Enhancing Business Opportunities in Africa: The Role, Reality and Future of Africa-Related Arbitration Atlanta, Georgia USA November 3-4, 2014 Dispute Prevention, Management and Resolution on Infrastructure and Construction Projects Steve Clay Randy Hafer Kwadwo Sarkodie Tony Smith John Hinchey Introduction • Introduction by A. Stephens Clay – Context: Africa Market Review – Introduction of Panelists and Their Presentations • • • • Randy Hafer Kwadwo Sarkodie Tony Smith John Hinchey – Presentations – Dialogue 2 Dispute Prevention, Management and Resolution on Infrastructure and Construction Projects Multi-Tiered Approach to Management and Resolution of Disputes Randy Hafer, Partner Kilpatrick Townsend & Stockton LLP November 4, 2014 © 2014 Kilpatrick Townsend Facts and Figures* • Disputes on major global construction projects increased in value, on average, to $32.1M in 2013 • Construction dispute values were the highest in Asia at $41.9M, and the Middle East at $40.9M • On average, disputes took less time to resolve in 2013 at 11.8 months, down from 12.8 months in 2012. * Global Construction Disputes 2014: Getting the Basics Right, Arcadis 2014; Global Construction Disputes: A Longer Resolution, EC Harris, 2013. 4 Principal Causes of Construction Disputes • Picking the Wrong Partner – Owners should thoroughly investigate capabilities of proposed contractor • • • • Experience and expertise Financial resources Claims history Require statement of qualifications and experience, key person resumes, financial statements • Consider pre-qualification – Contractors should also check out the owner • • • • • • Financing in place Governmental approvals Political stability Contracting approach Experienced staff or new to construction Track record re: payment, claims, etc. 5 Principal Causes of Construction Disputes • Ambiguous, Incomplete or Uncoordinated Contract Documents – Contract documents will control preparation of contractor’s estimate and plan for performing the work, the design and construction of the work, and the resolution of claims and disputes – At least 2/3 of all construction contract disputes result from conflicts, omissions, ambiguities and broad generalities in the contract documents – Contract documents should: • Clearly define the project and spell out work scope • Clearly and thoroughly describe the parties’ rights and obligations in an understandable manner – not everyone reading them will be a lawyer or an engineer • Coordinate all pieces of the contract documents 6 Principal Causes of Construction Disputes • Unrealistic Risk Allocation – “Equitable Risk Allocation” – Allocate to party most able to control it – Exculpatory/risk shifting provisions ( no-damage-for-delay, site conditions disclaimers, etc.): – Perceived protection/benefit is often illusory – Often lead to more, not fewer claims, and the dispute process is often more complex and expensive • Lack of Trust/Poor Contract Administration – Assemble the project team early, and meet often – Provide a clear contact for decisions and approvals – Address problems early 7 Give Peace A Chance – Resolve Claims and Disputes Early • Address disputes resolution in advance, in the contract documents – don’t wait until they arise • In the U.S. 80-85%, some would say 90%, of all commercial disputes settle • For international business disputes about 60% settle through direct negotiation or mediation according to a 2013 study • So . . . We recommend a Multi-tiered Approach – “Give peace a chance” - Contractually mandate multiple attempts to resolve a dispute within reasonable but achievable deadlines 8 Give Peace A Chance – Resolve Claims and Disputes Early Disputes Resolution Continuum Prevention On-site Early Intervention External External Non-binding Binding Multi-Tiered Approach • Contractually agreed prevention and collaborative processes – Equitable risk allocation – Partnering • Contractually agreed early, on-site intervention – Negotiation – multi-step, structured – Dispute Boards/Standing Neutral • Contractually agreed external non-binding resolution – Mediation/facilitated negotiation – Neutral expert evaluation • Contractually agreed external binding resolution – Arbitration – Binding DB – Litigation 10 Multi-Tiered Approach A survey undertaken by Queen Mary University Law School in London and first published in 2006 (and confirmed again by the International Arbitration Survey 2013: Corporate choices in International Arbitration) concluded that, for the resolution of cross-border disputes, “73% of respondents prefer to use international arbitration, either alone or in combination with Mediation or other amicable settlement techniques in a multi-tiered dispute resolution process, and that “the top reasons for choosing international arbitration are flexibility of procedure, the enforceability of awards, the privacy afforded by the process and the ability of parties to select the arbitrators”. 