Pg 359 à Conduct of Construction Industry Arbitrations before the 1996 Act

Major problems identified with the construction industry arbitrations prior to the aact
included…..absence of wide powers possessed by arbitrators to control proceedings and in
particular to enforce orders made.

Pg 360 à Conduct of Construction Industry Arbitrations after the 1996 Act

However, what was abundantly clear prior to the Act was that if tribunals were to burgwed to
conduct arbitrations, so as too achieve the objectives referred to, and appropriately
identified as general principles in section 1 of the Act, then the tribunal had to be given clear
and wide powers. The tools had to be made available. The act had made them available.

Is consolidation of arbitration proceedings relevant to this?

Separability and consent of Arbitration agreement

Focus on Fundamentals of Arbitration by Margaret L. Moses. (Not very useful, just maybe -
Gary Born, Redfern, Hunter)

“The Principles and Practice of international Commercial Arbitration” by Margaret L. Moses

Pg 17 – Distinction between Arbitration clauses and submission agreements

(mentioned in Note from problem drafter): If there is no arbitration clause in the parties’
contract, and a dispute arises, at the time the parties can nonetheless enter into an
agreement to arbitrate, if both sides agree. Such an agreement is generally referred to as a
submission agreement.

Pg 18 – Separability: Even though the arbitration clause is most often contained within the
contract between parties, under most laws and rules it is nonetheless considered a separate
agreement. It thus may continue to be valid, even if the main agreement – that is, the
contract where the arbitration agreement is found – may be potentially invalid. (See
References on Pg 18)

Pg 19. International arbitration agreements are enforceable under the New York Convention
(Convention on the Recognition and Enforcement of Foreign Arbitral Awards) – Article II.

Pg 18 – B. Validity of an arbitration agreement

1. The Writing Requirement (pg 20)

Article II (I) of New York Convention - writing requirement & Article II (II) defines what “in
writing” means. This requirement must either be met by a clause in the contract or a
separate agreement to arbitrate signed by the parties or it can be satisfied by the exchange
of letters. (pg 21 – how strictly will the courts interpret this requirement?) à 2 Steps of
Recommendations by UNCITRAL, 1999 w.r.t. Article II and Article VII of New York
Convention to give less rigid interpretation.

2. A Defined Legal Relationship

Art II, New York Convention à The dispute between the parties must be in respect of a
defined legal relationship, whether contractual or not.
It is prudent to draft an arbitration clause broadly, so that it includes not only the disputes
arising out of the contract but will make the arbitration clause more broad by saying “all
disputes arising out of or related to the contract.” Usually a party’s tortious claims or claims
of unfair business practices will be related to the contract, even though not necessarily
arising out of it. (Refer to the usage of “In case of any dispute” in Clause 85.2 of the Contract
– Moot proposition)

3. Capable of being settled by arbitration

4. Null and void, inoperable or incapable of being performed

(a) Null and void – 1. Lack of actual consent; or 2. An arbitration agreement could also be
considered a nullity because the laungage of the clause is so vague that the parties’ intent
cannot be determined. Defective arbitration clauses, referred to as “pathological”, may
nonetheless be interpreted by a court in some instances to preserve the parties’ intent to
arbitrate, even if the choice of an arbitral institution or rules was unclear. In other instances,

however, the clause may be viewed as so vague that it nullifies the agreement. (see citations
on pg 32)

(b) Inoperable – 1. Barred by res judicata, or 2. Because the parties revoked it or entered
into an agreement to settle the dispute, or 3. A required time limit has expired.

(c) Incapable of being performed.

Moot prop - However, the High Court of Kotham allowed TIA’s application and appointed Ms.
Kumber Bird as the sole arbitrator for fresh arbitration proceedings. Electro filed a Special
Leave Petition to the Supreme Court challenging the said order, and the Supreme Court
dismissed the petition, stating that “all questions of law remain open” and directed the parties
to raise all the disputes before the Sole Arbitrator Ms. Kumber Bird. Hence, Electro filed an
application under Section 16 of the Act before the sole arbitrator, stating that there is no valid
arbitration agreement and Ms. Bird does not have jurisdiction to proceed (“Section 16
Application”). Electro also filed an application, without prejudice to the Section 16
Application, seeking early dismissal of the case. It argued that there is no cause of action
against Electro, as there was no crystallised liability on the date of assignment of the 4 ©Ajar
Rab contract from FLIP to Electro and the alleged breaches of FLIP cannot be inherited or
assigned. Electro’s liability, if any, can only be prospective after the assignment and not
retrospective. These questions of law are to be determined through an interim award before
proceeding further.

Read from page 105 about interim measures from Margaret L. Moses.

Handbook of Arbitration Practice – Ronald Berstein, John Tackaberry, Arthur L

Marriottt, Derek Wood

S6, ACA, 1996 à definition of an arbitration agreement

S5 à Requirements for arbitration agreement –

1. an agreement in writing whether or not signed by parties.

