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CONSTRUCTION LAW
BAR COUNCIL CONFERENCE, DISTILLERY BUILDING
Paper by Mark Sanfey SC Saturday 7th February 2009
BARRISTERS IN CONSTRUCTION MEDIATIONS AND ARBITRATIONS
1. INTRODUCTION
The purpose of this paper is to give an overview of the role that barristers play in
mediations and arbitrations of construction disputes, the sort of problems they
frequently encounter, the duties that they may have in acting as counsel, and some of
the tactical matters which they may have to consider.
The idea for this paper sprung from a perception held by many people in our
profession and frequently voiced to me that construction law is byzantine in its
complexity and yields up its mysteries only gradually and begrudgingly. Barristers
unfamiliar with the area are often concerned that, through ignorance or inexperience,
they may sell their clients sort.
It is to colleagues either wholly or relatively unfamiliar with construction law disputes
that this paper is primarily addressed in an attempt to give them some feel for the
“landscape” of such disputes. Hopefully at the end of it they will have at least a sense
of how such disputes are dealt with. I would also hope that those of you who have
greater familiarity may hear something new or at least something to stimulate debate.
2. THE PROBLEM
By way of illustration, I set out below a fictional but not untypical scenario which might
well land on a barrister’s desk:
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• Counsel is instructed by a solicitor to advise a client, a building
contractor, who is owed €600,000 in respect of the final account on a
project which involved building a mixed commercial and residential
development;
• No written contract was executed by the parties. The project leader is
an architect, who acts on behalf of the employer. The tender
documentation which was issued by the architect made no reference to
the form of contract which would govern the project. However, a letter
accepting the contractor’s tender stated that the form of the contract
was to be the “blue form” RIAI contract (2002 edition). The contractor
did not reply to this letter, nor dispute or demur from the letter in any
way. During the course of the project, the parties generally observed
the procedures laid down by the RIAI contract.
• Practical completion has been certified by the architect. Practical
completion occurs when …”the works have been carried to such a stage
that they can be taken over and used by the employer for their intended
purpose and that any items of work or supply then outstanding or any
defects then patent or of a trivial nature only and are such that they are
completion or rectification does not interrupts such use…” [Clause 31
RIAI contract]. However, half of the retention fund has not been
released by the architect under clause 35(f)(2)(ii) because the architect
claims that the retention bond furnished by the contractor pursuant to
clause 35(f)(1), the furnishing of which by the contractor is a
prerequisite to the release of the retention monies, is not acceptable to
him;
• An interim certificate issued a month prior to the certificate of practical
completion in the sum €50,000 has not been discharged;
• The contractor achieved completion of the works several months after
the “date for completion” in the appendix to the contract; he says this is
because he was repeatedly asked to carry out variations to the contract
works by the architect. However, the contractor has not confirmed
those variations in writing to the architect as required to do by clause
13.01 of the RIAI contract. Neither has he applied to the architect
under clause 30 for an extension of time in respect of the variations,
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with the result that the architect now seeks to impose liquidated and
ascertained damages;
• The defects liability period triggered by the certificate of practical
completion is almost at an end. The architect has given notice to the
contractor and the employer of his intention to issue the final certificate
and has notified the parties that the adjustments to the final account
which he proposes to make will result in a negative balance, i.e.
according to the architect, the contractor owes the employer money,
not the other way around.
3. WHAT DOES YOUR SOLICITOR EXPECT?
The service you will be expected to give will depend on whether your solicitor is a
specialist in the area or a more general practitioner who may have either reasonable
familiarity – or perhaps no familiarity at all – with construction disputes.
A specialist is less likely to require assistance from counsel, and may merely require an
opinion or advocacy in a particular court application relating to the dispute. You are
far less likely to get from such a solicitor an instruction to “please advise generally”.
What would be more typical is that you would be contacted by a more general
practitioner who, I would suggest, would expect two things of you:
1. That you have sufficient legal knowledge and ability to be able to
identify what the legal issues are, and advise on them effectively and
promptly;
2. That you will be able to map out a strategy for the conduct of the
dispute resolution, whatever form it may take, that will advance your
clients interests and keep him “on the front foot”.
4. THE NEED TO BE PROACTIVE
Most barristers are reactive. They get sent a brief and instructions from a solicitor,
and generally tend only to do what they are asked. A barrister may draft proceedings
at the start; the various stages of pleadings and discovery come and go. Very often,
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the first detailed look at the strategy of the case by a barrister is when he or she is
asked to advise on proofs.
This is not an approach that can work in construction disputes. There is usually a
large amount of work to be done by solicitor and counsel as soon as they receive
instructions in gathering in evidence, reports, documentation and further instructions
where necessary in order to be able to understand the nature of the dispute and
analyse it. Counsel should be proactive in ensuring that the solicitor understands
exactly what has to be done in terms of gathering information and materials, and
organising consultations between counsel, the client and any other witnesses or
experts in order to ensure that the nature of the problem is fully understood, and that
counsel is in a position to give an analysis of the legal problems and to map out a
strategy.
Counsel should advise the solicitor that the work and costs in relation to the dispute
will be to some degree “front-loaded”, and that this should be explained to the client
so that he can understand the degree of work required, the level of commitment of
counsel and solicitor to the case, and the resultant cost involved.
5. LEGAL ANALYSIS
At the earliest opportunity, counsel needs to assess the strengths and weaknesses of
the client’s position in the dispute. In the case of our problem, the sort of issues that
arise and must be considered are as follows:-
(i) What is the contract?
• Do the dealings between the parties suggest that the conditions of
the RIAI agreement mentioned in the architect’s letter have been
incorporated in the contract at all?
• There is much case law to do with the so-called “battle of the
forms”. Two key Irish cases which dealt with motions to stay court
proceedings under section 5 of the Arbitration Act, 1980, and
whether or not the arbitration clauses should be deemed to govern
the dispute in circumstances where there was no signed contract
are:
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a. Lynch Roofing Systems Limited v Bennett & Sons
Limited [1999] 2IR 450 (Morris P), where the key
question was whether the parties habitually traded under
contracts which incorporated arbitration clause so that a
court would be forced to conclude that the parties expected
and knew that this clause would govern their contract;
b. McCrory Scaffolding Limited v McInerney
Construction Limited [2004] 3IR 592 (Peart J)
…”The important consideration is not whether the two
parties had between themselves previous dealings, but
rather whether the plaintiff was somebody who had previous
general experience of trading under contracts which included
an arbitration clause”.
• In our problem, was the letter accepting the tender
imposing a contractual term not already agreed between
the parties?, i.e. is it a counter-offer rather than an
acceptance of the tender?
• If it is a counter-offer, was it accepted by the contractor,
by conduct if not expressly?
(ii) What should be done about the undischarged certificate?
• The question that arises here is whether summary proceedings
should be issued to recover the amount of the certificate;
• The traditional view for decades has been that, while it may be
necessary to arbitrate a “dispute or difference”, monies certified by
the employer’s agent – the architect – must be regarded as being
beyond dispute, and the courts have tended to refuse to allow set-
off against an interim certificate. Three Irish decisions set out the
position in this regard:
• John Sisk and Sons Limited v Lawter Products BV,
unreported, High Court, Finlay P, 15th November 1976. In
this case Finlay P (as he then was) took the view that the
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employer was not entitled to deduct anything from the
certificate.
• However, in PJ Hegarty & Sons Limited v Royal Liver
Friendly Society [1985] IR 524, Murphy J, held that an
employer was entitled to deduct monies from an interim
certificate and that “an amount included in a certificate
(whether interim or final) does not constitute a debt of a
particular character and enjoys no special immunity from any
cross-claim or right of set-off to which the debtor may be
entitled”.
• Costello J however declined to follow the Hegarty decision in
Rowan Construction Limited v Antigen Limited [1989]
ILRM 783, holding that a right of set-off was inconsistent
with the terms of the RIAI contract.
• While the Rowan v Antigen decision has tended to be the
decision observed in practice in the courts, two recent
decisions of the High Court may signal a change in this
regard. In Powderly v McDonagh [2006] IEHC 20, Kelly
J considered whether summary judgment could be granted
on foot of an architect’s certificate in circumstances where
the Defendant sought to counterclaim damages for
negligence. There was no written agreement between the
parties, although the Defendants believed that the works to
be undertaken by the Plaintiff would be governed by the
RIAI contract (1996) edition for use when quantities did not
form part of the contract.
• Kelly J stated that …”perhaps the best analysis of the
position is contained in the judgment of Murphy J in [PJ
Hegarty]…”, and also endorsed the test adumbrated by
Finlay P in John Sisk & Son Limited, where he said:
“I believe the true test to be not whether the common
law right of set-off has, by the terms of the building
contract been unequivocally excluded, but rather as to
whether all the relevant terms of the building contract
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are in any particular event inconsistent with the exercise
in that event of such a right of set-off;
• In the event, Kelly J stated that he was “not persuaded” that
the contractual arrangements excluded a defence of set-off
which the Defendants might have, and that the Defendants
had demonstrated a tryable issue in respect of them. He
therefore declined to grant summary judgment in respect of
the architect’s certificate.
• In Moohan v S & R Motors (Donegal) Limited, [2007]
IEHC 435 the parties entered into a written agreement –
the RIAI 2002 edition – and Clarke J had to consider whether
the Defendant was entitled to raise a set-off in equity as
against architects certificates under the RIAI contract.
Clarke J analysed the cases set out above, and agreed with
the opinion of Kelly J that the analysis by Murphy J in
Hegarty was “perhaps the best analysis of the position”.
• Clarke J went on to hold that
…”the overall test is as to whether, as a matter of
construction of the contract taken as a whole, it can
properly be said that the parties have agreed that there
can be no set-off…the default position is that a party is
entitled to a set-off in equity in relation to any cross-
claim arising out of the same contract. Thus if a builder
is owed money on foot of a construction contract, the
employer is prima facie entitled to a set-off in equity, in
principle, in respect of any defective works. The question
which arises is as to whether that prime facie has been
displaced by the terms of the contract. There is no doubt
but that the parties are free to agree that there will be no
set-off. The question is whether they have in fact done
so. I am not satisfied that the balance of the authorities
favours the view that the current standard form RIAI
template does give rise to an agreement to exclude a
set-off, at least, and this is the only issue relevant in this
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case, in circumstances where the contract is completed
to the stage of a certificate of practical completion having
been issued by the architect and where, therefore, any
entitlement to arbitration on the part of the employer is
immediate. It is, of course, the case that Finlay P, in
John Sisk had significant regard to the fact that, in the
case then under consideration, there was no immediate
right to arbitration as the contract was ongoing”.
• It appears from these decision therefore that, at least in relation
to the RIAI contract which governs our problem, a court is now
more likely than before to accede to a plea by a Defendant in
response to summary proceedings that it is entitled to raise an
equitable set-off and would be entitled to establish, according to
the test laid down by the Supreme Court in Aer Rianta CPT v
Ryanair Limited [2002] 1 ILRM 381, that there is a fair and
reasonable probability that the Defendant has a real and bona
fide Defence.
(iii) Failure to release retention:
Under clause 35(f)(1), the architect is not entitled to unreasonably
withhold approval of the retention bond. Counsel would have to
consider whether there was an objective basis for the architect
withholding his approval. If not, this issue must form part of the
contractor’s claim.
(iv) Other issues:
What is the legal effect of:
• The failure of the contractor to confirm a variation in writing
within five working days of the instruction being given as
required by clause 13 of the contract?
o Courts/arbitrators will usually accept that variations have
been carried out by the contractor because he was
instructed by the architect to do so. However, where
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there is a serious dispute about the scope or method of a
variation, a lack of confirmation in writing may seriously
undermine the contractor’s claim.
• Failure of the contractor to give notice of the “event causing
delay” in writing to the architect as required by clause 30:
• Failure in this regard may be fatal to a claim by the
contractor for an extension of time. If the event causing
delay is not promptly notified by the contractor, an
architect can say that he is not able to judge what is a
fair and reasonable extension before the delay becomes
swallowed up in the general programme and other
factors contribute to delay on the project. However, if
the “event causing delay” is an instruction by the
architect himself, the failure on the part of the contractor
to give notice is less likely to be fatal to a claim for
extension of time.
• Failure by the architect to “certify in writing, on simultaneous
notice to the employer and the contractor, that in his opinion the
[works] ought reasonably … to have been completed [by the
date for completion in the appendix or any extended date for
completion]”. [clause 29(a)].
• Certification by the architect may well be an essential
prerequisite to a claim for liquidated and ascertained
damages. A contractor who receives such a notice may
take acceleration matters to limit the extent of the delay
beyond completion date, and may claim to be prejudiced
if he does not receive such a notice.
• Note that “liquidated and ascertained damages” must be
a genuine pre-estimate of loss, and not a “penalty
clause”; See Dunlop Pneumatic Tyre Company
Limited v New Garage and Motor Company
Limited [1915] AC 79.
6. OTHER MATTERS TO ADVISE
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Having made an assessment of the legal position, the claim for payment must be
subjected to scrutiny in the light of what is known about the employer’s opposition to
it.
The sort of questions that should be asked are:
• “What do we say they owe us”?
• “What did they say in response”?
• “Are we confident that, even on a pessimistic view of our final account, the net
position is that we are owed money”?
• “Are there technical questions at issue between the parties on which we need a
view before we can assess the strength of our case”? (e.g., a question of
whether foundations are of sufficient load bearing strength or may require
underpinning).
• If so, do we need to engage experts to help us form a view on this;
• Do our records corroborate the claims we are making? Are there other
witnesses who will corroborate our position, e.g. subcontractors, suppliers etc.
The solicitor should be asked to obtain all contractual documentation (a written
contract if there is one, quotations, tenders, specification, drawings, correspondence
between the parties) and all site records (diaries, site meeting minutes, records of
instructions, correspondence etc.).
If the contractor instructs solicitor and counsel to take legal action, the options are:
• Court proceedings
o May be stayed to allow the matter to be arbitrated under section 5 of
the Arbitration Acct, 1980 or the inherent jurisdiction of the Court;
� Conciliation/mediation
� Mandatory in many arbitration contracts, including all RIAI contracts
and GDLA 82
� Arbitration
7. CONCILIATION/MEDIATION
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The RIAI contract in our problem contains a mandatory conciliation clause, and it is
only if settlement cannot be reached under the RIAI conciliation procedures that a
party can refer the matter to arbitration.
In essence, the conciliation procedures provide that an agreed conciliator - or in the
absence of agreement, a conciliator imposed by the President of the RIAI – requires
the parties to submit a brief written opening statement appending necessary
documentation not later than ten working days after his appointment. Within 10
working days after receipt of that documentation, the conciliator organises a hearing.
The conciliator …”may consider and discuss such solutions to the dispute as he thinks
appropriate or as may be suggested by either party. All information given to the
conciliator is confidential and shall remain so unless authorised by the party who
supplied the information… A conciliator may, having informed the parties, consult
independent third party experts.”
The conciliator “shall endeavour to commit the parties to reach a mutual settlement
failing which he shall within ten working days of the hearing, issue his
recommendation. He shall not be required to give reasons. It shall remain confidential
if rejected by either party”.
If neither party rejects the recommendation within ten working days after its issue it is
final and binding on the parties. If the recommendation is rejected, either party may
at that stage refer the matter to arbitration. Each party to the conciliation pays his
own costs, and the parties are jointly and severally liable for the conciliator’s costs in
equal shares, unless the conciliator decides otherwise.
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The conciliation is in effect a settlement negotiation in which the conciliator attempts
to “midwife” a settlement. All statements, information and material given or
exchanged are inadmissible in any legal proceedings, although evidence which is
otherwise admissible is not rendered inadmissible as a result of its use in the
conciliation.
8. THE ROLE OF THE BARRISTER DURING CONCILATION/MEDIATION
The purpose of mediation is to allow the disputing parties to come to their own
resolution of the dispute. This means that there is a limited role for the lawyer during
the mediation, and in my experience, barristers are not usually involved in construction
mediations. To the extent that counsel may be involved, he or she can contribute by
assisting in the choice of an enthusiastic and proactive conciliator. Both counsel and
solicitor should ensure that the client understands the nature of conciliation/mediation,
and its difference from litigation. It is always advisable to encourage maximum client
communication with the mediator, as “venting” by the client, in the knowledge that
such process is confidential and will not be transmitted to the other side, is often very
valuable in leading towards settlement.
A good conciliator will encourage the parties to state their position honestly and
discard the posturing that often characterises more adversarial proceedings. The
solicitor or counsel can contribute to the process by providing reassurance to the
clients in respect of the possible implications of any settlement. If the client reaches a
settlement with which he or she is satisfied, solicitor and counsel have fulfilled their
professional responsibilities, even in circumstances where the lawyer thinks the value
of the case was greater or less than the client agreed to in conciliation/mediation.
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The foregoing presupposes a genuine attempt by both sides to see if a solution can be
achieved. It can happen that one or other party, whether through lack of preparation
or a belief that the other party is so intransigent that no progress can be made, does
not participate effectively in the conciliation/arbitration and makes no meaningful
attempt to progress the negotiations. In such circumstances, counsel may be well
advised to “pull the plug” i.e. inform the conciliator that his client no longer wishes to
participate in the conciliation. This triggers the end of the conciliation process, and the
matter can then be referred to arbitration.
9. ARBITRATION
I do not propose in this paper to enter upon any detailed consideration of how
arbitrations are conducted, or the law relating to arbitrations. However, there are
some points which I would like to make in relation to the role of barristers in the
conduct of arbitrations.
10. THE CODE OF CONDUCT
Rule 5 of the Code of Conduct for the Bar of Ireland (adopted on 13th March 2006)
applies to “relations between barristers and the court, arbitrators, tribunals, statutory
or other bodies, boards and other persons exercising judicial or quasi- judicial
functions”. The rule deals primarily with the way in which barristers must conduct
themselves in their relations with the court, and sub-rule 5.23 reads as follows:-
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“The Rules set out in this section governing a barrister’s relationship with the
courts apply also to the barrister’s relations with and conduct before arbitrators
and any other persons exercising judicial or quasi-judicial functions and the sole
member or members of tribunals appointed under statute or by the Oireachtas
or any other investigating body”.
Barristers therefore owe the same duties to an arbitrator that they would owe a court.
