Project Disputes Causes and Resolution

Project Disputes Causes and Resolution
Project Management Conference Yellowknife, NT November 26, 2019 Helmut Johannsen, P.Eng., C.Arb., FCIArb. Counsel, Singleton Urquhart Reynolds Vogel LLP ©Helmut Johannsen

Introduction Disputes most commonly arise out of claims for “Changes” causing additional costs, disruption and delay Such disputes can often be avoided, mitigated and managed If not avoided, mitigated or managed they must be resolved by negotiation, ADR or litigation

Causes/Claims for a “Change”
Drawings contain errors or omissions This is one of the most common causes, often because: Incomplete design “Design intent” Lack of design coordination (e.g. 6” pipe in 4” walls)

Causes/Claims for a “Change”
Drawings contain errors or omissions (cont’d) BUT not all errors are design errors

Causes/Claims for a “Change” (cont’d)
Specifications contain errors or omissions Deficiency in Specifications Conflict with drawings Consultant often “interprets” in its own favour against contractor Owner initiates a change in design/equipment Scope of work poorly drafted Owner-supplied materials not fully addressed Location and dates materials available Responsibility for inspection, equipment for off-loading, etc. Measurement & payment provisions deficient for a unit price contract

Example of Unit Price Table from stipulated price Contract where Change Order to be issued to adjust Contract Price for actual rock bolts used. Any issues? Item Description Unit Estimated Quantity* Unit Price ($) Add Delete Permanent Rock Bolts Length from 2 to 4 m linear meters 15,000 $200.00 $100.00 Length from 4 to 6 m 1,500 $900.00 $0.0 Length from 6 to 8 m 1 $

Potential Issues: What if rock bolts supplied are exactly 4.0 m? What is basis of measurement? Length of rock bolt used? Or embedment length to plate? Tensioned or untensioned? Note the unbalanced prices, particularly for 6-8m rock bolts Bid documents often indicate quantity of “1” solely to get a unit price for something Price can be highly inflated since will usually not impact bid assessment Problems and disputes often result from unbalanced prices Windfall to Contractor and budget over-run to Owner Owner attempts to use Change Order to delete only the Unit Price for that item and have Contractor do it on cost plus - but CO requires both parties to agree!

Differing/Unforeseen conditions Rock encountered instead of softer material Note: “rock” is not always “rock” Example: Contractor encountered shale during installation of a water main and claimed for an extra or change. The owner refused to pay and contractor abandoned the work. The Court of Appeal upheld trial court finding that on proper interpretation of the contract in question, “shale” was not “rock” and so there was no change or extra and the contractor was not entitled to abandon the contract. Court awarded owner increased costs of hiring a new contractor. Etobicoke (City) v Masino Construction Ltd. (1992), 5 CLR (2d) 9 (Ont CA) Best practice: confirm whether and how “rock” is defined in a contract before execution

Differing/Unforeseen conditions (cont’d) Rock blasts different than anticipated (overbreak) Example: during execution of contract between Ministry of Transportation and Contractor for road construction in Northern Ontario, rock overbreak encountered. Ministry had a policy not to pay additional money for overbreak and refused to pay additional money. Held: action dismissed on facts, since contract provided no payment would be made and both parties understood at the time the contract was entered into that there would be no such payment. Bot Construction Ltd v Ontario (Ministry of Transportation and Communication) (1994), 13 CLR (2d) 270 (Ont Div Ct) Best practice: In unit price contracts, avoid disputes by always specifying basis of both measurement and payment . E.g. unit price for excavation is m3 in place but only to “neat lines”,. etc…

Differing/Unforeseen conditions (cont’d) Undisclosed perched water table encountered Soil behaviour is different than anticipated

Differing/Unforeseen conditions (cont’d) Buried debris encountered Where contract allows for change in “soil” conditions and contractor encountered “buried debris” in the form of logs, stumps and logging debris which had not yet disintegrated, the buried debris was not “soil”, therefore no change in “soil conditions”, only an unexpected amount of material requiring removal: Miller Contracting Ltd v Canada (1993), 12 CLR (2d) 136 (FCA) Contaminated materials encountered Unexpected utilities encountered No claim under unit price contract where more service lines encountered than anticipated based on plans provided by city (which assumed no responsibility for errors in the plans), as contractor should have reasonably foreseen existence of service lines running from the homes: Act Contracting Ltd v Kelowna(City) (1992), 5 CLR (2d) 310 (BCSC)

Substitutions Required when specified product not available Requested by contractor when it cannot get specified product or there is a shortage or significant delay to get them Example: When a contractor had difficulty obtaining a ruling by electrical authorities on certain non-explosion-proof light fixtures and the owner refused to provide instructions, contractor used a more expensive explosion-proof fixture to avoid delay and claimed for extra costs. Held: Because authorities were found to be acting unreasonably and owner refused to provide, contractor’s claim allowed and owner’s counterclaim for costs of delay dismissed. Vanir Construction Services Ltd. (Receiver of) v Field Aviation Co. (1988), 30 CLR 38 (Alta CA)

Owner failure to coordinate or organize work of other contractors with work of Contractor Example: Contractor encountered increased costs under plumbing and heating contract because progress interrupted due to lack of planning and coordination by Owner with other work, and a resulting instruction by Owner to Contractor to accelerate. Held: Contractor awarded increased costs resulting from Owner’s instruction to accelerate, which constituted a demand for extra work, and resulting from owner’s poor coordination and organization. R v Award Industries (Mechanical) Ltd (unreported 1983 FCTD)

Owner failure to ensure that other work/facilities completed in a timely manner when Contractor’s work is dependent on their completion Examples: Contract stipulated right-of-way will be cleared prior to transmission line construction by Contractor. Held: Contractor entitled to additional compensation for extras where right-of-way not cleared. BC Checo International Ltd. v British Columbia Hydro and Power Authority (1993), 5 CLR (2d) 173 (SCC) Contract stipulated excavation permit to be obtained by Owner for construction of concrete parking facility. Held: Contractor entitled to damages for breach of contract and additional costs when permit not obtained in a timely fashion as the delay was attributable solely to the owner. Ellis-Don Ltd. v Toronto Parking Authority (1978), 7 CLR 82 (Ont HCJ)

Force majeure Defined? How broadly (e.g. any cause beyond Contractor's control?) Change in law Defined? Broadly or narrowly? Other (e.g. “unseasonable weather”)

Change Orders What is a change order? Who initiates it? When? How?
Formalities? What happens when process not followed?

