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Arbitration, Dispute Resolution Role of Quantity Surveyor S A Reddi, FNAE Management Consultant CIDC DELHI Nov 2011.

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Presentation on theme: "Arbitration, Dispute Resolution Role of Quantity Surveyor S A Reddi, FNAE Management Consultant CIDC DELHI Nov 2011."— Presentation transcript:

1 Arbitration, Dispute Resolution Role of Quantity Surveyor S A Reddi, FNAE Management Consultant CIDC DELHI Nov 2011

2 But what I do, I understand.”
“What I hear, I forget; What I see, I remember; But what I do, I understand.” Confucius 451 BC

3 Why Arbitration? Arbitration awards are easier to enforce internationally and cannot so easily be dragged through appeal courts for years; Neither party is willing to have disputes decided by the other party's national courts Arbitration enables parties to have their disputes decided by a neutral tribunal, made up of legal and/or industry experts of the parties' own choosing

4 What Is Arbitration? A system of dispute resolution selected by the world's leading international companies By inserting an arbitration clause into their agreements with trading partners, they opt to have disputes decided by 'arbitral tribunals’ rather than litigating them in national courts Common in the insurance, construction and engineering, oil, gas & shipping industries

5 UNCITRAL International Commercial Arbitration Definition
(a) the parties to an arbitration agreement have, at the time of the conclusion of that agreement, their places of business in different countries; or (b) one of the following places is situated outside the country in which the parties have their places of business: (i) the place of arbitration if determined in, or pursuant to, the arbitration agreement;

6 UNCITRAL International Commercial Arbitration Definition
(ii) The place with which the subject-matter of the dispute is most closely connected; or (c) the parties have expressly agreed that the subject matter of the arbitration agreement relates to more than one country An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement

7 Definition of arbitration agreement (adopted in 2006)
“Arbitration agreement” is an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not

8 Composition Of Arbitral Tribunal Number of arbitrators
The parties are free to determine the number of arbitrators; Failing such determination, the number of arbitrators shall be three Generally, the appointment of a sole arbitrator will be appropriate where the value of a dispute is low or, in the case of a higher value dispute, where the issue in dispute is straightforward Three member tribunals are more appropriate for high value or complex cases

9 Sole Arbitrator The appointment of a sole may sometimes result in a more efficient procedure which is less costly to the parties the need to coordinate the schedules of a 3 member tribunal and the time required for the tribunal to reach consensus both on procedural issues and on the resolution of the dispute can result in more lengthy proceedings than is the case where a sole arbitrator is appointed

10 Three member Tribunal A three member tribunal can provide checks & balances against mistakes, misunderstanding of the evidence or misapplication of the law Many parties to construction contracts continue to prefer three member tribunals both because of the influence that this gives the parties in the constitution of the tribunal and in order to better assure sound and reasonable determinations.

11 Seat Of Arbitration Parties may and often do choose a seat of arbitration which is unconnected with the substantive law which governs the contract For example, Paris could be chosen as the seat of arbitration for a dispute regarding a contract governed by the law of India Select a seat of arbitration where local courts have a track record of not setting aside an award or interfering in the arbitral process

12 Neutral Seat Of Arbitration
Parties are also advised to select a neutral seat of arbitration i.e. a seat in a jurisdiction different from the nationality of either of the parties in order to prevent one party having an actual or perceived home advantage In particular, a private party entering into a contract with a country is advised to avoid agreeing to a seat of arbitration in the country’s own jurisdiction

13 Language The language in which the arbitration will be conducted should be specified in the contract arbitration clause Many Middle East Countries specify Arabic A Food Grain Silo Contract in Libya had German Prime Contractor and Indian Subcontractor; Project Management by a Bulgarian Consultant; Seven different languages were involved

14 Causes Of Claims Quality Delay in Construction Subsoil Conditions
Delay In Payments Rate of Progress Adverse Weather Materials Quality Tests Results Interpretation


16 Quantity Surveyor Maintains Contemporary Records
Crucial For Determination Of Claim Records for Present / Future dispute Quantity Surveyor obliged to keep records Establishes Procedure for this work Employer & Engineer Agree On Actions Maintain Weather Reports Maintain Site Diary Record Of Force Majeure Events

17 Counterclaims And New Claims Role Of Quantity Surveyor
The Arbitration Rules Provide Wide Latitude To Respondent Parties Regarding The Nature Of Counterclaims That May Be Introduced In The Arbitration Provided These Are Within The Scope Of The Contract Agreement Counterclaims May Not Be Admitted If They Fail To Satisfy Applicable Contractual Clauses QS Responsible For Alertness & Timely Action

18 Counterclaims And New Claims
Arbitration rules are restrictive regarding the introduction of new claims and counterclaims after the opening pleadings have been exchanged or, Terms of Reference established May be inefficient where a project gives rise to multiple claims over time potentially requiring parties to commence separate arbitration proceedings each time a new claim arises.