While we should all perhaps reread rule 5 from time to time to remind ourselves of its
terms, it is worth noting that, in the context of an arbitration, a barrister is obliged to
maintain due respect and courtesy towards the arbitrator; he/she must in every case
use best endeavours to avoid unnecessary expense and waste of the arbitrator’s time;
he/she must not deceive or knowingly mislead the court, and must correct any
misleading statement as soon as the fact that it is misleading becomes apparent; and a
barrister must inform the arbitrator of any relevant decision on a point of law and, in
particular, “of any binding authority or of any applicable legislation of which they are
aware and which the barrister believes to be in point whether it be for or against their
contention”.
11. ADVOCACY IN LITIGATION AND IN ARBITRATION
In Bernstein’s “Handbook of Arbitration and Dispute Resolution Practice”, 4 ed, [2003],
Thomson Sweet & Maxwell, the authors set out at paragraph 2-822 …”the particular
differences between litigation and arbitration that affect the task of the advocate…”:
“(a) In domestic arbitration at least, the arbitrator will probably have been
chosen by the parties (directly or through their choice of an appointing
institution) for his expertise of some kind;
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(b) The arbitrator will personally control the preparations for the hearing, or
the assembly of information and arguments if there is not to be a
hearing;
(c) In many domestic cases the arbitrator will not be a lawyer and he will
prefer, if he can, to avoid having to decide issues of law;
(d) Unless the arbitrator happens to be a barrister, solicitor or retired judge
the arbitrator will have less experience in absorbing oral evidence and
oral argument than the average judge, and accordingly will gain far
more assistance from written evidence and written argument, than
would a judge;
(e) Unless the arbitrator is a lawyer himself the arbitrator will have far more
suspicion of lawyers, and far less understanding of how to get
lawyer/advocates to help him in his task than a judge would have”.
The summary above – which I believe to be broadly fair – gives rise to two particular
points which concern the barrister acting as an advocate in arbitrations. Most
arbitrators, in arbitrations of any appreciable size, adopt the following methodology:
o Witness statements must be provided in advance of the hearing of all
non-expert witnesses;
o Expert reports are to be disclosed in advance of the hearing;
o Experts should be encouraged to agree as much as possible, and where
this is not possible, to identify and list areas of disagreement;
o Quantity surveyors should also list areas of agreement and
disagreement, preferably by way of “Scott Schedule”. In as far as
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possible, figures should be agreed “as figures”, without prejudice to any
arguments on liability.
o After discovery, a “core book” of documents should be extracted from
the discovered documentation and agreed between the parties.
All of the above leads to much greater expedition at the hearing and tends to bring
areas of agreement and disagreement to the forefront of the parties mind, thus
promoting the possibility of settlement. The arbitrator also has the advantage of being
able to familiarise himself with the issues and the evidence prior to the hearing.
12. ISSUES OF LAW
As Bernstein points out in the passage quoted above, an arbitrator in a construction
dispute is probably not going to be a lawyer. An arbitrator’s familiarity as an architect,
engineer, or quantity surveyor, with construction projects and practices should greatly
assist in expediting matters at arbitration. However, such a person is unlikely to have
any expertise in the law, and as we can see from the hypothetical problems cited
earlier, many knotty issues of law can arise during an arbitration. A barrister therefore
needs to give some consideration to how the arbitrator should deal with issues of law.
Most arbitration procedures entitle the arbitrator to obtain such professional advice as
he may deem fit in the exercise of his duties. While it may be open for an arbitrator to
consult a lawyer of his choice in relation to legal issues that arise, I would suggest that
it is more appropriate that the parties “take ownership” of the issue of legal advice and
agree with the arbitrator that he can avail of the services of a specified
solicitor/barrister agreed to be suitable by the parties to advise him as a “legal
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assessor” on discrete legal issues. The parties are then assured that the arbitrator is
getting expert legal advice from a lawyer that they trust, even if ultimately that advice
is not to their liking.
Under section 35(1) of the Arbitration Act 1954 an arbitrator can state a … “question
of law arising in the course of the reference … in the form of a special case for the
decision of the court”. While having the benefit of producing a definitive finding on the
legal point at issue by the High Court, such a procedure can be time-consuming and
costly and such applications are relatively rare.
Under Section 35(2) of the Arbitration Act 1954, the court may require a case to be
stated on the application of the parties. However, the courts are generally most
reluctant to interfere in the arbitral process unless it is absolutely necessary, and
particularly where the arbitrator is a lawyer; see Ireland v Flattery, unreported,
High Court, Murphy J, 31st May 2006.
13. A RESPONDENT’S TACTICS
While I approached the problem at the beginning of this paper from the point of view
of a barrister instructed for the claimant, a barrister instructed for a prospective
respondent in an arbitration will prepare in the same way, and for the same reasons.
However, there are some considerations which apply to the conduct of the Defence of
an arbitration which bear special mention:
(i) Security for costs; under section 22 of the Arbitration Act, 1954, the High Court
has power to make an Order for security for costs “for the purpose of and in
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relation to a reference … “. The arbitrator has no inherent power to make an
Order for security for costs unless it is agreed by the parties that he may do so.
Particularly if the claimant is a limited company, it would be worthwhile for
counsel to see whether it would be possible to establish “by credible testimony
that there is reason to believe that the company will be unable to pay the costs
of the defendant if successful in his defence…” (section 390, Companies Act,
1963). An award of security for costs may impose an intolerable burden on the
claimant company which would prevent it from continuing with the arbitration.
For an example of a successful application for security for costs, and a detailed
examination of the evidential burden which a Plaintiff must surmount to
establish “special circumstances” so as to avoid an Order for security, see the
decision of Clarke J in Connaughton Road Construction Limited v Laing
O’Rourke Ireland Limited, unreported, High Court, 17th January 2009.
(ii) Sealed offer:
A sealed offer or “Calderbank offer” is the arbitral equivalent of a lodgement in
court. It generally takes the form of a letter from the respondent to the
claimant which is “without prejudice save as to costs”. The offer must be
expressed in clear terms and should state whether it relates to the whole of the
claim or to part of it, or whether it takes into account any counterclaim. It
must be a bona fide offer, and the respondent may be required to demonstrate
that he was capable of satisfying an acceptance of the offer made in
accordance with its terms. For a case in which a Calderbank offer was deemed
ineffective, see Murnaghan v Markland Holdings Limited [2004] 4IR
537.
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Order 99 Rule 1A(i)(b) of the Rules of the Superior Courts is as follows:
(b) The High Court, in considering the awarding of the costs of any action
(other than an action in respect of a claim or counterclaim concerning
which a lodgement or tender offer in lieu of lodgement may be made in
accordance with Order 22) or any application in such an action, may,
where it considers it just, have regard to the terms of any offer in
writing sent by any party to any other party or parties offering to satisfy
the whole or part of that other party’s (or those other parties’) claim,
counterclaim or application”. [emphasis added]
This sub rule (inserted by SI 12 of 2008) suggests that the High Court can take
a Calderbank offer into account in considering the awarding of the costs of any
action, but may not do so where the lodgement procedure was available to the
Defendant. It seems therefore that, in construction disputes which remain in
Court, the Defendant must avail of the lodgement procedure and cannot rely on
a Calderbank offer.
When a Calderbank offer has been made, the parties should inform the
arbitrator of the fact of the offer – but not, obviously, of the amount – and ask
him to make an interim award in relation to liability and quantum. When that
award has been made, the arbitrator can convene a hearing to discuss the
question of costs.
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CONSTRUCTION LAW
BAR COUNCIL CONFERENCE, DISTILLERY BUILDING
Paper by Gerry Meehan BL Saturday 7th February 2009
Global Claims
Introduction
The concept of the global claim in construction law is somewhat complex. In order to
make a successful claim for damages under a construction contract, a claimant must
establish that a breach of contract or other ‘claim event’ has occurred, that the
claimant has suffered a loss, and that there is a causal link between the claim event
and the loss. Obviously, once it is established that loss occurred, the claimant also has
the burden of proving the amount of that loss.
For a claimant to succeed in a claim for damages, he must establish on the balance of
probabilities an effective causal connection between the defendant’s breach of contract
or negligence and the claimant’s loss.1
On the other hand, construction projects tend to be long and complex and it is not
always practical or possible to identify the precise consequences of a particular event.
Many construction projects take a months or years to complete and cover large
geographical areas. There are usually a myriad of different parties, works packages
and programme activities so that it is often practically impossible to identify the effect
(s) of any particular claim event. For example, a late instruction from an engineer on a
large civil engineering project might have a local effect, cause delay to the
commencement of subsequent works packages, disrupt the performance of sub-
contracts and push out the critical path.
1 Stephen Furst and Vivian Ramsey; Keating on Construction Contracts Eighth Edition Thomson Sweet
& Maxwell London 2006
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Given the above difficulties, situations arise where the claimant cannot trace each
causal thread from cause to effect and instead offers a collection of breaches / events
and asserts that those breaches / events caused a total sum of loss.
Definitions of Global Claims
The leading textbook on Building and Construction Contracts offers the following
definition:
Global claims may be defined as those where a global or composite sum,
however computed, is put forward as the measure of damage or of
contractual compensation where there are two or more separate matters of
claim or complaint, and where it is said to be impractical or impossible to
provide a breakdown or sub-division of the sum claimed between those
matters. “Total actual cost” or “total cost” are American expressions used in the
Courts of Claims to describe those claims, whether in respect of one only or more than
one matter of complaint, where the alleged total costs of the contractor, usually
derived from alleged internal records and documentation and sometimes supported or
certified by internal or external accountants, is compared with the contract value or
price, and the difference then put forward as representing the measure of damage or
additional cost caused by the one or more matters complained of. Where more than
one separate matter is relied on, as is very often the case, a total cost claim will also,
therefore, constitute a global claim as above defined2
In the leading case of Laing Management (Scotland) Ltd v John Doyle
Construction Ltd, Lord MacLean defines a global claim as: “a claim in which the
individual causal connections between the events giving rise to the claim and the items
of loss and expense making up the claim are not specified, but the totality of the loss
and expense is said to be a consequence of the totality of the events giving rise to the
claim.3
A further definition was given by Byrne J of the Supreme Court of Victoria: “The claim
as pleaded…is a global claim, that is, the claimant does not seek to attribute
2 I.N. Duncan Wallace; Hudson’s Building and Engineering Contracts Eleventh Edition Sweet &
Maxwell London 1995; para. 8.200 3 Per Lord MacLean in Laing Management (Scotland) Ltd v John Doyle Construction Ltd [2004] BLR
295
22
any specific loss to a specific breach of contract, but is content to allege a
composite loss as a result of all of the breaches alleged, or presumably as a
result of such breaches as are ultimately proved. Such claim has been held to be
permissible in the case where it is impractical to disentangle that part of the loss which
is attributable to each head of claim, and this situation has not been brought about by
delay or other conduct of the claimant…”4
It is relatively common in construction projects for a whole series of events to occur
which individually would form the basis of a claim for loss and expense. These events
may interact with each other in complex ways, so that it becomes very difficult, if not
impossible, to identify the precise loss and expense caused by each event. In those
circumstances, the claimant then points to a global loss which he claims is the result of
the series of breaches. Such claims are known as global claims.
Difficulties with global claims
The obvious difficulty with global claims is that they do not meet the classic
requirements for the party making a claim to particulartise his case. Even where a
claimant can show a number of breaches of contract by the defendant and where he
can show that he suffered a loss (e.g. that the total cost of delivering the project was
in excess of the tender price) that is not in itself evidence of a valid claim because
there is no way of knowing what part of the loss was caused by the breaches. There
are obviously many possible causes for cost overrun and not all of them are necessarily
the responsibility of the defendant. It is generally an essential part of any legal
proceedings that the party seeking damages must show causation.
A further difficulty with global claims is that there is a lack of specificity in their
pleading. The purpose of pleadings was set out by Fitzgerald J in Mahon v Celbridge
Spinning Co Ltd:5
The whole purpose of a pleading, be it a statement of claim, defence or reply, is to
define the issues between the parties, to confine the evidence at the trial to the
matters relevant to those issues, and to ensure that the trial may proceed to judgment
4 John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd (1996) 82 BLR 81
5 [1967] IR 1
23
without either party being taken at a disadvantage by the introduction of matters not
fairly to be ascertained from the pleadings. In other words a party should know in
advance, in broad outline, the case he will have to meet at the trial.6
The pleadings in a global claim will be unfair and prejudicial against the defendants as
they will not set out the exact case to be met. This will enable the claimants to change
course during the course of their evidence. An Irish court might be quite critical of
such an approach given the general towards requiring greater specificity in pleadings.
Case Law
There are a number of cases that tend to be cited in the treatment of this topic by the
various text books and articles. The earliest of these is J Crosby & Sons Ltd v
Portland Urban District Council7. In that case, Donaldson J said: “I can see no
reason why the arbitrator should not recognize the realities of the situation and make
individual awards in respect of those parts of individual items of the claim which can be
dealt with in isolation and a supplementary award in respect of these claims as a
composite whole.”
The commentary on this case; contained in the Building Law Reports, contains the
following passage:
“[Donaldson J] acceded to the argument that where a claim depends on ‘an extremely
complex interaction in the consequences of various denials, suspensions and
variations, it may well be difficult or even impossible to make an accurate
apportionment of the total extra cost between the several causative events’. In doing
so he gave judicial approval to a widespread and commonsense method of measuring
claims. The principle is, of course, applicable to claims for extensions of time as well as
to claims for additional money.”8
It is only that part of the award that Donaldson J refers to as the “supplementary”
award that is a global claim. In those circumstances, the Judge envisages a cause and
effect analysis for those individual items where such an analysis is possible and a rolled
6 Per Fitzgerald Ibid. at 3
7 [1967] 5 BLR 121
8 Ibid. p. 123
24
up claim for the remaining items. This however, by definition is the part of the claim
where the sources of the loss cannot be identified.
It is submitted that this makes it almost impossible for a defendant to defend. The
claimant, typically a contractor who is in the best position to keep records of the job
(because he built it) cannot identify the cause of the loss yet the employer, who has
not the same intimate knowledge of the carrying out of the job is expected to defend it
by identifying causal elements for which the employer is responsible.
In London Borough of Merton v. Leach (1985)9, the contractors’ claims were for
damages for breach of contract, and also for direct loss and expense under the clauses
of the contract dealing with variations and late instructions. Vinelott J in that case,
referring to the Crosby decision said that it was: “implicit in the reasoning of
Donaldson J first, that a rolled up award can only be made in the case where the loss
or expense attributable to each head of claim cannot in reality be separated and
secondly that a rolled up award can only be made where apart from that practical
impossibility the conditions which had to be satisfied before an award can be
made have been satisfied in relation to each head of claim.”
It is respectfully submitted that there is an inherent contradiction in the above
passage. One of the conditions that must be satisfied before an award can be made in
relation to an individual head of claim is that there is a causal link between that head
of claim and an item or items of loss. It is impossible therefore to satisfy that condition
where the loss or expense attributable to each head of claim cannot in reality be
separated (Donaldson J’s first condition).
Wharf Properties Ltd v Eric Cumine Associates (1991)10 concerned a
development in Hong Kong. A separate foundations contract for the development was
delayed and this in turn delayed the contractor who was retained to build the super-
structure. The latter contractor sued the employer and the proceedings were settled.
The employer then went after the architect for the cost of the settlement alleging that
the architect had failed properly to manage control, co-ordinate, supervise or
9 32 BLR 68
10 52 BLR 8
25
administer the foundation contract, or to provide information or instructions for it in
time. In its discussion of this case Hudson11 writes that:
The developers pleaded that, due to the complexity of the project and the cumulative
and “knock on” effect of a large number of delaying and disruptive factors, it was
impossible to identify and isolate individual delays and until the trial it would not be
known which if any variations or other events had caused the delays.”
The Privy Council held that whereas there was a reasonable cause of action pleaded,
the pleadings failed to explain the nexus between the individual breaches and the
sums claimed, and they should be struck out as embarrassing and prejudicial to a fair
trial.
This case is slightly different from the previous ones in that it was not a total cost
claim. The damages claimed were ascertained and precise. Lord Oliver of Aylmerton in
his consideration of the Crosby and Leach cases distinguished them as follows:
“ECA are concerned at this stage not so much with quantification of the financial
consequences – the point with which the two cases referred to were concerned – but
with the specification of the factual consequences of the breaches pleaded in terms of
period of delay. The failure even to attempt to specify any discernable nexus between
the wrong alleged and the consequent delay provides…‘no agenda’ for trial.”12
The sum sought was an exact amount and in principle it was recoverable provided
each causal nexus was fully explored and its effect identified. The separate delay
consequences of the separate breaches were not identified however and therefore the
pleading was hopelessly embarrassing and an unparticularised pleading in such a form
would not be allowed to stand.
Hudson continues:
The Wharf case is, however, an example of how global claims, which can be relatively
rapidly and easily assembled, can be presented in the form of “a document of immense
length and complication” which serves both to conceal the absence of any real
substratum of supporting fact from a weak or inexperienced tribunal, and to impede
the defendant’s preparation of a detailed and convincing case by way of rebuttal.
11
Ibid. para. 8.207 12 Per Lord Oliver, ibid. at p. 9.
26
…neither the Crosby nor the Leach cases indicate any considered judicial support for
the use of global claims even in the particular construction contracts before the courts
– in the Crosby case, Donaldson J. Was dealing with a finding of fact by an arbitrator,
binding on the Court, to the effect that the particular causes of delay in that case could
not as a fact be separated as to delay or disturbance, while Vinelott J. in Leach was
dealing with an entirely hypothetical case of loss and expense due to combined
variation and late instruction grounds of claim, with no findings of fact as yet made by
the arbitrator at all.13
In McAlpine Humberoak Ltd. V McDermott International Inc (1992)14 the
contractor defendant engaged the claimant as a sub-contractor to construct steel
pallets forming part of a weather platform for an oil rig. The claimant’s case was that it
had been considerably delayed in constructing the pallets by late receipt of materials,
revised drawings and late replies to technical queries and was entitled to extra
payments in respect of the delays it had suffered. The direct costs of these events was
agreed and paid but indirect costs were also sought. The claimants assessed the time
needed for each individual revision , their evidence on quantum being based on the
assumption that during that time no other work could be performed and that the
contract as a whole had been delayed to that extent. The Court of Appeal held that the
claimant had not established a right to be paid any sum in respect of its indirect costs
as a result of the variations and revisions in the absence of any evidence showing that
the individual variations and revisions had caused delay to progress. The Court
essentially disallowed the claim because the claimants had failed to show causation.