11 Randall F (Randy) Hafer Partner Kilpatrick Townsend & Stockton LLP Randy Hafer is head of Kilpatrick Townsend's Construction and Infrastructure Projects Team. The Team represents clients on all types of projects across the nation and internationally and is ranked highest among the nation’s leading construction practices. Mr. Hafer has been involved in matters across the United States and internationally on a wide variety of construction projects, including tunnels, wastewater treatment plants, airports, power plants, mass transit systems, mining facilities, bridges and highways, hospitals, office buildings, sports arenas, resort condominiums, universities and schools, manufacturing and processing facilities, and military facilities. He works directly with construction project participants to avoid disputes and effectively and efficiently resolve, on a “real-time” basis, those disputes that cannot be avoided. He is well-versed and experienced in negotiation, mediation, arbitration, dispute review boards, and other forms of construction alternative dispute resolution (ADR). Mr. Hafer has also helped create and has successfully implemented customized dispute resolution processes to fit the particular needs of a project when other more traditional ADR procedures are not working. Mr. Hafer is a fellow and co-chair of the Alternative Disputes Resolution Committee for the American College of Construction Lawyers, a member of the International Institute for Conflict Prevention and Resolution Construction Advisory Committee, a Dispute Resolution Board Foundation member, and a panel member on the American Arbitration Association’s Roster of Arbitrators and Mediators. 12 Dispute Prevention, Management and Resolution and Construction Projects Using Dispute Boards to Make a Project Successful Kwadwo Sarkodie Partner 020 3130 3335 4 November 2014 [email protected] Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe-Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated legal practices in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. Mayer Brown Consulting (Singapore) Pte. Ltd and its subsidiary, which are affiliated with Mayer Brown, provide customs and trade advisory and consultancy services, not legal services. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions. What is a dispute board? • Background. • Contractual process: not statutory (unlike English adjudication). • Short timescale to decision – issues resolved in “real time”. • May be binding or advisory. • Independent and impartial. • Interim: Step prior to reference to arbitration. Initial considerations • Dispute adjudication or dispute review: – DAB v. DRB – Binding or advisory decision? • Standing or ad hoc? • Enforcement: Can binding decisions be enforced? • Tribunal – When to establish – Composition – Appointment How do they work? • Dispute Review Board – Issues advisory decisions/opinions to assist the contract parties in resolving disputes – Responsibilities extend to dispute prevention – Reviews and monitors the progress of the project • Dispute Adjudication Board – Independent and impartial tribunal – Issues binding decisions to resolve disputes between the contract parties Standing or ad hoc? • Importance and benefits of project knowledge. • FIDIC: – Red Book, MDB and Gold Book provide for a standing DAB; – Yellow and Silver Books provide for an “ad hoc” DAB; – Rationale for difference. • Is a standing dispute board proportionate in view of the size of the project? Composition of tribunal • A combination of disciplines may be desirable. • A compromise in a 3-member tribunal may be to have a lawyer (as chairman) and two construction professionals. • Different considerations apply depending on whether appointment is to a standing or an ad hoc dispute board. FIDIC DAB provisions: who should sit as a DAB? • Contractual framework: Clause 20.2/Appendix (General Conditions of DAB Agreement)/Annex: Procedural Rules. • Identity – “Suitably qualified persons” (Clause 20.2) – “Experienced with the work” (Clause 3(a), DAB Agreement) – “Experienced in the interpretation of contract documentation” (Clause 3 (b), DAB Agreement) – “fluent in the language” (Clause 3(c), DAB Agreement) FIDIC DAB provisions: Procedure • DAB hearings usually take place but this is not a requirement – initial short procedural hearing can be useful. • DAB has no power to extend time for decision beyond 84 days. • DAB can appoint advisors on law and technical issues. • FIDIC Guide provides for exchange of two rounds of submissions. • Hearing procedure in FIDIC Guide: oral submissions and DAB questions to parties. FIDIC DAB provisions: Procedure (contd.) • Less complex disputes may only require one round of submissions and a short hearing. • No power to award costs and expenses to winning party. • Proportionality is key for appropriate and proper resolution of disputes, given that arbitration is the next step. • Care should be taken not to substantially extend the process without ensuring that decision is final and binding. FIDIC DAB provisions: Appointment • FIDIC forms envisage that the DAB will be constituted of either one or three members. • Default position is for DAB to comprise three members (Clause 20.2). • Number of DAB members will depend on: size of contract, complexity and project needs in terms of expertise. DAB decisions: Enforcement • FIDIC DAB decisions are binding and should be complied with by the parties during the project (Clause 20.4). • If no Notice of Dissatisfaction (NoD) is served within 28 days of the decision, it becomes final and binding. • NoD is a condition precedent to arbitration (FIDIC, Clause 20.6). • A failure to comply with a DAB decision can be referred for enforcement by arbitration. • FIDIC contracts do not provide a route for enforcement of a binding but not final decision. DAB decisions: Enforcement (contd.) • Singapore courts have declined to enforce an award arising from