Michael Turrini, partner at global law firm White & Case, on why its recent survey shows a sharp huge increase in international arbitration in the construction industry – and a shift to the East.
Michael Turrini
Although parties will always do their best to avoid them, disputes are common in the construction industry. Projects can be knocked off course by a multitude of factors, builds don’t always go to plan and large sums are often at stake. Where disputes arise that can’t be resolved between the parties, those parties will often turn to formal dispute resolution proceedings. In recent years there has been a huge increase in the use of international arbitration in this respect, but why is this?
Our 2015 International Arbitration Survey, conducted in partnership with Queen Mary University of London (QMUL), found that international arbitration is now conclusively the most preferred form of dispute resolution for cross-border disputes in the construction industry. The research found that 90% of the respondents favoured international arbitration over other forms of dispute resolution, a marked increase from the 73% who said the same in QMUL’s first international arbitration survey in 2006.
There are a number of reasons for this, including the greater enforceability of arbitral awards, the flexibility of the process, and the ability to avoid specific legal systems. However, as the research shows, the most attractive feature for parties in the construction industry is the ability to have disputes resolved by individuals with construction industry expertise.
Construction disputes sit at the apex of two complex, highly technical and constantly evolving disciplines – construction & engineering and the law. Very few jurisdictions have specialised construction courts (the Technology and Construction Court in England is a notable exception), so parties that choose to resolve their disputes by litigation run the risk of having their case heard by a judge without much experience of construction projects. In international arbitration, where parties can select arbitrators with specialist technical knowledge and industry expertise, there is a greater likelihood of achieving a decision that takes account of all relevant issues.
Singapore was considered the most improved seat for arbitration
International arbitration also allows the parties to select the jurisdiction in which disputes will be resolved. The place, or “seat”, of arbitration can be anywhere in the world, irrespective of whether it has any connection to the parties or the project. A neutral venue can be chosen, thereby avoiding any perceived “home advantage”.
Historically, London and Paris have been the most preferred venues. However, reflecting the growing importance of Asia for investment in large infrastructure and construction projects, the study showed that Hong Kong and Singapore have gained significant momentum.
This upswing in popularity reflects the growth of emerging markets in Asia, which has resulted in a flow of capital between west and east – often to fund mega-infrastructure and construction projects. Such projects, often being extremely large, complicated and costly, are fertile ground for disputes. As such, we are seeing more Asian parties involved in large construction disputes and the Asian arbitral forums have devoted considerable effort to attract these sorts of disputes.
Our survey showed that although London and Paris continue to be both the two most used seats and the two most preferred seats, as legal counsel favour tried and tested venues, Singapore was considered the most improved seat over the past five years, with Hong Kong following closely behind.
As the costs of large-scale construction projects rise into the billions, so do the value of the disputes that arise out of them and the decision as to how to resolve them is critically important. Our study shows that international arbitration is fast becoming the norm.
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