Change Orders (cont’d)
Contracts must have workable processes for changes Change Order process must reflect contract administration that will take place Will parties use Change Order process strictly for all Changes? Will parties use Change Orders but also “Extra Work Orders”, “Field Work Orders”, “Field Instructions”, etc.? Are Extra Work Orders and Field Work Orders, etc. expressly dealt with in the contract and, if so, how are they distinguishable from Change Orders? Best practices: Contracts must have workable Change Order process that reflects how Contract will actually be administered Redefine “Extra Work Orders”, etc. if necessary so E.W.O.’s, F.W.O.’s, etc. work with the Change Order process in Contract

Formalities Often Prescribed by Contract Writing Require a Change Order Form or will any communication in writing suffice? Signed by one party or both parties? What if a party has given its consultant or field personnel limited authority to sign? Is Change Order issued in excess of authority level valid? Impact of limitations on authority of persons purporting to sign Be aware of onditions precedent to entitlement Compliance with notice requirements? Requirement for daily time sheets? Signed by Owner’s representative daily? Is Owner’s representative’s signature on time sheets deemed authorization by Owner so Owner obligated to pay?

Requirement for formal Change Order may also depend on pricing mechanism in contract: Lump sum contract Change Order normally required Unit price contract Change Order may or may not be required Time and material contracts Change Order may or may not be required, depending on how scope of work is defined

Change Order processes at times can be quite complex Result: parties (both owners and contractors) often fail to appreciate the time and documentation required to review, process and approve Change Orders. Consider preparing flow chart of the Change Order process. Flowcharts particularly useful under design-build contracts and P3 contracts where Change Order process may be more complex and time consuming than under a CCDC 2 lump sum contract. Cost of preparing estimates and providing responses to Owner requests for additional information can also be extensive and may not be fully compensated if the Contract stipulates a fixed percentage for overheads and indirect costs associated with the Change Order. Allow not only for Change Request Identification and Change Order approval, but also Change Request Assessment, Change Request Analysis and review and possible changes to final wording of Change Order

Consequences of Failure to Comply with Formalities Usually loss of entitlement by Contractor Contractor is not entitled to payment for extra work if contract requires that a change order be agreed to by the owner, where consultant approves the extra work but it is not approved by the owner. Byrne Architects Inc v AJ Hustins Enterprises Ltd. (2003), 23 CLR (3d) 217 (NSCA) BUT: entitlement to a claim may still exist if: Change Order process waived by conduct of parties Implied agreement that Owner will nevertheless pay Result is largely dependent on facts of a particular case, and extent to which parties failed to comply with Contract provisions governing Change Orders

Consequences of failure to comply with Notice requirements Failure to comply with express requirements for Contractor to give notice of claim for a change or extra work within specified time period is condition precedent to entitlement for additional compensation Examples: Contractor is not entitled to a claim for additional costs where Contractor failed to give written notice of claim within time required by Contract Corpex (1977) Inc. v. Canada, [1982] 2 SCR 643 (SCC) Contractor is not entitled to a claim where Contract requires claim to be submitted “as soon as reasonably possible and in any event no later than 30 Days after completion of the work affected by the situation”. No need to add “failing which the Contractor has no claim”. Also, Owner is deemed to be prejudiced and need not prove prejudice. Technicore Underground Inc. v Toronto (City), 2012 ONCA 597 (Ont CA) As will be seen, however, Owner can be found to have waived the notice requirements and be precluded from relying on them to defeat Contractor’s claim

Waiver of Change Order Process
Colautti Construction v. City of Ottawa (1984), 46 OR (2d) 236 (Ont CA) City tried to rely on the strict terms of the contract, which required all additional cost to be duly authorized in writing prior to the work being done An error by the city resulted in contractor incurring additional costs in excavation of a proposed sewer line City refused to pay additional costs since no Change Order was issued Court held parties waived strict terms of contract by their conduct

Waiver of Change Order Process (cont’d)
Colautti Construction (cont’d) “There is no doubt that this contract, drawn as it was to protect taxpayers, attempted to limit the liability of the City to such an extent that one would expect that not even the ordered rotation of the seasons could be reasonably anticipated by the Contractor. The problem with contracts such as these is that they are so rigid and so restricting that the parties tend to amend them by their actions during the course of the contract. That was the situation in this case. There were several significant changes and additions as to the work ordered by the City during the contract. None of these were in writing. All but the items in dispute in this case were paid for by the City. In these circumstances the parties, by their conduct, have varied the terms of the contract which require costs to be authorized in writing. As a result, the City cannot rely on its strict provisions to escape liability to pay for additional costs authorized by it and incurred as a result of its errors.” - Colautti Construction, supra at para 29 & 30 (with emphasis added)

