Registration no.

14282/67

ICA Arbitration

Quarterly Vol. 194 / July-September 2017

Indian Council of Arbitration

Federation House, Tansen Marg, New Delhi - 110 001
INDIAN COUNCIL OF ARBITRATION
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EDITORIAL BOARD STATEMENT OF PURPOSE
Mr. N G Khaitan The ICA Arbitration Quarterly, published by the Indian
Council of Arbitration, aims to be a scholarly journal to
Mr. Lalit Bhasin provide independent platform and ensure in-depth studies
of the most important current issues in domestic and
Dr. P C Markanda international arbitration, giving it even more urgency as a
forum for original thinking, threadbare analysis and
Mr. R K Sanghi reporting on regional and global trends in order to
contribute to the promotion and development of arbitration
Mr. Suman Jyoti Khaitan practices.

Mr. R P Singh ICA, as such, welcomes the contribution from the intending
writers on issues relating to domestic, maritime and
Mr. Ashok Sharma international commercial arbitration. The persons,
intending to contribute in the Quarterly, may sent article to:
Mr. Arun Chawla
The Editor
EDITOR ICA Arbitration Quarterly
Indian Council of Arbitration
Mr. D Sengupta Federation House
Tansen Marg, New Delhi- 110001
Email: ica@ficci.com

Note:

The submitted article shall imply automatic transfer of

copyright of the author on the article to the publisher of the
Quarterly. Any reproduction of the printed article in the
Quarterly or any part thereof without the permission of the
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Publisher:

Indian Council of Arbitration

Federation House, Tansen Marg,
New Delhi - 110001

Disclaimer: The views expressed in the articles here are solely those of the
authors in his private capacity and do not in any way represent the views
of the Indian Council of Arbitration or the Editorial Board of the ICA
Arbitration Quarterly.

ICA ARBITRATION QUARTERLY July - September 2017

 CONTENTS
1. Editor's Message ......................................................................................01

2. Articles

a) THE DIGNITY OF THE OFFICE OF ARBITRATORS- THE LAW HAS

DONE ITS PART…..................................................................................03
By: Malini Ganesh, Advocate, Contract Management Consultant for Engineering
and Construction Projects & Arbitration Counsel

b) STANDARD OPERATIVE PROCEDURE FOR DISPUTE REVIEW

BOARDS: SOME COMMENTS ...............................................................07
By: Prof. (Dr.) Ajit Patwardhan, Mechanical Engineer & Dean, NICMAR

c) FORCE MAJEURE ....................................................................................13

By: Dr. Vedula Gopinath, Advocate/ Arbitrator

d) EFFECTIVE COMMUNICATION IN CONTRACTUAL

CORRESPONDENCE: INDIAN PROJECT SITE SCENARIO.................15
By: Mr. S K Nag, B.E. (Civil) CE, MIE, FIV, FICA

e) DISPUTE RESOLUTION IN CONSTRUCTION CONTRACTS: PRACTICAL

CONSIDERATIONS ................................................................................17
By: R. Venkataraghavan, Chartered Engineer, Chartered Quantity Surveyor,
Construction lawyer

3. ARBITRATION & ADR ROUND-UP .......................................................22

4. 3-Day Symposium on"Building the Future of Domestic and

International Arbitration in India" 27th - 29th July, 2017 -
Mumbai ..................................................................................................39