Lloyd LJ set out quite clearly the extent to which causation was necessary:
“The judge dismissed the defendants’ approach to the case as being ‘a retrospective
and dissectional reconstruction by expert evidence of events almost day by day,
drawing by drawing, TQ by TQ and weld procedure by weld procedure, designed to
show that the spate of additional drawings which descended on McAlpine virtually from
the start of the work really had little retarding or disruptive effect on its progress’. In
our view the defendants’ approach is just what the case required.”15
13
Ibid. para. 8.208 14
58 BLR 1 15 Per Lloyd L.J., ibid at p.28
27
Hudson opines that :
The Humberoak case reflects an increasingly common tendency for exaggerated claims
to be advanced, whether for the valuation of variations or damages for breaches of
contract, based on unrealistic theoretical assumptions which conveniently dispense
within any detailed investigation of either causation or quantum, and which are often
the result of so-called expert claims advice obtained at an early stage: “It seems to be
the practice in the construction industry to employ consultants to prepare a claim
almost as soon as the ink on the contract is dry.”16 The Wharf and Humberoak
judgments represent a fully justified and overdue judicial response to these tendencies,
and should provide valuable support where better particularisation of claims is sought
by defendants at the interlocutory stages of either litigation or arbitration.17
It must have appeared therefore at the time of the publication of the eleventh edition
of Hudson’s Building and Engineering Contracts (1995) that the Humberoak and Wharf
decisions pointed to a move away from global claims by the courts. Two recent
decisions however seem to adopt a more permissive approach to global claims.
The first important point to note in relation to Laing Management (Scotland) Ltd v
John Doyle Construction Ltd18 is that the employer conceded that a “global claim”
(in this case a claim for loss and expense calculated using a comparison between pre-
contract estimates and actual costs) was permissible if it were impossible for each
casual link to be traced between each individual event (i.e. each cause of delay and
disruption) and each item of loss, although the burden of showing this was upon the
claiming party. The defendants accepted that the claimants were entitled to make a
global claim. Indeed there does not seem to be any authority for the proposition that a
global claim is never permissible. It is also of relevance that this is a Scottish case and
as such is of only limited persuasive value in Ireland.
The court did not decide whether an averment that it was impossible to draw a causal
link between each causative event and each item of loss and expense was essential in
order to make a global claim. Neither did their Lordships decide what is necessary to
16
Per Lloyd L.J., ibid at p. 24 17
Hudson para 8.211 18 [2004] BLR 295
28
prove such an averment once it is made and what the consequences are if the
averment is made but not proven.
Notwithstanding the above, the court found that if a claimant puts forward a global
claim, he must eliminate all causes of loss and expense that are either the claimant’s
responsibility or neutral events (a contractor is entitled to claim an extension of time
for some neutral events but not loss and expense). In other words no causative
element can be included in a global claim that is not the responsibility of the
defendant.
Lord MacLean sets forth the following analysis of the nature of a global claim: “For a
loss and expense claim under a construction contract to succeed, the contractor must
aver and prove three matters: first, the existence of one or more events for which the
employer is responsible; secondly, the existence of loss and expense suffered by the
contractor; and thirdly, a causal link between the event or events and the loss and
expense…Normally individual causal links must be demonstrated between each of the
events for which the employer is responsible and particular items of loss and expense.
Frequently, however, the loss and expense results from delay and disruption caused by
a number of different events, in such a way that it is impossible to separate out the
consequences of each of those events. In that event, the events for which the
employer is responsible may interact with one another in such a way as to produce a
cumulative effect. If, however, the contractor is able to demonstrate that all of the
events on which he relies are in law the responsibility of the employer, it is not
necessary for him to demonstrate causal links between individual events and particular
heads of loss. In such a case, because all the causative events are matters for which
the employer is responsible, any loss and expense that is caused by those events and
no other must necessarily be the responsibility of the employer. That is in essence the
nature of a global claim…if the claim is to fail, the matter for which the employer is not
responsible in law must play a significant part in the causation of the loss and expense.
In some cases it may be possible to separate out the matters for which the employer is
not responsible.19
The passage does not provide for the very common scenario; where events for which
the contractor is responsible interact with events for which the employer is responsible
19 Per Lord MacLean, ibid. at pp. 300-301
29
to produce the cumulative effect. The foregoing analysis of Lord MacLean only requires
the contractor to demonstrate that all the events on which he relies are in law the
responsibility of the employer. There is no provision for a situation where there are
causal factors contributing to the consequences that are difficult to identify (or perhaps
easy for a claiming contractor to conceal) and are not the employer’s responsibility.
There is an inherent contradiction in this approach. If the contractor is not required to
demonstrate causal links between individual events and particular heads of loss it
cannot be said (in the very next sentence) that all the causative events are matters for
which the employer is responsible. At best, all that can be said id that the causative
events identified are matters for which the employer is responsible. Clearly the court is
correct in stating that any loss and expense caused exclusively by events for which the
employer is responsible must necessarily be the responsibility of the employer. The
problem however is that the contractor is not required to show that such events are in
fact the cause of the loss and expense.
This approach shifts the burden of proof from the claimant to the defendant. This is
obviously contrary to a fundamental rule of law. Furthermore it places the burden of
proof on the party who is worst placed to shift it. Typically global claims will be taken
by contractors against employers. Contractors are generally in the best position to
monitor the progress of a construction project and to keep records. If a contractor,
who has first hand knowledge of the carrying out of a job is unable to separate out the
consequences of the various events, the employer is unlikely to be able to do so. This,
it is submitted is prejudicial and highly unfair to an employer.
Lord MacLean’s judgment in Laing goes on to cite the following passage from
judgment of Byrne J in John Holland Construction & Engineering Pty Ltd v
Kvaerner RJ Brown Pty Ltd (1996)20:
“….a contractor, as the maker of such a claim (total cost claim), alleges against a
proprietor a number of breaches of contract and quantifies its global loss as the actual
cost of the work less the expected cost. The logic of such a claim is this:
(a) the contractor might reasonably have expected to perform the work for a
particular sum, usually the contract price;
(b) the proprietor committed breaches of contract;
20 82 BLR 81
30
(c) the actual reasonable cost of the work was a sum greater than the expected
cost.
The logical consequence implicit in this is that the proprietor’s breaches caused the
extra cost or cost overrun. This implication is valid only so long as, and to the extent
that, the three propositions are proved and a further unstated one accepted: the
proprietor’s breaches represent the only causally significant factor
responsible for the difference between the expected cost and the actual
cost. In such a case the causal nexus is inferred rather than demonstrated…The
under-stated assumption underlying the inference may be further analysed. What is
involved here is two things: first, the breaches of contract caused some extra cost,
secondly, the contractor’s cost overrun is this extra cost. The first aspect will often
cause little difficulty but it should not…be ignored…It is the second aspect…which is
likely to cause the more obvious problem because it involves an allegation that the
breaches of contract were the material cause of all of the contractor’s cost overrun.
This involves an assertion that, given that the breaches of contract caused some extra
cost, they must have caused the whole of the extra cost because no other relevant
cause was responsible for any part of it.21
In considering the John Holland Construction case, Lord Mac Lean continued:
Byrne J went on to consider the claim made by the plaintiffs in the case before him,
and pointed out that, because it was a total cost claim, it was necessary to eliminate
any causes of inadequacy in the tender price other than matters for which the
employer was responsible. It was also necessary to eliminate any causes of overrun in
the construction cost other than matters for which the employer was responsible.
This, it is submitted is clearly impossible unless every single causal link is examined. In
order to eliminate any causes of overrun in the construction cost other than matters
for which the employer was responsible, every cause of overrun must be identified and
analysed to see who is responsible. If it is the case that this is possible, then it should
not be necessary to present a global claim because it would not be impossible or
impractical to separate out the consequences of each claim event.
21 Ibid. pp. 85-87)
31
After considering the John Holland case and following consideration of Boyajian v
United States22 (1970), Lord MacLean went on to state that: If a global claim is to
succeed, whether it is a total cost claim or not, the contractor must eliminate from the
causes of his loss and expense all matters that are not the responsibility of the
employer…23
As outlined above, it is difficult to see how it is possible for a contractor to demonstrate
that he has eliminated such matters other than by the making of a bald assertion. Lord
MacLean went on to say that this requirement is mitigated however by three
considerations; firstly:
It may be possible to identify a causal link between particular events for which the
employer is responsible and individual items of loss. On occasion that may be possible
where it can be established that a group events for which the employer is responsible
are causally linked with a group of heads of loss, provided that the loss has no other
significant cause. In determining what is a significant cause, the “dominant cause”
approach...is of relevance24
This point raises no difficulty whatsoever however it is submitted that to the extent
that this is possible, the claim is not a global claim but a conventional claim requiring
the claimant to show causation. The second and third mitigating considerations
identified by his Lordship were that:
the question of causation must be treated by “the application of common sense to the
logical principles of causation”…In this connection, it is frequently possible to say that
an item of loss has been caused by a particular event notwithstanding that other
events played a part in its occurrence…if an event…for which the employer is
responsible can be described as the dominant cause of an item of loss, that will be
sufficient to establish liability, notwithstanding the existence of other causes that are to
some degree at least concurrent.25
22 423 F 2d 1231 23
Per Lord MacLean, ibid. at p. 302 24
Per Lord MacLean, ibid. at p. 302 25
Per Lord Mac Lean, ibid at p. 302 In analysing the concept of the dominant cause, Lord MacLean used
cited Leyland Shipping Company Limited v Norwich Union Fire Insurance Society Ltd [1918] AC 350
32
And that:
Even if it cannot be said that events for which the employer is responsible are the
dominant cause of the loss, it may be possible to apportion the loss between the
causes for which the employee is responsible and other causes…the event for which
the employer is responsible should be a material cause of the loss. (e.g. concurrency)26
Laing has received some measure of approval from the English Courts in London
Underground Ltd v Citylink Telecommunications Ltd27. That case involved the
replacement of the telecommunications network throughout the London underground
network. Certain enabling works needed to be carried out by the employer prior to the
start of the contract works and these works were delayed. The contractor claimed
there were a large number of alleged breaches and claimed an overall extension of
time. The arbitrator found that the claim was a global claim. The case came before
Ramsey J in the High Court in England:
…I consider that the proper approach to global claims is relevant. The approach set
out in the decision in Laing v Doyle is not challenged on this application and I accept
that approach.
Despite this, both the arbitrator and the Judge went on to reject the global claim and
decide only those issues where the evidence showed a connection between the delay
and the event. The Judge went on to find that in circumstances where the arbitrator
considers the global claim to have failed, it is open to him, on the evidence before him,
to establish causation and make appropriate findings.
There does not seem to be a large body of judicial support for the concept of global
claims. Indeed it is possible that if the concept was tested in the Irish courts, it would
be met with an unfavourable response. This is unlikely to happen in the near future
however given that all standard forms of construction contracts contain arbitration
clauses. It seems to be the case that every large construction project in Ireland in
recent years involves a number of significant claims by the contractor against the
employer. As well as the usual claims such as delay and disruption claims, acceleration
26
Per Lord MacLean, ibid. at pp. 302-303. His lordship cited Apportionment cases: Lichter v Mellon-
Stuart Company (1962) 305 F 2d 216 and Phillips Construction Co Inc v United States (1968) 394 F 2d
834 in support of apportionment. 27 [2007] BLR 391 at 414
33
claims, variations and employer’s breaches, most claimants will include a global claim.
These claims are used as currency in settlement negotiations to put pressure on
employers in the context of alternative dispute resolution. They are so familiar now in
the world of construction claims that they barely raise an eyebrow when they land with
a thud on the employer’s desk. It is doubtful whether one would carry any weight if it
was to be subjected to the scrutiny of the High Court.
Global claims avoid the central requirement of tying the individual breaches or grounds
of claim to the particular sums claimed. A global claim or a total cost computation is
not evidence of a breach of contract or any other entitlement and it is not evidence of
damage or additional costs. The eleventh edition of Hudson was published in 1995
(before the Laing and London Underground decisions) and its author then wrote:
It is submitted that, in the English and related Commonwealth jurisdictions, claims on a
total costs basis, a fortiori if in respect of a number of disparate claims, will prima facie
be embarrassing and an abuse of the process of the court justifying their being struck
out and the action dismissed at the interlocutory stage. It is further submitted that,
even if such a claim is allowed to proceed, it should only be on the basis that, on proof
of any not merely trivial damage or additional cost being established (or indeed any
other cause of the additional cost, such as under-pricing) for which the owner is not
contractually responsible, the entire claim will be dismissed. Any other course places
the practical onus of proving the extent of the plaintiff’s damage on the defendant or
on the court itself.28
Although the courts in the English and Scottish jurisdictions have shown a limited
willingness to allow global claims, it is very possible that an Irish court would not.
28 Hudson para 8.204
34
CONSTRUCTION LAW
BAR COUNCIL CONFERENCE, DISTILLERY BUILDING Paper by Michael Stimpson BL Saturday 7th February 2009
NOTICE PROVISIONS AS CONDITIONS PRECEDENT
EXEMPTION CLAUSES – GENERAL PRINCIPLES This paper deals with the trend in modern construction contracts requiring the Contractor to give notice of claims for extensions of time and/or money within a
particular time frame and whether a notice given outside that timeframe results in the barring of the claim which the Contractor wishes to pursue.
If the Employer alleges that such clauses bar the Contractor’s claims, then the clause in question will be an exemption clause and subject to the numerous cases on that topic. Before dealing with the specific clauses which are the
subject of this paper, we should remind ourselves of the following basic
principles: “The General rule is that where there is any doubt as to the construction of any stipulation in a contract, one ought to construe it strictly against the party in whose favour it has been made.” 29 “I think that any clause or provision that purports to have that effect (i.e. to exclude liability) ought to be clear and unambiguous, so that the Contractor knows exactly where he stands.”30 (i) If the clause contains language which expressly exempts the person in
whose favour it is made (hereafter called the “proferens”) from the consequences of the negligence of his own servants, effect must be given to that provision...
(ii) If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens. If a doubt arises at this point, it must be resolved against the proferens.
(iii) If the words used are wide enough for the above purposes, the court must then considered whether the ‘head of damage’ may be based on some ground other than that of negligence ... The ‘other ground’ must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it; but subject to that qualification ... the existence of a possible head of damage other than that of negligence is fatal to the proferens even if the words used are prima facie wide enough to cover negligence on the part of his servants. 31
“ ... the reason for the principle that an exclusion clause must be clearly and unambiguously expressed in order to exclude liability for negligence
29
Burton v English [1883] – Brett MR 30
Houghton v Trafalgar Insurance Company Ltd [1954] – Romer LJ 31 Canada Steamship Line v R [1952] Lord Morton
35
is that the defendant is seeking to exclude the application of the common law and his or her common law liability. Certainly, the parties may agree to exonerate a party from such liability in advance, but to do so it is just and reasonable that the courts should be satisfied that the exemption is clearly intended. This is more particularly the case when the exemption is imposed as the term of a contract which in its standard form contact or ‘unilateral’ contract in the sense that its provisions are not subject to significant negotiation or the exclusion from liability is dictated by the party who will enjoy the immunity. The principle is not, therefore, an arbitrary or artificial rule of construction. Rather it is a realistic principle which recognises that the parties are not to have been taken to have intended to exclude the common law, or the common law liability of the defendant, unless they have said so in clear and unambiguous terms”32 “If you examine all the cases, you will ... find that at bottom it is because the clause (relieving a man from his own negligence) is unreasonable, or is being applied unreasonably in the circumstances of the particular case. The judges have, then, time after time, sanctioned a departure from the ordinary meaning. They have done it under the guise of ‘construing’ the clause. They assume that the party cannot have intended anything so unreasonable. So they construe the clause ‘strictly’. They cut down the ordinary meaning of the words and reduce them to ordinary proportions. They use all their skill and art to this end.” 33 “In this type of case two principles are well settled. The first is that if a person desires to exempt himself from liability which the common law imposes upon him, he can only do so by a contract freely and deliberately entered into by the injured party in words that are clear beyond the possibility of misunderstanding. The second is: if there are two possible heads of liability on the part of the defendant, one for negligence, and the other for strict liability, an exemption clause will be construed, so far as possible, as exempting the defendant only from strict liability and not relieving him from liability for negligence.”34 “Are the courts then powerless? Are they to permit the party to enforce his unreasonable clause, even when it is so unreasonable, or applied so unreasonably, as to be unconscionable? When it gets to that point, I would say ... ‘there is the vigilance of the common law which, while allowing freedom of contract, watches to see it is not abused’ ... It will not allow a party to exempt himself from his liability at common law when it would be quite unconscionable for him to do so.”35
Summarising the principles (from the above and generally):
1. The exemption clause must be clear and unambiguous.
32
Livingstone v Roskilly [1992] New Zealand High Court, Thomas J 33
Gillespie Bros v Bowles (Roy) Ltd [1973] Lord Denning MR 34
White v Warwick [1953] Denning LJ 35 Gillespie Bros v Bowles [1973] Lord Denning MR
36
2. It will not apply to claims in tort or statutory claims unless express reference is made to either or both.
3. If truly unconscionable, it will not be applied at all.
4. If the clause is in conflict with another clause of the contract, it may not be applied.
5. If there is any element of fraud, it will not be applied.
6. The clause has to be brought to the notice of the party against whom it is to be enforced with suitable panoply.
In England whether an exemption clause may be relied upon or not is governed by the Unfair Contract Terms Act 1977. There is no such statute in Ireland and therefore the cases highlighting unreasonable and unconscionable exemption
clauses come to the fore in this jurisdiction.
They are also in point with regard to innocent as opposed to fraudulent misrepresentations. Such claims are dealt with under the Misrepresentation Act
1997 in the UK, which has no statutory counterpart in Ireland.
