International arbitration is the dispute resolution forum of choice for most international contracts, in particular in the construction and energy sectors.
Arbitration can be procedurally slow and disproportionately expensive for some disputes. It does not enable parties to resolve their disputes as quickly and efficiently as other mechanisms, most notably adjudication, which is available in the UK and a number of other common law countries. This is a problem for construction parties, especially as the speedy resolution of disputes and release of cash plays an important role in smooth project delivery.
In March 2017, the ICC launched its expedited procedure provisions (EPP). This aims to shorten the length of arbitration proceedings. Certain other arbitration institutions have similar procedures. The EPP quickly gained popularity and, in 2020, the ICC reported a significant increase in its use. This is set to continue with an expanded second iteration of the EPP, which launched with the introduction of the ICC’s Arbitration Rules 2021 with effect from 1 January 2021.
This post analyses the role the EPP could play in helping parties to international construction contracts resolve their disputes more efficiently. Firstly drawing comparisons to the widely accepted and successful statutory adjudication regime in England, Wales and Scotland, it will then refer to other contractual alternatives such as expert determination and dispute adjudication and avoidance boards.
Lessons to be learned from adjudication
Statutory adjudication was introduced in England, Wales and Scotland via the Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996) on 1 May 1998. It applies to the vast majority of construction projects in the UK (subject to certain exclusions).
Since inception, the number of adjudication cases has risen from 187 cases in 1998 to 1,945 cases in 2020 (see the Adjudication Society’s Report 19).
The phenomenal success of adjudication is largely attributed to its speed and enforceability:
- It is a short procedure with the Act stating that decisions should be reached within 28 days of referral unless otherwise agreed between the parties (section 108(2)(c)). In practice, it can take between one and three months, depending on the complexity of the dispute.
- It is a “pay first, argue later” mechanism that ensures that cash flow of projects is maintained.
- Adjudication decisions are binding and enforceable by the courts until challenged (section 108(3), Construction Act 1996). They are rarely successfully challenged, unless it is very clear that the adjudicator’s decision was incorrect as a matter of law (see Hutton Construction Ltd v Wilson Properties (London) Ltd).
The construction industry’s familiarity and willingness to rely on the process helped the landscape evolve in the United Kingdom over the past 23 years. Adjudication procedures are now capable of dealing with disputes ranging from small-value payment disputes to multi-faceted, final account disputes and complex delay claims.
However, statutory adjudication under the Construction Act 1996 is only applicable to construction projects located in England, Wales and Scotland. Therefore, parties to international contracts have no right to adjudication, and must rely on contractual methods of dispute resolution, including arbitration.
International reception of adjudication
Other common law countries have also embraced adjudication, with states in Australia, Singapore, Malaysia, Canada and New Zealand all introducing statutory adjudication provisions.
Arbitration – widely accepted but with notable frustrations
Arbitration is a very popular method for resolving disputes on major construction and engineering projects. It is flexible, mostly confidential and, due to the New York Convention, enforceable around the world relatively easily.
One criticism of arbitration is the time it takes for the parties to receive a final award. The average duration of proceedings in ICC cases that reached final award in 2020 was 26 months and the length of an arbitration tends to have corresponding cost ramifications.
ICC expedited procedure provisions
The EPP provides the option for a pared down version of a full ICC arbitration, whereby a final award is rendered within six months of the case management conference. The specific provisions for the EPP are set out in article 30 and Appendix VI of the ICC’s Rules of Arbitration 2021, which apply from 1 January 2021 to arbitrations submitted on or after that date.
Under the EPP, a sole arbitrator is appointed and afforded flexibility to pass over procedural steps that often take up a lot of party time, cost and effort. Terms of reference are not required and the arbitrator has the ability to limit the scope and length of submissions and to remove the requirement for disclosure.
The EPP applies automatically to all arbitrations referred to the ICC where neither party has opted out of the EPP and either:
- The claim does not exceed $2 million if the arbitration agreement was concluded on or after 1 March 2017 and before 1 January 2021.
- The claim does not exceed $3 million if the arbitration agreement was concluded on or after 1 January 2021.
Furthermore, parties may request to opt into the EPP irrespective of the amount of the claim or the date on which the arbitration agreement was concluded. The ICC standard clause also provides an option to increase the ceiling that the EPP will apply to.
