Breaking down international construction disputes brick by brick
Litigation and adjudication
In some jurisdictions, uncertainty regarding local laws and procedure makes litigation unattractive. However, domestic courts still have a role in supervising adjudication and arbitration procedure and enforcing awards.
Accordingly, it is important that international contracts specify i) which laws apply to the contract, ii) the tribunal which will hear disputes, and iii) which country has jurisdiction over the contract.
The Construction Act does not apply to international contracts, so there is no statutory right to adjudication, though contractual adjudication provisions are commonplace. Adjudication agreements will often contain joinder provisions to allow the various parties in a project to be brought into the same dispute resolution procedure. Unfortunately such provisions are often cumbersome and difficult to use. The adjudication may be very different from the quick, 28 day procedure we are familiar with in the UK.
Disputes Boards are commonly used in international projects. The first international project to use a Dispute Review Board (“DRB”) was the El Cajon Darn and Hydro project in Honduras in 1980. Other Multilateral Development Banks (“MDBs”) soon followed. DRBs now offer a project-specific adjudication process which uses pragmatic dispute management to facilitate compromise by the parties at minimal cost.
Arbitration is a method of private, binding, enforceable dispute resolution which may be chosen by parties as an alternative to litigation before national courts. It is conducted all over the world against very different legal and cultural backgrounds.
Parties considering arbitration should bear the following in mind:
- The parties’ capacity to arbitrate will be determined by domestic law – for example, in some jurisdictions, government and public bodies cannot commit to arbitration.
- As an arbitration agreement is a personal contract, its construction, validity and effect will be governed by the ordinary rules relating to such contracts. This may, or may not, be the same as the substantive law of the contract.
- The lex arbitri is the procedural law of the arbitration, usually specified in the arbitration agreement e.g. ICC Rules of Arbitration.
- The substantive law of the contract is generally determined by a choice of law clause.
- Recognition and enforcement of decisions may be subject to entirely different laws.
The seat (location) of the arbitration is also important, as it will impact on the conduct and culture of the proceedings. The seat is usually nominated in the arbitration agreement, or determined by the tribunal.
One of the main benefits of arbitration is that it is confidential, though the extent of the confidentiality is variable between jurisdictions. In addition, arbitral tribunals may be more neutral than national courts, particularly in disputes concerning government bodies. However, the lack of precedent in arbitration makes it difficult to predict decisions and principles with any certainty.
So, even from this brief overview it can be seen that international dispute resolution is another ball game to the domestic scene.
Parties to international contracts must be aware of unusual procurement and risk profiles, unfamiliar contract terms and principles together with different regimes and considerations when it comes to disputes.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. For advice, get in touch with your usual Greenwoods GRM contact or scroll down to complete our enquiry form.