19 Counterclaims And New Claims
Arbitration proceedings may be postponed until after the project has been completed and all potential claims have crystallised Most construction contracts, including the FIDIC permit arbitration to be commenced during the course of a project Arbitration proceedings are frequently lengthy, contractors may be reluctant to postpone commencement of proceedings

20 Claims And Counterclaims Alternative Approach
Quantity Surveyor anticipates that a project is likely to give rise to claims in the future but which are not presently admissible in arbitration He can draft a request for arbitration that asks the tribunal to accept jurisdiction over claims which are presently admissible and any future claims that arise in relation to the same project

21 Role Of Quantity Surveyor Documents
Does not require the “wholesale, indiscriminate production of documents Instead,The Quantity Surveyor is Required, initially, to produce documents He Relies On Either Party May Then Submit A Document Production Request To The Arbitral Tribunal Such Request Pertain To Specific Documents And Describe “How The Documents Requested Are Relevant And Material To The Case”

22 Place of Arbitration Parties free to agree on the place of arbitration. Failing such agreement, the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties. The tribunal may meet at any appropriate place for consultation among members, for hearing witnesses, experts or the parties, or for inspection of goods, other property / documents

23 Expert Appointed By Arbitral Tribunal
Unless otherwise agreed by the parties, the arbitral tribunal (a) may appoint one or more experts to report to it on specific issues to be determined by the arbitral tribunal; (b) may require a party to give the expert any relevant information or to produce, or to provide access to, any relevant documents, goods or other property for his inspection Role Of Quantity Surveyor

24 Expert appointed by arbitral tribunal
If a party so requests or if the arbitral tribunal considers it necessary, the Quantity Surveyor shall, after delivery of his written or oral report, participate in a hearing Parties have the opportunity to put questions to him and to present expert witnesses in order to testify on the points at issue

25 Decision-making by panel of arbitrators
Any decision of the arbitral tribunal shall be made, by a majority of all its members However, questions of procedure may be decided by a presiding arbitrator, if so authorized by the parties or all members of the arbitral tribunal

26 Settlement If, during arbitral proceedings, the parties settle the dispute Based on QS Evidence, the arbitral tribunal shall terminate the proceedings and, if requested by the parties and not objected to by the arbitral tribunal, record the settlement in the form of an arbitral award on agreed terms The award shall state the reasons upon which it is based, unless the parties have agreed that no reasons are to be given or the award is an award on agreed terms under article 30

27 Termination of proceedings
(a) the claimant withdraws his claim, unless the respondent objects thereto and the arbitral tribunal recognizes a legitimate interest on his part in obtaining a final settlement of dispute; (b) the parties agree on the termination; (c) the arbitral tribunal finds that continuation of the proceedings has for any other reason become unnecessary or impossible

28 Interpretation Of The Award
If so agreed by the parties, a party, with notice to the other party, may request the arbitral tribunal to give an interpretation of a specific point or part of the award. If the arbitral tribunal considers the request to be justified, it shall make the correction or give the interpretation within thirty days of receipt of the request. The interpretation shall form part of the award

29 Corrections, Additional Awards
May correct any error on its own initiative within thirty days of the date of the award Unless otherwise agreed by the parties, a party, may request, within 30 days of receipt of the award, to make an additional award as to claims presented but omitted from the award If the arbitral tribunal considers the request justified, it shall make the additional award within sixty days

30 Setting Aside Arbitral Award By The Court
The party making the application furnishes proof that: (i) a party to the arbitration agreement was under some incapacity; or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the Country; or

31 Setting Aside Arbitral Award By The Court
The party was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or The court finds that: (i) the subject-matter of the dispute is not capable of settlement by arbitration under the law of the country; or (ii) the award is in conflict with the public policy of the country

32 UNCITRAL Model Law A sound basis for improvement of national laws
Covers all stages of the arbitral process from the arbitration agreement to the recognition & enforcement of the arbitral award Represents accepted international legislative standard for a modern arbitration law; many countries have enacted arbitration legislation based on the Model Law Basis of Indian Arbitration Act 1996

33 Background to the Model Law
The Model Law was developed to address considerable disparities in national laws on arbitration The need for improvement and harmonization was based on findings that national laws were often particularly inappropriate for international cases.

