Jordan ... arbitration costs will remain high.
Arbitration, what users think
STUART JORDAN* presents the highlights of the three sections of a recently-published International Arbitration Survey and its connections to the ICC arbitration rules.
01 March 2020
The International Arbitration Survey, an important piece of work on international construction arbitration put together by Queen Mary University of London and the law firm Pinsent Masons, has recently been published.
This is a study of our industry’s experience of arbitration and our collective views about how it should develop to better meet our needs. The survey was based on 646 questionnaire returns and 66 personal interviews.
The study has interesting connections to the ICC’s 2019 Update to its Final Report on Construction Industry Arbitrations, which I covered in Gulf Construction’s April 2019 issue. The ICC update contained advice for arbitrators on how to make best use of the ICC Rules to achieve high-quality and cost-efficient awards.
The main theme of this new survey is also about cost (and time) efficiency, whilst maintaining the quality of outcomes. So, in looking at construction arbitration services, the question is: do the consumers see things the same way as the providers?
The first two sections of the survey – namely: “Key features of international construction arbitration” and “Alternative dispute resolution mechanisms in international construction disputes” – elicit the industry’s views on the current situation. The highlights are:
• Arbitration remains, by far, the most popular process for resolution of international construction disputes.
• International construction arbitrations are marked out from other disputes by their factual and technical complexity, large volumes of evidence, multiple claims, multi-party disputes, and large sums at stake.
• Most respondents would value construction arbitration experience above all other attributes in selecting arbitrators.
• The most common causes of disputes are delay, poor management, poor contract drafting, termination or suspension, underpricing and inadequate tender information. These are predictable responses, although I question whether they are all root causes. Some of them (for instance, termination) might arise legitimately in response to something else on the list. Termination would be a feature of the dispute but not a cause of it.
• On the minimum value of dispute which would be commercially viable for resolution through international arbitration, the top answer was between $1 million and $10 million. Interestingly, in-house counsel, no doubt bruised by the experience of paying the costs of arbitration, considered the minimum value to be between $11 million and $20 million.
• Users still consider arbitration to be inefficient and inflexible; and therefore unduly costly.
The third section, “Efficient International Construction Arbitration: the Future”, asks what the industry thinks should change in order to promote efficiency. The questions are centred on both the arbitration process and the arbitrators. Some highlights:
• In terms of procedural improvements, respondents cited the summary disposal of weak claims or weak defences, appropriate constitution of the tribunal (arbitrator selection) and the streamlining of hearings and submissions.
• The most popular ways to achieve that streamlining are: early issue identification, use of agreed statements of fact and agreed chronologies, and time-limited opening and closing submissions. There was also some support for limiting both the volume and the number of rounds of written submissions.
• In terms of arbitrator actions or attributes to promote efficiency, the top answers were: timely issue of awards, being willing to make difficult decisions (including on the procedure), case management skills and construction technical knowledge.
• Related to this, respondents cited “due process paranoia” among arbitrators as the biggest impediment to making robust procedural decisions.
For me, there are two interesting conclusions:
First, the industry seems to agree with the ICC’s desire for improved efficiency and some of the ways to achieve it. The ICC report also recommended that arbitrators take a proactive and organised approach to the issues in dispute (using checklists) including: early consideration of the need for expert evidence, requiring transparency on the parties’ proposed methods for critical path analysis and making interim orders on partial awards or on preliminary issues, preservation of assets and compliance with (or relief from) pre-arbitral decisions.
In my view, however, the survey exposes the same challenge as the ICC report: users want both “technical” arbitrators and more proactive arbitrators to be prepared to make full use of the rules with bold procedural decisions. As I concluded in relation to the ICC report, this really means acting more like a specialist construction court judge; and it might not be realistic to expect a technical arbitrator to have the same level of procedural confidence as a specialist judge in making those decisions, whilst being sure of maintaining due process.
Second, I question whether users’ willingness to limit submissions and argument is real or theoretical. Many of us know from experience that, when you really need to get that crucial-but-complex point across, “more is more”.
Inevitably, both “due process paranoia” among arbitrators and the parties’ wish to leave no stone unturned, will help to keep arbitration costs high.
* Stuart Jordan is a partner in the Global Projects group of Baker Botts, a leading international law firm. Jordan’s practice focuses on the oil, gas, power, transport, petrochemical, nuclear and construction industries. He has extensive experience in the Middle East, Russia and the UK.