5. PHOTO GALLERY ...................................................................................40

6. CASE HIGHLIGHTS .................................................................................45

7. RE-ACT .....................................................................................................54

ICA ARBITRATION QUARTERLY July - September 2017

 Dispute Resolution in construction
contracts: Practical considerations
Preamble
Despite the technological advancements and
innovative methods of construction, disputes within
the construction industry are still on the rise. During
the year 2016, the global average of a construction
dispute by one leading consultancy is about 42.8
million US dollars1 . By its very nature, construction is
a unique and risky business. Firstly, due to the
nature of work where the entire asset is being
created in an open space, environmental factors and
unforeseen ground and climatic conditions impact
the construction operations. Secondly, most of the
operations are consecutive and not concurrent and
hence the durations are long. Thirdly, construction
projects are capital and labour intensive. Finally, due
to the involvement of several stakeholders like
Consultants, Contractors and Subcontractors with
conflicting interests it is only natural to expect
claims and disputes unless the whole process is not
managed effectively right from procurement to
completion. It is said that unless all the stakeholders
perform cohesively like a music choir, the project
can't be a success.
Although claims and disputes are an integral part of
construction business, the positive fact about a
construction claim is that the Contract itself
provides remedies for dealing with the claim arising
from the contract. In other words, it is only in rare
instance one need to invoke the principles of law to
secure the entitlements. Despite that simplicity,
construction claims seem to be a nightmare to
contractors and even to the Owners. An unresolved
claim will manifest into a dispute and resolving a
dispute is an expensive process.
1
"Avoiding the same pit-falls", Global dispute resolution report 2017 by Arcadis (www.arcadis.com)
2
International Federation of Consulting Engineers, www.fidic.org
3
Joint Contractors Tribunal
4
New Engineering Contract
ICA ARBITRATION QUARTERLY July - September 2017
By: R. Venkataraghavan,
Chartered Engineer, Chartered Quantity Surveyor,
Construction lawyer
Bespoke versus Standard form of Contract
Drafting a contract is not a rocket science. A lawyer
or even an architect/engineer with little bit of
contracting knowledge can provide you a bespoke
contract instantly. However, one must be cautious
here and should not get carried away by the
simplicity of preparing your own contract since it
may lack the important aspects for example dealing
with changes imposed by the owner during the
execution. In fact, the effectiveness of the contract is
only tested when the events are not happening as
originally envisaged by the Parties.
In order to avoid the pitfalls of a bespoke contract, it
is always recommended to use a standard form of
Contract published by various organizations like
FIDIC2, JCT3 or NEC4. These forms are tried and
tested and constantly revised adapting to the new
challenges that are being faced by the industry.
FIDIC is one of the oldest professional organization
and they promote harmony in the Construction
industry through their Standard form of Contracts.
Their suite of contracts, which is called 'Rainbow
suite' are extremely popular in the international
construction market. In the rest of the article we will
analyse the dispute resolution provisions based on
the FIDIC 99 Rainbow suite of Contracts.
Dispute resolution in Construction
Historically, construction disputes were resolved by
courts and given the fact that litigation is a time
consuming and an expensive process, the industry
moved away from courts to other forms of dispute
resolution that are supposed to more efficient and
17
 less formal. It has been commented that, "litigation is
the bluntest instrument for resolving construction
disputes5". Since the construction disputes are
highly technical and complex, the judges need to be
educated of the nuances of the complex issues in
first place and not all jurisdictions have a specialist
court like the TCC6 in UK. In absence of specialist
courts, the entire litigation would be administered
through the experts appointed by the judges (Civil
law) or Parties (Common law). Further the rigid
litigation process is not practical for example in
certain jurisdictions entire documentation has to be
translated to the local language prevalent in that
country, although the business language could still
be English.
Arbitration is an oldest form of dispute resolution in
settling commercial disputes and even involving
trade with different States. Since the Parties have a
choice to choose their arbitrators, it is practical to
appoint an arbitrator with relevant experience
considering the issues at hand. Unfortunately, today
the arbitration is being handled like a parallel court
proceeding involving lengthy discovery process,
presenting and examining experts and witnesses
leading to delays and exorbitant costs. In other
words, the question now being asked is "Is
arbitration is a true ADR method for resolving
construction disputes?"
Multi-tier dispute resolution
It is often said that dispute resolution in construction
contracts is an analytical process akin to medical
investigation; first diagnose the problem and then
select the least invasive procedure to correct it . It is7
also a misconception that one method fits all
circumstances. In view of this, it is highly
recommended that a multi-tier dispute resolution
5
AAA hand book on Construction Arbitration, second edition page 102
6
Technology Construction Court, https://www.gov.uk/courts-tribunals/technology-and-construction-court
7
Alexander & Partner, “Dispute resolution in Construction Projects”, Year book 2015
8
Mackie K Miles, D. and Marsh W, Commercial dispute resolution; An ADR practice guide p 50 (1995)
18 ICA ARBITRATION QUARTERLY July - September 2017
clause is the most appropriate way in resolving
construction disputes effectively.
The ADR methods available today can be grouped in
three broad categories, and they are called as three
pillars of dispute resolution.
1. Negotiation family: There is no involvement of
third party to facilitate or adjudicate the dispute.
Normally the senior management from the
disputing parties negotiates the settlement.
The author has seen dispute resolution clauses
stipulating negotiation without involvement of
legal counsel from both sides and negotiation
will be conducted on one to one basis between
the MD/CEO of each Party.
2. Mediation family: Here, there is an involvement
of a third party neutral but the mediator is only a
facilitator and not an adjudicator. Mediation is
good when the relationship between the parties
has been sour and neither of them wants to
initiate the dispute resolution.
3. Adjudication family: This is the most common
method that we are all familiar with. Arbitration,
litigation and adjudication are similar in the
sense that the third party neutral will hear the
dispute and finally provide a binding decision on
the parties. Here the decision reached is not
voluntary but imposed.
There are other methods like expert determination,
early neutral evaluation but those methods can
easily be grouped in the above three categories. Also
there are some combination methods like Mediation-
Arbitration or even Arbitration-Mediation, to
provide synergy effect and the picture below
indicates the three pillars of dispute resolution . 8
(Fig 1)
 Figure 1: Three pillars of dispute resolution