The ICC’s EPP threshold value for amount in dispute is significantly higher than that under the ICDR ($500,000) and SCAI (c.$1 million) rules, but similar to the value for expedited procedures under HKIAC (2018), SIAC 2016 and CIArb 2018 rules.
Considering the merits of the EPP
The use of EPP has increased. The ICC reported that 115 case were administered under the EPP in 2020, almost double the total number of cases in the previous two years and approximately 12% of the total number of cases handled by the ICC that year.
Furthermore, 38% of cases registered in 2020 involved an amount in dispute not exceeding $3 million, meaning that they would have automatically qualified under the procedure applicable from 1 January 2021.
The EPP – if administered correctly – will result in faster and therefore lower cost proceedings and is particularly attractive to construction parties facing simple payment disputes, or disputes down the supply chain, where full arbitration proceedings are likely to be disproportionate.
However, the strict timeframes imposed by the EPP and automatic enrolment into the procedure does limit both party autonomy and flexibility. This may be problematic for complex cases, regardless of their value, where detailed examination of documents, witness and expert evidence is paramount to achieving justice.
As a further note of caution, the EPP may contradict terms contained in the parties’ arbitration agreement, which may lead to an award being unenforceable. For example, in Noble Resources International Pte Ltd v Shanghai Good Credit International Trade Co, Ltd, the Shanghai court held that a SIAC award was not enforceable as the SIAC expedited procedure provided for appointment of a sole arbitrator, in contrast to the three-member tribunal provided in the arbitration agreement.
Contractual alternatives to adjudication and arbitration
Contractual forms of dispute resolution have attempted to bridge the gap between adjudication and arbitration.
For example, Dispute Adjudication Boards (DAB) were introduced by the International Federation of Consulting Engineers (FIDIC) in 1995 as a method of alternative dispute resolution. In 2017, DAB’s were renamed Dispute Adjudication and Avoidance Boards (DAAB).
Similarly, the Joint Contracts Tribunal (JCT) released its own Dispute Adjudication Board Documentation in 2021, providing a suite of contracts supporting the establishment of a DAB and guidance notes regarding how to proactively approach dispute avoidance and resolution.
DAAB’s are formed by the parties appointing impartial and independent member(s) in accordance with the terms stipulated in the contract. The board can comprise of a single member or three members. The board may be appointed at the beginning of the contract (a “standing board”) or appointed upon a dispute arising (an “ad hoc board”).
If a dispute arises between the parties, and is referred to the DAAB, the DAAB has 84 days to issue a decision, which is binding on an interim basis. The decision will become final and binding if neither party issues a notice of dissatisfaction (NOD) within 28 days of receiving the decision. Under the FIDIC standard form, DAAB’s are considered as a pre-condition to arbitration, when such procedure is agreed between the parties at the outset of the dispute (see Peterborough City Council v Enterprise Managed Services Ltd).
Although DAABs gained popularity due to their ability to resolve disputes relatively quickly and cheaply, the process is not underpinned by legislation and, in reality, decisions are difficult to enforce. Therefore, the DAAB procedure can act as a blocker to the right to commence arbitration, and can elongate the dispute.
Alternatively, parties may consider replacing DAAB clauses with an expert determination clause, in particular one that deals solely with technical issues and which is not expressed as pre-condition to arbitration.
Conclusion
Parties to construction contracts should carefully consider the application of the updated EPP when entering into agreements to arbitrate. While the procedure is likely to be slower than adjudication, it provides a useful alternative for parties to international construction contracts that fall outside of the statutory adjudication regime.
The EPP has the potential to allow for a shorter timetable, proportionate to the value of the dispute, with a fully enforceable award at the conclusion; encouraging parties to resolve their disputes quickly and efficiently. The extended application under the ICC’s Arbitration Rules 2021, and the freedom for parties to agree upon the application, may see the EPP used more frequently going forward. In particular, with respect to sub-contractor or supply chain disputes, which may be of reduced value.
Full arbitration proceedings will likely remain the best option for major construction projects, where disputes are often high value, technically complex and justice requires a comprehensive arbitral procedure to be followed.