34 Inadequacy of domestic laws
Domestic Laws were drafted with domestic arbitration primarily, in mind This approach is understandable; even today the bulk of cases governed by arbitration law would be of a purely domestic nature The unfortunate consequence is that traditional local concepts are imposed on international cases and the needs of modern practice are often not met

35 Salient features of the Model Law
The Model Law was designed with International commercial arbitration in mind; it offers a set of basic rules that are not unsuitable to any other type of arbitration Countries may thus consider extending their enactment of the Model Law to cover also domestic disputes, as a number of enacting countries already have

36 Agreement Format The agreement to arbitrate may be in any form (e.g. including orally) as long as the content of the agreement is recorded; no longer requires signatures of parties / exchange of messages Permits use of electronic commerce by adopting wording from the 1996 UNCITRAL Model Law on Electronic Commerce & the 2005 UN Convention on the Use of Electronic Communications in International Contracts

37 Default of A Party Arbitral proceedings may be continued in the absence of a party, if due notice has been given This applies to the failure of the respondent to communicate its statement of defence Tribunal continues proceedings where a party fails to appear at a hearing or to produce documentary evidence without showing sufficient cause for the failure If the claimant fails to submit its statement of claim, the tribunal terminates the proceedings

38 Default of A Party Provisions that empower the arbitral tribunal to carry out its task even if one of the parties does not participate are of practical importance Not uncommon for one of the parties to have little interest in cooperating / expediting matters Such provisions therefore provide international commercial arbitration its effectiveness, within the limits of fundamental requirements of procedural justice

39 Making Of Award And Other Decisions
The award completed through deliberations held at various places, by phone / correspondence; need not be signed by the arbitrators physically gathering at the same place. The award must be in writing and dated; state the reasons on which it is based, unless the parties have agreed otherwise or the award is “on agreed terms” (i.e., an award that records the terms of an amicable settlement)

40 International Chamber Of Commerce (ICC)
Non-governmental organization of Cos, business associations in over 130 countries ICC National Committees present ICC views to their govt and alert Paris HQ to national business concerns Harmonizes trade practices, formulates guidelines for importers and exporters ICC services include ICC International Court Of Arbitration (Paris)

41 ICC International Court of Arbitration
World’s leading institution for resolving international commercial and business disputes The proliferation of international commercial disputes is a by-product of the global economy Today’s business and operating conditions underscore arbitration’s advantages over litigation, especially in cross-border disputes Often the parties are from markedly different national, cultural and legal backgrounds. 

42 ICC International Court of Arbitration
They want to avoid litigation because they fear bias by national courts, are unfamiliar with national court procedures and want to be spared damaging publicity ICC arbitration is an attractive alternative because it is international and confidential. Usually, it is less time-consuming and less expensive than litigation 

43 International Chamber of Commerce International Court of Arbitration
38, Cours Albert 1er 75008 Paris France Tel Fax

44 Dabhol Power Project, Maharashtra
GE and Bechtel recover their investments in the Dabhol Power Project in India Largest foreign investment in India $7 b GE, Bechtel were both 10% shareholders in a local project company created to own the project – Dabhol Power Company (“DPC”) Aside from plant & machinery, DPC’s main asset was a long-term PPA with the State Electricity Board

45 Dabhol Power Project, Maharashtra
After the Project was largely complete, the State Electricity Board terminated the PPA Political unpopularity of the Project DPC could not sell power elsewhere, as by law only the State Electricity Board could purchase and distribute the plant’s power DPC commenced arbitration in London At the state’s request, each of the arbitrations was enjoined by Indian courts The effect was to deny DPC’s contractual remedies

46 Overseas Private Investment Corporation OPIC
Political risk insurance policy (PRI) issued by Overseas Private Investment Corporation Claim for expropriation of the Project under the policy denied by OPIC GE and Bechtel commenced arbitration against OPIC and won, recovering the full policy limits. The award also provided political impetus to the U.S. government to apply pressure on India

