Avoid "risks of differing applicable law on main and sub-contracts"

QSI Consultancy Group managing director Brian Allan explains why differing procedures will not be conducive to contractors

QSI Consultancy Group's Brian Allen talks about the "risks of differing applicable law on main and sub-contracts"
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QSI Consultancy Group's Brian Allen talks about the "risks of differing applicable law on main and sub-contracts"

It is surprisingly common for main contracts and subcontracts to contain differing dispute resolution procedures.

In practice, this may mean that a main contractor finds itself in the situation that it cannot run parallel or, more likely, staggered proceedings on back-to-back issues using the same procedure.

This will increase the risk to the main contractor as the likelihood of the same outcome in each case tends to diminish under such circumstances. This scenario is also not conducive to early resolution for a subcontractor.

The ideal situation would be a matching tiered approach under both the main contract and subcontracts. Tiered proceedings may sequentially involve, for example; mediation, adjudication, arbitration (or litigation).  Although a tiered dispute resolution process might be criticised as running the risk of duplication of effort, it provides the possibility of early time and cost effective settlements without the need to resort to arbitration or the courts.

Like procedures would also create the possibility of joinder (i.e. the joining of parties to an arbitration or the consolidation of two arbitrations).  In the absence of an express provision within the arbitration agreement, the right of joinder does not apply.

This may put a main contractor at risk of incurring liabilities that it cannot recover from a liable third party. To minimise risk, it will usually be in the main contractor’s interests to consider the possibility of joinder by agreement with both the employer and subcontractors.

On large projects in the Middle East with significant international involvement, the main contract might be governed by English law. Whereas, the underlying subcontracts may be subject to the UAE law.

As the main contract and the subcontract are principally governed by their respective contracts, the potential ‘clash of jurisdictions’ may not in reality present any real problems or conflict.

Arbitrators from a civil and Sharia law background will likely have different approaches and expectations compared to those from a common law background. Arbitrators may adopt a different approach to evidence.

Whereas common law adopts an adversarial approach to litigation, civil law has an inquisitorial approach. Combined with differing positions under the law on certain legal principles, this creates uncertainty and risk.  As a consequence, if a main contractor were involved in both an arbitration with the subcontractor and a separate arbitration with the employer the conflicting approaches might lead to different results on like matters of principle. 

It is therefore important that the risk of differing applicable law on main and sub-contracts is either avoided or mitigated.

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