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A Constructive Approach – Changes In Transactions and Dispute Resolution

Doug Jones AM

There are two prime issues that continue to confront practitioners within the field of international construction law. The first of these relates to international construction transaction work, and the other to international construction dispute resolution. First, in relation to international construction transaction work, the interaction of the private and public sectors through public private partnerships (PPPs) has given rise to some controversy in some regions, whilst being enthusiastically embraced in others. Secondly, as international construction dispute resolution continues to adapt to meet the needs of the market, it is essential to remain on top of the most recent developments in this area. Both dispute boards and adjudication are increasingly being utilised as methods of dispute resolution (and dispute avoidance), and it is interesting to note how arbitration and litigation are adopting to the changed perceptions and expectations of disputants brought about by these alternatives.

There have been many interesting developments in the transactional area relating to the initiation, structuring and financing of what are commonly referred to as public-private partnership (PPP) projects. These projects have been contracted and developed for a number of years in many jurisdictions around the world, including my own. By number, however, the UK market has seen more PPP projects than any other single market.

The onset of the global financial crisis and resulting difficulty in accessing debt and equity funds for such projects led to a pause in PPP project initiation around the world. However, in the wake of the financial crisis, there is now an increasing engagement between government and the market in a number of jurisdictions as projects are put to bid and are successfully closed. In my own country there have been some very significant successes in closing complex PPP transactions including the new Royal Adelaide Hospital (A$2.5 billion) and the Peninsula Link in Melbourne (A$849 million). Elsewhere, significant PPP projects have also been closed, including the Windsor-Essex Parkway in Ontario, Canada (C$1.4 billion).

The only area in Australia where no new projects have been initiated is in the toll road space, where real concern about the transfer of market risk coincided with the onset of the financial crisis, which has led to the need for the development of a new model to that previously adopted for such projects. We are yet to see that model developed and put to market in Australia.

It is interesting, in this context, to note that a detailed reconsideration of the use and utility of private finance for public infrastructure projects is being undertaken in the market where there have been more PPP transactions than anywhere else: namely, the UK. In December 2011 the UK’s economic and finance ministry announced plans to reform what is known in the UK as the Private Finance Initiative (PFI). The government released a call for evidence, inviting the private sector to make contributions suggesting alternative ways in which the private sector and government can work together to deliver infrastructure projects. The UK government cites concerns that the existing model results in contracts that are too costly, inflexible and opaque, and aims to develop a new approach that is less expensive and can access a wider range of financing sources.

It will be interesting to observe the outcome of this inquiry and, in particular, to see whether any change in policy adopted by the UK in the deployment of private finance for such projects will affect the approach taken by other governments around the world. My suggestion in this respect is that, just as the Australian market saw PPP projects being let well before the development of the UK PFI model, the influence of a change in policy in the UK may not significantly impact on other markets, including those in North and South Asia, North America, and other parts of Europe.

The second topic of interest relates to the efficient and economical resolution of disputes arising out of construction projects, both international and domestic.

Adjudication has been introduced as an alternative dispute resolution process into a number of common law countries, including the UK, Australia, New Zealand and Singapore. In each of those countries, it has had a profound effect for the construction industry. The adjudication process has been used by many in the industry to obtain expeditious, albeit preliminary, determinations which in the majority of cases have not proceeded to subsequent dispute resolution. This phenomenon has arisen because of the inadequacy of arbitration in a number of these jurisdictions to provide efficient and economical means for the resolution of disputes.

In 2011, during my term as president of the Chartered Institute of Arbitrators, I had a unique opportunity to observe how, in a number of jurisdictions, the efficiency of arbitration processes was being improved in response to a recognised deficiency of celerity and economy. I was also made aware of levels of dissatisfaction being voiced by users of international arbitration, particularly with respect to the arbitration of international construction disputes.

In Australia, we have seen root and branch reform of domestic arbitration with the introduction of the Model Law as the basis for domestic arbitration combined with legislative acknowledgement of the need for economy, efficiency and speed, which arbitral tribunals are required to observe. There have been similar developments in the international arbitration space by both arbitral institutions and international arbitrators anxious to ensure that the processes of international arbitration satisfy the needs of users. Examples of this include the amendments to the ICC Rules, which took effect at the beginning of this year. Further, a number of arbitral institutions introduced expedited arbitration rules, and arbitrators have increasingly been acknowledging the need to adopt processes for arbitration that are designed to suit the needs of particular disputes, as opposed to relying on standard form procedures.

In conjunction with this development has been the growth and success of Dispute Boards as a means of “nipping in the bud” project issues emerging on construction projects, thus substantially reducing the number of disputes needing to be referred to formal dispute resolution. The approach adopted for the use of Dispute Boards varies between jurisdictions. In the international context the FIDIC model has proven successful. The use of dispute boards domestically within the United States, and the application of dispute board processes within Australia, have also proven increasingly useful. These developments, and the various approaches to the use of dispute boards around the world, were the subject of detailed consideration at the international conference of the Dispute Review Board Federation, held in Sydney in May of this year.

The success of a number of domestic courts in finding expeditious ways to determine construction disputes has also been significant. Examples of this can be found in the Technology and Construction Court in the UK, in the commercial lists of a number of Australian states, as well as in the courts of Singapore and Malaysia. It is therefore fair to observe that judges, arbitrators and dispute resolution practitioners in international construction are responding to the need to provide both international and domestic construction activities with efficient and expeditious means of resolution of differences between the parties to the construction process.

As developments continue in both the transactional side and the dispute resolution side of international construction, it is essential to stay abreast of the latest trends, reforms and transformations in the industry. The re-evaluation of the role of the PPP in the UK, and the increasing popularity of Dispute Boards and adjudication are but two examples of the constant evolution of the international construction field. It will no doubt be interesting to continue to track the progress of these developments, whilst retaining an open mind as to what is next for the industry.

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