Out-Law / Your Daily Need-To-Know

Construction companies seek improved arbitration experience

21 Nov 2019, 4:43 pm

A global study has highlighted that, while arbitration is still perceived by construction companies as the preferred process for resolving disputes on international construction projects, there is scope for improved efficiency and flexibility at all stages.

This is particularly the case for disputes valued at $10 million or less where the cost of the process is often seen as a barrier to justice.

Jason Hambury of Pinsent Masons, the law firm behind Out-Law, said the study, conducted by the School of International Arbitration at Queen Mary University of London in partnership with Pinsent Masons, "provides valuable insight on the concerns of the construction industry and how the arbitration community might respond". The results of the study, which focused on improving efficiency in international construction disputes, have been outlined in a new report.

The views of 646 construction industry representatives from all over the world, including Europe, the Middle East and Asia Pacific, were gathered from an online questionnaire. The research was further informed by answers provided in 66 face-to-face or telephone interviews. The study was carried out between May and July 2019.

Hambury said: "The survey received positive engagement and responses from in-house counsel, practitioners, intermediaries and academics from different backgrounds and jurisdictions. It provides valuable insight on the concerns of the construction industry and how the arbitration community might respond to them to ensure that the arbitral process is more efficient and economical at all stages, and facilitates the resolution of disputes at an earlier stage. This is particularly the case for lower value disputes, meaning less than $10 million, where more flexibility and speed is required if arbitration is to be more accessible to parties, along with alternative processes such as Dispute Adjudication Boards, and serve the industry in this respect."

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The study found that disputes could often be resolved at an earlier stage of proceedings if there is more effective use of interim or provisional measures in arbitration. The findings show that there is an appetite within the construction sector to make interim decisions effective to cause money to change hands at an earlier stage, which experience suggests is often sufficient to effectively resolve disputes.

The study found that the value of disputes can sway construction businesses' views on whether it is a commercially sensible option to pursue arbitration. For 42% of respondents, the minimum threshold for considering arbitration is where the value of the dispute is between $1m and $10m, but the study found that 43% of in-house counsels surveyed believe disputes need to be at least valued between $11m and $25m to make the claims worth pursuing in arbitration.

The views expressed chimed with those of a significant number of respondents that said the process of arbitration can serve as a barrier to the fair resolution of disputes valued at less than $10m, especially given their technical complexity which was acknowledged as a defining feature of construction arbitration by 73% of the respondents. A further 66% of those surveyed cited the large amounts of evidence required. Multiple claims or parties (49%), and large amounts in dispute (41%) were also features commonly identified.

Whilst there was an appreciation that technical automation may increase the efficiency of large volumes of evidence, there was resistance from some respondents to automation of the entire decision making process.

The study also found that, when appointing arbitrators, the vast majority of construction businesses value experience of how construction projects work above all other factors. When asked what characteristics respondents look for in an arbitrator, the top attributes were issuing an award within a reasonable period of time (70%), being willing to make difficult decisions, including on procedural issues (68%), possessing case and counsel management skills (68%) and having technical knowledge of construction disputes (63%).

The majority of respondents (67%) showed support for mandatory compliance with pre-arbitral decisions as a pre-condition to arbitration. This statistic was underpinned by other survey results which showed, among other things, that more than two-fifths of construction companies do not voluntarily comply with decisions issued in alternative dispute resolution processes.

Professor Loukas Mistelis of Queen Mary University of London said: "We expect that the survey will have a meaningful impact on how dispute resolution is designed and conducted in the infrastructure and construction sectors."