The Global Construction Disputes Report 2018 reveals that both dispute values and the time taken to resolve disputes increased noticeably in 2017. The results demonstrate a need for better contract administration and more stout documentation is needed for employers, contractors and subcontractors to better knowledge of their contractual obligations.
Dispute Causes
The top three causes for disputes in 2017 were:
1. Failure to properly administer the contract
2. Poorly drafted or incomplete/unsubstantiated claims
3. Employer/Contractor/Subcontractor failing to understand and/or comply with its contractual obligation
These causes echo the similar result from last year’s report, with failure to properly administer the contract at number one for the fifth year in a row. As the industry continues to struggle with these issues, the need for involved parties to understand the critical nature of contract administration continues to be a critical factor in avoiding, mitigating and resolving disputes.
There are a range of options available for resolving construction disputes. Whether you are an owner, contractor, subcontractor, supplier, designer, or consultant, it is critical to consider in advance and before entering into an agreement. How to resolve issues that can (and will) arise in a project.
The Position in India
The construction and Infrastructure sector in India is suffering because of, inter alia, the breakdown of the parties to resolve disputes efficiently. The figures reveal that urgent and effective reforms are needed, especially since the construction industry is the backbone of this country. It accounts for 8% of India’s GDP and is the major direct and indirect originator of employment, employing nearly 40 million people and creating 2.7 new jobs for every lakh invested. Thus, the revival of the construction industry is decisive for inspiring and maintaining the existing rate of growth and economic activity.
The key advantage that makes arbitration the preferential way to resolve disputes is being able to select arbitrators with experience in the field, who know the issues and can review, address, and resolve those issues fairly. hardly ever do you get that benefit in court. While there are some brilliant judges out there, there are too many others who have no experience in construction and cannot provide a fair or effective review of a dispute.
In totality amount of investment that is presently engaged in arbitration is approximately INR 70,000 crores. With respect to pendency of disputes, 64% of the total claims raised against government entities and public sector units (PSUs) are still pending in arbitration and 11% are still pending with the government entities themselves. The general time for settlement of disputes is more than 7 (seven) years in India. These statistics reveal that urgent and efficacious reforms are considered necessary, in particular since the construction industry is the backbone of this country.
The first swing of changes were implemented by the Arbitration and Conciliation (Amendment) Act 2015 (2015 Amendment) which has brought in stricter timelines and transformed the arbitral procedure to a great degree. The 2015 Amendment is applicable prospectively to arbitration proceedings and it may also apply to Court proceedings commenced after the amendment or pending in courts, even where such court proceedings relate to arbitrations under the previous Arbitration and Conciliation Act 1996, prior to the amendment (previous Arbitration Act).1
There is a positive move to streamline dispute resolution processes in India. In light of the same, the Cabinet Committee on Economic Affairs has approved certain reformative measures to aid the arbitral process,:3
- Arbitration proceedings involving government departments and PSUs that commenced under the previous Arbitration Act should be transferred to the amended Arbitration Act with the consent of the other party. This is possible by virtue of an enabling provision in Section 26 of the 2015 Amendment which states that the Parties by mutual consent can apply the amended arbitration act to the arbitral proceedings commenced under the previous Arbitration Act. This will ensure stricter timelines for completion of the arbitration and prevent inordinate delays which have become associated with arbitrations involving government departments and PSUs.
- In cases where the government departments and PSUs have challenged arbitral awards rendered against them, 75% of the amount of the award shall be first deposited by the government departments and PSUs into an escrow account against a margin-free bank guarantee from the contractor which ensures that liquidity is available and no financial burden is unnecessarily imposed on the contractor.
Therefore, I typically lean toward arbitration for dispute resolution, unless the project circumstance almost cries out for a court.
Conclusion
Make sure that your contract identifies the dispute resolution process. It’s important to make sure that the agreements are clear on the point that you have the right to mediate and/or arbitrate disputes that arise on the project or with respect to the contract. As mentioned, if the agreement does not specify and mandate mediation and/or arbitration, then the common remedy will “default” to the courts. Therefore, make a decision at the commencement to contract signing which dispute resolution process is preferred, and be sure it is in the agreement.
If you choose to arbitrate and/or mediate, make sure the contract clause is clear and undeniable. Since there is a constitutional right to access the courts for dispute resolution, the courts require parties to a contract to show a clear intent to give up and surrender that right and go to arbitration. Before the court will send the parties for arbitrate. Some arbitration tribunals will offer suggested language to use in the contract to require arbitration as the dispute resolution mechanism. Generally, the clause must state, in no uncertain terms, that the disputes will be resolved by arbitration.
Bibliography
https://www.irmi.com/articles/expert-commentary/construction-dispute-resolution
1. Upheld by the Courts in Mahanagar Telephone Nigam v SRV Telecom, Bombay High Court, Appeal 79/2016 (pronounced on 25 April 2016) and Sri Tufan Chatterjee v Sri Rangan Dhar, Calcutta High Court, FMAT 47/2016 (pronounced on 3 March 2016). However, the contrary view has been taken in Jumbo Bags Ltd v New India Assurance Co Ltd, Madras High Court, OP 657/2015 (pronounced on 10 March 2015) that the 2015 Amendment applies prospectively to court proceedings.
2. Canadian Commercial Corporation v Coal India Limited, GA 3547 of 2013 (pronounced on 21 September 2016).
3. Press Release dated 31 August 2016 issued by Press Information Bureau on the reform passed by the Cabinet Committee on Economic Affairs.
4. Press Release dated 5 September 2016 issued by NITI Aayog.
5. Section 67 of the Arbitration and Conciliation Act 1996.
6. Section 74 of the Arbitration and Conciliation Act 1996.