How are construction and engineering disputes typically resolved in your jurisdiction (e.g. arbitration, litigation, adjudication)? What alternatives are available?
Construction (2nd edition)
Adjudication is available under security of payment legislation, and is widely used as an interim procedure to resolve contractor payment disputes. However, adjudication is only binding on an interim basis. A party wishing to challenge the determination will use the contractual dispute resolution procedures to seek the final resolution of matters. In Western Australia and the Northern Territory, principals can initiate adjudication, unlike other Australian jurisdictions in which it is solely the prerogative of the contractor.
Contracts generally contain tiered dispute resolution mandating alternate dispute resolution be undertaken prior to litigation. Mediation is a widely adopted process, along with expert determination to resolve matters of a specialist nature, such as valuation issues. International arbitration is also commonly used on large resources projects, which invariably involve international companies.
Litigation is common as the final stage of a tiered dispute resolution clause, with dedicated Technology and Construction Lists in most jurisdictions which actively case manage construction disputes.
Litigation with subsequent adjudication remains the most popular way of dealing with construction and engineering disputes, despite taking a lot of time.
In construction disputes, the judge will very often appoint an expert (usually an engineer with proven experience in construction) to advise on all relevant technical aspects of the case. Such procedures frequently take several years before a final solution is reached.
Arbitration clauses are not very common, except in important (international) projects. Parties are free to determine how arbitration proceedings shall take place (venue, applicable law, applicable rules, etc.).
Typical dispute resolution mechanisms for construction and engineering disputes are litigation and arbitration. The adoption of alternative dispute resolution (“ADR”) is still a rare scene in the Chinese market – only a few foreign-related cases resorted to expert evaluation. Some arbitration committees are trying to establish and introduce in similar mechanisms, but it is still in its infancy and is very immature.
Disputes in infrastructure construction projects or concessions for the construction and operation of infrastructure, financed by development banks or the EU are subject to arbitration of local or international arbitration institutions (Permanent Arbitration Court of the Croatian Chamber of Economy, ICC Arbitration), sometimes UNCITRAL arbitration. In other cases, disputes are subject to both, the arbitration institutions and courts.
Construction Contracts based on the FIDIC Conditions of Contract regularly apply provisions relating to Dispute Adjudication Boards. The boards consist of one or three members. In the past, all the members were civil engineers but recently one of the members is often a lawyer.
We have also the Mediation Law, which enables the parties to refer their dispute to mediation. Mediation centres are available in Croatia, but disputes could be referred to international mediation centres as well.
Some disputes can be settled by out of court negations. Most disputes will go to the state courts. However, over the last several years, arbitration has become increasingly popular and arbitration provisions appear in more and more construction agreements. Like in the United States or in Great Britain, also in Germany arbitration can be compelled only by agreement. Some construction contracts contain arbitration clauses that compel one or both parties to submit disputes to arbitration. In the absence of a contract clause, arbitration is available only by the agreement of both sides.
Litigation is always an available method to resolve a dispute, unless there is a binding arbitration clause or a mandatory administrative proceeding. Though slow and costly, the process of the trial best eases the fleshing-out of complex issues, ensuring they are thoroughly dealt with.
Public authorities unusually reject arbitration clauses. This is also – but not only – due to the fact that the German Federal Government, German federal states (“Bundesländer”) and some other public bodies are exempted from court fees in civil litigation (sec. 2 Court Fees Act – “Gerichtskostengesetz”). Since public authorities often can get legal protection from public courts free of charge, they are usually not willing to engage in arbitration procedures or other ADR-proceedings such as adjudication, which is therefore still uncommon in Germany.
Commercial construction and engineering disputes in Greece can be resolved through litigation or through mediation or arbitration. The most common dispute resolution method is litigation, which is primarily governed by the Greek Civil Procedure Code ('GCPC'). However, the GCPC also provides for the following alternative paths: (a) judicial settlement, which can be attempted before a lawsuit is filed (209 et seq. GCPC); (b) out of court dispute resolution, which the litigants may launch at any stage of the trial (214A GCPC) and (c) judicial mediation, which can be initiated both prior to filing of a lawsuit and after the trial has started (214B GCPC); however, the above alternatives are not quite used in practice.