SPECIFIC EXEMPTION CLAUSES IN USE IN IRELAND
The Standard RIAI Building Form of Main Contract and the standard IEI Form of Contract for Civil Engineering Works do not contain clauses which bar claims
if they are not put in within a certain time.36 However, the Government has long required the County Councils to use Clause
20.1 of the FIDIC contract in respect of contractors’ claims, particularly in respect of National Roads Contracts. The standard FIDIC Clause 20.1 provides:
‘If the Contractor considers himself to be entitled to any extensions of the Time for Completion and/or any additional payment, under any clause of these Conditions or otherwise in connection with the Contract, the Contract shall give notice to the Employer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the contractor became aware, or should have become aware, of the event or circumstance. If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim... The requirements of this Sub-Clause are in addition to those of any other Sub-Clause which may apply to a claim. If the Contractor fails to comply with this or another Sub-Clause in relation to any claim, any extension of time and/or additional payment shall take account of the extent (if any) to which the failure has prevented or prejudiced proper investigation of the claim, unless the claim is excluded under the second paragraph of this Sub-Clause.’
The question therefore arises whether a failure to give notice of a claim within the 28 day period bars the claim forever.
36
Save for Clause 66 of the IEI Form which requires a reference to arbitration within one month of an
Engineer’s decision under Clause 66 in respect of interim certificates and three months in respect of
claims arising out of the final certificate/account.
37
Clause 20.1 goes on to request that supporting records be kept and that a fully
detailed claim including full support particulars of the basis of the claim or an extension of time and/or additional payment, should be provided by the Contractor within 42 days after he became aware, or should have become
aware, of the event or circumstance giving rise to the claim, or within such
other period as may be proposed by the Contractor. However, there would appear to be no sanction against failure to comply with these time limits, save for any prejudice caused to the Engineer in investigating the claim by such a
failure. Traditionally in construction claims, no particular form of notice of a claim has
been required, and as long as the Architect/Engineer/Employer have been put on notice of a claim, minutes of meetings, letters and interim applications for payment have all been treated as proving satisfactory notice where the claim is
referred to in such documents. There is also authority for oral notice being
adequate even where the clause requires a written notice37. Under the new Public Works Contract Forms, both these matters have been addressed. Clause 10.3 states as follows:
10.3 Contractor Claims 10.3.1 If the Contract considers that under the Contract there
should be an extension of time or an adjustment to the Contract Sum, or that it has any other entitlement under or in connection with the Contract, the Contractor shall, as soon as practicable and in any event within 20 working days after it became aware, or should have become aware, of something that could result in such an entitlement, give notice of this to the Employer’s Representative. The notice must be given according to sub-clause 4.14 and prominently state that it is being given under sub-clause 10.3 of the Contract. Within a further 20 working days after giving the notice, the Contractor shall give the Employer’s Representative details of all of the following:
(1) all relevant facts about the claim (2) a detailed calculation and, so far as practicable, a
proposal, based on that calculation, of any adjustment to be made to the Contract Sum and of the amount of any other entitlement claimed by the Contractor
(3) if the Contractor considers that the programme contingency referred to in sub-clause 9.4 should be used or that there should be an extension of time, the information required under sub-clause 9.3, and, so far as practicable, a proposal, based on that information for any use of the programme contingency or any extension to the Date for
37
See Merton London Borough Council v Stanley Hugh Leach Limited [1985] 32BLR51; CCECC (HK)
Ltd v Might Foundate Developments Ltd [2001] HCCT 23/2001; and Hersent v Burmah Oil Ltd 10BLR1
38
Substantial Completion of the Works and any affected Section.
The Contractor shall give any further information about the event or circumstance requested by the Employer’s Representative.
10.3.2 If the Contractor does not give notice and details in accordance with and within the time provided in this sub-clause 10.3, except where the Contractor has been required to and has given a proposal complying in full with sub-clause 10.4 [notwithstanding anything else in the Contract] the Contractor shall not be entitled to an increase to the Contract Sum or extension of time or use of the programme contingency referred to in sub-clause 9.4 [and the Employer shall be released from all liability to the Contractor in connection with the matter].
10.3.3 If the cause of the claim has a continuing effect, the Contractor shall update the information at monthly intervals (1) stating the extension of time and adjustment to the
Contract Sum claimed for delay and cost already incurred and
(2) so far as practicable, proposing a final adjustment to the Contract Sum and Date for Substantial Completion of the Works and any affected Section and
(3) providing any other information the Employer’s Representative reasonably requires.
10.3.4 The Contractor shall keep detailed contemporary records to substantiate any aspect of an event of circumstance about which it has given, or is entitled to give, notice under this sub-clause 10.3, and its resulting costs. These shall include any records the Employer’s representative directs the Contractor to keep. The Contractor shall give the records to the Employer’s Representative if so directed.
Thus it can be seen that under the new Public Works Contract, both the notice
of the claim and the particulars of the claim must be given within 20 working days and a further 20 working days otherwise the Employer will be released
from all liability, and further, that the notice must comply with the formal notice
provisions of sub-clause 4.14, stating that it has been given under sub-clause 10.3. Accordingly, the days of proffering oral notice or minutes, letters and payment applications as notices appear to be over, as will be the claims
themselves if the time limits are not met.
The question, therefore, for Contractors and those advising them is how, if at all, these stringent provisions can be circumvented. Reverting to the general principles at the beginning of this paper, it may be that, if the Contractor is out
of time for providing his notice/particular, his claim can be framed in negligence (or possibly some other tort) or for breach of statutory duty. The question will
then arise as to whether such claims are caught by the words “under any
39
clause of these Conditions or otherwise in connection with the Contract” (FIDIC), or “under the Contract ... or ... under or in connection with the Contract” (New Public Works Contract). Naturally, the facts of any particular case are of more than peripheral
importance in answering these questions. In my view, it is certainly important
to persuade the Arbitrator (or the Court where there is no arbitration clause), that the overall merits of the claim are with the Contractor. The tribunal will then be more disposed to finding these provisions unconscionable in any
particular case or, perhaps, construing the clauses so as not to catch claims for negligence, breach of statutory duty, and, even damages.
If an Arbitrator finds in favour of a Contract on these issues, the findings would be difficult to challenge unless they incorporated propositions of law which were “clearly wrong”38. There may be mixed findings of fact and law which would
prevent this conclusion. In any event, the proposition of law in question must
not be one referred by the parties to the Arbitrator for the Arbitrator’s exclusive determination (see McStay and Keenan v Shield Insurance Company Ltd [1988] IR89). The proposition of law must be material to the decision of the Arbitrator:
See Limerick City Council v Uniform Construction Ltd [2007] IR30, where Clarke J stated:
“In order to be a ground for setting aside the award an error in law on the face of the award must be such that there can be found in the award, or in a document actually incorporated with it, some legal proposition which is the basis of the award and which is erroneous.”
In order to be sure of flagging up the point of law as one not left exclusively to
the Arbitrator’s determination, a requirement for the Arbitrator to state a case
on the point for the opinion of the Court must be taken at an early stage in the arbitration proceedings, i.e. in the pleadings or at the latest in the opening of the case before any evidence is heard.
THE “PREVENTION” ARGUMENT
Even in the Employer manages to surmount the earlier arguments in this paper
against exemption clauses, the Employer still has to deal with the issue of “prevention”, i.e. is it equitable for such exemption clauses to be relied upon to defeat claims which arise as a result of the Employer preventing the Contractor
from operating the construction contract in the manner intended?
This is an important matter for Employers, because if the Architect/Engineer has not given an extension of time purely on the ground that the application for
such extension was itself outside of the time stipulated in the contract for giving
notice and/or particulars of such a claim, then, if the notice provision is held to be ineffective, in the absence of any extension of time award, time for completion is “at large” and the Employer will lose its automatic right to
liquidated damages against the Contractor. In this instance, the Employer will
have to prove unliquidated damages based on a new “reasonable time” for completion, which itself will be decided in the light of all relevant circumstances
38
McStay v Assicurazioni Generali SpA [1991] ILRM, Sheahan v FBD Insurance 1998 IEHC,
unreported, High Court, Kelly J, March 25, and Church & General Insurance Co v Connolly.
40
and not necessarily just those referred to in the extension of time clause
entitling the Contractor to an extension of time. There is no direct authority in either Irish law or English law as to whether clause 20.1 of FIDIC is a condition precedent to a valid claim for more time or
more money, and there are no cases at all as yet under the new Public Works
Contract. Even where a time-bar clause appears to be a condition precedent, a court or arbitral panel may refuse to interpret it this way. A notable example is
Chiemgauer Membran und Zeltbau GmbH (formerly Koch Hightex GmbH) v New Millennium Experience Co Ltd (formerly Millennium Central Ltd) (No1)39 where the English Court of Appeal held the following clause not to be a condition precedent:
“The provision of a guarantee and performance bond is a condition precedent to any liability or obligation of the New Millennium Company [as employers for the supply of the roof for the Millennium Dome] under the contract.”
In Chadwick LJ’s view, if the clause were held to be a condition precedent “such an arrangement could properly be described ... as commercial nonsense”. The Judge was not convinced that the Employer and the Contractor intended that the effect of their agreement was that the Contractor should carry on working
(and could then – as happened – have its employment terminated) without any
entitlement to be paid, until it chose to provide the guarantee and performance bond, which after termination became unrealistic. Outside of Ireland and England there are conflicting decisions as to whether or
not the prevention principle is the undoing of a time-bar clause. In the
Australian case of Turner Corporation Ltd v Austotel Pty Ltd Cole J in the New South Wales Supreme Court stated:
“If the Builder having a right to claim an extension of time fails to do so, it cannot claim that the act of prevention which would have entitled it to an extension of time ... resulted in its inability to complete by that time. A party to a contract cannot rely upon preventing conduct of the other party where it failed to exercise a contractual right which would have negated the effect of that preventing conduct.”
In the case of City Inn Ltd v Shepherd Construction Ltd [2002] SLT781 and [2001] SCLR961, the Scottish Court of Session took a similar view stating that
compliance with the time provision in the relevant contract would not impose an “excessive burden” on the Contractor, thus giving rise to a potential argument that such clauses can be circumvented if they do impose an
“excessive burden” on the Contractor. Indeed, this may often be the case in cases where complex facts give rise to legitimate claims on construction contracts where it might not be possible to comply with the time limits set out
in the new Public Works Contract, for example.
In the case of Gaymark Investments Pty Ltd v Walter Construction Group Ltd [2000] 16BCL449 Supreme Court Northern Territories, an amended version of
39
Chiemgauer Membran und Zeltbau GmbH (formerly Koch Hightex GmbH) v New Millennium
Experience Co Ltd (formerly Millennium Central Ltd) (No1) [1999] CILL1595, CA (3rd
November 1999),
reported by Westlaw as 1999WL1019561.
41
the Australian Public Works Standard Form NPWC3-1981 included at sub-clause
SC19.2: “The Contractor shall only be entitled to an extension of time ... where the Contractor ... (b)(i) has complied strictly with the provisions of sub-clause SC19.1 and in particular, has given the notices required by sub-clause SC19.1 strictly in the manner and within the time stipulated by the sub-clause; ...”
It was agreed that the Contractor had failed to give a notice in accordance with
the clause, but the Judge, Bailey J, refused to treat it as a condition precedent. He refused to overturn the Arbitrator’s award on this point and in distinguishing
Turner (see above) stated that the prevention principle presented a “formidable barrier” to the Employer’s claim for liquidated damages (the amended contract made no provision for an extension of time unless the Contractor complied with
the time-bar clause).
Again, in Peninsula Balmain Pty Ltd v Abigroup Contractors Corp Pty Ltd [2002] NSWCA211, the New South Wales Court of Appeal considered a time-bar clause in the following terms:
“The Principal shall not be liable upon any claim by the Contractor in respect of or arising out of a breach of the Contract unless within 28 days after the first day upon which the Contractor could reasonably have been aware of the breach, a Contractor has given to the Superintendant the prescribed notice.”
Although the Contractor failed to comply with this clause, the Court held that this did not deprive him of his right to an extension of time and that “the prevention principle” overrode the time-bar clause, and that the Superintendent
should have exercised his unilateral power to grant an extension of time to cover the Employer’s delay. Gaymark and Peninsula Balmain have attracted adverse judicial comment. In
the case of Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No2) [2007] EWHC447(TCC), [2007] BLR195, where Jackson J (now Jackson
LJ) stated:
“Whatever may be the law of the Northern Territory of Australia, I have considerable doubt that Gaymark represents the law of England. Contractual terms requiring a Contractor to give prompt notice of delay serve a valuable purpose; such notice enables matters to be investigated while they are still current. Furthermore, such notice sometimes gives the Employer the opportunity to withdraw instructions when the financial consequences become apparent ... if Gaymark is good law, then a Contractor could disregard with impunity any provision making proper notice a condition precedent. At his option the Contractor could set time at large.”
CONCLUSION
It has been suggested by some commentators that the prevention principle is not a rule of law but a rule of construction and therefore cannot defeat time-
bar clauses, and also that the ‘proximate cause’ of the Contractor’s loss is not to
42
be found in the Employers acts of prevention, but the Contractor’s own failure
to operate the contractual machinery and judicial lines of thought for both propositions do emerge from some cases. Those commentators therefore suggest that Arbitrators should apply time-bar clauses ‘freely negotiated
between commercial men’.
For what it is worth, I do not subscribe to either view. I would suggest that the “prevention principle” is well rooted in Equity, and that the ‘proximate cause’ theory is mere sophistry.
For good measure, I do not accept that the amended FIDIC Clause 20.1, nor Clause 10.3 in the new Public Works Contract, in the Irish context at least, have
been ‘freely negotiated between commercial men.’ The fact is that they have been imposed upon the contracting fraternity who were/are in no position to resist, after inadequate consultation and in the teeth of a gale of protest from
contractors and (it is rumoured) from consultant engineers and architects, and
even some County Councils who are required to follow Government policy in this matter as required by the Department of the Environment and Local Government and the National Roads Authority.
POST SCRIPT
In addition, I strongly suspect that these time-bar clauses can be attacked on Constitutional grounds, but being a ‘blow-in’ of a mere 18 years call to the Bar
of Ireland, it is, perhaps, not for me to be the first to adduce such arguments
and for the purposes of this seminar, at least, I have regarded them as outside my remit.
Michael Stimpson
7th February 2009
43
CONSTRUCTION LAW
BAR COUNCIL CONFERENCE, DISTILLERY BUILDING Paper by Anthony Hussey Saturday 7th February 2009
THE NEW PUBLIC SECTOR CONTRACTS
INTRODUCTION
The New Public Sector suite of contracts essentially comprises five forms, a Building
Contract based upon Employer’s Design, a Building Contract based on Contractor’s
Design, a Civil Engineering Contract based on Employer’s Design, a Civil Engineering
Contract based on Contractor’s Design and a Minor Works Contract. This paper
addresses issues which are common to the first four of these.
It is important to say at the outset that in so far as I am critical of these contracts, and
in particular the transfer of risk from the employer to the contractor, that criticism for
the most part relates to the standard contract where the employer is responsible for
the design and the contractor is responsible for the execution of the works. It is clearly
appropriate that there be a greater transfer of risk to the contractor where the
contractor is himself responsible for the design of the project.
The stated purpose of the Department of Finance in relation to these new contracts is
to “introduce lump sum fixed price contracts which will bring cost certainty and value
for money to the complex process of procuring and contracting and project managing
public works contracts”. These contracts seek to achieve this purpose through the
following means:-
1. They are fixed price lump sum contracts;
2. Many of the contractual risks which are traditionally borne by the Employer now
pass to the Contractor.
44
3. The Contractor’s ability to make claims is restricted by the introduction of
stringent procedural requirements compliance with which is a pre-requisite to
any successful claim.
4. More responsibility for contract management and administration will move from
the Employer’s Representative to the Contractor.
The new forms are to be welcomed in certain respects. The standard forms currently in
use (primarily GDLA and IEI Third / Fourth Editions) are substantially out of date with
the result that public and private Employers, except in relation to very minor works,
have been incorporating by way of amendment to the standard forms many and varied
new provisions with a view to taking account of recent legislation and modern
practices. In so far as these contracts address such issues they are to be welcomed. In
so far as they will require Contractors to operate contracts far more efficiently, this too,
certainly in the long term, is to be welcomed.
The wording of all five contracts is almost identical. Only minor changes are made to
distinguish civil engineering contracts from building contracts and design construct
contracts from construct only contracts. This is to be welcomed not only by the
industry but also by lawyers practising in the construction sector. The contracts
represent a one stop shop and the department has made it clear that these
agreements should not be amended. This is a vast improvement on the contracts
previously used. These comprised a variety of different contracts invariably heavily
amended.
BACKGROUND
Traditionally contracts of this nature are negotiated between the relevant government
agencies and representatives of the industry. A liaison committee was set up through
the Construction Industry Federation comprising representatives from the RIAI,
Engineers Ireland, contractors, quantity surveyors etc. This liaison committee
commenced negotiations for a new contract with the Department of Finance several
years ago. The Department took a very hard line in these negotiations. This was
because the Government of the day was being criticised by the media and others for
allowing roads and other contracts to overrun. The public could not understand why
contractors were being allowed to finish contracts long after the anticipated completion
date whilst at the same time being paid hugely increased prices. It was calculated that
in civil engineering contracts the ultimate price was approximately 40% on average
above the anticipated price.
Many civil engineering contracts take several years to complete from the date of
tender. The government agencies did not explain to the media that the main causes
for the increased cost and delay were:-
45
a) Changes to the contract works instructed after commencement (variations);
b) The cost of inflation (price variation) which is normally allowable in contracts of
this nature;
c) Delays caused by factors for which the employer would be contractually
responsible.
The perception was that contractors were running rings around the contracting
authorities and making a fortune in the process.
The fact is that the Irish construction market, right through the days of the celtic tiger,
and before, has always been extremely competitive. A search in the companies office
on the major contractors will reveal that on average profit is about four or five percent
of turnover. Now that the economic climate has changed and there are so few projects
available, contractors are tendering for these at well below cost. If therefore the
intention was to obtain “value for money”, the reality was that the State was already
receiving value for money and would in the course of events receive even better value
for money irrespective of the introduction of these contracts.
In any event, the unwillingness of the Department of Finance to compromise led to the
Department abandoning the process of negotiation and employing A&L Goodbody
solicitors to draw up new contracts from scratch. The contracts are quite unique in that
regard. They are unashamedly biased in favour of the employer.