Subcontractors and Change Orders
Prime Contract provisions often incorporated into subcontract, in which case failure of subcontractor to obtain change order can defeat subcontractor’s claim for extras/changes Example: Where a subcontractor fails to obtain written change order, as required under the prime contract, subcontractor was barred from recovering for extras as requirement for a change order was a condition precedent to payment. Dunhill Construction Ltd v Ledcor Industries Ltd. (1993), 9 CLR (2d) 134 (BCSC) Peter Kiewit Sons Co. v. Eakins Construction Ltd., [1960] SCR 361 (SCC) Contractor can be “caught” between Owner and subcontractor Don’t leave it to interpretation as to whether prime contract conditions incorporated into subcontract: clarify at outset

Contemplated Change Order/Notice
Contemplated Change Order/Notice (CCO) and/or CCN are often used during contract administration, but are not themselves always defined in detail in the contract. E.g. GC of CCDC 2 – 2008 states: “When a change in the Work is proposed or required, the Consultant will provide the Contractor with a written description of the proposed change in the Work. The Contractor shall promptly present, in a form acceptable to the Consultant, a method of adjustment or an amount of adjustment for the Contract Price, if any, and the adjustment in the Contract Time, if any, for the proposed change in the Work.”

Contemplated Change Order/Notice (cont’d)
GC of CCDC 2 – 2008 then states (emphasis added): “When the Owner and Contractor agree to the adjustments in the Contract Price and Contract Time or the method to be used to determine the adjustments, such agreement shall be effective immediately and shall be recorded in a Change Order. The value of the work performed as the result of a Change Order shall be included in the application for progress payment.” But GC states: “The Contractor shall not perform a change in the Work without a Change Order or a Change Directive” Practical implications? Often results in contractor starting the work before the Change Order is signed by both parties Gives rise to issue of waiver by conduct over other items

Requests for Information (RFI) and Site Instructions (SI)
Does RFI constitute notice of change by contractor? Does SI constitute clarification or direction for a change?

Change Directives (CD)
CCDC contract provisions generally similar to CCDC 2 – 2008 Stipulated Price Contract (emphasis added): “Change Directive A Change Directive is a written instruction prepared by the Consultant and signed by the Owner directing the Contractor to proceed with a change in the Work within the general scope of the Contract Documents prior to the Owner and the Contractor agreeing upon adjustments in the Contract Price and the Contract Time.” “GC 6.3 CHANGE DIRECTIVE 6.3.1 If the Owner requires the Contractor to proceed with a change in the Work prior to the Owner and the Contractor agreeing upon the corresponding adjustment in Contract Price and Contract Time, the Owner, through the Consultant, shall issue a Change Directive. 6.3.2 A Change Directive shall only be used to direct a change in the Work which is within the general scope of the Contract Documents. 6.3.3 A Change Directive shall not be used to direct a change in the Contract Time only. 6.3.4 Upon receipt of a Change Directive, the Contractor shall proceed promptly with the change in the Work.”

Extra Work Orders and Field Work Orders
Parties often use Extra Work Orders and Field Work Orders even though Contract often does not refer to them and only has a Change Order process for “Changes” and “Change Orders” Sometimes Contract has both Change Order process and process for “Extra Work” Example Contractor presented two claims for “extra work” under a contract that had a Change Order process but also included provisions for “extra work” to be done by written order from the Owner’s engineer. Held: first claim dismissed because appropriate procedure had not been followed, but second claim allowed because Owner barred from denying the work was extra work since it had signed a “work order” Zanatta & Levac Bulldozing Ltd v British Columbia Hydro & Power Authority, [1978] WWR 322 (BCSC) Best practices: conform contract language to address contract administration before award of contract

“Work Under Protest” What if a party denies there is a change and insists the party below it performs in accordance with the first party’s interpretation? Answer: by completing the work, contractor waives its right to claim for the work as an extra. “Work Under Protest” at your peril Peter Kiewit Sons' Co. v. Eakins Construction Ltd., [1960] SCR 361 (SCC) Boulder Construction Builders Ltd. v Calgary (City) (1985), 16 CLR 14 (Alta QB) Peter Kiewit Sons’ Co. v. Eakins Construction Ltd. applies throughout Canada Except BC, where it is reversed by legislation (s. 62 of Law and Equity Act, RSBC 1996, Ch. 253)

“Work Under Protest” (cont’d)
In provinces other than B.C., consider including or negotiating a similar provision into the Contract. For example: “If Contractor is of the opinion that any instruction or direction by Owner constitutes a change under the Contract, or if Contractor encounters anything, including differing site or other conditions, for which Contractor claims it is entitled to receive either or both an adjustment to the Contract Price and an adjustment to the Contract Time, and if the parties fail to agree on a Change Order or Owner fails to issue a Change Directive before Contractor needs to proceed to avoid delaying the Work, then to mitigate delay Contractor at its option may deliver Notice in Writing to Owner that Contractor is proceeding “under protest” and expressly reserving its right to claim with regard to the particular instruction or direction in dispute, or with the additional services or work for which Contractor claims entitlement to a Change Order or Change Directive. Performance “under protest” after giving Notice in Writing in accordance with the foregoing shall not disentitle Contractor from any rights and if it is subsequently determined that additional compensation or an adjustment to the Contract Time is due or should have been given to Contractor, the compensation and adjustment to the Contract Time shall be valued in the same manner and amount as if a Change Directive had been issued by Owner at the time Contractor gave Notice in Writing that it was performing under protest.”

Valuation of Changes Types of valuation clauses
Generally, contract provisions regarding Change Orders provide that valuation shall be one of the following: (A) Lump sum (B) Unit price(s) (C) Time and materials Valuation should take into account delay costs, impact on productivity and other impact claims Contractor often not fully able to determine those costs Owners and Consultants often don’t fully recognize and/or appreciate those costs and/or the amount of those costs Contractor must include all impacts and schedule extensions when valuing a Change Order

Valuation of Changes (cont’d)
What if the parties can’t agree on valuation? Check the Contract! For example, CCDC 2 language – if no agreement, only choice is cost plus Theories of Valuation/Recoverability Total Cost Often used by Contractors, not usually accepted by Owner or courts Modified Total Cost Measured Mile Adjusted “as planned” Schedule Etc.