2. an agreement

Understanding on agreement in context of privity and consent in Arbitration.

Discovery of evidence

Handbook of Arbitration Practice – Ronald Berstein, John Tackaberry, Arthur L

Marriottt, Derek Wood

Pg 141 à Section 34(2)(d) provides that the arbitrator may decide whether any and if so
which documents or classes of documents should be disclosed between and produced by
the parties and at what stage.

This is an extremely wide power subject only to the protection against disclosure of
privileged documents; to the overriding obligation of the arbitrator under section 33; and to
the contrary agreement of the parties. Properly used, the power should enable arbitrators to
prevent oppressive and expensive discovery and exercise greater control over the disclosure
and production of documents.

Thus, at one extreme it enables him to direct that there should be no discovery at all. A the
other he can direct that there shall be full discovery along the lines of English Litigation. The
arbitrator should treat each issue individually and look for the the degree of discovery
appropriate to the issues involved.

Redfern schedule – It is a method of discovery in the field of arbitration.

Handbook of Arbitration Practice – Ronald Bernstein

The very diversity of construction disputes means that it is inappropriate to adopt a uniform
approach to the conduct of hearings. It has therefore become increasingly common for
arbitrators to request a preliminary meeting or a pretrial review at which agreement can be
reached or in the absence of hearing, the arbitrator can in most cases, determine the
applicable procedure to be adopted at hearing.

https://www.mondaq.com/india/arbitration--dispute-resolution/651400/discovery-in-
arbitration#:~:text=Redfern%20Schedule%3A%20is%20a%20collaborative,S.

Redfern Schedule: is a collaborative document which both parties and the tribunal use for
the production of documents. It is usually used for international arbitrations to create records
for the requests for production of documents and responses between both parties

The only reported case to have used Redfern Schedule is Thiess Iviinecs
India v. NTPC Limited, MANU/ DE/0748/2016.
https://www.nathsolicitors.co.uk/arbitration-what-you-need-to-know-about-
redfern-schedules/
The schedules in effect summarise for the arbitrator the position of the parties to document
disclosure without the need for formal, in-person oral argument between lawyers. A well-
drafted Redfern Schedule will hone in on the specific issues that are at the heart of the case
and enable the arbitrator to make a reasoned decision on whether or not a particular type of
document should be produced.
IBA Rules on the Taking of Evidence in International Arbitration ( Article 9 Admissibility and
Assessment of Evidence - https://www.ibanet.org/MediaHandler?id=def0807b-9fec-43ef-
b624-f2cb2af7cf7b )
1. The Arbitral Tribunal shall determine the admissibility, relevance, materiality and weight of
evidence.
2. The Arbitral Tribunal shall, at the request of a Party or on its own motion, exclude from
evidence or production any Document, statement, oral testimony or inspection, in whole or in
part, for any of the following reasons:
(a) lack of sufficient relevance to the case or materiality to its outcome;
(b) legal impediment or privilege under the legal or ethical rules determined by the Arbitral
Tribunal to be applicable (see Article 9.4 below);
(c) unreasonable burden to produce the requested evidence;
(d) loss or destruction of the Document that has been shown with reasonable likelihood to
have occurred;
(e) grounds of commercial or technical confidentiality that the Arbitral Tribunal determines to
be compelling;
(f) grounds of special political or institutional sensitivity (including evidence that has been
classified as secret by a government or a public international institution) that the Arbitral
Tribunal determines to be compelling; or
(g) considerations of procedural economy, proportionality, fairness or equality of the Parties
that the Arbitral Tribunal determines to be compelling.

Hudson formula

Construction Law by John Uff – 12 edition -

th

https://nibmehub.com/opac-service/pdf/read/Construction%20Law%20by%20John
%20Uff%20-12%20ed.pdf

Responsibility for the site Contractors sometimes make claims on the basis that the site
conditions have turned out to be more difficult than was anticipated. This is not a variation
and the contractor is entitled to no extra payment unless they can establish a proper ground
to claim for additional payment. The general rule is that, when the contractor has undertaken
to carry out and complete the work for a stated price, they are bound to do so, however
difficult or expensive the work may prove to be.

Pg 242 - Can also claim Quantum Meruit under contracts - the employer will be obliged to
pay a reasonable sum, which may be regarded as a species of quantum meruit. More
difficult, and of considerable importance in relation to construction contracts, is whether and
in what circumstances, the contractor may be entitled to claim quantum meruit when there is
an existing agreed pricing mechanism. Such a remedy is occasionally claimed on the footing
that “the basis of the contract has changed” or that circumstances have arisen which were
not contemplated by the parties.

Pg 594 - QUANTUM MERUIT: An action claiming a reasonable price for work or goods.

The Hudson Formula derives from Hudsons Building and Engineering Contracts and is
used for the assessment of delay damages in construction claims.

head office overheads formulae

Hudson formula

O&P x contract sum x period of delay

100 contract period

O&P: head office overheads and profit percentage in tender.

