27 November 2019

Arbitration most constructive in disputes

Legal counsel hails new research arguing arbitration is seen as the best process for resolving international construction disputes.

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 report published by Queen Mary University of London in partnership with Pinsent Masons.

Room for improvement

While arbitration is still regarded 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 of the arbitral process. That is particularly so for disputes valued at USD10m or less, where the cost of the process is often seen as a barrier to justice and the fair resolution of the dispute. The value of the dispute can sway decision makers' views on whether it is a commercially sensible step to pursue arbitration. For 42 percent 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 percent of in-house counsel surveyed believed that disputes need to be valued between $11m and $25m to make the claims worth pursuing in arbitration. 73 percent of respondents regard technical complexity as a defining feature of international construction arbitration, 66 percent of respondents cited the large amounts of evidence required. Multiple claims or parties (49 percent), and large amounts in dispute (41 percent) were also features commonly identified. HyunJung (Chandel) Lee, legal counsel at Hyundai Engineering & Construction Co said “Whilst arbitration and ADR are seen as the popular choice of resolving disputes arising out of international construction disputes, I think the survey reveals important insights and analysis of using international construction arbitration in reality and suggests directions for future development.”

Automation resistance

When appointing arbitrators, the vast majority of decision makers valued experience of how construction projects work above all other factors. In terms of arbitrator characteristics, the leading attributes comprised issuing an award within a reasonable period of time (70 percent), being willing to make difficult decisions, including on procedural issues (68 percent), possessing case and counsel management skills (68 percent) and having technical knowledge of construction disputes (63 percent). The majority of respondents (67 percent) showed support for mandatory compliance with pre-arbitral decisions (which might be obtained as part of the contractual dispute resolution mechanism) as a pre-condition to arbitration. This statistic was underpinned by other survey results which showed that more than two-fifths of parties do not voluntarily comply with decisions issued in alternative dispute resolution processes. Although respondents acknowledged that technical automation has a role to play in increasing the efficient management of large volumes of evidence, there was resistance to the idea of automating the entire decision making process.

"Truly global survey"

Professor Loukas Mistelis, Clive M Schmitthoff professor of transnational commercial law and arbitration at Queen Mary University of London said “In designing the survey, we received valuable input from a focus group of in-house counsel, external counsel, barristers, funders, expert witnesses, and institutions.” Professor Mistelis explained, “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 report “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.” He added, “This is particularly the case for lower value disputes (i.e. less than USD 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.” The report can be found here.