Expert Forum - Managing Multiparty Construction Disputes

CD: Could you provide an overview of key trends and developments driving construction disputes? What are some common causes of dispute within the construction industry?

Yamamoto: As restrictions related to the coronavirus (COVID-19) pandemic ease across the Asia-Pacific region, we have seen the resumption of construction projects, particularly across emerging markets in the region. In addition, the fastest growing economies in the region such as Vietnam and the Philippines have increased their commitments to infrastructure spending in 2022- 23 as part of their economic recovery model. The increase in construction activity as a result of both the resumption of existing projects and the commencement of new projects is naturally likely to lead to a greater number of construction disputes. Furthermore, inflationary pressures induced by supply shortages of both labour and raw materials continue to persist, squeezing profit margins for project owners and contractors alike. Added to the delays caused by the pandemic and the various government regulations restricting activity, many parties have suffered costs that were not foreseen at the time of contracting and are turning to dispute resolution mechanisms in an attempt to recover losses.

CD: To what extent are you seeing a rise in multiparty cases? In your opinion, what forms of dispute resolution best suit disputes involving numerous parties?

Yamamoto: Multiparty and multi-contract cases have long been part and parcel of resolving international disputes in the construction industry. Given the increasingly specialised and complex nature of large-scale construction projects involving not only employers, contractors and subcontractors but also stakeholders such as financial institutions and even public entities, it will not be a surprise to see a rise in multiparty construction cases in the coming years. Being consent-based, arbitration traditionally has been less well-equipped to handle multiparty and multi-contract disputes compared to litigation. That said, major arbitral institutions have developed significant experience dealing with multiparty cases, and institutional rules allowing for the joinder of parties to arbitral proceedings and for the consolidation of separate proceedings into one are highly conducive to the formal resolution of multiparty disputes. Where time is of the essence in resolving the dispute and the parties remain sensitive to cost, the non-binding option of mediation can be a good alternative to more formal arbitration proceedings. Mediation offers stakeholders the opportunity to retain control over the outcome, with the neutral mediator simply facilitating the creation of an acceptable resolution to the dispute.

CD: To be successful in resolving multiparty cases, what strategies should be deployed to manage certain complexities that may not be prevalent in two-party disputes?

Yamamoto: The involvement of multiple parties can add significant complexity to a case. It is, therefore, critical that parties approach the dispute resolution process with a highly methodical and strategic outlook. For 'allied' parties this might include, prior to commencement of proceedings, considering documenting the existence of common interest of joint privilege - in order to facilitate information sharing without unwittingly waiving privilege over key documents - and entering into costs sharing agreements, to apportion legal and associated costs. Where contractual chains are involved, parties should also be careful that they are not left 'carrying the can' by inconsistent decisions under different contracts. Typically, it will be a contractor who carries the risk of, for example, recovering in a subsequent arbitration from a subcontractor damages which have been awarded in favour of an employer; joinder and consolidation provisions can provide a means of mitigating this risk.

CD: With the coronavirus (COVID-19) pandemic forcing more construction disputes to be conducted online, via videoconferencing platforms, what impact has this had on the resolution process? Do you expect technology to remain a feature?

Yamamoto: In general, the expansion in use of online technologies to resolve disputes has been advantageous to parties. Where physical meetings and hearings are less frequent, parties enjoy the benefits of lower costs and greater availability of counsel and tribunal members, which can lead to an accelerated timeline for the resolution of the dispute. However, the use of online platforms is not without its challenges, particularly in document­ heavy construction cases. Parties should agree early on with regard to provisions surrounding information security and confidentiality, and ensuring that all participants, including tribunal members, fact and expert witnesses and translators, are familiar with operating the technology. Basic problems such as bandwidth issues are more likely to present themselves in multiparty disputes where it is not unusual to have participants in multiple venues in virtual attendance. Using professional vendors for virtual hearings may be a cost well spent. Even as travel restrictions ease across the world, we expect technology to remain a feature in resolving construction disputes, particularly in the early procedural stages of the dispute resolution process such as case management conferences.

CD: What essential advice would you offer to parties on managing the challenges of multiparty construction disputes and giving themselves the best chance of reaching a favourable outcome?

Yamamoto: There are a number of steps parties may take from the pre-contractual stage onwards. Prior to contracting, if all parties wish to resolve their dispute in a single set of arbitral proceedings, they should consider entering into an umbrella arbitration agreement, or including across the contractual suite identical arbitration clauses that expressly provide for joinder and consolidation. Once a dispute has arisen, a party should consider whether its interests are served by having multiple claims relating to one project settled in a single arbitration; if so, it should consider the availability of joinder or consolidation or alternatively consider appointing the same tribunal in separate arbitrations, so as to avoid the risk of inconsistent decisions. Furthermore, parties dealing with multiparty scenarios should also consider the availability of direct claims - such as between employer and subcontractor - under applicable national law.

CD: Looking ahead, what are your predictions for multiparty construction disputes in the months and years ahead? What factors are set to define activity in this area?

Yamamoto: We expect multiparty construction disputes to increase in the coming years as construction activity resumes and grows both in the Asia-Pacific region and globally. In particular, the push for decarbonisation globally is also likely to contribute to the construction of new renewable energy assets, once again leading to a higher number of multiparty construction disputes down the line. With the general increase in the costs of these projects, the amounts in dispute are also likely to grow, particularly as large-scale construction projects become ever more specialised and complex. It may be possible for disputes of this nature to be resolved more efficiently in the coming years as arbitral institutions adopt faster-track procedures and the parties continue to utilise virtual hearings.

The article was first published in the Jul–Sep 2022 issue of the Corporate Disputes magazine. Access the PDF below for insights of other practitioners alongside Megumi Yamamoto.