a binding DAB decision because it was not final and binding. • Obtaining provisional awards or interim measures may be the answer to deal with this lacuna. • Depending on size and complexity of dispute, it may be quicker to launch an arbitration than to enforce a binding DAB decision. Conclusions • Dispute boards offer a good means for avoiding, resolving and managing disputes in international projects. • Under either the DAB or DRB process, the effectiveness will depend on the goodwill of the parties throughout process. • Appointment/procedure needs to be tailored to take into account project needs. • A proportionate approach is required. Speaker details Kwadwo Sarkodie, Mayer Brown International LLP Partner, Construction & Engineering Group Kwadwo’s practice focuses on dispute resolution and risk management in complex construction and infrastructure projects in the UK and in emerging markets. Kwadwo has extensive experience acting for clients in DABs, international arbitrations (ICC, LCIA, UNCITRAL and ICSID) and court proceedings in various jurisdictions. Enhancing Business Opportunities in Africa: The Role, Reality, and Future of Africa–Related Arbitration November 2-4, 2014 George Anthony Smith 27 The Arbitration Clause A. B. C. D. Drafting Arbitration Clauses Functions of an Arbitration Clause and Use of Model Clauses Key Elements to Include and Sample MultiPurpose Clause Pathological Clauses 28 Four Essential Functions: • An arbitration clause must produce mandatory consequences for the parties. • It must empower the arbitrator to settle the disputes likely to arise between the parties. • It must allow for an efficient and rapid procedure leading to an award that is judicially enforceable. • It must exclude the intervention of state courts in the settlement of the conflict, at least before an award is issued. 29 The Arbitration Clause Four Basic Questions to be Answered: • What is to be arbitrated? • By whom is it to be arbitrated? • Where is it to be arbitrated? • How is it to be arbitrated? 30 The Arbitration Clause “Any dispute or claim arising out of or in connection with this contract, including any question regarding its existence, validity, or termination, shall be referred to and finally resolved by arbitration [under LCIA Rules] [OR] [administered by the International Centre for Dispute Resolution in accordance with its International Arbitration Rules] [OR] [ under the Rules of arbitration of the International Chamber of Commerce], which Rules are deemed to be incorporated by reference into this clause.” 31 The Arbitration Clause “The number of arbitrators shall be [one/three]” “The seat, or legal place, of arbitration shall be [City and/or Country]” (usually a center like London or New York). “The language to be used in the arbitral proceedings shall be [English].” “The governing law of the contract shall be the substantive law of [(usually) where the centre is – in this example England or New York].” 32 33 34 Pathological Arbitration Clauses Pathological Arbitration Clauses Can be Defined as Clauses Drafted in Such a Way That They May: Lead to disputes over the interpretation of the arbitration agreement; Result in the failure of the arbitral clause; or Result in the unenforceability of an award. 35 Examples of Pathological Arbitration Clauses Internally Inconsistent: “The arbitration shall be conducted in Dar es Salaam, Tanzania and, unless otherwise agreed by the Parties, the number of arbitrators shall be three, with such arbitrator to be nominated by agreement of the Parties within 30 days from the date when the claimant’s request for arbitration has been communicated to the other party, or failing such agreement, appointed in accordance with the ICC Rules” 36 Examples of Pathological Arbitration Clauses Equivocation as to Whether Binding Arbitration is Intended: “In the case of a dispute, the parties undertake to submit to arbitration, but in case of litigation, the Tribunal de la Siene shall have exclusive jurisdiction.” “In the event of any unresolved dispute, the matter will be referred to the International Chamber of Commerce.” 37 Examples of Pathological Arbitration Clauses Ambiguity as to the Parties’ Intent: “Arbitration, if any, to be held in Paris, France.” 38 Examples of Pathological Arbitration Clauses Mis-Identifying the Arbitral Institution by Name or by Country: “The parties shall proceed to litigation before the Arbitration Court of the International Chamber of Commerce with the seat in Zurich.” The “ICC Court of Arbitration in Madrid, Spain.” The “Official Chamber of Commerce in Paris, France.” 39 Examples of Pathological Arbitration Clauses Providing Too Much Specificity With Respect to the Arbitrator’s Qualifications: “The Arbitrator shall be an English-speaking Italian, with a French law degree and a familiarity with MidEast construction contracts.” “All disputes shall be finally settled by three arbitrators who are fluent in Spanish and Japanese, but are neither of Spanish nor Japanese citizenship.” 40 Examples of Pathological Arbitration Clauses Providing for Conflicting or Unclear Procedures: “Disputes hereunder shall be referred to arbitration, to be carried out by arbitrators named by the International Chamber of Commerce in Geneva in accordance with the arbitration procedure set forth in the Civil Code of Venezuela and in the Civil Code of France, with due regard for the law of the place of arbitration.” “All disputes hereunder shall be referred to arbitration before the ICC in Switzerland in accordance with the arbitration procedures set forth in the French Civil Code and the Civil Code of Argentina, insomuch as those procedures are not in conflict with the law of the place of arbitration.” 