Arbitration is gradually growing into the most popular alternative dispute resolution method and can be conducted either in accordance with Art. 867 et seq. of the GCPC (national arbitration) or Law 2735/1999 and the respective supranational rules in case of international arbitration. Mediation is a relatively new alternative dispute resolution mechanism, introduced by Law 3898/2010 on ‘Mediation in Civil and Commercial Matters' and recently reformed though Law 4512/2018, both laws transposing Directive 2008/52/EU into the national law.
As far as the public projects are concerned, pre-contractual disputes in tenders with a budget over 60,000 EUR are resolved through a two-stage administrative and judicial process, as follows:
(a) Pursuant to Art. 346 and 360 of the Public Procurement Law, any act or omission of the contracting authority infringing national or EU law, can be challenged through an application for review before the newly established Authority for Review of Pre-Judicial Petitions ('AEPP'), the filing of which is a condition precedent for the admissibility of any judicial recourse, while the tenderer may also seek for interim measures to be granted by the AEPP. Further, such recourse before AEPP can be filed for the annulment of an executed contract, inter alia, in case (a) no publication took place prior to the award or (b) the contracting authority proceeded with signing the contract in violation of the standstill obligation (Art. 368 of the Public Procurement Law).
(b) The rulings issued by AEPP on the aforementioned recourses, may in turn be challenged by both the tenderer and the contracting authority before the competent Administrative Court of Appeal though the filing of an application for suspension and an application for annulment (Article 372 of the Public Procurement Law).
(c) If the contracting authority's act has been annulled either by AEPP or the competent courts, the suffering tenderer may raise claims by filing an award for damages before the competent courts (Art. 373 of the Public Procurement Law).
Disputes arising during the execution of public works contracts are similarly resolved through a formal two-stage dispute resolution process, providing for both administrative and judicial recourses (Art. 174 and 175 of the Public Procurement Law).
Construction and engineering disputes in a domestic context are mostly resolved via litigation before ordinary courts. Arbitration is available (different ad hoc bodies have been developed) but the number of cases resolved by this way remains limited, due to high costs associated thereto.
Construction and engineering disputes in the United States can be resolved through litigation or through alternative dispute resolution (i.e., mediation or arbitration). Most disputes are handled through either administered or non-administered arbitration and there are numerous different arbitration rules commonly used in construction contracts in the United States (e.g., American Arbitration Association, JAMS, International Institute for Conflict Prevention and Resolution or International Chamber of Commerce). The benefit to using arbitration in the United States is the ability to obtain a decision maker knowledgeable about construction and, in many instances, the ability to shorten the time for a decision on the claim. Stepped disputes clauses are typical in U.S. construction contracts, often requiring direct party-to-party negotiations and mediation prior to commencing litigation or arbitration.
Other alternative dispute methods exist in the United States, such as mini-trials or early neutral evaluations; however, these alternative dispute methods are infrequently used in the construction industry. Beside mediation and arbitration, most claims are handled by litigation in the state and federal courts.
Construction law disputes are customarily resolved in court litigation. Arbitration and alternative dispute resolution tend to be rare.
In fact, there are no specific courts, tribunals or procedures in Cyprus concerning construction and engineering matters. In this complex technical environment of construction law, the pertinent disputes are typically resolved in litigation. This involves subrogation claims, insurance problems, delay and disruption claims, construction defects, design deficiency and tax issues.
As regards the civil actions, these usually concern financial requirements for construction defects and/or design deficiency and/or for construction works of poor quality and/or damage or loss sustained as a result of architectural malpractice and/or poor-quality construction materials and/or undesirable or off-specification construction work. On the other hand, the criminal aspect involves professional liability claims that resulted in injuries or even death during the construction or during the use of the finished product.
Except for traditional legal proceedings, namely the court litigation, there are alternative dispute resolution methods, including in arbitration, which is the most common method and mediation. Cyprus arbitral decisions may be either binding or non-binding, depending on the terms of the arbitration clause or agreement. Binding arbitration decisions may be confirmed by a court and have the same significance as a court judgment. Nevertheless, a Cypriot arbitrator award cannot be appealed.