Negotiation Mediation Adjudication

Neutral fact-finding Conciliation Ligitation Arbitration

Expert appraisal Expert determination
Early neutral Adjudication
evaluation Ombudsmen
Variations on ‘neutral Dispute Review
expert’ types of process Boards

Concensus-building Med-Arb

Facilitative Evaluative
mediation mediation

Mini-trial or
executive tribunal

Current trends in dispute resolution of
construction contracts
Statutory adjudication
In United Kingdom, the introduction of statutory
adjudication under section 108 of the Housing
Grants Construction and Regeneration Act 1996 was
one of the key recommendations in the Latham
Report (1994). Latham recommended that a system
of adjudication should be introduced within all of the
standard forms of contract. He further recommended
that the system of adjudication should be
"underpinned by legislation", capable of considering
a wide range of issues and that the decision of the
adjudicator should be implemented immediately .
Hence the decision issued by an adjudicator is
temporarily binding although it can be challenged
after completion of the project in an arbitration
process.
Similar statutory adjudication system has been
implemented in other common law jurisdictions like
Singapore, Malaysia, Australia, New Zealand and
Hong Kong. Adjudication is a really quick process
and the decision is normally delivered within 28
days of referral of a dispute to the adjudicator.
Contractual adjudication
In absence of statutory adjudication in other
common law and most of the civil law jurisdictions,
the drafters of Standard form of Contracts have
introduced the concept of contractual or voluntary
adjudication as the first step in dispute resolution.
For example, FIDIC in its rainbow suite has
prescribed a contractual adjudication process,
which is in the form of a Dispute Adjudication Board
9
comprising of nominations from each Party and with
a chairman presiding the board much similar to three
member arbitration tribunal.
Dispute resolution under FIDIC 99 suite of Contracts
Dispute Adjudication is the prescribed method of
dispute resolution under the FIDIC suite of
Contracts. FIDIC recommends appointment of the

9
Nicholas Gould, “DISPUTE RESOLUTION IN THE CONSTRUCTION INDUSTRY:AN OVERVIEW”, Construction law Seminar dated
9th September 2004