Cumulative Impacts Cost impacts Schedule impacts Valuation of changes for which no Change Order or Change Directive given? If there is entitlement, valuation is generally the same as methods above under Theories of Valuation/Recoverability Disruption Claims where no Delay A Change can result in disruption costs, even if no delay Owners and Consultants (and contracts) often fail to recognize disruption claims Reservation of rights?

Design Changes: Can be initiated: By Contractor through Design Change Request By Owner through Contemplated Change Order/Notice Contract requires additional submittal requirements/process, particularly time for review, response and re-submittal Valuation issues: schedule and cost impact How to determine whether cost is “competitive” or fair? Often significant consequences if delay in approval/rejection Changes can impact Performance Guarantees Impact must be addressed/requested in DCR/CCO Impact must be expressly dealt with in Change Order Consider whether to defer change until after contract completed and have done by Owner or others

EPCM Contract Change Order Challenges
Two levels: Change of EPCM scope Change affecting only Trade Contractors Design Change Request vs. CCO for change in equipment or materials Change Order Issues Valuation – schedule and cost impact How to determine whether cost is “competitive” or fair? May be easier if it is flow through change to subcontractor Potential impact on Performance Guarantees Must be requested Must be dealt with in Change Order Defer until after completion?

Design-Build Contract Change Order Challenges
Similar issues to EPCM, with additional challenges: Change of Design-Build scope Change affecting only Subcontractors/Major Suppliers Design Change Request vs. CCO for change in equipment or materials Change Order Issues Valuation – schedule and cost impact How to determine whether cost is “competitive” or fair? Potential impact on Performance Guarantees Must be requested Must be dealt with in Change Order Defer until after completion?

Contractor’s Use of Contract to Preserve Claims for Changes and Extras
Contract provisions normally relied on by Owner to dispute and defeat Contractor’s claims BUT Contract can also be used to Contractor’s advantage: Standard form Request for Change Order or Change Directive Standard form Quotation for Contemplated Change Order/Change Order Standard form Request for Information Standard form Notice of Delay Standard form Notice of Dispute Examples of some of above forms follow – but these are simple examples only and actual forms must be custom drafted to reflect actual contract in question!

Best Practices for Minimizing Disputes
Procurement Phase Planning, planning, planning Risk register Select contract model and pricing model that best manage risk and unforeseen conditions/changes Beware of changing contract model or pricing model simply to meet deadlines Common mistake is converting design-bid-build to design- build at last minute to meet deadline Successful Design-Build procurement takes considerable front end effort

Best Practices for Minimizing Disputes (cont’d)
Procurement Phase (cont’d) Q & A during procurement: only 3 answers: “Refer to section xxx of xxx”; or “Delete section xxx and replace with following”; or “See new Addendum No. X

Contract Award and Execution Avoid incorporation of extraneous documents into contract, particularly: Pre-bid addenda, minutes of bidder meetings, Q&As, and pre-award minutes of meeting(s) Prepare consolidated contract for execution Merge all addenda into single document Conduct “Kick-off Meeting” with project team Review contract processes and flow chart to ensure team complies with contract actually executed!

Contract Administration Phase Never allow a change or extra to start without signed change order/directive Prepare and use simple flow chart of key timelines and decision points for Change Orders & Claims: Reference specific contract provisions and timelines for making/ responding to RFIs, Submittals, Change Requests, Claims, etc. Clearly identify all Notice requirements and consequences of failing to give notices Post flow chart on wall in front of those who are administering the contract

Contract Administration Phase (cont’d) Last but not least: administer contract strictly in accordance with its terms NOT in accordance with some “Assumed Contract”, “Virtual Contract” or “Normal Practice” When all else fails, remember the three “R’s” that minimize claims and disputes READ the contract cover to cover before issue for bid READ the contract cover to cover before execution READ THE CONTRACT upon first appearance of a potential Change or need for “extra work”!

Resolution of Disputes

Overview Multiple mechanisms exist to resolve disputes, including:
Negotiation Project Neutral Dispute Review Boards Dispute Adjudication Boards Mediation Med-Arb (Mediation transitioned to Arbitration) Arbitration Hybrids “In search of the better mousetrap” but no “one size fits all” solution

Negotiation

Negotiation Can occur at any stage of a dispute, potentially quick and effective Often a pre-condition to other dispute resolution processes What happens if negotiation does not take place? Look for “give and take” by bundling several issues into one overall settlement Mixed success in practice as depends on: Parties, their Representatives and their counsel Personalities Political vs practical considerations Magnitude of dispute

Project Neutral

Project Neutral Project Neutral sometimes referred to as:
Standing Neutral Referee Standing Mediator Initial Decision Maker Potentially quick and effective dispute resolution procedure through real time dispute facilitation Mixed success in practice

Project Neutral (cont’d)
No statutory authority – role and responsibilities governed entirely by contract Expert who provides opinions on which parties act or use as basis of negotiations Mediator who facilitates the parties’ negotiations Facilitator of partnering processes and of negotiations Best practices for Project Neutral on major projects: Retained at outset for duration of project Meet regularly with parties, preferably at site Familiar with the project plans and specifications “On call” and available to immediately step in and express opinions or render decisions during construction to avoid delays. If decision disputed, parties act on it and defer dispute until later day

DRBs Dispute Review Boards

DRBs – Dispute Review Boards
Background: Originated out of underground construction work First DRB guidelines published in 1985 and revised in 1991 by the American Society of Civil Engineers Dispute Review Board Foundation (DRBF) Organization “dedicated to promoting the avoidance and resolution of disputes worldwide using the unique and proven Dispute Board (DB) method” Provides resources to the industry relating to DRBs, as well as conferences and training programs for prospective DRB members