The Brazilian legal system offers a few kinds of dispute resolution procedures, and their use tend to vary according to the type of contract executed by the parties. Whilst disputes related to low budget and ordinary lump sum agreements, for example, tend to be taken to the state courts, more complex agreements, such as EPC and other FIDIC types, tend to be subject to arbitration.
Brazil also counts on mediation, but studies show that this sort of procedure has not yet taken off. On the other hand, and this is perhaps the most exciting news in this regard, is the visibility brought to Dispute Boards. The city of São Paulo passed the law 16,873/2018, which recognizes the use of Dispute Boards, in its purest essence, for administrative contracts. The new law of São Paulo has already echoed positively in the various academic and professional fora, which see in the tool an excellent remedy for the overwhelming planning deficiencies that plague contracts of the public administration, especially those involving civil works and infrastructure. One of the partners of our firm was the one responsible for drafting the first version of law 16,873/2018.
Along with the new Law, which is already being spread to other states and the federal union, many public employers have inserted Dispute Board clauses in their contracts. New case law has also raised the Dispute Boards to a safer stage, thus encouraging employers and contractors to make use of the method. It is still in its beginning, but the expectations are high.
In conclusion, construction and engineering disputes are typically resolved by state courts, arbitration, dispute boards and mediation. Brazil does not count on adjudication procedures such as those implemented in England.
The most common methods of settling construction disputes are conciliation, mediation, arbitration, and litigation. Adjudication has been introduced by the Construction Contracts Act 2013.
In public contract when the dispute is about the termination of the contract by law, it has to be solved, if the case, by litigation before the Federal Tribunal of Administrative Justice. Generally, for administrative contracts, the most used method is litigation; however, for complex projects (as the NAIM Project or energy sector projects) arbitration is used under ICC or LCIA Rules. Adjudication does not exist, and dispute boards are not used except for the so called Technical Committees in Public Private Projects which are similar.
For private contracts parties are free to choose any dispute resolution method that they consider appropriate, actually there is a chamber of the construction industry (Mexican Chamber of the Construction Industry) which has its on rules for arbitration and mediation to solve disputes derived from construction projects.
Construction disputes are typically resolved by adjudication. This is a 28-day procedure, with the emphasis on obtaining a speedy decision in order to aid the parties’ cash flow. The decision of an adjudicator is temporarily binding, until the dispute is finally resolved by court proceedings, arbitration, or by agreement. In reality adjudicators’ decisions, despite being reached very quickly, often become binding by default as it is uncommon for either party to refer the dispute to final determination.
The industry has its own specialist court, the Technology and Construction Court, which is a division of the Business and Property Courts. Disputes referred to court are usually heard within 12 months.
Arbitration is less commonly provided for in domestic projects but is still commonly found in international projects. Institutional rules commonly referred to are ICC and LCIA.
Other methods used include mediation and (less commonly) expert determination.
In the contract for the construction of a building (without the intervention of the Administration and not subject to the Public Sector Contracts Law), all the options are open, although it is normal for it to be settled in a judicial way, following the filing of a claim. Arbitration is not usually established in work contracts.
In contracts for the execution of public infrastructures (with the intervention of the Administration and subject to the Public Sector Contracts Law), arbitration is possible, but the Public Administration is rarely submitted to arbitration. The usual proceeding is that the differences and conflicts are resolved in the Courts of Justice.
Although litigation had been the dominant dispute resolution method, arbitration has become increasingly popular in the construction industry. Currently, the preferred method of dispute resolution for large construction projects is arbitration. Adjudication, on the other hand, is foreign to Turkish jurisprudence. Although amicable methods are also utilised, they are mainly considered as a step before arbitration or litigation (as the case may be).
While most construction contracts will provide for some form of alternative dispute resolution (typically adjudication and/or arbitration) the default forum for resolving construction disputes is through the civil courts.
An arbitration clause or agreement is typically included in construction contracts to regulate the arbitration proceedings. This clause will usually stipulate (i) a set of institutional rules to be applied, (ii) the method of selecting an arbitrator; and (iii) the seat and the governing law of the arbitration.