RISK TRANSFER
Traditionally the Employer in construction projects has borne the risks which cannot be
foreseen or accurately estimated in terms of cost. This has always been considered fair
given that the Employer has chosen to undertake the project and the site is owned by
the Employer. If therefore it transpires that there is a problem with the site, which the
Contractor could not reasonably have foreseen, it seems appropriate and fair that the
Employer would meet the cost of overcoming the difficulty.
Dr. Nael Bunni, apart from being Ireland’s most eminent international arbitrator, is a
well known expert in the field of construction contracts. He has written extensively on
the FIDIC forms of contract, upon construction contract insurance clauses and other
complex issues. In the January 2009 edition of the International Construction Law
Review he analyses what he regards to be the four criteria of risk allocation in
construction contracts with particular reference to judicial precedent. In this interesting
article he argues that the Courts make assumptions as to where the risk should fall in
46
construction contracts and that the risk should not be lightly re-allocated. These
assumptions are based on the following criteria:-
1. Which party can best control the risk and / or its associated consequences?
2. Which party can best foresee the risk?
3. Which party can best bear that risk?
4. Which party ultimately most benefits or suffers when the risk eventuates?
I would ask you to bear these questions in mind when considering the risks allocation
set out below. I don’t propose to deal with the analysis in any way because once the
questions are asked with reference to any particular risk, the answer suggests itself. In
essence Dr. Bunni suggests that risks which the contractor cannot control and which
cannot be insured against should be allocated to the employer. Although the article
was not written for the benefit of an Irish audience in particular, the author cannot
resist mention of these new government contracts in respect of which he describes the
allocation of risk in terms of “faulty concepts”.
GROUND CONDITIONS
Much of the work carried out in relation to civil engineering contracts is underground
or underwater. The difficulty encountered with ground conditions varies enormously
from project to project and from one depth to another. The contractor is usually given
some information by way of a site investigation report. The traditional forms of civil
engineering contracts provide that the contractor will be entitled to be paid the
additional cost incurred by him by reason of the ground conditions being materially
different to those he could have reasonably foreseen. All of the other risks I am going
to mention are automatically passed to the contractor under these new forms of
contract. This particular risk is an optional one. If the contracting authority ticks one
box in the tender documents the risk will pass to the contractor, otherwise it will not. I
would confidently expect that in the vast majority of cases the risk will be allocated to
the contractor. This is a risk which the contractor cannot control. Any attempt to put a
price against it is a gamble. Modest profit can translate to a very substantial loss if
unexpected ground conditions are encountered.
FIXED PRICE RISK
The new contracts contemplate a fixed price period of thirty-six months including a six
month lead in time. This in effect eliminates the price variation head of claim.
47
CONSENT & AUTHORISATION RISK
Under most standard contracts the Employer is obliged to obtain any necessary
planning permission and other authorisation or consent required by law. In the new
forms of contract the position is reversed. The Employer is now to furnish details of
such consents, permissions and authorisation as it has identified in a contract as being
the responsibility of the Employer. The securing of all other consents, permits etc.
becomes the Contractor’s burden. This places the onus on the Contractor to fully
familiarise himself with the site and all permissions and legal impediments relating to
it. This is an added area of risk and expense for the Contractor.
An example of how this might arise is provided by the events which occurred at
Carrickmines Castle some years ago. A national monument was located on the route of
the works. Specific procedures had to be followed to obtain departmental consent to
interfere with the castle or any part of it. The Contracting Authority had not obtained
this consent. The Contractor was delayed for a very long period of time but was
entitled to be compensated under the standard conditions of contract which applied.
Under the new form of contract the risk would be with the Contractor. Again this risk
has to be quantified and priced.
RISK ATTACHING TO LEGAL REQUIREMENTS
Under the new forms of contract, the Contractor is obliged to comply with all “Legal
Requirements”. This expression is defined as including any requirement which applies
to the works as a result of “the legal rights of any person” or as a result of a decision
of a court. Therefore if any person has, for instance, a right of way over the site, the
Contractor must respect that right of way even if he was not advised of it by the
Employer. There is no entitlement to compensation or extension of time arising from
delay resulting from a failure of the contractor to comply with all “Legal
Requirements”. However it is worth noting that if the observance of Legal
Requirements prevents the works being completed in accordance with the Works
Requirements then the Employer’s Representative is required to give an instruction
changing the Works Requirements and the Contractor would be entitled to be
compensated. An injunction restraining a contractor from working during permitted
hours because the work is judged to be excessively noisy would, as a result of this
provision leave the contractor with no remedy even if the excessive noise is
unavoidable by the nature of the works, for instance piling.
48
DELAY & DISRUPTION RISK
Clause 9.4.2 states:-
“The Contractor has included in the initial Contract Sum and shall include in its
programme a contingency for delays to the Date for Substantial Completion of the
Works caused by Compensation Events”.
This is one of a number of provisions the effect of which will be to hugely discourage
the making of claims while at the same time ensuring that such claims as are made will
only succeed if they are absolutely genuine and are brought to the attention of the
employer as soon as the events giving rise to them occur. This provision is the most
innovative and ingenious of all the provisions contained in the contract.
Through this provision the contractor is deemed to have allowed in his tender price for
the cost of certain delays caused to him by the employer. The number of days involved
will vary from contract to contract but typically it might be fifty working days in a year
long contract. Delays caused by the employer in this context would include delays
caused by variations instructed by the employer and breaches of contract on the part
of the employer.
On the face of it, the clause cannot be considered unfair to the contractor. If anything
it is generous. If the contractor includes in his tender for the number of days he is
deemed to have included, and no such delays occur, he will have been paid for fifty
days of delay which never actually happened. The reality is however that in the
tendering process contractors will never allow for the full number of days they are
deemed to have included. Whether they do or not is to some extent beside the point.
The real benefit is that it discourages claims. A contractor is going to have to prove
that the first fifty days of delay are attributable to the employer before he will receive a
cent in compensation. This along with other disincentives will discourage claims.
One of those disincentives is that in tendering for the job the contractor will have been
obliged to nominate a compensation figure for the daily cost of delay. That cost,
through a mathematical formula is brought into the sum of his tender and may affect
the outcome. Therefore the tenderer who succeeds is likely to have nominated a very
low sum for his daily cost. Even therefore if he can prove delay in excess of the
threshold period, there will be no pot of gold at the end of the rainbow.
It is worth looking at an example as to how this would operate in practice. Suppose a
contractor has undertaken to complete a school building for €50milliion over a one
year period and there are liquidated damages payable to the employer of €10,000 a
week if he fails to do so. The employer decides to build on some extra rooms at a cost
of €300,000 and, because of the work itself and the lateness of the change this delays
49
the contract by seventy working days. The contractor has set his delay costs in his
tender at €2,000 a day. Finally let us suppose that the threshold period deemed to be
included in the contractors tender price and programme is forty days.
The good news is that the tenderer gets paid for the full price of the variation at
€300,000. However in so far as he has been delayed by seventy days he will get no
compensation for the first forty of these. He will be compensated at the reduced rate
provided for in the contract for the next thirty days but as against that he will have to
pay the employer liquidated damages for forty of the seventy days of delay in
completion. This is because he is deemed to have included that extra period of time in
his programme for completion of the contract and therefore is not entitled to any
extension of time for delays caused by the employer in that period.
Therefore for his seventy days of delay, the contractor is paid €60,000 i.e. €2,000
multiplied by thirty days. On the other hand he has to pay the employer liquidated
damages for approximately six weeks at €10,000 per week. He is therefore not
compensated at all for the delay.
(The above example is simplified and is therefore inaccurate as to the number of days
to be allowed or disallowed by reason of the contract providing for two thresholds
rather than one but that inaccuracy does not impact upon the principle of the point
being demonstrated).
CLAIMS
If the Contractor considers that he is entitled to an extension of time or to any
additional sum, he is obliged to make his claim as soon as practicable and in any event
within twenty working days after he becomes aware of it, or should have become
aware of it. The notice must prominently state that it is being given under clause 10.3
of the contract. There can therefore be no fudging of claims. Either the Contractor
complies with this procedure and puts the Employer clearly on notice or he loses the
entitlement to claim.
Within a further twenty working days the Contractor is obliged to submit all relevant
facts concerning the claim, a detailed calculation of the quantum together with any
further information requested by the Employer’s Representative.
If the circumstances giving rise to the claim have a continuing effect the Contractor is
obliged to update this information on a monthly basis.
In the context of claims, it is to be noted that by virtue of a rather unusual provision
the Contractor is obliged, if requested, to provide the Employer’s Representative with
all information, documents and records in the Contractor’s possession that the
50
Employer’s Representative requires to perform his functions and powers under the
contract – which would include assessing the claim. In effect this is the equivalent of
the Contractor having to make full discovery, in a legal context, of all his documents if
required to do so by the Employer’s Representative even at this very early stage.
Clause 10.3.2 provides:-
“If the Contractor does not give notice and details in accordance with and within the
time provided in this sub-clause 10.3……..the Contractor shall not be entitled to an
increase to the Contract Sum or extension of time…….and the Employer shall be
released from all liability to the Contractor in connection with the matter”.
Therefore not only is compliance with the requirement to give notice a condition
precedent, so too is the requirement to provide follow up details.
PROGRAMMES & PROGRESS REPORTS
At the outset the contractor has to submit a hugely detailed programme. If the
contractors programme no longer corresponds with actual progress the Employers
Representative may insist upon a new programme being produced and this must be
done within fifteen days.
The contractor is obliged to provide the employers representative with monthly
progress reports throughout the term of the contract. These reports are hugely
detailed and must include “anything relevant to a progress report that the Employers
Representative directs”. The provision of such programmes and progress reports
should have the effect of hugely increasing the administrative burden on both the
contractor and the employers representative. This should lead to greater efficiency on
the part of both because the cause of any claim is likely to be far more transparent,
and this is not a bad thing. In the broader sense however these requirements are likely
to act as disincentives to the making of claims and in particular dubious claims. A
contractor can be reasonably certain that the employers representative will insist upon
the fullest possible information and vouching when a claim is made.
It is to be noted that the employer is entitled under this form of contract to hold back
fifteen percent of any sum due to the contractor if there is any delay on his part in
producing such a programme or report.
TERMINATION
The termination clauses contain some unusual provisions. The contract provides for
voluntary termination by the Employer at any time. This may not be availed of by the
Employer if his intention is to continue the work with another Contractor. In the event
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of voluntary termination the Contractor is entitled to no damages such as loss of profit
but is merely entitled to the value of work done up to termination, the cost of
demobilisation and some other direct costs.
The contract also provides for termination by reason of the Contractor’s default. Some
of these grounds for termination are very wide. For instance the contract may be
terminated if the Contractor has committed a breach of the Safety, Health & Welfare at
Work Act 2005 or any regulations made thereunder. The provision does not state that
the breach has to be a serious one and in so far as other breaches are qualified by the
word “serious” it could be argued that any breach, even the most minor, of health and
safety requirements will justify a termination.
These provisions, although unusual, are not unique. What is unique is the use of
conciliation with reference to the employers wish to terminate the contract for the
contractors default. If the Employer wishes to terminate the contract by reason of a
Contractor’s breach, he may refer the issue of whether he is entitled to do so or not to
a Conciliator. If the Conciliator decides that the Employer is so entitled and the
contract is then terminated, the Contractor is entitled to have the issue reopened in
arbitration. However the contract specifically provides that in these circumstances if
the arbitrator ultimately decides that the Employer was not entitled to terminate, the
Contractor will, nevertheless, not be entitled to any damages or compensation by
reason of any breach of contract on the part of the Employer. Instead the Contractor’s
entitlements are to be confined to those which would have applied had there been a
voluntary termination i.e. value of works to termination and demobilisation costs etc.
The outcome of the arbitration between Uniform Construction and Limerick City
Council is in the public domain. The effect of the termination on Uniform was that it
could no longer work in the public sector. This is hardly surprising given that its bond
was in jeopardy and it was facing a huge counterclaim from Limerick City Council if the
termination was justified. Had that contract been regulated by these provisions,
Uniform’s only entitlement in its arbitration proceedings would have been a claim for
its demobilisation costs and other miscellaneous costs, assuming a Conciliator had
confirmed prior to termination that Limerick was entitled to terminate the contract.
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CONCLUSION
It is my view that these contracts are likely to achieve their goal of bringing contracts
home on time and more or less on budget subject to the effect of variations. They are
cleverly designed to discourage Contractors from permitting delays (even those caused
by the Employer) and from making claims. Contractors will be at a major loss if they do
not adequately price for the transfer of risk, the loss of claims opportunities and the
extra layer of administrative personnel required. In today’s economic circumstances,
there is no doubt that contractors are not adequately pricing for the additional level of
risk. On the contrary, prices being submitted under these new forms of contract are
actually lower than the prices that were being submitted under the old contracts which
did not contain the same risks. This is partly as a result of the economic climate and
partly as a result of contractors not fully understanding the risks involved.
The contracts contain many provisions relating to such matters as the final account,
novation and collateral warranties. Whilst these may be of interest to certain
audiences, they are not likely to be of much interest to this audience. I have confined
my paper to those areas which I think might be of particular interest to lawyers
engaged in or wishing to become engaged in construction disputes and issues.
53
CONSTRUCTION LAW
BAR COUNCIL CONFERENCE, DISTILLERY BUILDING
Paper by John Trainor SC Saturday 7th February 2009
ARBITRATION PROCEDURES UNDER THE NEW GOVERNMENT CONTRACTS
Introduction
1 The dispute resolution process in building and civil engineering contracts
usually culminates at arbitration. Until recently, most Public Works Contracts
were carried out pursuant to the IEI Conditions of Contract which specifically
imported the most recent IEI arbitration procedure. However, the new Public
Works Forms of Contract, required for all Public Works Contracts since 13th
February 2008, now import the Public Works and Services Arbitration Rules
2008. As of the date of writing, it is believed that no arbitrations have yet
taken place under these Rules involving the New Forms of Contract, no doubt
because such contracts are still in their early days, and the Dispute Resolution
Process set out in Clause 13 of the New Forms provides for a detailed
conciliation procedure which may be first undergone prior to proceeding to
arbitration under Clause 13.2.
2. However, it can be expected that such arbitrations will inevitably, in due
course, find their way to construction professionals and advisers. It is thus
appropriate to examine the Rules, and to consider them generally in the
context of the management of the Arbitration process. But a few introductory
observations are relevant.
3. The New Government Contracts lay a heavy emphasis on the need for a timely
flow of information between the Employer’s personnel and the Contractor’s
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personnel, and create specific obligations in the nature of pre-conditions in
relation to the giving of Notices. For example, under Clause 10.3, a Contractor
seeking an extension of time (or, indeed, any other entitlement) must give
timely notice, and thereafter must give the Employer’s Representative all
relevant facts about the claim, a detailed calculation, and, so far as practicable,
a proposal based on that calculation, of any adjustment to be made for the
contract sum, or of any other entitlement. The Employer’s representative, in
reply, is required to make a determination on the claim, and to notify the
Contractor and Employer accordingly. If the Contractor disagrees with the
decision of the Employer’s
Representative, thus giving rise to a “dispute”, either party may refer the dispute for
conciliation, in the course of which the parties are required to “….promptly make
available to the Conciliator all information, documents, access to the site and
appropriate facilities…”.
4. Accordingly, it is likely that, by the time the dispute has made its way to
Arbitration, all the relevant issues, documents, arguments etc will have become
well identified. It is likely that the scope, if any, for the introduction of new
arguments, (or to argue for a given outcome from a different perspective) will
be limited. It may be that it will be more likely that the issues that will give
rise to Arbitrations will concern fundamental issues as to contract construction
or interpretation, or the extent to which the Contractor may be bound by
information (or the lack of it) provided at tender time by the Employer, or
factual disputes where the parties are simply not in agreement as to what
transpired.
5. In general, members of the legal profession may not currently be up to date on
how the new Government Contracts are working out in practice. In contrast,
most construction professionals have been receiving briefings and “road shows”
on these Contracts for the past 2 years. Some professional organisations
(such as the Chartered Institute of Arbitrators (Irish Branch)) have been
conducting courses with a view to accrediting Conciliators for the purposes of
securing appointments pursuant to Clause 13. But Lawyers, and members of
the Bar, in particular, with proven advocacy and contract construction skills are,
55
arguably, ideally placed for appointment when construction disputes do reach
the Arbitration stage.
6. The new Government Contracts, as to their wording, have no direct precedent.
There is thus no settled or judicially approved construction of any of the
Clauses. It is likely, accordingly, that all of the main contentious areas of the
Contract will fall for construction at Arbitration in early course.
7. Although activity in the construction sector generally is down (the DKM Review
of the Construction Industry for 2007 and its Outlook for 2008-2010 (dated
September 2008)) reported overall fall of 23% of construction output for 2008),
public sector new construction output rose by 14% in 2008. Overall
investment in productive infrastructure projects is expected to increase in
volume terms by over 8%, led by a substantial increase in airports (71%) and
public transport (16.5%)), while construction-related investment in social
infrastructure projects rose, in 2008, by over 12%. Despite the drastic
collapse in the public finances, the draft Framework Agreement announced on
January 29th last confirmed the Government’s intention to provide a fiscal
stimulus in 2009 and 2010 by maintaining capital investment at a higher level
by both international and historical standards, with re-prioritisation of this
capital expenditure in 2009 and 2010 in order to support labour-intensive
activities where possible. All this points to a Government intention to maintain
expenditure on important capital projects, with regard to which the new
Government Contracts will be of central importance. However, given the
extreme need to control public expenditure on the one hand, coupled with the
inevitable fact that Contractors will be likely to be pressurised into the need to
make claims to recoup additional expenditure, all points to an impending boom
in growth in construction disputes.
8. The New Government Contracts themselves, ironically, encourage the
progression of disputes to Arbitration, since the conciliation provisions under
the Contract provide that, where a Conciliator has recommended the payment
of a sum of money (which will usually be to the Contractor) and a Notice of
Dissatisfaction is given (most usually by the Employer, though possibly by
both), the party recommended to pay by the Conciliator is obliged to make the
56
payment in question provided only that the other party firstly gives a Notice
referring the dispute to Arbitration, and also provides a bond for the amount of
payment. The Training Manual published by the Department of Finance in
February 2007 (reissued May 2008) commenting on the then draft form of
Public Contracts, (which required a bond only to be provided as a precursor to
payment), drew attention to the fact that, once a Contractor has received a
payment under a Conciliator’s award, he may be content not to pursue a
subsequent Arbitration; alternatively, he might not wish to be seen to be the
Claimant in such an Arbitration. The training course recommended, from the
Employer’s point of view, that it would be essential that the Contractor be the
Claimant in the Arbitration, since, otherwise, it would become evident to the
Arbitrator that a payment had been made on a Conciliator’s recommendation.
