Many factors contribute to construction disputes, especially if the property is based abroad. Most projects take a long time to complete, leading to uncertainties and delays that can result in disagreements. The following factors typically create international construction disputes.
International property ventures usually involve people from many different nationalities with different values and ideas regarding how the project will take form. For example, when building a major pipeline in Kazakhstan, the Kazakhstani investor had Canadian and British partners. The owner’s representatives on the build were Russian, British, French and Canadian. The Greek-Italian contractor employed people from Europe, the Middle East and the Indian Sub-Continent to complete the project. Creating a sense of teamwork and common purpose can be difficult in such circumstances.
Often, property ventures will be delayed and disputes will arise when different parties blame one another for the delay. In international projects, the contractor may have the right to delay the finish date if it overruns, as this is often stipulated in the initial contract. However, owners may feel that this clause detracts from the fact that negligence led to a delay, which can then develop into a legal dispute.
Disputes can occur if certain parties feel that the work was not completed to their standards or specifications. Typically, the specifications at the start of international projects are quite vague. This means that different parties can form conflicting opinions about how the build should appear once it is finalised, which can easily lead to disputes when people are disappointed with the final result.
Resolving Construction Disputes
International construction disputes vary considerably and are therefore handled in many different ways. There are a number of factors to consider when drafting dispute resolution clauses in construction contracts, but it is vital that the parties are aware of the choices available. The following means are used to resolve international construction disputes:
Dispute resolution boards
A dispute resolution board is typically set up when a mid- or long-term contract is signed, and it usually consists of one expert – or a panel of three. The main purpose of the board is to help the parties prevent or deal with any problems or disputes that may arise while the contract is being carried out. Dispute boards are often used in construction cases, but are also used in other areas of law.
Here, the parties involved meet to discuss the dispute and try to resolve it mutually. Negotiation remains one of the most cost-effective, efficient and speedy ways to resolve international disputes – if it is conducted properly. Negotiations should be set up with appropriate approaches, strategies, principles and in some cases the appointment of an independent chairperson can help to improve the process.
During mediation proceedings, a neutral mediator will guide all parties through the resolution process. The mediator does not decide or advise on the merits of the dispute but concentrates on reaching an acceptable resolution.
Mediators are often effective in international construction disputes where cultural differences may be as important as factual and legal differences. Mediation can be a very effective way of engaging the parties in finding a practical solution and the confidentiality of the process allows the parties to retain their business relationships.
Generally mediation is a far quicker and less costly dispute resolution method than litigation or arbitration. However, the success of mediation relies on both parties agreeing to the process and coming to a mutually acceptable solution – and this is not always possible, especially in larger disputes.
This is the process whereby two or more opposing parties enforce or defend a legal right in a court of law. Since the press and public have access to the courts, details of your dispute can be made public. Also, local courts around the world often experience many backlogs, so construction disputes can last many months or years before they are resolved. There may be rights of appeal so first instance decisions may not be final.
Furthermore, some judgements handed down in certain jurisdictions will not be enforced in others, unless the different countries concerned have a reciprocal enforcement arrangement. This means that, after waiting for your case to come to court, the result you gain may not even come to fruition if the individual on the opposing side resides in another country.
Arbitration and specialist arbitrators
Arbitration is a confidential and judicial determination of a dispute, carried out by an independent third party or tribunal, and is often seen as a popular alternative to litigation. Unlike litigation, arbitration is confidential and the panel of arbitrators is made up of experts in the field – which for a very technical area such as construction can be hugely beneficial.
Specific arbitrators can be chosen to deal with specific disputes. Individuals who have worked in construction, engineering and law for many years, for example, can be asked to act in a construction dispute. Local law courts often employ judges who specialise in areas such as family law, which means that they may not be experienced enough to make judgments on complex construction disputes.
Then there is the key issue of enforcement. Most courts around the world are keen to support the arbitral process and will not award unless there has been fraud, serious and prejudicial misconduct, or some obvious error in the decision-making process. This usually leads to convenient enforcement of award in national courts – making this a popular mechanism for international cross-border disputes.
Arbitration is also well-suited to international disputes where the parties involved may not be familiar with local courts and systems but are prepared to trust internationally recognised arbitrators. Choosing arbitration can help to ensure that everyone starts on an even footing.
Evolution of dispute resolution mechanisms
Disputes can easily occur during international construction projects, where such ventures by their very nature tend to be lengthy, expensive and technically demanding. However, by taking action quickly and sensibly when disputes occur, issues can be resolved in an efficient and dignified manner.
The various methods are constantly evolving. It is important to consider the nature of the dispute itself to determine which method may be the most fitting. One thing is certain: parties committed to working together to prevent disputes or seeking an early resolution of any dispute, will have a better experience.
Article written by Ken Salmon.
Ken Salmon is a Consultant Solicitor at UK law firm Slater Heelis in Manchester, where he specialises in construction engineering and projects. He has extensive experience in all forms of dispute resolution including mediation, litigation, arbitration, adjudication and expert determination.