DRBs – Dispute Review Boards (cont’d)
No statutory basis – entirely creature of contract DRB General Concept DRB comprised of 3 members who are respected and experienced with the industry DRB formed before construction commences DRB meets periodically at site and keeps abreast of status of project and any emerging issues DRB hearing may be requested by either party at any time DRB hearings held promptly and are informal DRB recommendations are not binding, but may be considered by arbitral tribunals and courts But parties can contract otherwise if they choose

Advantages of DRB DRB panel chosen by agreement of parties at outset DRB members experienced professionals, knowledgeable in construction disputes and also DRB processes At least one member should have legal or ADR expertise to ensure decisions conform to authority given to DRB DRB members, through regular site meetings, kept informed and thus can quickly hear dispute and render recommendation within a short time period Either party can bring an issue to DRB at any time Hearings are held informally and promptly

Some Issues to Consider DRB can take many forms and problems arise when DRB provisions drafted by someone with little or no experience in DRBs Contract must also address role, responsibilities, liabilities and indemnities of DRB members or DRB members may decline to accept appointment Contract must clarify whether DRB decision is merely a recommendation, must be complied with, or constitutes a binding decision unless disputed

Some Issues to Consider (cont’d) If DRB decision must be complied with but can be disputed, what happens if court later rules in favour of party disputing the decision? Can parties be placed back in their original positions? e.g. DRB issues interim decision on interpretation of specification regarding design and supply of equipment. Owner disputes and court later agrees with Owner. Problem: what remedies does Owner have if no longer feasible to change the equipment? e.g. DRB issues interim decision that there is a “change” and Owner is required to pay $2 million for the “change”. Court later decides there was no change, but in the meantime Contractor becomes bankrupt. Problem: how does Owner recover that payment?

DABs Dispute Adjudication Boards

DABs - Dispute Adjudication Boards
Presently no statutory basis in Canada and so entirely a creature of contract (Note: DAB as used in this presentation is distinct from adjudication under Ontario’s new Construction Act) Found in various contracts, such as FIDIC Red Book Often mentioned but not commonly used in Canada Often confused with DRBs Expedited dispute resolution process Impartial and independent panel of 1 or 3 persons DAB can be: permanent standing body during duration of contract, or “ad hoc” to decide individual disputes

DABs - Dispute Adjudication Boards (cont’d)
Unlike DRB, the DAB process intended to be form of “adjudication” and to settle disputes at outset Decisions binding, unless written notice of dissatisfaction with decision given within xxx (usually 28 or 30) days of decision If notice of dissatisfaction given, decision is provisionally “binding” in that it stands until dispute resolution process to resolve dissatisfaction is completed (e.g. by arbitration) DAB is usually deemed not to act as arbitrator Although not acting as arbitrator, it is often assumed courts will consider DAB decision valid as a creature of the contract Problem: how will/can DAB decision be enforced?

DABs - Dispute Adjudication Boards (cont’d)
DAB process often fails to comply with requirements for arbitration under arbitration legislation, such that decision may not constitute an arbitral award Result: DAB decision can not be enforced directly as an arbitral award To enforce, resort must be had to arbitration or litigation for an order by an arbitrator or court An Arbitral Award that enforces a DAB decision is enforceable (assuming Arbitral Award properly obtained and enforceable)

Mediation

What is Mediation? A voluntary and informal alternative dispute resolution method using a neutral third party mediator to assist two or more parties to resolve their dispute and reach a voluntary settlement Mediator is chosen by the parties and facilitates negotiation, proposes solutions, encourages communication among the parties Mediator has no binding decision making power Where voluntary settlement is reached, only becomes binding when parties conclude a settlement agreement Basically, it is assisted / facilitated negotiation

Mediation – Advantages and Characteristics
Voluntary participation Parties may terminate the process at any time Parties may meet privately with mediator to resolve dispute on their own timing Confidential and without prejudice and cannot be used in court Mediator or participants may lead the process Usually faster than arbitration or litigation Efficient and cost-effective

Mediation – Advantages and Characteristics (cont’d)
Costs may vary depending on how many parties and issues are involved Tailor made solutions to disputes Preserves business relationships with minimal risk Opportunity to explore other side’s case without the cost of discovery High chance of settlement (but not assured) Where settlement reached avoids costly adversarial process of arbitration or litigation Parties avoid having an adversarial hearing with a judge or arbitrator imposing a decision on them

Mediation – Advantages and Characteristics (cont’d)
Generally, two types of mediation Facilitative – mediator asks questions, normalizes parties’ positions assists parties to explore and analyze options, does not make recommendations or provide opinions Evaluative – mediator assists parties in reaching resolution by pointing out weakness in each parties’ position based on facts and law, offers opinion on what a judge/arbitrator may decide may make recommendations or suggestions on settlement amounts. Depending on the mediation, sometimes the mediator may be asked to move from a facilitative to evaluative role

Mediation – Practical and Strategic Issues
Initiating Mediation No disadvantage to initiating mediation process but always keep limitation period under applicable statute of limitations in mind Can use a tiered mediation-arbitration clause (caution) Available at any time during a dispute (prior to receipt of a judgment)

Mediation – Practical and Strategic Issues
Selection of Mediator Judge, Lawyer, Expert? An understanding of mediation process is essential, and should have some training and experience as mediator Depends on circumstances of each dispute Facilitative mediation can be effective with an experienced mediator who understands the legal process but who is not necessarily an expert on the subject matter in dispute Evaluative mediation works best where mediator has indepth knowledge or is an expert on the subject matter Ask for a litigator’s input on appropriate mediators Selection of Mediator may determine process, based on preferences of Mediator

Med-Arb Mediation Transition to Arbitration

Mediation-Arbitration
“Med-Arb” is a process that starts as a mediation and, at some point agreed by the parties, transitions to and becomes an arbitration process No standard form Med-Arb agreement Existing Med-Arb agreements are often not well-suited to construction disputes without significant modification As much detail for the arbitration process as possible should be agreed to in advance of the mediation so as to avoid disputes over jurisdiction or issues to be arbitrated if the mediation is not successful, as that often results in a potential opportunity for parties to sabotage the process.

