Dispute Prevention, Management and Resolution of Infrastructure

Report
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.

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