The Resolution of International Disputes

Robert Fenwick Elliott

My experience is of the resolution of construction disputes, often large or very large, in the UK and also more or less every continent (except Antarctica). These remarks may help those involved in disputes within overseas projects, or just by way of comparison with domestic mechanisms.

The Arsenal

The range of methods for resolving international construction disputes is now large. In particular[1]:

				→	More binding
	Negotiation
		Certification/ Engineer’s Decision

	Mediation
	Hybrid form ADR				Expert Determination
			Adjudication
	Mini-trial
		DRB			International Arbitration
↓				Domestic Arbitration
More formal					Litigation

Negotiation

Legal opinions are sometimes influential, especially if there is 3^rd party funding.

ADR

There is less emphasis on mediation; more on evaluative systems of conciliation, mini-trial or hybrid processes.

When government agencies are involved, mediations tend to be harder to arrange, but more influential when they happen. Written recommendation is often very effective.

Certification/Engineer’s decisions

These are still important, especially in civil engineering projects where traditional consulting civil engineers are appointed.

Sometimes, one still sees the ICE procedure of an Engineer’s decision, whereby the certifier (or his boss) can change his mind. Legal submissions sometimes work, but not often.

Disputes Review Boards

The American model[2] in large projects, features include:

· All three members of the DRB are neutral and paid equally by both parties.

· The DRB is organized when work begins, before there are any disputes, and keeps abreast of job developments by means of relevant documentation and regular site visits.

· Either party can refer a dispute to the DRB.

· An informal but comprehensive hearing is convened promptly.

· The written recommendations of the DRB are not binding on either party but are admissible as evidence, to the extent permitted by law, in case of later arbitration or litigation.

Whilst not binding, DRB processes are typically 99% determinative.

Adjudication

The English model in all construction contracts. Part of a trend towards multi-tiered dispute resolution systems.

The decision – on any dispute - is made within 28 days (or so). In theory, the process can be inquisitorial. There is usually an informal hearing, but only informal evidence and no discovery/disclosure of documents. The loser has to write a cheque, but either side can start again in litigation or arbitration; less than 1% do.

Note that the skills of trial lawyers such as barristers are often not well matched to adjudication or ADR; the most effective style is more like live documentary, using sound bites and 2 or 3 examples to make points, rather than grinding cross-examination.

Sometimes used in international projects, and usefully used as a trigger for the call of demand bonds.

Expert Determination

A close cousin of adjudication, seen most often in energy contracts or bonding arrangements. Binding without review if the expert has answered the right question.

International Arbitration

Often International Chamber of Commerce (ICC), because that is what FIDIC says.

The conciliation stage is often by-passed
Usually three arbitrators. Impartiality of the flankers is not assured; the Umpire/Chairman/3^rd Arbitrator is usually impartial.
Request for Arbitration: the first round of pleading. Beware omissions!
Discovery/disclosure can be ordered, but do not expect uniform standards.
ICC fees are not insignificant[3]; they are payable up front. NB Defendants often do not pay their share: Claimants then have to pay all, but can ask for separate advances for claim and counterclaim.
6 months for Award – a rule much honoured in its breach.
The role of the Court[4] is not that a court at all, but a supervisory body. Get to know the assigned counsel in Paris.

Note that the seat of the arbitration may not be the governing law. And the parties may agree to proceedings taking place somewhere other than the seat[5].

Depending on local law, the right to interest can be either substantive (eg French law) or procedural (eg English law); there may be a black hole[6]. Sharia forbids interest, but even under Islamic law cases it is usually awarded by way of financing charges or other synonym.

Jurisdictional challenges are very common in large project disputes, going to the scope of the arbitration clause and/or the identity of the parties.

Traditionally, the most expensive form of dispute resolution yet invented except all-out military conflict.

Modern trends:

Some move towards more emphasis on written submissions.
Mix and match; eg the use of tribunal appointed experts to assess delay claims.

Enforcement is usually via New York convention; beware exceptions like Libya.

Bonding/Asset freezing

Demand bonds are often used as levers. Golden rule: never advise until you know the bonding position. Few countries will prevent wrongful call by injunction[7].

The place for call of a bond is often not the seat of the arbitration; there is often a need for local law advice.

Note that some countries, eg Holland, are fairly generous with pre-action freezing orders.

The Law

In construction, as in other walks of life, people tend to do what they know best how to do. Arbitrators from the common law stable tend to apply a commonwealth law, taking in cases in particular from UK, Australia, Singapore and Hong Kong; many other jurisdictions have precious little to say about construction law issues. Submissions will often endeavour to lard local cases into the wider tapestry.

Note the recurrence of quantum meruit claims, which are often used to fill gaps even where there is a contract[8]

Corruption

Corruption is endemic in large projects involving international players. It is rarely proved, but note particular sensitivity for citizens of the USA, where bribing anywhere in the world is a crime.

A Question of English

English is the lingua franca of international projects. Compared to domestic dispute resolution, points may be less subtle, and it sometimes pays to SPEAK LOUDER. There is more colour on the canvas, but often less finely painted detail.

Robert Fenwick Elliott[9]

fenwickelliott@bigbutton.com.au

[1] The following table is adapted from that at Fenwick Elliott Building Contract Disputes: Practice and Precedents (Sweet & Maxwell) Chapter 2

[2] There is a good website of the DRB Foundation at www.drb.org.

[3] On a sliding scale: up to 20% of the sum in dispute for small cases (less than $US 50,000) falling to less than 1% over $US 100 million. But much of the scale fee may be returned when a case settles.

[4] Based in Paris, but many of its staff are American.

[5] Eg in “City of London” clauses; cases are just as often heard in Westminster. Paris cases are often heard in London.

[6] Eg where the contract is subject to English law, with ICC arbitration in Paris.

[7] The English test is “established fraud”; RD Harbottle v National Westminster Bank [1977] 2 All ER 862.

[8] Pavey v Mathews (1987) 162 CLR 221, (1987) 61 A.L.J.R. 151 is often referred to internationally.

[9] Solicitor of the Supreme Court of Judicature of England and Wales, Consultant to and founder of Fenwick Elliott, Solicitors, London (www.fenwickelliott.co.uk), Vice-President and former Chairman of the Technology and Construction Solicitors Association, accredited as a mediator by the Centre for Dispute Resolution and as an adjudicator by TeCSA, the Chartered Institute of Building and the Construction Industry Council, Founding Chairman of the International Construction Law Alliance, former editor of Construction Industry Law Letter, author of Building Contract Litigation (Longman) and Building Contract Disputes: Practice and Precedents (Sweet & Maxwell).