Mediation-Arbitration
Med-Arb agreements must also address a number of issues not covered in a normal mediation agreement or arbitration agreement Trigger to transition from mediation to arbitration, which should be time based rather than a decision of the Med-Arbitrator Pre-Arbitration conference should be established before actual arbitration starts to confirm issues to be arbitrated and process The extent, if any, to which Med-Arbitrator is able to rely on or be influenced by information or documents revealed during the mediation, especially in private caucus sessions with a party Advice: Proceed cautiously and ensure parties and Med-Arbitrator fully address things in advance that can affect enforceability of award

Arbitration

What is Arbitration? Alternative dispute resolution method that provides a final, binding and enforceable decision with minimal or no recourse to the courts Private, consensual, confidential form of dispute resolution Can agree to arbitration at the time parties enter into a contract or once a dispute arises (i.e. for present or future disputes) Results in a binding decision by 1 or 3 neutral decision-makers The consent to arbitrate, once given, cannot be withdrawn unilaterally and is therefore mandatory Can be an effective alternative to litigation in the courts

Arbitration – Advantages and Characteristics
Generally (subject to applicable legislation): Affords each side a fair and equal opportunity to be heard Party autonomy: the parties are free to agree on procedure and have higher degree of control and involvement Greater flexibility that permits customizing the procedure to the nature and complexity of the dispute and needs of the parties More efficient Ability to select judges/experts to resolve the dispute Real case management

Arbitration – Advantages and Characteristics (cont’d)
Generally: Arbitral awards are easier to enforce Rules of evidence are more informal and less stringent than litigation in the courts but always check legislation. E.g. see s. 13 of NWT/Nunavut Arbitration Act Final and binding awards: Limited rights of appeal in domestic arbitration and no rights of appeal with very limited rights of review in international arbitration Arbitral awards are subject to less judicial review and appeal than court decisions, which enhances the finality

Confidentiality and privacy: Avoids public scrutiny, Protects confidential business information, and Can preserve business relationship Disputes are usually resolved faster and more expeditiously, as the discovery and hearing procedure can be limited Can be less expensive than litigation Cost will depend on the system chosen and the circumstances of the particular case

Advantages in an international setting All of the above, plus Arbitral proceedings are generally more predictable than court proceedings in an international context (i.e. avoid competing actions in courts of different countries, forum non conveniens arguments) Neutral forum: no “home court” advantage Allows parties to resolve dispute outside of a national court system, and provides the opportunity to have proceedings in a more neutral environment, and avoid jury trials, corrupt or inadequate court systems.

Advantages in an international setting (cont’d) Offers parties a greater opportunity to resolve dispute according to their choice of law Awards are much easier to enforce (less expensive and less delay) than court judgments, therefore having a fundamental advantage in an international setting (1958 New York Convention)

Advantages in an international setting (cont’d) Much unpredictable risk in a contractual relationship can be mitigated In a contractual relationship with a foreign State or a State entity, arbitration is much more attractive than litigation in the courts of that State Conclusion Arbitration can be cost-effective and swift means of resolving commercial disputes but it takes a concerted amount of effort, focus and active participation by all participants (parties, counsel, and arbitrators)

Governing Legislation in Canada
What legislation governs commercial arbitration agreements? Depends on whether the arbitration is domestic or international and whether the federal or provincial/territorial arbitration act applies in the circumstances Legislation relevant to NWT & Nunavut: Arbitration Act, RSNWT 1988, c.A-5, as amended Arbitration Act, RSNWT (Nu) 1988, c A-5, as amended International Commercial Arbitration Act, RSNWT (Nu) 1988, c I-6 Federal: Commercial Arbitration Act, R.S.C. 1985, c. 17 (2nd Supp.) Governs all commercial arbitrations, whether domestic or international, but only in relation to matters where at least one of the parties is Her Majesty in right of Canada, or a department of the Canadian federal government, or a Crown corporation or in relation to maritime or admiralty matters

Arbitration Agreements – Legal Requirements
Always check the legislation governing the arbitration Most acts define “arbitration agreement” as agreement by which parties agree to submit a matter in dispute to arbitration Must arbitration agreement be in writing? YES in NWT/Nunavut: s. 1 of Arbitration Act says “submission” means a “written agreement to submit differences to arbitration..” NO in Alta/Sask: s. 5(1) of Alberta Act and s. 6(3) of Saskatchewan Act state “an arbitration agreement need not be in writing” May be an independent agreement or part of another agreement Arbitration agreement may be revoked only in accordance with the ordinary rules of contract law

Drafting an Arbitration Clause
Necessary components of a clear arbitration clause include: Agreement to arbitrate Scope of disputes to be arbitrated, in terms of both the parties and the subject matter (i.e., usually “all disputes”) Number of arbitrators (one or three) Place of the arbitration (i.e., the legal seat of the arbitration) Place of the hearing (as opposed to the seat of the arbitration) Substantive and procedural law governing the dispute Language of the proceedings Institutional or ad hoc arbitration (see below)

