complex contracts. One of the important factors which have made Construction Arbitration the most frequently used method of dispute resolution in the international construction industry, as compared to litigation, is the standardized forms of construction contracts and disputes arising out of it thereto. The International Federation of Consulting Engineers (“FIDIC”) designed the first standard form of construction contracts, which still remains in use today in the International Construction Industry.

Clause 15 of the ICC Report on Construction Industry Arbitrations suggests that for disputes of the International Construction Industry, it is feasible to approach an Arbitral Tribunal which is acquainted with construction contracts and is familiar with and easily able to comprehend the complexity, technicality and legal issues involved. Thus, private disputes having an international exposure usually prefer arbitration over litigation.

Various Arbitral Institutions across the globe have undoubtedly played a major role in shaping the concept of Construction Arbitration globally as an efficient and effective method of resolution. The global scenario of International Construction Arbitration are as follows:

• India

Since the construction industry in India was in need of new measures to resolve the construction contract related disputes, the Construction Industry Development Council, India (“CIDC”) was introduced, which was established in cooperation with the Singapore International Arbitration Centre (“SIAC“) and the Construction Industry Arbitration Council (“CIAC”). Such institutionally administered arbitration has clear benefits over ad hoc arbitration for resolution of construction disputes in India.

• United Kingdom

A body of law dedicated towards disputes in construction contracts has been developed as a specialized forum for handling construction disputes in United Kingdom, known as the Technology and Construction Court (“TCC”).

• Europe

Europe is home to few of the prominent international arbitration institutions like the ICC International Court of Arbitration, the Stockholm Chamber of Commerce (“SCC”) and the London Court of International Arbitration (“LCIA”).The ICC International Court of Arbitration has emerged as the preferred arbitral institution for the resolution of construction disputes.

• Middle East Countries

Middle East countries have adopted the United Nations Commission on International Trade Law (“UNCITRAL”) Model Law on International Commercial Arbitration as the governance framework for construction arbitration.

There are various additional frameworks which govern disputes related to construction contracts in the Middle East Countries, which are as follows:

1. United Arab Emirates has Civil Procedure Law which govern its construction arbitration related disputes.

2. Construction contracts in Abu Dhabi are majorly under the purview of The Abu Dhabi Commercial, Conciliation and Arbitration Centre (“ADCCAC”) for disputes under arbitration mechanism.

3. Arbitration Rules adopted as per UNCITRAL Arbitration Rules in Dubai International Arbitration Centre (“DIAC”) is another institution for arbitration in construction disputes.

4. The DIFC-LCIA, which is a joint venture between Dubai International Financial Centre (“DIFC”) Arbitration Institute (“DAI”) and the LCIA, follows the LCIA Rules closely for handling arbitration in construction disputes in the Middle East regions.

These arbitration centres in the Middle East Countries are rapidly bringing significance to the resolution of construction disputes with the aid of arbitration.

AWARDS

The primary objective of an Arbitrator while passing an Award is to clearly, unambiguously, justly and enforceably define the actions to be taken by one or both parties in order to resolve the matter(s) in dispute. His secondary objective is to satisfy the parties, and in particular the losing party, that the Award is just.

The Arbitral Awards passed under Construction Arbitration usually remain private despite one party being the government in most cases. The contents of such Awards are known only to parties to the dispute, the Arbitral Tribunal and the Institution where such arbitration is conducted. When an Arbitral Award is challenged before a Court of Law, it may be brought to the public domain as per the contents of the judgment of passed by the Court of Law.

PROCEDURAL ORDERS

The Arbitral Tribunal may issue Orders or Directions to be followed during the course of Construction Arbitration. Both Orders and Directions have similar significance but are distinct from Awards, as they do not conclusively determine matters in dispute between the parties.

Although Procedural Orders or Directions may be substantial, but they are not final and the enforceability of an Order/Direction may change with Orders or Directions issued in the future. Procedural Orders generally provide the manner in which the arbitration proceeding is to be conducted.

INTERIM, PARTIAL AND FINAL AWARD

Awards are final and binding on the parties as stipulated in the terms of Construction Contracts. The Institutional Rules of various International Arbitration Institutes also stipulate the finality and binding nature of Awards, which include:

i. Article 34.2 of the 2010 UNICTRAL Arbitration Rules;

ii. Article 35.6 of the 2017 ICC Arbitration Rules;

iii. Article 30.1 of the International Centre for Dispute Resolution (“ICDR”) International Arbitration Rules;

iv. Article 26.8 of the 2014 LCIA Arbitration Rules; and

v. Rule 32.11 of the SIAC Arbitration Rules.

A Final Award is passed after completion of due course of the construction arbitration proceeding, through which the Arbitral Tribunal satisfies the issues involved in the construction dispute and concludes its role as a dispute resolution forum, i.e. becomes functus officio.

Through a Final Award in a Construction Arbitration, the Arbitrator answers every matter concerning the construction dispute which has been brought to the reference of the Arbitral Tribunal. The Arbitrator may pass monetary or other orders, granting remedy or relief, legal costs of the parties, remuneration of the Tribunal and charges payable to the arbitration institution.

An Interim or Partial Award determines one or a few of the pressing issues concerning the construction dispute, but not the issues in its entirety. Hence, it is referred to as Partial Award. An Interim Award grants interim relief to any of the parties from any act or omission which substantially affects their rights.

In Construction Arbitration, a major issue which arises is giving notice of claims at an adequately early stage. These disputes, not being jurisdictional disputes, are often dealt by Arbitral Tribunals in the manner followed for jurisdictional disputes i.e. by giving a Partial Award determining upon such preliminary issues.

Further, a Partial Award may also be given for issues pertaining to the valuation of works before initiating pleadings over substantial claims for extension of time or damages. A Partial Award is also preferred by Tribunals when it has decided upon all issues, except for allocation of costs as the Tribunal invites suggestions regarding the allocation of costs of proceedings from the parties.

AMLEGALS REMARKS

With the rapid increase of disputes arising from construction contracts in the international domain, various international arbitration institutions have emerged as the preferred mode of alternate dispute resolution for such contracts.

International arbitration institutions such as the SIAC, CIAC, LCIA, DIAC, SCC, etc have developed well-defined governance framework for the conduct of Construction Arbitrations at a global level, which enable parties to such disputes to efficiently resolve construction disputes.

In Construction Arbitration, the Arbitrators may pass multiple Interim or Partial Awards to resolve the immediate grievances of the parties to the construction dispute. Once the arbitration proceedings are concluded, the Arbitrator passes the Final Award which lays down the conclusive findings of the Arbitrator with regards to all the issues arising from the construction dispute.