Arbitration is best for resolving construction disputes, but there’s room for improvement.
Disputes arising in international construction projects are best resolved through arbitration however, there is real scope for improved efficiency at all stages of the process, according to a new report published by Queen Mary University of London in partnership with international law firm Pinsent Masons.
The results of the survey, which focused on the issue of driving efficiency in international construction disputes, indicate that the more effective use of interim or provisional orders in arbitration may, in practice, lead to parties resolving these disputes at an earlier stage. The findings also show that there is appetite within the construction sector to make interim decisions binding so that money changes hands at an earlier stage.
The process of arbitration itself was seen by a significant number of respondents as being a barrier to the fair resolution of disputes valued at less than $10m. Technical complexity was listed as a defining feature of international construction arbitration by 73% of respondents. This was followed by the large amounts of evidence required (66%), multiple claims or parties (49%), and large amounts in dispute (41%).
There were a range of opinions as to the minimum amount in dispute which respondents would consider commercially sensible to pursue through international arbitration. The majority (42%) considered the minimum threshold to be between $1m and $10m. However, 43% of in-house counsel put the threshold higher than this at between $11m and 25m.
When appointing arbitrators, the vast majority of respondents valued construction experience above all, supporting the survey’s finding that factual and technical complexity is the most defining feature of international arbitration in the construction sector. 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 per cent) and having technical knowledge of construction disputes (63%).
Whilst there was an acknowledgement that technical automation may increase the efficiency of large volumes of evidence, there was resistance to the use of automating the entire decision-making process. This shows that whilst there is an appetite for technology, there remains a resistance to the use of automating the entire decision-making process.
Respondents showed they had experienced a wide range of alternative dispute resolution processes used to resolve international construction disputes, although it is often the case that parties do not voluntarily comply with decisions issued as part of these processes. 41% of respondents reported that parties do not voluntarily comply whilst 31% reported that they experienced compliance “half of the time”. Only 28% of respondents reported that they experienced frequent compliance. The majority of respondents (67%) showed support, for mandatory compliance with pre-arbitral decisions as a pre-condition to arbitration.
Professor Loukas Mistelis, Clive M Schmitthoff professor of transnational commercial law and arbitration at Queen Mary University of London, said: “We were pleased to partner with Pinsent Masons for this empirical survey, whilst ensuring that it was conducted independently. This is a truly global survey, respondents were located in all continents and had experience in construction projects from all continents. We expect that the survey will have a meaningful impact on how dispute resolution is designed and conducted in the infrastructure and construction sectors.”
Jason Hambury, co-head of Pinsent Masons’ international arbitration practice, 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 (i.e. less than $10m) 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.”