Arbitration,conciliation,ADR

S.K.Rao

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Construction contract-mutual obligations A construction contract is between two parties-

Employer and Contractor. The work is executed based on Contract

provisions and the rights and obligations of the parties are governed by these documents

Both parties have to fulfill their respective obligations under the contract. Non fulfillment of any obligation by one party

affects the interests of the other party Long duration of contract-various issues arise during construction Views of one party may not be acceptable to the other resulting in disagreement

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Unresolved issues result in disputes Most of the issues are resolved by mutual

discussions with the spirit of accommodating each other’s point of view and in the overall interest of work.

The Engineer plays an important role in ascertaining the views of both sides. The Engineer, with his professional experience and fairness, endeavours to convince both parties to come to a common understanding and agreement. If there is a disagreement, the Engineer gives his decision/ determination in accordance with the contract.

In case the issue can not be resolved, the dispute is precipitated

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Sources of disputes Sources of disputes could be:

Inconsistencies/discrepancies in contract provisions Delay in giving possession of site Denial of extension, Liquidated damages Rejection of work, Cancellation of contract,

Foreclosure Variations, Fixing rates, Delays and denial of payments, etc. Delays in execution and failure of contractor Non adherence to contract conditions and

specifications by contractor

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Interpretation of contracts in case of discrepancies The following aspects are to be considered while

interpreting contract documentsa) Contract to be read as a wholec) Local custom or usaged) Reasonable meaninge) Order of precedence among various documents forming part of contractf) Words versus figuresg) Written words versus printed wordsh) General versus special provisions

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Inconsistencies in different parts of Contract In order to resolve apparent inconsistencies or

contradictions, in cases where the subject matter is covered several times in different parts of the Contract, the order of precedence to be considered is laid down in the General Conditions of Contract adopted by various organisations

There is a sub-clause in FIDIC contract form also (Federation Internationale des Ingenieurs-Conseils) laying down the order of precedence for interpretation

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Interpretation of contracts-Order of precedence- FIDIC The contract agreement The letter of acceptance The letter of tender The Particular Conditions The General Conditions The Specification The Drawings The schedule or any other documents

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Engineer’s clarification If an ambiguity or discrepancy is found in

the documents, the Engineer shall issue necessary clarification or instruction

The work will be executed as per the instruction of Engineer

Disagreement on any issue may result in claim/dispute which will have to be resolved by various procedures of dispute resolution

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Notice for claim and substantiation If the contractor wishes to claim for any additional payment,

he shall give notice to Engineer with copy to Employer, immediately on occurrence of an event leading to claim

Contractor shall keep contemporary record necessary to support his claim

Without necessarily admitting the Employer’s liability, Engineer may inspect the records

Contractor shall send detailed particulars and supporting details to substantiate his claim

Contractor shall also submit any further particulars, documents or clarifications as desired by the Engineer

Copies of the correspondence shall be endorsed to the Employer

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Engineer’s response to the claim If the Engineer agrees to the claim, he shall

issue a variation order admitting payment If the Engineer does not agree, he shall

state reasons for his disagreement The Contractor may advance further

arguments in support of his claim The Engineer may reconsider and give his

decision/determination Copies of the correspondence shall be

endorsed to the Employer

Dispute Resolution-ADR Disagreement between the Employer and the

Contractor results in dispute Going to Court for resolving disputes involves

lengthy litigation which is tedious and time taking

Various alternative methods of dispute resolution are, therefore, devised for settlement of disputes-ADR

Arbitration and conciliation are governed by The Arbitration and Conciliation Act,1996

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Claims and counter claims The party making claims is called Claimant The claimant submits his Statement of Claims,

substantiating his claims The opposite party who responds and defends the

claims is called Respondent or Defendant The respondent submits arguments against the claims,

called Pleadings in defence or defence statement The opposite party may submit his own claims called

counter claims The first party submits defence statement against the

claims of opposite party

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Various stages of resolution of disputes-Domestic/Government contract form Mutual discussion Decision of Accepting officer Conciliation- provision in the

Arbitration and Conciliation Act, 1996 Arbitration as per the Arbitration and

Conciliation Act, 1996 Intervention by Court

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Various stages of resolution of disputes-FIDIC contract Mutual discussion Decision of the Engineer Dispute review board-or Dispute

Resolution Board-(Dispute Adjudication Board in FIDIC 99)

Arbitration Intervention of Court

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Dispute Review Board-FIDIC contract FIDIC contract provides for DRB to settle disputes during execution / completion of project Any disputes that cannot be settled by mutual discussion and decision of Engineer may be referred to the DRB Procedure for appointment of DRB, qualifications and experience required of the Board members, conducting proceedings etc, is laid down in the contract The board members need not be legal experts and they need not follow strict court procedure. However, they should be impartial, reasonable and objective

Dispute Review Board-appointment Normally formed by 3 Members experienced with the type of construction and acceptable to both parties A Member should have no financial interest in any party There should not be any previous employment with any party This should be confirmed by each member before accepting the appointment One Member is nominated by each party The other party has to agree to the nomination Third Member is nominated by the two Members already nominated as above and he should be acceptable to both parties The third member acts as chairman