Drafting an Arbitration Clause (cont’d)
Optional components that should be considered include: Rules that will govern the arbitration Entry of an award in court Intervention of courts Rights of appeal (if any) Confidentiality Costs and interest award provisions Multi-party arbitration provision Ability to grant interim measures Conferring jurisdiction on arbitral tribunal to fill gaps or adapt contract terms, i.e. to deal with situations where parties have negotiated long-term contracts where key terms will be renegotiated at intervals and those negotiations may fail

Drafting an Arbitration Clause (cont’d)
Optional components that should be considered include (cont’d): Intermediate dispute resolution clauses “multi-tier” or “step” Method of selection / appointment of arbitrator(s) Arbitrator qualifications Preconditions as to arbitration, such as negotiation or mediation Disclosure, discovery rights Time limits Limitation periods

Institutional vs Ad Hoc Arbitration
Arbitration Agreements often dictate disputes will be submitted to arbitration under the rules of and governed by a specific arbitration institute, such as ADR Canada, ICC, LCIA, ICDR, etc. In absence of such an agreement, the arbitration will be “ad hoc” unless the applicable statute otherwise provides Alberta, s. 20(1) “The arbitral tribunal may determine the procedure to be followed.” BC s. 22(1)” “Unless the parties … otherwise agree, the rules of the British Columbia International Commercial Arbitration Centre for the conduct of domestic commercial arbitrations apply to that arbitration.

Model Arbitration Clauses
Arbitral institutions often recommend model clauses for future disputes In each case, consider appropriate dispute resolution method and particular needs of contract or client If an institution is to administer the arbitration, consider using institution’s model clause without modification Except if absent from model clause, it is recommended to modify to address the place and language of the arbitration, the number of arbitrators (one or three) and the law governing the agreement Always check Institution’s website for the most recent version of the clause (and its rules) before you use it

Model Arbitration Clauses (cont’d)
Example of Institutional Model Clause: Domestic ADR Institute of Canada – Model Clause “All disputes arising out of or in connection with this agreement, or in respect of any legal relationship associated with or derived from this agreement, shall be arbitrated and finally resolved, pursuant to the National Arbitration Rules of the ADR Institute of Canada, Inc. [the Simplified Arbitration Rules of the ADR Institute of Canada, Inc.] The place of arbitration shall be [specify City and Province/Territory of Canada]. The language of the arbitration shall be English or French [specify the language].”

Example of Institutional Model Clause: International ICC’s Model Arbitration Clause All disputes arising out of or in connection with the present contract shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the said Rules.

Example of Multi-step ADR clause: “The parties agree to attempt to resolve all disputes arising out of or in connection with this agreement, including its existence and validity or its breach or termination by either party, by structured negotiation with the assistance of a mediator appointed by agreement of the parties [or under the *Commercial Mediation Rules” of an Institution]]. If the dispute cannot be settled within a period of 30 days after the mediator has been appointed, or such longer period agreed to by the parties, the dispute shall be referred to and finally resolved by arbitration in accordance with the [*Arbitration Act] and the [*Rules of __ or prescribed by the Act]

Enforcement of Arbitration Agreement
What is the approach of courts to enforcement of arbitration agreements? Courts have been enforcing arbitration agreements and have applied the principles of the UNCITRAL Model Law in favour of arbitration in cases where parties seek to stay judicial proceedings Recent case law at both the federal and provincial level demonstrates that Canadian courts are increasingly giving effect to the Model Law as adopted by Canadian provincial and federal governments by demonstrating a tendency towards enforcement of arbitral agreements, the recognition of the primacy of arbitration and limitation of judicial intervention

Enforcement of Arbitration Agreement (cont’d)
What is the approach of courts to enforcement? (cont’d) Courts will give effect to parties’ intention to arbitrate even in cases where the written agreement relating to arbitration is unclear or poorly drafted Since the adoption of the Model Law in 1986, Canadian courts have consistently upheld parties’ rights to arbitrate their differences where they have agreed to do so by contract and courts have increasingly resolved any ambiguities in such agreements in favour of giving effect to the parties’ intention to refer disputes to arbitration

Enforcement of Arbitration Agreement ( cont’d)
What is the approach of courts to enforcement? (cont’d) Canada’s highest level of court, the Supreme Court of Canada, has expressed strong support and respect for the arbitral process and has upheld legislative affirmation of the autonomy of arbitrations (see Desputeaux v. Editions Chouette (1987) Inc. (2003), 223 D.L.R. (4th) 407)

Enforcement of Arbitration Agreement (cont’d)
Generally, under the domestic acts, it is mandatory for a court to stay a proceeding commenced by a party to an arbitration agreement in respect of a matter to be submitted to arbitration under an agreement on a motion by another party to an arbitration agreement, except: where a party entered into an arbitration agreement while under a legal incapacity, the arbitration agreement is invalid, the subject matter of the dispute is not capable of being subject of arbitration under the law of the province (for example, because it is contrary to public policy), the motion to stay proceedings was brought with undue delay, or the matter is proper for default or summary judgment (see e.g., s. 7 of Ontario domestic Arbitration Act)

Enforcement of a Domestic & International Arbitration Awards
Approach of Canadian courts towards enforcement of arbitration awards Once Judgment has been granted recognizing the award, a court has the power to enforce that award by any means normally available for any final order or judgment of the court Recent case law at both the federal and provincial level demonstrates that Canadian courts are increasingly upholding and giving effect to the UNCITRAL Model Law and the NY Convention and other conventions as adopted by Canadian provincial and federal governments by demonstrating a tendency towards limiting the scope of judicial review over both Canadian and foreign arbitral awards

E.g. Ad Hoc Domestic Arbitration
Arbitration Act, NWT & Nunavut

Initiating Arbitration
Notice of Arbitration, which should generally include: Introduction Parties Relevant Factual Background and Overview of Claims Tribunal's Jurisdiction Procedural Matters Number of arbitrators as per agreement to arbitrate Either: appointment of arbitrator as party appointed arbitrator if more than one Identification of nominee for arbitrator if there is to be a sole arbitrator Conclusion and Relief Requested

