Chapter 1
Introduction

The present book deals with multi‐party and multi‐contract international arbitration in the construction sector. This chapter provides an introduction to the topic. The introduction starts with a brief overview of arbitration, its advantages over litigation and its general inability to deal sufficiently well with multi‐party and multi‐contract disputes arising in the construction sector (Section 1.1). Then, the scope of this book and its limitations are described, with a brief overview of the existing literature in the field (Section 1.2). The introduction also contains a concise description of the legal sources utilized in this book (Section 1.3). Finally, the structure of the book is outlined (Section 1.4) and its contribution and goals are stated (Section 1.5).

1.1 General background and research problem

Arbitration is the preferred method for resolution of disputes under international commercial transactions, including in the construction sector. The perceived advantages of arbitration over litigation include the possibility to choose a neutral forum, to have a neutral tribunal in the constitution of which the parties may participate, the flexibility of the arbitral proceedings due to the lack of formal rigid rules of evidence, and the confidentiality of the arbitration process. Contracting parties also prefer arbitration because of the nature of the arbitral awards, which are binding and not subject to court review on the merits. This, in principle, makes arbitration faster than court proceedings. The direct recognition and enforceability of arbitral awards under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the ‘New York Convention’) is pointed out as a further and probably the most significant advantage of arbitration.

The growing international interdependency of commerce and the globalization of today’s business world have led to complex contractual relations, which very often involve more than two parties bound by a multitude of contracts. The relationships between the contracting parties are often intricate and frequently involve multilateral and divergent interests. As a result, there is a permanent trend for the number of multi‐party actions in international commercial arbitration to increase, which is evident from recent statistical reports. The increasing number of multi‐party disputes has led to a higher demand for dispute resolution mechanisms capable of handling such disputes, such as joinder or intervention of third parties into pending proceedings and consolidation of parallel arbitrations.

Despite the predominant position of arbitration over litigation, today it is still argued that arbitration is not well equipped to handle a certain category of disputes arising under international business transactions, including in the construction sector. From the perspective of the construction industry, this category comprises multi‐party construction disputes and especially those arising under multiple contracts. As His Honour Humphrey Lloyd has pointed out:

Given the complexity of construction work and the prevalence of contractual disputes in certain sections of the industry, it is not clear why multi‐party arbitrations are so thin on the ground, whereas the courts are full of actions involving many parties bound by contracts incorporating arbitration clauses.

This observation was made in 1991 but it still concerns a question of interest, which remains unsettled. Unlike judges in national courts, who usually have the power to review multi‐party disputes by way of ordering consolidation of parallel proceedings or joinder of third parties in existing litigation on the basis of statutory provisions contained in civil procedure codes, arbitral institutions and tribunals do not have similar powers, mainly because of the consensual nature upon which their jurisdiction is based.

The attempts of the international arbitration community to provide for solutions for satisfactory resolution of multi‐party disputes have resulted in the revision of the major sets of arbitration rules in recent years and also in the introduction of multi‐party arbitration provisions in the national arbitration laws of some states. The present book examines the legal regulation in these rules and laws to identify whether this regulation provides for workable solutions that contracting parties in the construction industry may readily utilize. As it will be seen, a workable solution, in the author’s opinion, is a solution that provides for a self‐contained mechanism of resolution of multi‐party and multi‐contract disputes – a solution that can be put into operation upon the request of a contracting party without the need to obtain the explicit ad hoc consent of the other parties. Such ad hoc consent can hardly be obtained once the parties have entered into the contentious stage of their contractual relations. At the same time, a workable solution should necessarily result in an arbitral award that is capable of being recognized and enforced internationally without any difficulties.

In addition to the legal regime contained in the arbitration rules and laws, the author analyses the contractual regulation of multi‐party arbitration in order to ascertain whether a workable solution can be found in parties’ contracts. At a contractual level, however, relatively few international standard forms have dealt with this type of arbitration. The FIDIC Conditions of Contracts and the NEC3, which are probably the most popular and widely used international standard forms, do not contain standard provisions dealing with multi‐party arbitrations. Furthermore, ad hoc multi‐party arbitration clauses are rarely met. Therefore, there is still a gap related to the lack of multi‐party arbitration provisions in the contracts that the parties conclude. The present book aims, inter alia, to address this gap. It will analyse the available contractual provisions on multi‐party arbitration, which are mostly contained in domestic standard forms, and provide some suggestions as to how this gap can be overcome.

On the basis of the analysis of the current regulation of multi‐party disputes, as contained in the parties’ contracts and the applicable arbitration rules and laws, the book provides some practical suggestions as to how the current regulation can be improved in order to meet the increasing demands of the business community for workable multi‐party arbitration solutions.

1.2 Scope of the book, limitations and literature review

1.2.1 Scope of the book

As the title of the book suggests, it deals with arbitration of construction disputes that involve multiple parties and arise under two or more contracts. More particularly, the book deals with those construction disputes that are multi‐party and multi‐contract at the same time, for example related disputes involving an employer, a main contractor and a subcontractor arising under a main contract and a subcontract.

The focus of this book is on construction arbitration for several reasons. These reasons have been described in more detail in Section 3.1 but will be briefly reiterated here. First, even though the construction industry does not have a monopoly over multi‐party and multi‐contract disputes and the problems pertaining thereto, the frequency of such disputes in the construction sector is generally greater than in other commercial sectors. This is due to the multitude of parties and contracts involved in large construction projects. Therefore, construction disputes are very illustrative of the type of issues arising in multi‐party and multi‐contract arbitrations. Furthermore, construction projects have their own specifics, which deserve a separate analysis. Due to the long‐term nature of many construction projects, there is a necessity for a prompt resolution of construction disputes while works are still under way. This has led to the emergence of multi‐tier dispute resolution clauses in construction agreements, which add a further level of complexity to multi‐party arbitration problems. In addition, there is a proliferation of standard form agreements in the construction industry. Some of these contracts, mostly domestic forms, contain multi‐party arbitration provisions and have from time to time been subject to arbitral proceedings or litigated before local courts. Therefore, the provisions contained in these contracts, together with the case law pertaining to them, represent fruitful ground for specific sector‐oriented research in construction arbitration.

1.2.2 Limitations

The present book deals with construction disputes that are both multi‐party and multi‐contract. Therefore, multi‐party arbitral proceedings arising under a single contract (e.g. a consortium agreement) or those arising under several agreements executed between the same two parties (e.g. multiple main contracts between an employer and the same main contractor executed in relation to different construction projects) are outside the scope of this book. Furthermore, it is not the intention of this book to explore the notion of extension of an arbitration agreement to non‐signatories, which has been subject to an extensive debate in recent years. This notion has been invoked...