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DRB proceedings-commencement DRB proceedings are commenced from the date the chairman accepts his appointment DRB chairman calls for Claims statement from both parties with details within a specified date He shall endorse copy to the other members The parties are asked to endorse copies to opposite party as well as other members On receipt, the chairman calls for Defence statement from the opposite parties by a specific date Copies to be endorsed to the parties as well as other members Parties may request for extension of time for submission which may be considered by the DRB

DRB proceedings-hearing On receipt of all the documents from both parties, each member studies the case in detail The chairman fixes the date for site visit and hearing of the case in consultation with all concerned The procedure for conducting the proceedings will be decided by DRB in consultation with the parties On the appointed date, DRB visits site along with parties The hearing of the case is conducted at a convenient location Full opportunity is given to both parties to present their cases during site visit as well as during the hearing

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DRB proceedings-recommendations DRB Members make their own notes during site visit and the hearing They may ask for any clarifications from the parties The hearing will be closed after both parties are satisfied that they are given full opportunity to present their case There after, the DRB will have their internal meeting, deliberate the issues among them and make their Recommendations This will be signed by the members and chairman The copies will be sent to both parties and the members If this is not acceptable to either party, the matter may be referred to Arbitration

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Dispute Adjudication Board DRB is replaced by DAB in FIDIC 99 DAB is formed in a similar way and conducts

proceedings in a similar way While DRB gives ‘Recommendations’, DAB gives

its ‘Decision’ which shall be binding on parties Within a specified period, any party may give

notice of dissatisfaction to the other party with copy to DAB.

The case may be referred to arbitration there after

If no such notice is given with the specified period, then the DAB’s decision shall be final and binding on both parties

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Resolution of disputes-ADR Mutual discussion Decision of Engineer/ Accepting

officer Dispute review board- provision in

FIDIC contract form Conciliation- provision in the

Arbitration and Conciliation Act, 1996 Arbitration as per the Arbitration and

Conciliation Act, 1996

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Powers vested with Engineer/Accepting officer

As per contract, Engineer/Accepting officer is vested with powers to act as quasi-arbitrator to decide on disputed issues Order of precedence among various documents of contract agreement to be considered Contractor submits his claim with supporting details Dept. submits their point of view giving the basis and details Engineer/Accepting officer examines documents/details and consults both sides Effort for mutual agreement If not possible, he gives his unbiased decision If this is not acceptable to either party, reference is

made to DRB/conciliation/arbitration as the case may be

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The Arbitration and Conciliation Act, 1996 This is a very recent act formulated and enacted to

make it more responsive to contemporary requirements.

The old act, The Indian Arbitration Act, 1940 was considered outdated. The new act replaces the old act

It was recognized that our economic reforms may not become fully effective if the law dealing with settlement of both domestic and international commercial disputes remains out of tune with such reforms

Conciliation, which is getting worldwide recognition as an instrument for settlement of disputes , is included in the act

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The United Nations Commission on International Trade Law UNCITRAL adopted the Model Law on International

Commercial Arbitration An important feature of the Model Law is that the

concepts of different legal systems of the world are harmonised in it. Thus, contains provisions which are designed for universal application

The General Assembly of United Nations recommended that all countries give due consideration to the said Model Law in view of the desirability of uniformity of law of arbitration procedures and the specific needs of international commercial arbitration practice

The Arbitration and Conciliation Act, 1996 was enacted keeping this aspect in view

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Objectives of the Act To comprehensively cover international and

commercial arbitration and conciliation Also domestic arbitration and conciliation To make provision for an arbitral procedure which is

fair, efficient and capable of meeting the needs of specific arbitration

To provide that the arbitral tribunal gives reasons for its award

To ensure that the tribunal remains within the limits of its jurisdiction

To minimise the supervisory role of courts To permit an arbitral tribunal to use mediation,

conciliation or other procedures during the arbitral proceedings to encourage settlement of disputes

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Other objectives of the Act To provide that every final award is enforced in the

same manner as if it were a decree of the court To provide that a settlement agreement reached by

the parties as a result of conciliation proceedings will have the same status and effect as an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal

To provide that, for purpose of enforcement of foreign awards, every arbitral award made in a country to which one of the two international Conventions relating to foreign awards to which India is a party applies, will be treated as foreign award

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Contents of the Act Part I Arbitration- consisting of TEN

chapters Part II Enforcement of certain foreign

awards- consisting of TWO chapters Part III Conciliation Part IV Supplementary provisions The First Schedule The Second Schedule The Third Schedule Notes on Sections

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Part I Arbitration Chapter I General provisions Chapter II Arbitration agreement Chapter III Composition of arbitral tribunal Chapter IV Jurisdiction of arbitral tribunals Chapter V Conduct of arbitral proceedings Chapter VI Making of arbitral award and termination of

proceedings Chapter VII Recourse against arbitral award Chapter VIII Finality and enforcement of arbitral

awards Chapter IX Appeals Chapter X Miscellaneous