International Construction Arbitration

The global marketplace requires companies to expand and explore business opportunities overseas. With the competitive industry the world has today, doing business abroad comes as second nature because expansion is an essential factor for business gain. Every year, it seems that more and more companies are increasing their international presence.

When it comes to complex and highly specialized construction issues, international arbitration is the best form of resolution for the following reasons:

1. The arbitral process is neutral. Both contracting parties can stipulate matters involving the composition of the arbitral tribunal, the powers of the arbitrators, the arbitral venue, and the applicable laws, among others.

2. Flexibility. Generally, the chosen arbitral institution is either located in London or Paris. However, this does not prohibit the stipulation and agreement on where the arbitral proceedings will take place. In fact, it can be anywhere in the world, and this achieves the goal of avoiding that home court advantage where the dispute will be decided upon under the jurisdiction of one of the contracting parties.

A. When Principles of Business Culture Collide

When looking at the advantages of arbitration as a mode of settling international construction disputes, one should take into account how the differences can affect the issues.

B. Arbitration Acts in Different Jurisdictions

b. 1. US Federal Arbitration Act (FAA)

The Act allows an arbitral tribunal to summon third parties to appear before it and produce documents. The FAA can only be used in two instances: first, if and when the tribunal is within the jurisdiction of a court in the United States and second, that it is the tribunal itself that will request judicial assistance.

b. 2. Uniform Arbitration Act (UAA)

This law allows a court to assist the arbitral tribunal in taking evidence. Unlike the FAA, it is the court that issues the subpoena. As a result, it is the party that makes the application to the court.

b. 3. United Kingdom Arbitration Act

Under the Arbitration Act of 1996, a party can require a third person to produce evidence or documents to aid in the arbitral process. This subpoena is only allowed with the tribunal's permission, but the party can pursue it in court as soon as such permission is granted.

b. 4. Swiss Federal Arbitration Law (The Hague Evidence Convention)

Under the Swiss Private International Law Act of 1987, an arbitral tribunal in Switzerland can request the aid of the court to compel a witness to give testimony. This act does not mention the production of documents, but it gives it extraterritorial consequences if it is used together with the Hague Convention in the Taking of Evidence Abroad in Civil or Commercial Matters.

b. 5. Uniform Interstate and International Procedure Act (UPA); Uniform Foreign Deposition Act (UFDA)

These two laws were enacted to provide assistance to arbitral tribunals outside the United States where depositions are concerned.

C. Relevant Jurisprudence

International Construction Arbitration involves the ability to defend one's claim. Because of the way in which construction projects are structured (for instance, the owner vs. general contractor vs. subcontractors etc.), defending one's contractual responsibility becomes crucial. This is where documentary evidence becomes an important factor in determining the winning party.

c.1. ADF Group Inc. versus United States of America, ARB (AF)/00/1 (ICSID-2003)

ADF Group requested that the arbitral tribunal review certain documents based on the standard of necessity. Rejecting the request for the production or use of the documents as evidence, the tribunal ruled that the Group failed to substantiate or defend how necessary these documents were to their case, not to mention that the subject documents were not specifically and properly identified.

c. 2. Comsat Corp. versus National Science Foundation, 190 F.3d 269 (4th Cir. 1999)

The arbitral tribunal issued subpoenas for witnesses to attend the hearing. The Fourth US Circuit Court of Appeals ruled that document disclosure before the hearing of the witness is not implied in the FAA's authority.

D. Administering Jurisdictions

International construction arbitration provides for different administrative rules depending on the organization implementing or exercising jurisdiction over it. In spite of this, the four common rules relate to the conduct of hearings. These are: choosing the location, determining the governing law, specifying the costs, and the procedure for selecting the arbitral tribunal.

To date, arbitral institutions number more than 110 due to the growth in worldwide trade.

When choosing the administering jurisdiction, the following factors come into consideration:

1. Appointing Authority

Sometimes referred to as ad hoc arbitration, the contracting parties each select one arbitrator and the two arbitrators selected will choose a third. This is done without any intervention of an appointing authority. The reason for this is that many countries allow their courts to designate the arbitrators. This procedure is not prohibited but is long and tedious. As a result, selecting a neutral administering institution is the best option available. In short, the arbitral institution becomes the appointing authority instead of being judicially appointed by the courts of the country where the issue is being heard.

2. Full Supervisory Authority

The jurisdiction of the administering authority varies. In the case of the American Arbitration Association Rules, it is the chosen arbitrators themselves who decide on how the proceedings will take place in accordance with the arbitration rules that will be adopted. This can include, but is not limited to, arranging for fees and expenses, arranging for the submission of subpoenas, choosing a location to hold hearings, recording of the proceedings and the like. On the other hand, the ICC Rules substantially contain most, if not all, the rules and process of the arbitral proceedings and leave little for the arbitrators to decide on their own. Similarly, the 1997 Rules of the European Court of Arbitration (the European Rules) give full supervisory authority to their courts.

3. Location

In arbitration, the most appropriate and convenient location will be considered. The European Rules dictate that the court will decide the location taking into consideration the different circumstances of the case. The Rules of the London Court of International Arbitration provide that the arbitral proceedings will take place in London unless otherwise agreed upon. The American Arbitration Association Rules direct the case administrator concerned to set the place of location should the parties be unable to decide.

4. Costs

The costs are based on the disputed amount including claims, counterclaims, arbitrators' fees and the like. There are no fees required in an ad hoc arbitration, while the other Rules provide a scale of fees to follow.

5. Speed

One of the major advantages of the arbitral process is that the process is faster than when a case is brought to court. Because of this, the new ICC Rules, World Intellectual Property Organization (WIPO) and the Arbitration Institute of the Stockholm Chamber of Commerce have adopted new provisions that will speed up the process even more. The American Arbitration Association Rules, on the other hand, did not provide for any deadlines, but the 1997 American Arbitration Association Construction Industry Dispute Resolution had provisions on fast tracking based on the amount of the claim.

6. Expertise

The most common rule in arbitration is choosing arbitrators who are experts in the industry involved or directly related to the issue at hand. When it comes to construction, the issues regarding expertise, fast tracking of arbitration and the like are directly or inherently connected to architects, engineers, consultants and attorneys, all of whom should have a vast knowledge of the construction industry.

The growth of arbitration has reached many boundaries in law and in practice. Administering institutions or jurisdictions are constantly making a conscious effort to make the process easier for all parties concerned.

CONCLUSION

International Construction Arbitration provides a venue that enables the contracting parties to come together under one legal framework and set of rules. Cultural and legal traditions are set aside, and the resolution process becomes free from national pressures. The result is a harmonization of beliefs that is both just and equitable.


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Robert Neron is a senior Canadian lawyer who was for 11-years a full-time quasi-judicial administrative judge in the largest administrative tribunal of Canada. He is now a private arbitrator and is the founder and CEO of Simner Corporation, an international arbitration firm located in Ottawa, Canada. Contact him here: robert.neron@simner.ca.- http://www.neronlaw.com/