This article was featured in our 2023 Construction Arbitration Report, which is part of a series of industry-focused arbitration reports edited by Jus Connect and Jus Mundi.
This issue explores the construction industry and presents a goldmine of information based on data available on Jus Mundi and Jus Connect as of May 2023. Discover updated insights into construction arbitration and exclusive statistics & rankings, as well as in-depth global and regional perspectives on construction projects, disputes, & arbitration from leading lawyers, arbitrators, experts, arbitral institutions, and in-house counsel.
THE AUTHOR:
Elina Zlatanska, Lawyer at the Documentation and Research Centre at the ICC
Disputes arising in the construction & engineering sector generate the largest number of ICC cases. This trend has been confirmed in 2022 with construction & engineering disputes representing 24% of the newly registered cases (compared to 26.2% in 2021). In terms of geographical representation, most construction cases come from North & West Europe, followed closely by Central & West Asia. For instance, in 2021, 65% of the cases came from North & West Europe (40%) and Central & West Asia (25%). The remaining cases came from: Latin America and the Caribbean (12%); South & East Asia and Central & Eastern Europe (with 8% each); North America (5%); North Africa and Sub-Saharan Africa (with 1% each). In 2020, the numbers were as follows: 60% of the cases came from North & West Europe (36%) and Central & West Asia (24%); Latin America and the Caribbean and Central & Eastern Europe (with 10% each), Sub-Saharan Africa (8%), North America (6%), South & East Asia (5%) and North Africa (1%).
Disputes in this sector often involve projects which are complex, long-term, high-value and, not surprisingly, the amounts in these disputes are considerable. The annual total amount in dispute in construction & engineering cases in the past five years is on average 9,6 billion USD, with cases ranging from 14 460 USD at the lower end, to 3 billion USD at the high end.
Types of projects vary greatly and include roads, railways, bridges, seaport and airport terminals, production and manufacturing plants, (nuclear, hydroelectric, thermoelectric or other) power plants, wind farms, residential real estate, hotels, commercial properties, and others.
Provisions on joinder of additional parties (Article 7 of the ICC Arbitration Rules); claims between multiple parties (Article 8); multiple contracts (Article 9) and consolidation (Article 10) are often invoked in construction and engineering arbitrations. Many cases also include jurisdictional / admissibility objections based on an alleged failure to complete pre-arbitral steps in the presence of a multi-tier arbitration agreement, or time-bar.
Some of the common substantive issues present in such cases include allegations of wrongful contract termination; delay, extensions of time, prolongation costs, application of penalties; and calling of bank guarantees and securities.
EA and EPP
Disputes arising in the construction & engineering sectors also represent a substantial portion of cases under the emergency arbitrator (“EA”) provisions introduced in 2012 and the Expedited Procedure Proceedings (“EPP”) introduced in 2017.
To date, a total of 212 emergency arbitrator applications have been filed and 26% out of these arose from construction projects. Such applications usually involve requests for orders relating to calling of bank guarantees, bonds and letters of credit. The vast majority of the applications in construction cases (64%) have been dismissed for failing to fulfil the conditions for emergency relief or due to lack of urgency/proving a risk of imminent irreparable or serious harm, often relying on the existence of an independent, abstract contractual right to request the execution of the bank guarantee. In some cases, the relief was dismissed because it required a determination of the merits of the case. In few cases, the emergency arbitrator found that he/she did not have jurisdiction.
In the remaining cases, the measures requested were partially granted in 24% of the cases, and fully granted in 3% of the cases, usually on the basis that they were necessary to preserve the status quo, or, in other words, avoid further aggravation of the dispute. Finally, 9% of the applications were withdrawn and/or terminated and no order was issued.
In addition, approximately 17% of the cases under EPP arise from the construction sector. The vast majority of these cases involve two parties and a single or few simple issues to be decided such as payment of outstanding sums, entitlement of payment of additional costs incurred or penalties, non-delivery of services or materials, delivery of defective goods. Such cases are normally submitted to a sole arbitrator either according to the arbitration agreement, subsequent agreement of the parties or pursuant to Article 2(1) Appendix VI of the ICC Rules. In terms of procedure, there has been no document production phase and no written post-hearing briefs in the vast majority of cases in which a final award was issued; a hearing was held in more than half of the cases and in a small portion of cases experts were also involved.
Covid-19 and Subsequent Disruptions
The construction sector was one of the sectors which was most heavily impacted by the Covid19 pandemic. The cases registered during the pandemic saw an increase of claims relating to force majeure/hardship, (additional) delays and disruptions caused by government restrictions imposing lockdowns, supply chain disruptions and labour forces as well as increased pricing of materials. Most arbitral tribunals did not find the Covid19 pandemic to constitute a force majeure event for lack of concrete and material impact on the performance of the contract, or that it had only a limited impact and therefore only partially excused the non-performance of contractual obligations.
Russia’s invasion of Ukraine in February 2022 and the unprecedented wave of sanctions following the invasion have further disrupted the performance of existing contracts in various sectors including construction. The trend to see more claims relating to force majeure/hardship/change of circumstances coupled with claims relating to Covid19 pandemic will most certainly continue.
ABOUT THE AUTHOR
Elina Zlatanska is a lawyer in the Documentation and Research Centre at the ICC International Court of Arbitration.
Elina Zlatanska joined the ICC in 2017. Ms Zlatanska is a lawyer (juriste) at the Documentation and Research Centre at the ICC International Court of Arbitration. She provides support to the twelve Case Management Teams based in Paris, New York, São Paulo, Singapore, Hong Kong and Abu Dhabi; and works closely with the office of the Secretary General, the President of the Court and the ICC Commission on ADR and Arbitration. Her main responsibilities include maintaining and organising the Court’s past decisions, conducting legal research and providing advice on Court’s practices, compiling statistics, feeding internal databases, analysing arbitral awards and procedural orders, and producing reports and briefs on issues relating to procedure and substance.
Find more data-backed insights in our 2023 Construction Arbitration Report