The current form of Government Contract presently in circulation now obliges a
party taking payment under a Conciliator’s recommendation, to be the party to
serve the Notice to Refer. Since, as we will see below, the Notice to Refer
under the 2008 Rules is intended, in effect, to comprise a full Statement of
Claim, to which the Respondent is in due course required to file a Defence, it
follows that the Contract provisions for conciliation, far from encouraging a
resolution of the dispute (such as might happen were the Contractor to decide
to accept the payment recommended), actually forces the Contractor to
arbitrate.
9. It is not surprising, in one sense, that, in conjunction with the introduction of
the new Contracts, the Department of Finance, has caused new arbitration
rules to be prepared. The new Government Contracts appear to be sui
generis. They are not merely a development of either the IEI 1980 Conditions,
nor the RIAI Conditions. They do not lean upon, or draw from, Conditions of
Contract proposed by any particular professional body. In this context, it is
not surprising that the Arbitration Procedure 2000 (promulgated by the
Institute of Engineers of Ireland, and thus capable of being perceived as
leaning towards the needs and requirements of that body), should be replaced
by new procedures not capable of being perceived as derived from any
particular source.
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10. Although Arbitrations can be carried out satisfactorily without the incorporation
of Procedural Rules (by adopting the statutory formalities, and ensuring natural
justice), there is no doubt that the existence of Procedural Rules greatly
facilitates the smooth running of the arbitral process. Procedural Rules
frequently make provision for matters going beyond the requirements and
entitlements set out in the Arbitration Acts (in this regard Rule 23.4 of the 2008
Procedure expressly provides that the powers of the Arbitrator under those
Rules are “…additional to the powers of the Arbitrator and the Court under the
Arbitration Acts 1954 – 1998”). In the United Kingdom, the JCT Contracts
expressly incorporate the Construction Industry Model Arbitration Rules
(CIMAR), along with the JCT additions to them (see “Emdens Construction
Law”, Binder 3 p.53). International Arbitrations are frequently conducted
under the ICC Rules of Arbitration.
Commencement of Arbitration and the Notice to Refer.
11. An Arbitration is commenced under the 2008 Rules by one of the parties giving
to the other a Notice to Refer the dispute to a sole Arbitrator in accordance
with the Contract and the 2008 Rules.
12. Importantly, under Rule 2.2, no party may disclose to the Arbitrator anything
said or done at any previous conciliation, its outcome, or, (except in
proceedings dealing with interest), any payment made under a Conciliator’s
recommendation. All this is consistent with previous provisions concerning
conciliation.
13. Under Rule 4.1, the Notice to Refer is required to:-
- State the names, addresses and telephone numbers of the parties to
the Contract;
- Expressly state that it is a Notice to Refer a matter to arbitration;
- Contain particulars of the nature of the claim and the facts supporting
the claim, and an indication of the amount in dispute, if any, and
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- Contain particulars of the relief or remedies sought.
14. Under the IEI Arbitration Procedure 2000, the Notice to Refer is a far more
general document, and is merely required to “…list the matters which the Party
serving the Notice to Refer wishes to be referred to Arbitration”. Under Rule
2.3 thereof, it is expressly provided that “…nothing stated in the Notice to Refer
shall restrict that party as to the manner in which it subsequently presents it
case”. Subsequent to the Arbitrator’s appointment under the I.E.I. Procedure
2000, either party could refer further disputes or differences to the Arbitrator
by serving additional Notices to Refer.
15. Under the 2008 Arbitration Rules, the Notice to Refer appears now intended to
operate in a much more fundamental manner than under the 2000 Procedure,
and appears intended, in effect, to incorporate the Claimant’s Statement of
Case, as traditionally understood. Thereafter, under Rule 11.4 of the 2008
Procedure, within 30 days after receipt of the Notice to Refer, or 14 days after
appointment of the Arbitrator, whichever is the later, the Respondent is
required to send a written Statement of Defence, responding to the issues
raised in the Notice to Refer, and raising any other relevant issues, including
any Counterclaims that are to form part of the proceedings.
16. The Arbitrator may extend the time for sending the Statement of Defence to
allow the Respondent a reasonable time to prepare it, having regard to the
quantity, quality and timing of information given to the Respondent by the
referring party in, or before, the Arbitration.
17. It should be noted that, under Rule 13, the Arbitrator has the power to decide
all procedural and evidential matters, including:-
- The adequacy of the Notice to Refer and Defence and the extent to
which they can be later amended;
- Whether the Arbitrator requires further written statements from the
parties in addition to the Notice to Refer and Defence, and when those
59
statements are to be provided, being, if possible, directed to be
provided within 30 days of the date of the direction;
- And a number of other procedural matters which we will come to below.
18. Given that, under the 2008 Procedure, the Notice to Refer is effectively a
Statement of Case, Claimants would be well advised not to serve a Notice to
Refer until full particulars of the claim have been collected and prepared.
Construction professionals intending to prepare a Notice to Refer under the
2008 Procedure should ideally ensure that, before settling the document they
have:-
- Taken full instructions from the Claimant;
- Collected all relevant documents that would support the claim;
- Ideally, prepared a chronology whereby their instructions can be pinned
to dates and documents;
- Ascertained the availability of the relevant witnesses, and ascertained
what those witnesses would be likely to say (including, ideally, obtained
draft witness statements);
- Identified the issues upon which expert evidence will be required, and
confirmed the availability of such expertise and the views which such
experts will opine;
- Carefully quantified the loss and other relief to be claimed. This may
require careful quantification of the amounts to be claimed in respect of
additional remuneration, extensions of time, and, where applicable, any
other relief.
19. While, under the 2008 Procedure, the Notice to Refer would appear to require
to be laid out as though it was a Statement of Case under the IEI 2000
Procedure, it should also be noted that there appears to be no express
requirement under the 2008 Rules for documentation to be appended thereto.
Under the Arbitration Procedure 2000, Statements of Case are required, to the
extent directed by the Arbitrator, to include a summary of the case of each
party, a summary of their evidence, a summary of the issues between the
parties, a list and/or a summary of the documents relied upon, any points of
law (with references to any authorities relied upon), a statement or summary of
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any other matters likely to assist the resolution of the disputes, along with any
other documents or statements that the Arbitrator might consider necessary. It
was quite usual for Statements of Case under the 2000 Procedure to therefore
comprise lengthy documents with very voluminous tabbed appendices
comprising extracts of all the key documents to be relied upon by the party
concerned.
20. The new 2008 Procedure appears to envisage a more expedited process
whereby, in effect, matters do not go to the Arbitrator until the referring party
has first prepared a Notice to Refer with the same degree of requisite detail as
a Statement of Claim. Only then may the Arbitration be commenced.
21. One consequence of the detail with regard to which the Notice to Refer is
intended to be prepared would appear to be that it may not be easy for the
referring party to significantly add new issues to the Notice to Refer at a later
stage. The provisions contained in the Arbitration Procedure 2000, allowing
for the reference of further disputes or differences to the Arbitrator, through
the service of an additional Notice to Refer, before the completion of his
appointment, appear to be absent from the 2008 procedure.
22. The requirement for the Notice to Refer to contain the detail stipulated in Rule
4 of the 2008 Procedure is not surprising, and should not provide a difficulty to
referring parties, since nothing will usually be referred to Arbitration until it has
first undergone the conciliation procedure set forth in Clause 13.1 of the new
Contract Conditions. This conciliation procedure envisages very extensive
disclosure to the conciliator of all relevant facts and documents. Under Rule
13.1.3, the parties are each initially required to send to the Conciliator “brief
details of the dispute” setting out the contentions advanced by each party and
identifying the rights and obligations relied upon in support thereof. The
parties are then required to make available to the Conciliator all information
and documents, along with access to the site and appropriate facilities, as the
Conciliator may require. Thereafter the Conciliator is entitled to consult with
the parties. He may meet with the parties, and he may conduct investigations
in the absence of the parties, or make use of specialist knowledge, and obtain
technical and legal advice and establish the procedures to be used in the
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conciliation. Thereafter, if the dispute is not resolved by agreement, the
Conciliator gives both parties a written recommendation. Only if a party is
dissatisfied with the Conciliator’s recommendation, does the option of
Arbitration thereafter become possible. Further, as we will see below, the new
forms of Contract actually appear designed to force Contractors, who may be
entitled to compel payment under a Conciliator’s recommendation from the
Employer, to themselves initiate the arbitrations, in which they would have to
be the Claimants, (even where they do not wish to do so), but where they can
be compelled to do so as a condition of receiving the payment recommended
by the Conciliator.
23. Against a background where the issues in dispute will normally have been well
ventilated between the parties at conciliation, it is submitted that there should
be no great injustice caused to the referring party by requiring them to compile
the Notice to Refer, required to commence an arbitration under the 2008
Procedure, with the same sort of detail as might be required by a Statement of
Claim, and the relevant factual information should normally be readily available
to the drafter.
The Key Requirement of Efficiency under the 2008 Procedure
24. Arbitrators have always been required to conduct their proceedings with due
regard to efficiency, and with a view to minimising the costs of the parties.
The Arbitration Procedure 2000 contained an admirable statement in this
regard:-
“The objective of arbitration is to obtain the fair resolution of disputes
and differences by an impartial and independent Arbitrator without
unnecessary delay or expense. The Parties and the Arbitrator shall do
all things necessary to achieve this objective. The Arbitrator shall give
each party a reasonable opportunity of putting its case and dealing with
that of its opponent. This procedure shall be interpreted and the
proceedings shall be conducted in a manner most conducive to
achieving these objectives”.
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25. It is to be hoped that Arbitrations carried out under the 2008 Procedure will
adopt a similar approach to the Arbitration Procedure 2000, which appeared to
attach equal priority to the three requirements of (i) “obtaining a fair resolution
of disputes”, (ii) “by an impartial and independent Arbitrator”; and (iii) “without
unnecessary delay or expense”.
26. However, it is at least arguable that the 2008 Rules attach greater importance
to the need for dispute resolution to be expeditious and at minimal cost. It is
hard to imagine that these requirements could be intended by the 2008 Rules
to be achieved at the cost of any impairment to the fairness of the process.
However, there is no doubt that the 2008 Rules do provide ammunition to a
party seeking to have the process expedited in priority to all other requisites.
For example:-
- Under Rule 10.1 it is provided that:-
“The Arbitrator shall at all times seek to move the Arbitration Process
forward as quickly and efficiently as possible”.
- Under Rule 11 point 8 it is provided that, in relation to the directions
which the Arbitrator may issue at the preliminary meeting:-
“Whether or not the short procedure applies, any directions should be
aimed at achieving an early resolution of the matters in dispute and to
keep the costs of the arbitration to a minimum”.
27. The 2008 Rules therefore attach a premium to the saving of cost and efficiency.
This is not surprising. The underlying rationale of the New Public Works
Contracts is to reduce cost and promote certainty in the construction process to
ensure better value for the Exchequer. It is therefore not surprising that the
2008 Rules, prepared in conjunction with the Public Works Contracts, should be
specifically tailored to ensure that the Arbitration stage, when reached, be
conducted as quickly and efficiently as possible. There is no doubt that this is
a beneficial development. Those familiar with construction arbitrations
generally will be aware that they tend to be both very lengthy and very costly,
factors that often result in the parties, having exhausted all resources of money
and patience, eventually resorting to compromise as the only means of
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escaping from what can often seem like a form of eternal purgatory. Anything
that encourages Arbitrations to be conducted with greater speed and efficiency
is therefore to be welcomed. As in all other matters connected with litigation,
speed and efficiency favours the party best prepared for the process.
Appointment of, and challenge to, the Arbitrator
28. Under the 2008 Rules, it is provided that, at the same time as serving the
Notice to Refer, the referring party is required to propose the name of one or
more persons to act as Arbitrator. Within 14 days, the Respondent is required
to either agree to the appointment of the Arbitrator proposed by the referring
party, or propose alternatives, in which case the referring party must either
agree one of the alternatives or notify its disagreement with all. If an
Arbitrator has not been agreed within 28 days after the Notice to Refer was
given, any party may apply to the nominating body named in the Contract to
nominate the Arbitrator.
29. As of May 2008, the Department of Finance had approved a number of
professional bodies to be the nominating bodies named in the Contract. The
approved professional bodies are:-
- The Bar Council of Ireland;
- The Chartered Institute of Arbitrators – Irish Branch;
- Engineers Ireland;
- The Law Society of Ireland;
- The Royal Institute of the Architects of Ireland.
- The Society of Chartered Surveyors.
30. By approving a number of additional professional bodies, the Government has
removed what might have been perceived as the monopoly right of the
President of the Institute of Engineers of Ireland to appoint Arbitrators as, for
practical purposes, was the case prior to the introduction of the new
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Government Contracts. The approval of a variety of professional bodies also
has distinct advantages because, approaching the matter on a contract-by-
contract basis, the Employer (whichever Local Authority or State Body might be
involved), might wish to consider whether or not, in the context of a Building
Contract, the Conciliator or Arbitrator should definitely be an Architect, in which
case he might feel it appropriate to utilise the RIAI as the appointing body.
This would result in the appointment of an Architect as the Conciliator or
Arbitrator. Alternatively, in the case of a civil engineering project, the
Employer might take the view that the Conciliator and Arbitrator should be an
Engineer, in which case Engineers Ireland should perhaps be the appointing
body. Likewise, the Chartered Institute of Arbitrators – Irish Branch, or one of
the other bodies listed above, might be the preferred option if neither of the
above areas of expertise was required. For instance, if the dispute were purely
a quantity surveying issue, then the Society of Chartered Surveyors might be
more appropriate.
31. In the context of the audience to whom this paper is primarily addressed, it is
clear that there is great potential for the Bar Council of Ireland to lobby for
appointment as the nominating body in the new Government Contracts.
32. However, if the Bar Council is to be successful in this regard, it is submitted
that it will need to demonstrate an ability to provide a shortlist of suitably
qualified Arbitrators, with the required degree of experience and expertise in
construction
law. The Bar Council, in this regard, will have to engage in direct competition
with the lobbying which is undoubtedly already taking place on behalf of the
other nominating bodies. It must be remembered that, in particular,
organisations such as the Chartered Institute of Arbitrators – Irish Branch, and
Engineers Ireland have well-established panels of very experienced and
qualified persons suitable for appointment as Arbitrators. Applicants seeking
inclusion on the panels of such bodies have to demonstrate appropriate
qualifications and detailed experience and expertise. To secure success in this
field, it is submitted that the Bar Council will have to establish its own panel of
suitably qualified Arbitrators from amongst its ranks, comprised of persons with
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appropriate arbitration expertise and qualification, with a proven track record of
expertise and involvement in construction disputes.
33. Once an Arbitrator has been agreed or nominated, either party may write to
him seeking confirmation of his willingness to act, enclosing two copies of the
Notice to Refer, along with a copy of the Contract, copying all documents to the
other party.
34. If, within 14 days after such letter has been sent, the nominee notifies the
sender of his acceptance of appointment as Arbitrator, that party must
immediately notify the other party, and the nominee thereupon stands
appointed, and has jurisdiction “…over all issues connected with and necessary
to the determination of the dispute.”
35. If the Nominee does not accept within the stipulated time, either party may
apply to the nominating party to make a further nomination, and the process
will start again.
36. Within 14 days after his accepting his appointment, the Arbitrator is required to
send to the Department of Finance, National Public Procurement Policy Unit,
notice of the appointment, along with one of the copies of the Notice to Refer
sent to him or her.
37. The 2008 Procedure, accordingly, will operate to alert the Department of
Finance, National Public Procurement Policy Unit, of the existence of all
Arbitrations under the new Contracts at a very early date. This provision of
the 2008 Procedure has to be read in conjunction with Rule 17.2 whereby,
within 14 days of having sent an award to the parties, the Arbitrator is required
to also send a copy of the Award, likewise, to the Department of Finance,
National Public Procurement Policy Unit.
38. In the ordinary way, Arbitration is a confidential private process (indeed, under
Rule 17.4, an award may be made public only with the consent of all parties or
as required by law or as permitted by the Contract). Individual Contractors,
contemplating an Arbitration, may not fully appreciate the extent to which the
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issue under Arbitration may already have been the subject of earlier Rulings.
No doubt, the Department of Finance will ensure that all Public Body Employers
are rapidly appraised of the effect and import of the findings in earlier
Arbitrations. Arguments deployed in such earlier Arbitrations may then
possibly be deployed against the Contractor involved in the instant Arbitration,
to his disadvantage. It may be that legal advisers involved in procuring earlier
successful Arbitration outcomes will be recommended for deployment against
the Contractor in any new Arbitration involving the same point. In contrast, in
all likelihood, the Contractor in such new Arbitration may find himself without
any convenient means of ascertaining whether or not the point has been
considered before, or if so, to what effect.
39. It is submitted that there may be a potential danger that nominating bodies
responsible for the appointment of Arbitrators, who may have regularly made
findings contrary to the interests or expectations of Employers, may find
themselves “sidelined” in the context of any future appointments as nominating
bodies. Further, it is not clear whether or not the Department of Finance
intends, in the future, to prepare annual or periodic reports on such arbitral
results. Indeed, one possible outcome here may be that arbitral awards, from
time to time, (particularly where findings in favour of the Contractor are made),
may be reflected in future amendments to the new forms of Contract intended
to further protect and better the position of Employers. It is submitted that
better equality of arms, in this regard, might have been provided by requiring
Arbitrators also to furnish their awards to Contractor’s representative bodies,
such as the Construction Industry Federation, possibly subject to suitable
redaction to prevent immediate identification of the contracting parties.