41 Examples of Pathological Arbitration Clauses Use of “May” vs. “Shall”: “Any dispute of whatever nature arising out of or in any way relating to the Agreement or to its construction or fulfillment may be referred to arbitration under the Rules of the ICDR.” 42 Examples of Pathological Arbitration Clauses Using Vague or Unclear Terminology: “Any disputes arising from the interpretation of the present contract will be settled by an arbitral tribunal sitting in a country other than that of each of the parties.” 43 Examples of Pathological Arbitration Clauses Combining Non-Institutional Arbitration with Institutional Arbitration: “In case such a dispute is not settled amicably by senior management within 30 days of escalation to senior management, such dispute shall be resolved and determined by an ICC arbitration board acting in accordance with the UNCITRAL Rules of Arbitration whose decision shall be final and binding upon the parties.” 44 Examples of Pathological Arbitration Clauses Where Two Institutions Have Been Combined: “ICC Arbitration to be administered by the AAA.” 45 Examples of Pathological Arbitration Clauses Too Narrowly Defining the Scope of the Arbitration Clause: “Disputes and controversies arising hereunder AND relating to the interpretation of the contract AND matters of performance.” Compare to “arising out of or in connection with this contract . . .” 46 Examples of Pathological Arbitration Clauses No Clear Divisions Between Dispute Resolution Methods: “In the event of disputes arising hereunder, the parties will initially attempt to resolve said disputes by mediation before a mediator to be mutually agreed by the parties. If both parties subsequently agree that the mediation has failed to resolve the dispute, then either party may refer the dispute to arbitration . . .” 47 Examples of Pathological Arbitration Clauses Naming a Person by Title to Appoint the Arbitrators: President of the International Court of Justice President of the Swiss Federal Tribunal 48 Examples of Pathological Arbitration Clauses “Other”: Naming as arbitrator a specific person – who is now deceased, incapacitated, or who refuses to act. Failing to name the seat of the arbitration. Adopting the rules of an institution without a clear understanding of those rules. Neglecting to specify applicable law. 49 Enhancing Business Opportunities in Africa: The Role, Reality, and Future of Africa-Related Arbitration November 2-4, 2014 For more information: George Anthony Smith Weinberg, Wheeler, Hudgins, Gunn & Dial, LLC Attorneys at Law 3344 Peachtree Road NE Suite 2400 ATLANTA, GEORGIA 30326 telephone (404) 876-2700 facsimile (404) 875-9433 50 Dispute Prevention, Management and Resolution on Infrastructure and Construction Projects Changes and Trends in International Disputes Resolution Procedures John Hinchey Chartered Arbitrator, CIArb JAMS International November 4, 2014 Changes and Trends in International Disputes Resolution Procedures • Concurrent Mediation and Arbitration • “Guided Choice” in Designing a Dispute Resolution Process • New International Arbitration Rules • IBA Guidelines on Party Representation in International Arbitration (2013) John W. Hinchey Chartered Arbitrator and Faculty Member, CIArb Email: [email protected] Cell Phone: 404-933-0821 Website: http://www.jamsadr.com/hinchey John Hinchey is recognized in the United States and internationally as a leader in construction law, with extensive experience in resolving significant construction disputes as an arbitrator and mediator. He has published extensively on arbitration and dispute resolution subjects, including the International Construction Arbitration Handbook (ThomsonWest, 2014 edition); Construction ADR, “International Arbitration” (ABA, 2013); Chapter 12, “Dispute Resolution in Managing Gigaprojects (American Society of Civil Engineers, 2012); A Guide for CrossBorder Transactions (ABA, 2009); and the Handbook on Arbitration Practice (AAA, 2010). He has lectured and spoken widely on arbitration subjects at King’s College, London; the University of Melbourne; the Society of Construction Law in Sydney, Australia; the New Delhi, India Branch of CIArb; and the Straus Institute of Dispute Resolution, Pepperdine University, Malibu, California; and in cities throughout the United States and Canada. Prior to his retirement in 2011 from King & Spalding, an international law firm, he led the firm’s construction disputes practice for 18 years. He serves on the Board and is a Fellow of the College of Commercial Arbitrators; is a Chartered Arbitrator, Fellow, Diplomate and faculty member of the Chartered Institute of Arbitrators. He serves on the Council of Distinguished Advisors to The Straus Institute, Pepperdine University School of Law; is an Advisory Board member of the Institute for Transnational Arbitration; an Advisory Board member of the Construction Contract Law Reports, published by Thomson West; and serves on the editorial board of the Institution of Civil Engineers (ICE) Journal of Management, Procurement and Law (2010-2011). A more complete CV for Mr. Hinchey may be accessed at www.jamsadr.com/hinchey.