ICA ARBITRATION QUARTERLY July - September 2017 19

 DAB within 28 days of commencement of the
Contract although it is permissible to appoint to DAB
after the dispute is arisen. All disputes must be
referred to the Dispute Adjudication Board (DAB)
before arbitration is admissible. Sub-clause 20.4
FIDIC Books provides that any dispute shall be
referred to the DAB. Thus a dispute must already be
constituted before it becomes referred to the DAB.
For the crystallization of dispute the Contractor must
first write to the Engineer (Contract Administrator)
to determine the claim in accordance with clause 3.5
and if the Contractor is not satisfied with Engineer's
determination, it shall be referred to DAB for
resolution.
The DAB shall make its decision within a pre-
determined time frame. FIDIC suggests that the
Fig 2: Dispute resolution process under FIDIC 99 suite of Contracts
Dispute
DAB Procedure
Decision
Amicable Settlement
Arbitration
The time line below will indicate the FIDIC
10
Axel-Volkmar Jaeger, Gotz-Sebastian Hok, “FIDIC A guide for Practitioners” page 405
11
Adapted from FIDIC Red book 1999 (www.fidic.org)
20 ICA ARBITRATION QUARTERLY July - September 2017
DAB shall render a decision within 84 days.
Although it cannot be excluded for the DAB to take
an erroneous decision within such a short period of
time, it shall be binding on the parties until reviewed
by an arbitral court.
Upon issuance of a decision by the DAB, if either
Party is dissatisfied with the decision of the DAB or if
the DAB fails to give its decision within the
aforementioned period, it can issue a notice of
dissatisfaction within 28 days. If the Parties fail to do
so, the decision becomes final and binding. The
readers must note that issuance of a dissatisfaction
notice is condition precedent to commence
arbitration. The various stages of dispute resolution
under FIDIC suite have been summarized below . 10
(Fig 2)
Sub-Clause
20.4
20.2, 20.4
20.4
20.5
20.6,20.7
recommendation of the dispute resolution process11.
(Fig 3)
 Fig 3: Dispute resolution time line from start to end

8.1 20.4 A party 20.4 A party may 20.6 A party

20.2 Parties
Commencement refers a dispute issue a “notice of may initiate
appoint DAB
date to the DAB dissatisfaction” arbitration

Parties present Amicable

submissions to Settlement
the DAB

<28d <84d <28d >56d

DAB gives Arbitrator/s

its decision appointed

Practical considerations
It is important to draft the dispute resolution clause
carefully. Although the Standard form of Contract
like FIDIC provide dispute adjudication followed by
arbitration, it is prudent to examine the relevance
and appropriateness of other methods like expert
determination for complex technical disputes. It is
always beneficial to have a "multi-tier" dispute
resolution clause involving negotiation, mediation,
adjudication followed by arbitration.
Although the adjudication has become the most
favoured dispute resolution mechanism either by
statutory or by consensus, the author has noticed
that the DAB clause is normally omitted in the GCC
region. Fundamentally the Owner wants to get his
work completed on time and similarly contractor
wants to complete the work on time and get paid for
the work done. Unlike the DAB process, where the
work can continue while the dispute being resolved
by the adjudication board, it is uncommon to see the
contractor is still engaged at site while the
arbitration is underway.
The Contract often dictate that the work must
continue despite there are disputes and the
Contractor's only recourse is when the works are
completed and handed over. This position may suit
the Owner but the Contractor may become bankrupt
while awaiting his case to be heard and resolved in
arbitration. If we believe in the adage that "Justice
delayed is justice denied", then there must a
mechanism for quick resolution of disputes.
Negotiation is by far the best way to resolve a
construction dispute. It is cost effective, and
importantly, it gives control over the outcome to the
parties and the business relationships could be
preserved. It is highly recommended to first
understand their contractual position and likely
costs of arbitration before engaging in the
negotiation process.
Finally, disputes on construction projects cannot be
avoided, but with a little diligence and creativity,
expensive legal proceedings can be avoided.

ICA ARBITRATION QUARTERLY July - September 2017 21