40. Before accepting appointment, the Arbitrator is required under Rule 7 to notify
the parties of any circumstances that might give rise to “…any justifiable doubts
about the Arbitrator’s impartiality or independence”. The Arbitrator is under a
continuing duty to disclose any such circumstances that may arise during the
period of his appointment. The use of the words “…any justifiable doubts…”
would here appear intended to exclude notional or hypothetical concerns which
an Arbitrator might think could remotely be regarded as giving rise to doubts
about his impartiality or independence. This would appear to exclude any
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remote issues which only the most paranoid litigant would consider likely to
impede an Arbitrator’s impartiality or independence. However, no doubt,
Arbitrators will, in the future, as in the past, continue to err on the side of
caution here and disclose any matter that might conceivably cast any doubt on
his or her impartiality. Once an Arbitrator proceeds cautiously here, it is
submitted that the higher threshold of disclosure required by Rule 7 would be
likely to amply cover any disclosure actually made, and, more importantly, the
non-disclosure of any more extreme or paranoid matter or issue that might
have been, but was not, disclosed.
41. Under Rule 8, a party may challenge the appointment or continuation of an
Arbitrator if circumstances exist “…that give rise to justifiable doubts about the
Arbitrator’s impartiality or independence”. There is ample jurisprudence in
Ireland as to the circumstances which would be regarded as raising a justifiable
question mark over the impartiality or independence of a judicial figure, and it
is not proposed to discuss these in detail in this paper. The use of the word
“justifiable” in relation to “doubts” again clearly emphasizes the intention of the
2008 Rules to ensure that fanciful or contrived doubts will provide no basis for
the removal of an Arbitrator.
42. If the Arbitrator has been appointed by agreement between the parties, no
subsequent challenge to his appointment can be made save for circumstances
of which the challenging party became aware after the appointment was made.
A challenge can only be made in writing, and must be sent to the Arbitrator and
each other party within 21 days after the party raising the challenge became
aware of the justifiable doubts. Any challenge, in writing, must state the
reasons justifying the challenge. If a challenge is made, then, if either both
parties agree, or if, on the application by a party, the nominating body so
decides, the Arbitrator shall forthwith resign and a replacement Arbitrator is to
be appointed in accordance with the Rules. Importantly, if the parties do not
agree, or the nominating body dismisses the challenge, the Arbitration must
proceed. Under Rule 9.4 any replacement Arbitrator under Rule 9 is
empowered to determine the procedure for taking matters forward, and is
entitled to decide whether it is necessary to repeat any hearings previously
held. Given that, in almost every case, the Arbitrator will be required to make
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findings of fact which, will require, to some degree or other, his own personal
assessment of the witnesses in question, it is submitted that, in almost every
case where an Arbitrator is replaced, it will be necessary to repeat the hearings
previously held, and, in particular, for any oral evidence previously given to be
re-taken. Inevitably, this will involve further cost and delay, a delay likely to
be exacerbated by the fact that any new cross-examination will be assisted by
the transcripts of any evidence previously given, which could be put to the
witness whose evidence is being re-taken for the purposes of demonstrating
inconsistency with prior testimony. It is submitted that, in cases where
witnesses may be re-heard, the replacement Arbitrator should give
consideration to directing the parties to endeavour to agree matters in relation
to evidence previously given so as to ensure that the re-taking of such evidence
is confined only to the matters truly in dispute.
Preliminary Matters
43 Under Rule 11, the Arbitrator is empowered to conduct the Arbitration in any
way he considers appropriate subject to the 2008 Rules and the law.
44 Importantly, all documents and information given to the Arbitrator by one party
are required, at the same time, to be given by that party to all other parties.
No party (or person acting on its behalf) is to have any private communication
with the Arbitrator “relating to the substance of the matters in dispute”.
Notices and written communications may be sent by electronic means when
there is provision for this in the Terms of the Appointment of the Arbitrator, or
when agreed between the parties or directed by the Arbitrator.
45. These provisions in relation to communication would appear intended to rule
out the unilateral telephonic communications that have historically happened on
occasions in the past where Arbitrators would often take phone calls from the
solicitors for one or other of the parties on minor procedural matters. This
practice was the subject of adverse comment by Coleman J. in Norbrook
Laboratories v Tank ((2006) EWHC 1055, para 132) when he stated that:-
“The making of direct unilateral telephone contact by the Arbitrator with the
parties is generally to be deprecated for it inevitably gives rise to the risk that
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evidence of submissions will be put before the Arbitrator in circumstances
where no record is kept of what has been said and without the opposing party’s
awareness and therefore of an opportunity of challenging it. That is why
Arbitrators invariably communicate with the parties in writing on even the most
trivial matters of administration and do so by copying in the opposite party”.
46. While the facts of the Norbrook Laboratories case were somewhat extreme, the
observations of Coleman J. were more recently the subject of approval by Mr.
Justice McMahon in the case of Galway City Council v Samuel Kingston Limited
(Unreported, The High Court, 17th October 2008) when he stated:-
“I agree wholeheartedly with these sentiments. They are not,
however, absolute rules of law. They must be applied in the
circumstances of the case which comes before the court”
47. Significantly, the embargo against unilateral private conversation with the
Arbitrator in the 2008 Rules is not absolute. It only relates to private
communications relating to the substance of the matters in dispute. Arguably
this would not apply to communications on uncontroversial matters of
procedure or logistical arrangements, e.g. choice of venue, stenographers etc.
However, having regard to the judicial dicta stated above, it is to be
recommended that all communications with an Arbitrator, even the most trivial,
should be in writing and copied to the other side as a counsel of prudence. In
these days of e-mail, this general recommendation should provide no
disadvantage to any party. The key issue here is that any private
communication between one party or the other, or their advisers, with the
Arbitrator can create a suspicion of closeness or over-familiarity between the
Arbitrator and the party in question, with the engendering of suspicion in the
mind of the other party that, during such private communications, remarks
made sotto voce may operate to give the party in question an insight into the
thinking of, or an opportunity to surreptitiously influence, the Arbitrator, either
with regard to the general merits of the case, or to canvas his opinion on the
witnesses, or to gain an insight as to how the case might be better presented
to the disadvantage of the other party.
Jurisdiction
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48. Under Rule 12 of the 2008 Rules, the Arbitrator has power to decide a wide
variety of matters going to his jurisdiction including:-
- Whether there is a valid Arbitration Agreement;
- Whether he is properly appointed;
- Whether there is a dispute capable of being referred to Arbitration;
- Whether the dispute has been validly referred to Arbitration;
- Whether the 2008 Rules apply to the conduct of the Arbitration and if
so, to what extent;
- Whether the Arbitrator has himself complied with the 2008 Rules;
- Whether he has jurisdiction under the Contract or the 2008 Rules to
hear a matter, and the extent of that jurisdiction.
49. If any of the above matters, or, indeed, any other issue concerning the
Arbitration, is referred to court, the Arbitrator is empowered to direct whether
or not the Arbitration Proceedings will continue pending the decision of the
court. A similar provision to this effect had been contained in the 2000
Procedure. In practice, Arbitrators invariably prefer to defer continuing with
the reference where the party intent on going to court is demonstrating
expedition with its legal proceedings such as e.g. an early application to have
the issue admitted to the Commercial List (where it will be subject to the
expedited hearing provisions provided there), or where, as appropriate, there is
an undertaking to apply to the Supreme Court for an early date.
50. Neither party may challenge the arbitration process or ask the Arbitrator to
make a ruling on jurisdiction in respect of the matters set out above later than
60 days after such party became aware of circumstances that might affect a
ruling of the Arbitrator on any of such matters. This 60 day period is, in
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reality, very generous. It is not unusual for Construction Arbitrations to be all-
absorbing, with those involved (Contractors personnel, legal advisers (including
Counsel), and the relevant experts), committed on virtually a full-time basis to
its prosecution. Most litigation (with the possible exception of matters
admitted to the Commercial List) tends to be prosecuted by lawyers on a stop-
start basis, with their attention in the meantime diverted to other cases. In
the case of Construction Contracts, this tends, in many cases, not to be so.
Construction Arbitration is part of the dispute resolution phase of a
Construction Contract, and Contractors often commit members of their staff to
the full-time attendance on the resolution of such disputes, with a view to
securing an outcome as soon as possible. The primary requirements of speed
and efficiency contained in Rules 10 and 11 of the 2008 Procedure reflect the
imperative to have such disputes resolved as quickly as possibly. Lawyers, and
in particular, Barristers, involved, whether as Counsel or Arbitrators, in
Arbitrations under the 2008 Rules, should be prepared for the fact that such
engagements may well involve a large commitment in time. A jurisdictional
issue is a fundamental matter that should, where it arises, be addressed
immediately. If a Rule 12 issue arises, and is considered to be well-founded, it
is submitted that the matter should be raised with the Arbitrator and the other
side as soon as possible, i.e., within days, not weeks. In this context, the 60
day period provided for in Clause 12 should, it is submitted, be more than
adequate.
Preliminary Meeting
51. As soon as possible after his appointment, the Arbitrator is required to summon
the parties to a preliminary meeting for the purposes of establishing:-
- The likely length of the Arbitration;
- Directions for the conduct of the Arbitration;
- Whether the short procedure in Rule 16 should apply and;
- Whether any party requires an oral hearing.
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52. As noted earlier, any such directions should be aimed at achieving an early
resolution of the matters in dispute and the keeping of costs to a minimum.
The parties are required to try to agree directions before the preliminary
meeting, and the Arbitrator may require the parties to submit brief statements
before the preliminary meeting, outlining the directions they consider
appropriate.
53. As many will be aware, it was often usual practice under the Arbitration
Procedure 2000 for parties to try to agree preliminary directions in advance, so
there is little new here. (For those looking for guidance on practical issues
with regard to Arbitrations, and particularly in relation to the preliminary
meeting, see “Arbitration Law”, by Dowling-Hussey & Dunne, at para 4.18-
4.20). Some experienced Arbitrators produce detailed pre-preliminary check
lists, and this is a commendable practice which greatly facilitates progress at
the preliminary meetings.
Procedural and Evidential Matters
54. Under Rule 13.1 of the 2008 Rules the Arbitrator is required to apply the
burden of proof “…according to the law”. Thus, it would appear that either
party will be entitled to call in aid all evidential presumptions and obligations in
relation to the burden of proof as may be available to it, and suit its case. (For
example, the presumption that documents and deeds have been validly
executed; that documents posted may be expected to have been delivered in
the ordinary course of post and any other evidential presumption the existence
of which can be established at law, the most important of which being, of
course, that he who alleges, must prove). Rule 13.1 is mandatory, and it
would appear that an Arbitrator under the 2008 Rules would accordingly not be
entitled to disregard any applicable legal provisions in relation to the burden of
proof. Again, the contract provisions that require a Contractor, satisfied to
accept a Conciliator’s recommendation in relation to payment to him of a sum
of money, and who elects (due, e.g., to financial need), to take up the
payment, is required, under the new Government Contracts, to be the party
responsible for service of the Notice to Refer to Arbitration and, as a result, be
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the Claimant in the Arbitration. This can perpetrate an unfairness on the
Contractor who may thus be required to take on the onus of proving, possibly,
some fact he may have admitted, in the conciliation, of being unable to prove.
55. Among the procedural and evidential matters which the Arbitrator has power to
decide under Rule 13, include:-
- The adequacy of the Notice to Refer and Defence, and the extent to
which they can later be amended;
- Whether the Arbitrator requires further written statements from the
parties and, if so, by when;
- The classes of documents and information to be disclosed between the
parties (if any) and the time when disclosure will be made;
- Whether any questions should be answered in writing by a party in
advance of the hearing;
- The extent of oral and written evidence (including the exclusion of
repetitive or irrelevant testimony or other evidence);
- The extent of expert evidence;
- Whether or not evidence will be given under Oath or by affirmation;
- The admissibility, relevance, materiality and weight of the evidence
offered by any party;
- Whether documents are to be translated and;
- Whether evidence is to be given by way of signed witness statement
with oral evidence limited to cross-examination and re-examination.
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56. The above procedural powers of the Arbitrator may be capable of tactical
exploitation by a party. In particular, the power of the Arbitrator to require
questions to be answered by a party in advance of the hearing may be a very
useful jurisprudence to invoke. In the event that a party’s claim, or defence,
depends upon whether or not the other party can prove a particular set of
facts, or agrees to, or disagrees with, that particular matter, it would make
obvious tactical good sense for the opposite party to endeavour to formulate a
question which, if answered truthfully by the other party, might allow the
questioning party to thereafter apply to the Arbitrator for Judgement in limine
and/or for the striking out of a pleading of the other party.
57. Another example of an instance where it may be useful to request an Arbitrator
to direct that questions be answered in writing by a party in advance of a
hearing relates to reports from experts. In some cases, experts reports,
exchanged pursuant to direction from the Arbitrator, can be ambiguous. In
other cases, the factual assumptions upon which the expert has based his
opinion may not be clear from his report. In such instances, it may be useful
for the Arbitrator to direct the opposite party to answer questions intended to
elucidate ambiguities or uncertainties in the reports of the opposite expert. In
many cases, however, directions from the Arbitrator requiring the experts to
meet and discuss their reports (or draft reports as appropriate), with each
other, with a view to preparing a Scott Schedule (either in advance of, or
subsequent to, the finalisation of their reports for the hearing) can also be a
useful process to resolve ambiguities.
58. One area where it may be particularly useful for the Arbitrator to be asked to
direct the other party to answer questions relates to reports from time delay
experts, in particular, experts preparing computer-based time impact analyses.
In some cases, experts present their reports via CD. It is not unusual for a
time expert to present his analysis via a CD containing dozens of time
“snapshots”, with each “snapshot” involving a sequential analysis of hundreds
of individual activities, backed, in turn, by thousands of “frag-nets”, each
purporting to analyse the impact of each particular delay event on different
contractual activities. The validity or reliability of the subsequent analysis
depends, in turn, upon the extent to which the time expert’s assessment of
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each impact is, itself, valid or fair. Testing such findings requires, in turn,
identification, firstly of those areas where the time expert has applied his own
independent judgement, a matter which may be very difficult to ascertain from
the finished time analysis. It is submitted that, in such circumstances, it is
often useful for the Arbitrator to be asked to direct the other party to provide,
with regard to any such time impact analysis:-
- A full list of each occasion upon which the time expert has applied his
own judgement to the effect of the delay event in question, along with
his conclusion thereon; and
- In the case of each such exercise of judgement, a list of the facts relied
upon, or assumed, by the time expert in coming to such conclusion.
59. Such questions, if answered concisely, will enable ready identification by the
other party of the matters with regard to which it might take issue with the
expert, and thereby ensure that any cross-examination at the hearing is
directed to exploring such issues only. The alternative approach of
endeavouring to ascertain these matters at the hearing can itself take days of
cross-examination. As it is usual practice for Arbitrators to endeavour to limit
the time for cross-examination of witnesses, it occasionally happens that a time
expert may be content to “play for time” trying to avoid answering such
questions in the hope that the “clock will run down” on the cross-examiner
before he manages to stumble upon any key frailties that may undermine his
report.
60. One benefit of the new Government Contracts is the requirement for
Contractors to maintain a detailed programme “…of a quality that will permit
effective monitoring of the works”. Such a programme, if kept, will admit of
ready scrutiny by time experts subsequently retained for the Arbitration
hearing, and will avoid the necessity, as has happened previously, for time
experts to have to firstly recreate a reliable programme, and should also avoid
disputes over, e.g. where the critical path of the works lay at any given time,
and as to what element of the works contained float or other flexibility.
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61. The powers of the Arbitrator identified in Clause 13.2 of the 2008 Rules are
broadly reflective of (though not perhaps as expressly wide as), the powers
previously set out in Clause 7.3 of the Arbitration Procedure 2000.
Nevertheless, it would not appear from the 2008 Rules that there has been any
attempt to deliberately cut back or confine an Arbitrator’s power to decide all
procedural and evidential matters. Although Rule 13.2 contains examples of
occasions upon which such powers may fall to be exercised, it does not appear
to derogate from the general power of the Arbitrator “…to decide all procedural
and evidential matters..”
62. The Arbitrator has, additionally, similar powers to ensure compliance with his
directions under the 2008 Procedure as he had under the Arbitration Procedure
2000, namely, he may prevent a party in default for relying on the matter in
respect of which it is in default; he may draw adverse inferences from the act
of non-compliance that the circumstances justify; and he may proceed to an
award on the basis of materials that have been properly provided.
63 Significantly, a number of powers expressly provided for in the Arbitration
Procedure 2000 do not appear to have been expressly carried over to the 2008
procedure. For example, the 2008 Procedure does not appear to provide
expressly for:-
- An express power for the Arbitrator to direct a party to provide
additional information, clarification or elaboration of the Notice to Refer,
or the Statement of Defence (as per Rule 8.3 of the 2000 Procedure);
- An express power to enable the Arbitrator to make a peremptory Order
requiring compliance with any Order made by him within such time as
the Arbitrator might consider appropriate (Arbitration Procedure 2000,
Rule 8.4);
64. On the other hand, the 2008 Rules do contain (Rule 21) provisions which
enable the Arbitrator, if satisfied that a party has inexcusably delayed in
pursuing a claim in the Arbitration, and that that delay gives rise to, or is likely
to give rise to, substantial risk that it is not possible to have a fair resolution of
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the issues in that claim, or has caused, or is likely to cause, serious prejudice to
the other party, to dismiss the relevant claim. (Rule 21 of the 2008 Procedure
largely replicates Rule 8.5. of the IEI Arbitration Procedure 2000).
Expert Evidence:
65. The 2008 Procedure provides that expert evidence may only be admitted by
leave of the Arbitrator, to be given on terms that the Arbitrator thinks fit.
Where leave to deliver an Expert’s Report is given, that report must be
provided to the other party in good time, and in any event, at least 30 days,
before any hearing. (Rule 13.6).
66. The Arbitrator is also given power (Rule 13.7) to appoint one or more
independent experts to report to him, in writing, on specific issues designated
by the Arbitrator and communicated to the parties, and further provision is set
out in the Rules in this regard.
Protective and Interim Measures
67. The 2008 Rules also contain extensive provisions whereby the Arbitrator (Rule
13.9), may direct the preservation of evidence, give directions relating to any
property which is a subject of the Arbitration; give directions on the detention,
storage, sale or disposal of the whole or any part of the subject matter of the
dispute; or give any other directions he considers necessary in respect of the
subject matter of the dispute.
