What is Construction Arbitration

What is the concept of Construction Arbitration?

Arbitration is a form of alternative dispute resolution (ADR) that provides a mechanism to settle construction related dispute.

Construction Arbitration is private, with the aim to resolve disputes fairly, keeping costs and delays to a minimum. Disputes are resolved based on material facts, documents, and relevant construction law principles.

Construction disputes are always considered as more complex in every aspect viz. technically, financially, revenue record wise and architecturally. A typical construction disputes arises between the property owner and the main contractor, subcontractors, sub-subcontractors, architects, end purchasers and design professionals. Similar complexities arese in highrise Commercial and Residential Societies.

Why disputes arise in Construction Arbitration?

•  Failure to administer the contract due to ambiguous terms of the contract or technical issues, force majeure;
• Employer/contractor/subcontractor failing to understand their obligation under the law or incomplete design ;
• Organizational behaviour and culture;
• Poorly drafted contract, errors in contract document or incomplete claims.

What are Pros and Cons of Construction Arbitration?

Cost of Construction Arbitration

Pro: Unlike court litigation, it’s not necessary to engage an Advocate to file or defend claim in Construction Arbitration. 

Con: While its not mandatory, most parties elect to be represented by a lawyer. Consequently, the cost savings of not using a lawyer often is not realized. Arbitral Tribunal with Domain Experts and Domain Expert Witness are quite rare and comes at a Cost.

Timely decision of Construction Arbitration

Pro: The Construction Arbitrator sets the date, time and place for the hearing after consulting with the parties. Under newly added Section 29 A of Arbitration and Conciliation Act, 1996 such proceeding has to be finished within One Year.

Con: A lawsuit ordinarily takes nine to 12 months to get from the initial filing to the trial. However, unlike in an arbitration, a lawsuit opens up the opportunity to have the court make legal rulings in advance of the trial that narrow the issues or dismiss all or part of the claims.

Decision taking authority in Construction Arbitration

Pro: In an Construction Arbitration, the parties can choose an arbitrator who has experience with construction. Additionally, unlike a judge in a court proceeding whose docket is often dominated by criminal, divorce and personal injury cases, an arbitrator ordinarily has the time to evaluate and decide the dispute.

Con: Unlike an Construction arbitration, a judge or jury ordinarily does not have a background as an owner, general contractor, subcontractor or architect. Consequently, they do not have a bias in favor of one segment of the construction industry. For this reason, general contractors often object to the selection of a subcontractor as an arbitrator.

Recording of Evidence in Construction Arbitration

Pro: The rules of evidence and Evidence Act per se not applicable in an arbitration proceeding. This makes it less time-consuming and less expensive to present a case in an arbitration proceeding than in a court trial.

Con: While a party in an arbitration proceeding can be confronted with documents available during cross-examination but in an Construction Arbitration proceeding, proof of damages can be based on mere speculation and conjecture, in the absence of detailed Evidence.

Discovery of Facts and Documents in Construction Arbitration

Pro: Construction Arbitration proceeding provide limited rights to discover information from the opposing party except for an exchange of exhibits and lists of witnesses before the hearing. But the arbitrator has the discretion to direct the parties to exchange documents and other information and identify witnesses, however usually there is no other discovery except for an exchange of exhibits few days before the hearing.

Con: Court rules allow each party to use different methods to discover information known only by the opposing party or a third party, including depositions, interrogatories under oath and for the production of documents. This greatly increase the chances that each party will discover the weaknesses and strengths of their respective cases before trial.

Confidentiality under Construction Arbitration

Pro: Construction Arbitration proceedings carried out behind closed doors in the presence of parties and are not open to the public and the parties can agree to keep the proceeding confidential.

Con: On the other hand in the court proceeding, confidential information cannot be concealed from the public as hearings are carried out in open Court.

Joining of Third Parties in Construction Arbitration

Pro: Construction Arbitration is usually carried out between the Contracting Parties and Third parties who might be responsible for the dispute may not be brought into the arbitration at all. For example an architect who is responsible for the defective designing may not join the arbitration between the owner and building contractor without the architect’s consent. Thus, most arbitration proceedings involve only the two parties to the contract.

Con: Court on the other hand can allow impleadment of a third party who has been sued for something for which a third party is found to be responsible for the dispute.

Right to Appeal under Construction Arbitration

Pro: Appeals against an arbitration award is not permitted under Indian Law. However some orders are Appealable as provided under Section 37 of Arbitration and Conciliation Act, 1996.

Con: In a Court Trial the loosing Party has a right to appeal to a higher court. The basis for the appeal can include alleged errors made by the trial judge as well as alleged mistakes made by the jury, including that the result is not supported by the evidence.

Enforcement of Construction Arbitration Award

Pro: Award holder can file an application with the local court for Execution of an arbitration award unless the same is stayed by the Court hearing the Objection Petition under Section 34 of Arbitration and Conciliation Act, 1996

Con: Court Decree can be executed by Civil Courts and the Arbitral Award is also treated as same par.