In public sector projects, litigation is often enforced as a matter of policy on the part of public sector employers.
Mediation and expert determination are also available and used with increasing frequency in South Africa. These processes are regulated by terms of reference and rules agreed between the parties. These processes are generally voluntary and are not mandated by law as a pre-requisite to litigation proceedings. Mediation continues to be treated with scepticism and is often viewed as nothing but a precursor to arbitration or litigation.
The South African Department of Justice and Constitutional Development is taking steps to encourage court-annexed mediation projects. The purpose of this is to assist Case-Flow Management in order to reduce the number of disputes before the Courts and to promote access to quick and affordable justice.
Litigation in front of local Courts is the traditional way to resolve disputes relating to construction.
Arbitration can be provided for in private contracts, but, considering its costs, is not common except in large projects involving international parties.
In order to limit the risk of litigation, it is common to provide for an expert determination in the contractor agreement for disputes relating to technical issues such as completion of the works.
Alternative dispute resolution mechanism (such as conciliation or mediation) are also possible if the parties agree to it.
If the General Conditions AB 04 or ABT 06 are applicable, claims under 150 Swedish price base amounts (1 price base amount = SEK 46,500 for 2019) shall be settled by regular court proceedings. If the claim exceeds said amount, the dispute will be resolved through arbitration instead. In ABK 09, disputes are by default always settled in public court proceedings.
Within the Danish construction industry, a large majority of disputes (that are not settled amicably) are settled by arbitration.
Except for AB-Consumers, all of the AB Standards state that disputes are to be finally settled by an arbitration tribunal appointed by the Danish Building and Construction Arbitration Board, and the decisions made by such tribunals are final.
If the parties have not agreed on an AB Standard, or if the arbitration agreement therein has been deviated from, disputes will be settled by the Danish courts.
With the update of the AB Standards, the dispute resolution clauses were thoroughly updated. In the updated standards, the parties are required to attempt to settle the dispute by negotiation (first between project managers and then between management representatives) before initiating any other dispute resolution measures.
It may be requested that some types of disputes (that cannot be settled amicably) be settled by an umpire (adjudicator) to effect a speedy resolution. The decisions made by the umpire are binding but can be brought before an arbitration tribunal.
Mediation is expected to be used more frequently than before. If a party requests mediation, the other party is obliged to participate, and an arbitration cannot be initiated while the mediation process is pending.
Both in case of disputes and in order to establish proof of a matter, a party may request the Danish Building and Construction Arbitration Board or the Danish courts to appoint an expert appraiser to provide a technical assessment.
The expert appraiser can inspect the work, register his/her findings (“inspection”) and make a technical assessment based on his/her inspections (“survey”). It is not the expert’s task to express his/her opinion on legal matters.
After having received the expert appraiser’s assessment, it is often possible to reach an out-of-court settlement. However, the expert’s assessment is not binding on the parties.
- Currently, in South Korea, construction and engineering disputes are typically resolved through court litigation. Some district courts and high courts have specialized divisions for construction and engineering disputes.
- Korean courts are considered to process construction and engineering disputes expeditiously. Owing to the existence of specialized court divisions dealing with construction and engineering matters, construction disputes are handled with relative sophistication and efficiency. A litigation relating to a construction and engineering project usually takes 12 – 18 months at the first instance court, but may in some cases take around 2 years.
- Alternative dispute resolution methods provided for in various laws are also used to resolve construction disputes. For instance, Article 69 of the Framework Act on the Construction Industry establishes the Construction Dispute Mediation Committee where construction and engineering disputes can be resolved by mediation. Parties can also refer their disputes to court-administered mediation.
- Local parties increasingly rely on arbitration as a means of dispute resolution. The Korean Commercial Arbitration Board (KCAB) frequently handles construction and engineering disputes, administering a sizable number of construction and engineering disputes through arbitration annually.
- Korean construction companies that regularly participate in projects abroad are familiar with the use of arbitration for resolving construction disputes and will often arbitrate disputes of an international nature.