Requirement and Preparation for Hearing
68. The 2008 Procedure does not necessarily involve automatic provision for a
hearing. On the contrary, a hearing shall only be held “…if any party requires
it by Notice sent to the Arbitrator and the other parties not later than 30 days
after the Statement of Defence has been sent” (Rule 14.1), or if the Arbitrator
so decides.
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69. The 2008 Rules (Rule 14.4) provide for directions on an agreed bundle, which
“…shall stand as entered in evidence without further proof and without being
read out at the hearing”, albeit the inclusion of a document within the agreed
bundle does not establish either its genuineness or admissibility.
70. The Arbitrator, as soon as he considers it appropriate, (Rule 14.5) may require
the parties to provide:-
- A summary of the documents intended to be relied upon by each party;
- A summary of the issues between the parties;
- Any points of law with legal references;
- A statement or summary of any other matters likely to assist the
resolution of the dispute;
- Any other document or statement that the Arbitrator considers
necessary.
71. At least 30 days before the hearing (Rule 14.6), the Arbitrator, will as far as is
possible, require that any witnesses giving evidence have produced a Witness
Statement to be exchanged between the parties.
72. It should be noted that it is usual in Construction Arbitrations for the Arbitrator
to give, in addition to the above, directions as to the following:-
- That, where appropriate, facts be agreed as facts;
- Where appropriate, figures be agreed as figures;
- Where appropriate, a chronology be agreed between the parties;
- That the parties endeavour to agree quantum so far as possible;
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- That certain issues e.g. quantum and delay issues, be referred to the
experts for agreement;
- It is also not unusual for Arbitrators to direct the parties to exchange
written openings and to direct that, in general, Witness Statements
stand as the evidence of the Deponent with matters proceeding to
cross-examination almost from the outset.
Procedure at any Hearings
73. Rule 15 of the 2008 Procedure governs the way in which the hearings are
conducted. Under Rule 15.1, the Arbitrator may give directions about the
manner in which the hearings will be conducted, including the order in which
parties present their cases, or the order in which issues will be heard and
determined.
74 Having regard to the Arbitrator’s primary obligation to conduct the hearing as
efficiently as possible, it is not unusual for Arbitrators to request the parties to
identify preliminary issues which, depending on their resolution, might
determine all or the bulk of the matters at issue between the parties, or, which,
if subject to an early determination by the Arbitrator, might assist the parties to
resolve their differences.
75. It also happens, frequently that Arbitrators sub-divide the hearings into
different phases, each phase dealing with a different aspect of the Arbitration
e.g. different phases of the Contract, the liability effects thereof, with quantum
issues often reserved for a separate hearing.
76. The Arbitrator may proceed with the hearing in the absence of a party who has
been given adequate notice of the hearing (Rule 15.3), and, having inquired of
the parties whether they have further proof to offer or witnesses to be heard or
submissions to make, may, if advised they have none, declare the hearings
closed (Rule 15.4). An Arbitrator may, if he considers it necessary due to
exceptional circumstances, either on his own initiative or upon the application
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of a party, re-open a hearing at any time before the award is made. However,
by reference to the principle that all litigation must have an end, it is
considered unlikely that an Arbitrator will readily accede to the re-opening of a
hearing and the requirement for the existence of “exceptional circumstances”
will be likely to assist an Arbitrator in refusing to re-open a hearing where he
considers a party is requesting the re-opening on spurious grounds.
77. One issue with regard to which the 2008 Rules appear to be silent concerns the
extent to which the Arbitrator may have regard to matters within his own
knowledge and expertise, particularly the area of expertise by reference to
which he was appointed an Arbitrator (i.e., the extent to which he may give
evidence to himself). In general, where an Arbitrator intends to have regard
to matters within his own expertise, he is required to disclose such matters to
the parties, in advance, so as to enable them to have an opportunity of making
whatever submissions thereon they think appropriate, or, where relevant, to
adduce expert evidence in the event that they believe that the Arbitrator’s
views, based on his expertise, may be mistaken.
78. The IEI Arbitration Procedure 2000 contained a number of express provisions in
relation to the hearing which, though not expressly referred to in the 2008
Procedure, would appear to fall within the wide powers conferred on the
Arbitrator to give directions about the manner in which any hearing should be
conducted, including in particular, the adoption of a “chess clock” procedure,
whereby the time available for the hearing is allocated between the parties.
The parties are then required to adhere strictly to that allocation. Should a
party’s representative fail to complete his presentation within the time allowed,
further time will only be allocated at the sole discretion of the Arbitrator, and
upon such conditions as to costs that the Arbitrator may see fit to impose.
Short Procedure
79. Under Clause 16 of the 2008 Rules, provision is made for a short procedure
whereby, within 30 days after the preliminary meeting held under Rule 11.7, or
within 30 days after the Respondent has sent its Statement of Defence
(whichever is later), the parties are required to agree and provide a file to the
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Arbitrator containing all the relevant materials. In default of agreement as to a
joint file, each party prepares their own file, including Witness Statements.
Thereafter, the Arbitrator may view the site or the works, with or without the
parties, and may permit or require the parties to submit additional information,
whereafter, within a further 30 days, the Arbitrator must either make the award
or schedule a meeting for the purposes of receiving any oral submissions the
parties wish to make, or, in the alternative, ask questions of the parties (Rule
16.4). If such a meeting is held, the Arbitrator is required to make his award
within 30 days after the end of the meeting.
80 Under Clause 16.1, the short procedure is the norm. Rule 16.1 provides that
the short procedure shall apply “…unless all the parties agree or the Arbitrator,
on the application of a party, considers that it should not apply because of the
complexity of the issues”.
81. The short procedure contained in Clause 16 of the 2008 Procedure mirrors,
very closely, Clause 15 of the IEI Arbitration Procedure 2000.
Award
82. The 2008 Procedure contains detailed provisions in relation to the making of
awards. Again, these largely reflect the provisions of the IEI Procedure 2000.
In particular, the Arbitrator is entitled to make interim awards. Each award is
to be made in writing and to be sent to the parties promptly. Awards are to be
“…final and binding on the parties”. Under Clause 17.2, the parties undertake
to carry out the Arbitrator’s awards without delay.
83. As noted earlier, under Rule 17.2, the Arbitrator is also required to send a copy
of his award, within 14 days of having sent it to the parties, to the Department
of Finance, National Procurement Policy Unit. This requirement appears intent
on ensuring that the Department of Finance quickly builds up a library of all
arbitral awards under the new Contracts. No doubt this will be beneficial for
the purposes of advising the Department of Finance, and the Government, as
to how the new Contracts are operating in practice. (It is not clear whether
this information is going to be shared with the Construction Industry
82
Federation, but one presumes that this will be unlikely). This requirement
may be beneficial also in that any significant additional payment required to be
made to a Contractor as a result of an Arbitration award may, dependent on
the circumstances, have to be met out of the general vote of either the
Department of Finance, or the Department of the Environment. Hence, it may
be desirable and appropriate that the relevant payor mandarins have an
opportunity to understand fully why such awards were made.
84. Under Rule 17.5, the Arbitrator is required to state, in his award, the reasons
upon which the award is based, unless all parties have agreed that no reasons
are to be given. The default position whereby reasons are to be given unless
the parties agree otherwise reverses the provision previously set out in Rule 20
of the IEI Arbitration Procedure, whereby the Arbitrator does not provide
reasons unless requested to do so by at least one of the parties.
84. Under Rule 17.6, the Arbitrator may not withhold his award pending payment
of fees, though he may require a deposit from one or more of the parties for
security for costs (presumably his costs on this issue) during the Arbitration
proceedings.
Interest
86. Under Rule 18, the Arbitrator has power to award interest in accordance with
the Contract and the law, but may consider interest only after all other matters
(except costs) have been dealt with by interim award.
87. The Arbitrator’s power to award interest under the 2008 Procedure contrasts
with the power given to Arbitrators under the 2000 Procedure where the
Arbitrator had power to award interest “…either simple or compound at such
rate and between such dates or such events as he thinks fit”. This wide
latitude given to Arbitrators appointed under the IEI Procedure 2000 has now
been removed. In general, this is a beneficial development. Under the 2000
Procedure, Arbitrators were often invited to award interest on a compound
basis. Some Arbitrators, indeed, regarded compound interest as the
appropriate measure for interest, treating interest as, in effect, compensation
83
for the wrongful retention of monies. Other Arbitrators tended to take a very
restrictive view, only awarding a Contractor interest at its relevant bank
overdraft rate, or where no overdraft rate was applicable, at relevant bank
deposit rates.
88. It should be noted that the new Government Contracts provide that interest
shall be added to any payment not made by the Employer within the time
provided for in the Contract, at the rate provided in the European Communities
(Late Payment in Commercial Transactions) Regulations 2002, with interest to
run from the date the payment was due.
89. Interestingly, however, if the Arbitrator should conclude that the Contractor is
entitled to a payment at a level less than that recommended by the Conciliator,
the Contractor is obliged to repay the excess to the Employer with interest
calculated at 2% per annum more than that provided for in the 2002
Regulations.
Costs
90. Clause 19 of the 2008 Rules allows the Arbitrator to award costs. While costs
will normally follow the event, the Arbitrator may also allocate the costs
between the parties in a manner he thinks appropriate, and make other Orders
in relation to the costs in accordance with Rule 19.
91. Under Rule 19.3, the Arbitrator is also empowered to direct that security for the
costs of one or more of the parties be provided by way of deposit. The
requirement for the security for costs to be provided “…by way of deposit”
would appear to preclude the furnishing of security by way of a bond,
guarantee, or other means short of the making of a deposit.
92. Under Rule 19.4, the Arbitrator may limit the recoverable costs of the
Arbitration to an amount specified by himself, or by the parties, but only where
the parties agree, after the Arbitrator was appointed, to give the Arbitrator this
power.
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Correction of an Award
93. Within 30 days after receipt of an award, any party, on notice, “may request
the Arbitrator to interpret the award or correct any clerical, typographical or
computation errors or make an additional award about claims presented but
omitted from the award”. If the Arbitrator considers such a request to be
justified, and after considering the parties’ submissions, he is required to
comply with the request within 30 days.
94. The above provisions are to be contrasted with Rule 21.3 of the 2000
Procedure, under which an Arbitrator, within 28 days of the award, was
empowered to “…correct an award so as to remove any clerical mistake, error
or ambiguity, and may also make an additional award in respect of any matter
which was not dealt with in the award.”
95. There was, for many years, doubt among arbitration practitioners as to the
ambit of the power conferred on Arbitrators under Rule 21.3 and as to what
was meant by the power to remove “…any clerical mistake, error or
ambiguity…”, words which appeared to somewhat extend the power set out in
Section 28 of the Arbitration Act 1954 which provided for a power to correct
“…in an award say clerical mistake or error arising from any accidental slip or
admission”
96 Rule 21.3 of the 2000 Procedure had an interesting genesis insofar as it derived
from the 1997 I.C.E. Rules adopted in England following the enactment of the
Arbitration Act 1996, an Act which expanded the power of Arbitrators to correct
for ambiguity. In adopting the formula provided in the 1997 I.C.E. Rules in the
I.E.I. procedure 2000, the I.E.I. was, in effect, providing for a broader power
for Arbitrators to correct their awards than existed under the 1954 Act, a fact
acknowledged by McMahon J. in Galway City Council v Samuel Kingston Limited
when he stated as follows:-
“following this amendment, the English Institution of Civil Engineers
adopted their “Arbitration Procedure (1997)” and set out for the first
time the new text of Clause 21.3 which the IEI “Arbitration Procedure
(2000)” adopted as the appropriate procedure to govern arbitrations in
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Ireland under that procedure. As already mentioned, Clause 21.3 now
gives the Arbitrator power “…to correct an award so as to remove any
clerical mistake error or ambiguity…” as well as also giving the
Arbitrator power to make an additional award in respect of any matter
which was not dealt with in the award…This is the correct interpretation
can be seen from the statement in Russell on Arbitration (23rd Edition)
when it speaks of the ambiguity provision under the English legislation.
At pp336-337, para 6.170 of that treatise it is stated:-
“This would cover a situation where the Tribunal’s reasoning or
decision is not sufficiently clear and clarification or correction is
therefore warranted. The courts have drawn a distinction
between seeking to effect a change in the Tribunal’s decision in
referring a matter to the Tribunal for clarification of what it has
decided. An award which contains inadequate rationale or
incomplete reasons for a decision is likely to be ambiguous and
need clarification. The sub section may therefore provide a
means to request further reasons from the Tribunal or to request
reasons where none have previously been given in relation to a
particular issue, but only where there is genuine ambiguity”.
From this can be seen that the word ambiguity in the English Act is not
restricted by the word “clerical”, and since it is linked in the text of
Clause 21.3 of the Irish Arbitration Procedure (2000) with the word
“error”, both words must enjoy that freedom. Had there been a
different intention, the drafters of this Clause would have reproduced
the Section 28 phraseology which restricts correctional errors “arising
from any accidental slip or omission”.
97. The Judgement of McMahon J. in the above case would, it is submitted,
generally be regarded as beneficial insofar as practitioners have long thought it
desirable that, on occasion, Arbitrators should be given power to expand upon
the reasoning set out in their awards where appropriate. The new Rule 20.1 in
the 2008 Procedure confers an express power on Arbitrators “…to interpret the
award…”. In addition, the Arbitrator has power to correct “…any clerical,
typographical or computation errors”. By making no reference to the
Arbitrator’s power to remove “ambiguity”, under Rule 21.3 of the 2000
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Procedure, but substituting a power on the part of the Arbitrator to “…interpret
the award…” it would appear that the 2008 Procedure is intended, in effect, to
ensure that an Arbitrator’s power in this regard under the 2000 Procedure, as
amplified and explained by McMahon J. in the Kingston case, has been
preserved.
98. Problems may still arise in relation to the use of the words “…interpret the
award”. For example, while no doubt, the Rule will allow an Arbitrator to
better explain the words used by him to explain the reasoning by which he has
come to his award, the Rule would not appear intended to allow the Arbitrator
to expand on the reasons already given, or, more importantly, to substitute
better reasons. This question may assume considerable practical importance
in that a party, disappointed with the Arbitrator’s decision, and believing it to be
wrong in law and on the facts, or irrational or improperly reasoned, may
request the Arbitrator to interpret the award under Clause 20.1 of the 2008
Procedure, in the hope that the Arbitrator, in doing so, will in effect “dig himself
into a hole”, and thereby improve the prospects of the requesting party to
subsequently obtain an Order for set aside or remission under the 1954 Act.
An Arbitrator, who has had any alleged irrationality or lack of logic pointed out
to him, may be tempted to expand upon or alter his reasoning so as to better
immunise his award from judicial interference and, in so doing, may be
tempted to go beyond mere interpretation. This would not appear permissible
under the 2008 Rules.
Court Applications
99. If any party applies to the Court for any relief in connection with the arbitration
proceedings or an award issued by the Arbitrator, or for the removal of the
Arbitrator, that party is required, at the same time, to notify the Arbitrator of
the application, whereupon the Arbitrator is empowered to continue to proceed
with the Arbitration proceedings pending a decision by the court. Once an
award or decision has been made or taken up, the Arbitrator is under no
obligation to make any further statement in connection with it, other than in
compliance with an Order of Court.
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100. Importantly, the powers of the Arbitrator provided for by the 2008 Procedure
are expressly stated to be additional to the powers conferred on the Arbitrator
and the Court under the Arbitration Acts, 1954 – 1998.
Waiver of Rules
101. The 2008 Procedure contains a very important provision that stipulates that a
party who knows that any provision of, or requirement under the Rules, has not
been complied with, and yet proceeds with the Arbitration without promptly
stating the objection to the non-compliance, shall be deemed to have waived
the right to object. Rule 25, which provides to this effect, is consistent with
the general principles of law that apply in relation to procedural matters, in that
a party who permits an Arbitration to proceed, in the knowledge of some frailty
or impairment to the arbitral process, can be held to be disentitled from
subsequently invoking that impairment to have any subsequent award set
aside. Again, a recent example of this is to be found in the Kingston case
where the Respondent Employer sought to challenge an Arbitrator’s award on
the grounds, inter alia, that, early in the Arbitration, he had been seen to
apparently fall asleep. While the matter was discussed between the lawyers,
nothing was said to the Arbitrator at the time. The arbitration ran into a
second week, whereafter there were very lengthy submissions over a long
period of time followed by an award and requisitions under Rule 21.3. When
the findings ultimately went against the Employer, a High Court challenge was
initiated to have the award set aside on the grounds that the Arbitrator had
fallen asleep not only on the occasions when the matter was drawn to the
attention of both advisers, but also on a number of other occasions, when the
Employer’s representatives claimed they had seen the Arbitrator nodding off.
The Contractor’s advisers hadn’t noticed anything irregular, and nothing had
been said to them by way of further complaint by the Employer’s advisers, and
the Arbitration had thereafter been allowed run its course. Judge McMahon
found that, in all the circumstances of the case, it would not be fair to set aside
the award on this basis.
Concluding Remarks
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102. In delivering his address to the Annual Dinner of the Chartered Institute of
Arbitrators (Irish Branch), in December 2007, the then Chairman of CIARB’s
Irish Branch, Joe Behan, stated as follows:-
“We are about to witness an explosion in the amount of conciliation and
arbitration on account of the new Contracts… parties to the Contracts
have no precedents, the Contract Conditions and Clauses will be
interpreted differently by everyone. Every single Clause will have to be
tried and tested, both at the mandatory conciliation process and in the
default arbitration process…Disputes will occur, not because people
want to be engaged in conflict, but because simply there is no history
and no guidance…I really do believe that it will be a battlefield with
many casualties left on it”.
103. Mr. Behan will be well known to anybody experienced in the field of
Construction Arbitration being, himself, an Arbitrator of very considerable
experience indeed. It is submitted that, in due course, his observations may
well be seen to have been truly prophetic. The field of arbitration, and indeed,
conciliation in respect of the new Government Contracts thus represents, it is
submitted, a significant niche opportunity for lawyers, and, in particular, the
Bar. Persons with an interest in this area are to be encouraged to acquire
familiarity
with the new contractual landscape and the procedural rules which will govern
the Arbitrations to be conducted thereunder.
John Trainor S.C.
February 7th 2009.