47 Broad Investment Treaty (BIT)
Mauritius-based GE and Bechtel subsidiaries launched a claim against the Indian government under the BIT The claim was for compensation, including lost profits, for several breaches of the BIT The anti-arbitration injunctions played a key role in the expropriation claim Settlement was reached before the final hearing on very favourable terms

48 Local Labour Laws And Risks – Local Work Force In Libya
A Contract for power station construction No trained local work force available The contract mandated employment of some percentage of local work force The local labour department insisted on fulfilling the contract conditions Local youngsters with no construction background forced on the rolls of the contractor!

49 Repatriation of Profits
It might be difficult for contractors to repatriate their profits back to their home nation because of host country laws limiting the international transfer of funds. One alternative is to export goods out of the nation instead of money, but this is risky if their is no market for these good or prices decline for the products so exported

50 Repatriation of Profits – case study
BHEL secured a turnkey contract for setting up a thermal power station in Libya A separate subcontract with an Indian company for civil works , payments mostly in Libyan currency which was non-convertible The subcontractor specified advance payment in dollars ( to convert profits ) Indian labour, paid in local currency, unable to repatriate savings; ended up buying gold!

51 Cardinal Changes to Contract

52 Cardinal Changes to Contract Earthwork Excavation, Power Station
Power station construction in Libya; Turnkey contractor , civil subcontractor from India Fixed price turnkey contract; item rate subcontract Earthwork excavation quantity increased by 500% Dispute over rates for increased quantity Revised (reduced) rates settled by negotiation

53 Bridge Project in Nepal – WB Contract Local (Indian) vs Imported Steel
The deck of the bridge in structural steel The grade of steel was specified but not the country of origin The Indian contractor quoted based on Indian equivalent grade During execution the British consultant insisted on importing steel from Britain; denied the Indian steel though it conformed to standards

54 Bridge Project in Nepal – WB Contract Local (Indian) vs Imported Steel
A dispute arose; the contractor followed the consultant’s directions, but claimed extra due to higher cost of British steel, transhipment at Kolkata, and surface transport through India over a thousand km Dispute referred to arbitration which lasted several years compared to the contract period of ten months!

55 Construction & Erection Risks of Bridges
Bridge in Nepal – Structural Steel imported from the UK due to lopsided specifications

56 Food Grain Silo Project In Libya Main contractor And Subcontractor
East German Govt Co secured $80 m contract by negotiation Major portion ($70m) consisted of civil works, subcontracted to an Indian Co by negotiation The Libyan Employer refused permit to subcontractor How was the Problem resolved?

57 Pamban Bridge, Rameshwaram
Scheduled contract period : Actual completion : 1988 Cost overrun from Rs. 5 Cr. to Rs. 20 Cr. Originally underestimated, escalation not allowed Cyclone-prone site, initial award to inappropriate contractor, contract terminated Departmental work attempted New experienced contractor to 1988

58 Pamban Bridge, Tamil Nadu Delay in Award of Contract for Balance Works
Contract could not be awarded within the validity period of the tender; repeated extensions sought from the lowest bidder The lowest bidder was reluctant to repeatedly extend the validity, as in the mean while he had further opportunities elsewhere He offered a conditional extension; if the job is not awarded within the extended period, the contract price will be increased by 10% for each month of delay in award of work

59 Pamban Road Bridge Dispute Settlement – 2nd Contract
The second contract ( ) involved few months time overrun; extension granted with proviso of no payment for escalation Dispute referred to sole arbitrator– 1992, settled in The employer challenged the award The court ruled in favour of the contractor Employer appealed; court directed interim payment of Rs 25 lacs + another Rs 25 lacs against BGB.

60 Pamban Road Bridge Disputes in Retrospect
In 1974 the contract value was about Rs.6 cr Contract terminated at risk & cost of contractor Contractor sought arbitration citing unfair termination and almost succeeded in getting an award of nearly Rs.6 cr In 1984 the second contract awarded; including escalation the C.V. ended up as 20 cr !!! 2nd contract arbitration award (Rs 75 lacs + Interest about Rs 125 Lacs) paid in 2009

61 Any comments, queries, suggestions are welcome
Thank You

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