THE SOCIETY OF CONSTRUCTION LAW DELAY AND DISRUPTION PROTOCOL – 2 nd

Edition published in 2017 -

https://www.scl.org.uk/sites/default/files/documents/SCL_Delay_Protocol_2nd_Edition_Final
.pdf
(President of the Society – Lord Coulson - Lord Justice of Appeal since 2018)

1.16.6 & 1.16.7 - The use of the Hudson’s formula is not supported. This is because it is
dependent on the adequacy or otherwise of the tender in question, and because the
calculation is derived from a number which in itself contains an element of head office
overheads and profit, so there is double counting.

Alternate formulae used – Emden formula and eichleay formula

Emden formula

O&P x contract sum x period of delay

100 contract period

O&P: head office overheads and profit percentage (actual).

Eichleay formula

contract turnover x fixed overheads for contract period total turnover

= contract contribution

contract contribution = weekly contribution from contract

contract period

weekly contribution x delay = sum claimable

https://www.hka.com/is-there-still-a-role-for-the-hudson-formula (can be read in detail – will

take time to understand)

formally set down in Hudson, Building and Engineering Contracts,

Sweet & Maxwell, 10th Edition, 1970, at page 599, whose editor Mr.

Duncan Wallace described it as the formula ‘usually used’ by

contractors for the purposes of assessing the loss due to delay in

completion, thenceforth labelled “the Hudson formula”.

The editors of Hudson did however move to the position to be found in

the 14th Edition, in 2020, as follows:

‘The head office overheads and profit percentage applied to the

Hudson formula were originally those deducible from the Contractor’s

tender. A more modern assumption is to use the head office and profit

contribution deducible from the Contractor’s annual accounts

sometime referred to as “a fair annual average”’[7].

In that form, it has a close resemblance to Emden’s formula.[8]

( https://www.lexology.com/library/detail.aspx?g=681d1f22-3e4f-44dc-acc3-
f4b9a6e95d94#:~:text=By%20the%20Hudson's%20Formula%2C%20the,period%2C
%20and%20period%20of%20delay. )

Batliboi Environmental Engineers Ltd. v. Hindustan Petroleum Corporation Ltd. and

Anr - discussed the principles and formulae for computing a claim for increased overheads and
loss of profit in a works contract, where delay in performance of the contract was attributed to the
employer by the arbitrator.

The Supreme Court in this case held that, not only must an arbitrator provide reasons for how the
quantum of damages towards loss of profit and overheads was arrived at, but if formulae for
calculation of loss of profits such as the Hudson’s Formula or Eichleay’s Formula are applied, the
assumptions and limitations of such formulae must be kept in mind in determining the quantum.
The Court in this case found the arbitral award, which was passed in 1999, to be contrary to
public policy under section 34 of the Arbitration and Conciliation Act, 1996 (as it stood prior to
its amendment by the Arbitration and Conciliation (Amendment) Act, 2015) (“Act”).

The Court observed that the Hudson’s Formula is based on the following three assumptions:
i. The contractor is not habitually or otherwise underestimating the cost when pricing;
ii. The profit element factored into the contract was realistic at the time of entering into the
contract; and
iii. There was no fluctuation in the market conditions and the work of the same general level
of profitability would be available to her/him at the end of the contract period.
The Court held that a party claiming losses based on the Hudson’s Formula would have to satisfy
the arbitral tribunal on the above three assumptions. If completion of works is delayed on account
of the employer, the contractor has to show that he has suffered a loss as a result of a decrease in
turnover and incurred overhead expenses, which could have been utilized in other contracts and
that there was other work available that he would have secured if not for this delay. The Court
observed that this may be done by producing invitations to tender which were declined due to
insufficient capacity to undertake other work, or from the books of account of the contractor
which show a decreased turnover.
The Court further cautioned that the Hudson’s Formula might result in “double recovery” since
profit is added to the profit which is already subsumed within the ‘contract sum’. Additionally,
there may be overlap with other claims by the contractor, or the party claiming losses may add
unreasonable expenses while applying the formula. The Court therefore held that the Hudson’s
method should only be taken as the basis for computation with caution and as a last resort, where
no other way to compute damages is feasible or mathematically accurate.
Pertinently, the Court noted that the Eichleay’s Formula is more precise and accurate in
calculating loss of profits since it requires the contractor to itemise and quantify the total fixed
overheads during the contract period. It takes into consideration all the contracts during the delay
period to determine the proportionate fraction of the total fixed overheads.

It is now settled law under section 73 of the Indian Contract Act, 1872, that a party may be
awarded damages only for those losses that it has been able to prove that it has suffered.

Though the Court has previously noted the shortcomings of the Hudson’s Formula in McDermott
International Inc. v. Burn Standard Co. Ltd.4 , the Court in the present case has, for the first
time, emphatically held that the Hudson’s Formula must be used only as a last resort as it may not
be an accurate way of computing loss of profits.

setting aside of awards & its consequences

Upcoming Jurisdictions on Applications for Early Dismissal in Arbitral Practice