Appointment of Arbitrators
Arbitration Act: s. 5: singe arbitrator unless arbitration agreement specifies more than 1 s. 6: where reference is to 2 arbitrators (i.e. each party appoints one), the 2 arbitrators may appoint an “umpire” at “any time within the period during which they have power to make the award”. s. 8: role of “umpire”

Appointment of Arbitrators (cont’d)
S. 11 addresses failure to appoint Arbitrator

Evidence in Proceedings
Evidence governed by s. 13 & 17 of Arbitration Act, which limits arbitrator’s ability to “let it all in”: Application of Evidence Act 13. All provisions of the Evidence Act that are not inconsistent with this Act apply to proceedings under this Act. 17. Witnesses on a reference shall be examined on oath. Compare this to s. 6(2) of the B.C. Act, which gives arbitrator more discretion And compare both of above to s. 21(1) of Alberta Act: “arbitral tribunal is not bound by the rules of evidence.. and has power to determine the admissibility, relevance and weight of any evidence”

Rules of Practice & Procedure
NOTE s. 41 of Arbitration Act of NWT: Compare this to BC (BCICAC rules apply if no agreement) Compare both to Alberta: s.20(1) of Alberta Act “Tribunal may determine the procedure to be followed in the arbitration”

Pre-Hearing Meetings After first pre-arbitration meeting, prepare and sign document confirming agreements form part of arbitration agreement Schedule meetings to monitor progress to hearing

Pre-Hearing Meetings (cont’d)

Costs and Fees for Arbitrator
Unlike many provinces, NWT distinguishes between “costs” and “fees” s. 31: costs are in discretion of arbitrator or umpire s. 33: arbitrator entitled to fees specified in agreement to arbitrate or, failing agreement, compensation under the tariff specified in s. 41(2) If no express agreement, fees are as specified in tariff referred to in subsection 41(2) - if such a tariff exists Penalty assessed if arbitrator/umpire charge more than prescribed tariff (penalty = 3 x amount of over-charge) A party can require costs of arbitration, including fees of arbitrator and umpire, taxed by Clerk of the [NWT/Nunavut] Court

Costs and Fees for Arbitrator (cont’d)
Security for Payment of Arbitrator Fees It is common practice for arbitrators to require a deposit early in the arbitration proceedings, in an amount equal to the estimated cost of: Pre-hearing meetings and procedural orders Site visit (if there is a need/desire for a site visit) Hearing, including room, reporter, hotel, etc… Writing of award Cancellation Fee Where a lengthy hearing is likely, a cancellation fee is becoming more common Good arbitrators will block the entire hearing in their calendar so if it settles before or early in the hearing there is often no time to fill up the calendar with new work

Managing Proceedings to Manage Costs
Consider Written Evidence and Imposing limits on: Examinations for discovery/depositions Evidence in chief Use of witness statements: advantages and disadvantages Arbitrator should give directions to counsel on written statements Cross Examination Address prior to hearing, as during hearing difficult to control/change the rules Re-Examination Temptation to expand when written statements used so objections should be made to expanding evidence

Managing Issues in Dispute
Consider Using Scott Schedule Convenient framework to identify and narrow issues in dispute Tabular document logging the following: Claimant’s position on various issues, including ref. to pleadings Relevant evidence in support of Claimant Respondent’s reply to each issue with: Statement of admission or denial Reasons for Respondent’s denial Reduces time and cost in hearing and deliberations of arbitrator Particularly useful in construction disputes where there may be multiple heads of claims for various defects

Managing Document Disclosure Requests
Consider Using Redfern Schedule Collaborative document that facilitates the discovery process and tries to avoid wide-sweeping litigation type discovery Tabular document logging the following: Description of document requested and ref. to pleadings Requesting party’s justification for requesting document Opposing party’s reasons, if any, for refusing the request Tribunal’s decision on request

Timing of Award s. 20 of Arbitration Act requires award:
Within 3 months after entering on the reference, or Within 3 months after called on to act by notice from a party, or before a later date to which all parties agree “by a writing signed by them” s. 21 requires umpire to make award within 1 month after original or extended time for arbitrators has expired, or longer period as agreed by those who appointed him/her s.22 says court may extend the time for arbitrator or umpire to make award

Costs and Fees for Arbitrator
s. 31: costs are in discretion of arbitrator or umpire s. 33 Fees: If arbitration agreement or parties agree on arbitrator’s or umpire’s fees, that agreement governs. If no express agreement, fees are as specified in tariff referred to in subsection 41(2) - if such a tariff exists Penalty assessed if arbitrator/umpire charge more than prescribed tariff (penalty = 3 x amount of over-charge) A party can require costs of arbitration, including fees of arbitrator and umpire, taxed by Clerk of the [NWT/Nunavut] Court

Enforcement & Appeal s. 26 - Enforcement
An award may, by leave of a judge, be enforced in the same manner as a judgment or an order to the same effect. s. 27 Appeal where agreement provides for appeal If arbitration agreement provides for an appeal, appeal governed by provisions for appeal in the agreement s. 28 Appeal as of right Regardless of agreement, any party can apply to set aside award on the grounds that: Arbitrator or umpire has misconducted himself/herself Arbitration or an award has been improperly procured

Thank You

Project Disputes Causes and Resolution

Similar presentations

Presentation on theme: "Project Disputes Causes and Resolution"— Presentation transcript:

Similar presentations

About project

Feedback

Log in

Auth with social network:

Project Disputes Causes and Resolution

Similar presentations

Presentation on theme: "Project Disputes Causes and Resolution"— Presentation transcript:

Similar presentations

About project

Feedback