Swift arbitration is the key

Dr Chandana Jayalath

Is there such a thing as solving construction disputes in a gentlemanly way? Dr Chandana Jayalath talks of a speedy process to minimise legal expenses.

Construction contracts often include ‘keep working provisions’ for the parties to perform their obligations, despite the existence of a dispute. The contract may expressly forbid the contractor’s right to suspend work or terminate the contract, although inconsistent with the local law.

For example, under English law, there is a statutory right to suspend work for non-payment, which can not be excluded by contract.

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Also, the employer may have the right to require a contractor to proceed with variations despite the time and cost consequences, not having been agreed in advance. In a fixed lump sum contract, the contractor may lodge a claim for variation, but the employer might deny it upfront on the basis of ‘lump sum’ or pay half of the cost pending evaluation at a later stage.

The engineer may ask the contractor to go ahead with the rates he deems suitable whenever the contractor has no option, because of his obligation to complete works on time.

Although the contractor is supposedly responsible for quantity errors, in any typical lump sum contract where the quantities are said to be actual and correct, he will purposely keep silent in a windfall such as overestimated quantities that bring him money for nothing

Although the contract expressly says no re-measurement is possible, the losing party may bring out this case and attempt to interpret the function of re-measurement as the ‘standard practice’.

There is usually a term implied to the effect that the client will not prevent the contractor from carrying out work in accordance with the terms of the contract, which is sometimes referred to as the prevention principle. In the UK case of Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970), some defective work was discovered before practical completion had been achieved.

The client was responsible for long delays owing to failure to approve a scheme of remedial works. A dispute arose concerning the contractor’s entitlement to an extension of time. Unfortunately, there was no specific provision for an extension of time when the contractor is delayed by the client, which is a fatal shortcoming in the contract.

Another aspect is that many contracts do not have a mechanism to compensate the loss behind unprecedented price escalation in the Gulf region. This is where swift solutions are required to minimise potential losses suffered by parties, instead of allowing ‘loss to prevail where it lies’, particularly when contracts are silent.

Perhaps some claims are indeed necessary and the provision for making claims is essential in order to accommodate unavoidable changes, for example by granting justifiable extensions without invalidating the contract.

However, problems arise when the provision is abused, for example by contractors who allegedly tender at low prices with the objective of profiting from their claims. For example, the government sector has now been bombarded by claims more than ever before.

Claims specialists have been busy with compiling claims for work suspended in recession. On the other hand, clients who attempt to aggressively suppress legitimate claims may provoke exaggerated, unjustified or even frivolous claims with the help of their in-house experts.

Needless to say, the vicious circles generated by such exaggerated actions and reactions definitely add to the avoidable costs of construction.

The author therefore strongly believes in a speedy, flexible and a fair process, indeed a gentlemanly way to resolve disputes between gentlemen, as Alexis Mourre says, rather than too formal court lawyering.

This is where ‘swift’ arbitration comes into play in the context of construction thus minimising the legal expenses for making and breaking claims and demoting the tendency towards interim awards and temporarily-binding decisions.