Unit III : Arbitration
Introduction to Arbitration
Introduction to Arbitration
• In civil engineering, arbitration is widely used to resolve
disputes related to construction contracts, project
delays, cost overruns, and contract breaches, ensuring
a faster and more cost-effective resolution compared to
traditional court proceedings.
Introduction to Arbitration
• Arbitration is a way to resolve disputes without
going to court. Instead of a judge, the parties
involved choose a neutral third person called an
arbitrator to listen to both sides and make a
decision.
Introduction to Arbitration
• Why Arbitration?
• Faster than court – Court cases can take
years, but arbitration is quicker.
• Less expensive – Saves money compared to
long legal battles.
• Private – Unlike court cases, arbitration is not
open to the public.
• Flexible – The parties can agree on their own
rules, unlike strict court procedures.
Why Arbitration?
Where is Arbitration Used?
• Business disputes
• Construction contracts
• Employment issues
• Consumer complaints
Construction contracts
• In the construction industry, disputes often arise due to
delays, cost overruns, quality issues, or contract
disagreements. Instead of going to court, arbitration
is commonly used to resolve such disputes efficiently.
• Arbitration Clauses in Construction Contracts
• Most construction contracts include an arbitration
clause, meaning that if a dispute arises, both parties
must settle it through arbitration instead of court. These
clauses are found in contracts following FIDIC,
Indian Arbitration Act, or other international
standards.
• Arbitration helps keep construction projects on track by
resolving conflicts fairly, quickly, and efficiently!
Construction contracts
Arbitration in Cost Overrun Disputes
• Causes of Cost Overruns Leading to Arbitration
• Scope Changes – Unplanned modifications increase
costs.
• Design Errors & Omissions – Inadequate drawings
or specifications lead to additional expenses.
• Material Price Escalations – Unexpected inflation or
supply chain issues affect budgeted costs.
• Delay in Payments – Late payments from clients
impact contractor cash flow, leading to claims.
• Poor Project Management – Inefficiencies in
planning and execution lead to increased costs.
• Force Majeure Events – Natural disasters,
pandemics, or unforeseen circumstances disrupt budgets.
Importance in Civil Engineering Disputes
Alternative Dispute Resolution (ADR) Mechanism
Scope of Arbitration
• Arbitration is a way to resolve disputes without going
to court.
• It is used in business, construction, employment, real
estate, and many other fields.
• An independent arbitrator listens to both sides and
gives a decision, which can be binding or advisory.
• Arbitration helps solve issues like contract
disagreements, payment delays, and project disputes.
• It is faster, confidential, and less expensive than court
cases, making it a popular choice for resolving conflicts
efficiently.
Scope of Arbitration
• 1. Contractual Disputes
• Disputes between contractors and clients regarding
project scope, cost overruns, or delays.
• Breach of contract issues, including failure to meet
project specifications or timelines.
• 2. Payment and Financial Disputes
• Non-payment or delayed payment issues between
stakeholders.
• Disputes over variations, extra work claims, or
escalation costs.
Scope of Arbitration
• 3. Quality and Workmanship Issues
• Defective work or failure to meet quality standards.
• Disagreements on rectification measures for defective
construction.
• 4. Delay and Time Extension Claims
• Claims arising due to delays in project completion.
• Disputes over justifications for time extensions and
liquidated damages.
Scope of Arbitration
• 5. Disputes in Design and Specifications
• Issues related to design errors, changes, or deviations
from agreed specifications.
• Conflicts between consultants and contractors
regarding design interpretations.
• 6. Government and Public Sector
Disputes
• Arbitration in disputes involving public infrastructure
projects.
• Issues related to regulatory approvals, land acquisition,
or environmental compliance.
Arbitration Laws (1940)
• Arbitration Act, 1940 (India)
• The Arbitration Act, 1940 was the primary law
governing arbitration in India before being replaced by
the Arbitration and Conciliation Act, 1996.
• It was enacted to regulate arbitration proceedings and
provide a legal framework for resolving disputes outside
the court system.
Arbitration Laws (1940)
• Arbitration Act, 1940 (India)
Arbitration Laws (1940)
• Limitations of the 1940 Act
• Heavy court interference, reducing arbitration’s
efficiency.
• Time-consuming process due to delays in
enforcement.
• Lack of provisions for international arbitration.
Distinction Between Arbitration Laws
(1940 vs. 1996)
• The Arbitration Act of 1940 and the Arbitration and
Conciliation Act of 1996 represent two distinct phases in
India's arbitration framework.
• Scope:
• 1940 Act: Focused solely on domestic arbitration.
• 1996 Act: Covers domestic arbitration,
international arbitration, and enforcement of
foreign awards.
• Judicial Intervention:
• 1940 Act: Allowed significant judicial interference in
arbitration proceedings.
• 1996 Act: Limits judicial intervention, empowering
arbitral tribunals.
Distinction Between Arbitration Laws
(1940 vs. 1996)
• Party Autonomy:
• 1940 Act: Imposed numerous procedural regulations on
parties.
• 1996 Act: Grants parties greater freedom to decide
procedural aspects.
• Interim Orders:
• 1940 Act: Arbitral tribunals lacked the authority to
issue interim orders.
• 1996 Act: Tribunals can issue interim orders.
Distinction Between Arbitration Laws
(1940 vs. 1996)
• Legal Foundation:
• 1940 Act: Based on the British Arbitration Act of 1934.
• 1996 Act: Inspired by the UNCITRAL Model Law on
International Commercial Arbitration (1985).
Distinction Between Arbitration Laws
(1940 vs. 1996)
• The UNCITRAL Model Law on International
Commercial Arbitration was developed by the
United Nations Commission on International Trade
Law (UNCITRAL) in 1985 and later amended in 2006.
• It serves as a framework for countries to modernize
and harmonize their arbitration laws, particularly for
international commercial disputes.
United Nations Commission on International
Trade Law (UNCITRAL)
• The UNCITRAL Model Law on International Commercial
Arbitration has been adopted or influenced legislation in 93
countries across 126 jurisdictions.
• Its implementation varies depending on the legal systems
and specific needs of each country. Here are some examples:
• India: The Arbitration and Conciliation Act, 1996, is based
on the Model Law.
• It governs both domestic and international arbitration,
aligning India's arbitration framework with global
standards.
• United States: Several states, including California, Texas,
and Florida, have adopted the Model Law, ensuring
consistency in international arbitration practices.
United Nations Commission on International
Trade Law (UNCITRAL)
• Australia: The Model Law has been incorporated into the
arbitration laws of all Australian states and territories,
promoting uniformity across the country.
• Singapore: The Model Law forms the foundation of
Singapore's International Arbitration Act, making it a
leading hub for arbitration in Asia.
• Germany: The Model Law influenced Germany's
arbitration legislation, ensuring compatibility with
international arbitration norms.
What challenges do countries face in implementing
the Model Law?
What challenges do countries face in implementing
the Model Law?
• Legal System Compatibility: Adapting the Model Law to
fit diverse legal traditions (e.g., common law vs. civil law)
can be complex.
• Judicial Interpretation: Courts in different jurisdictions
may interpret the provisions of the Model Law
inconsistently, leading to uncertainty.
• Lack of Expertise: Some countries may lack trained
arbitrators, legal professionals, or judges familiar with the
Model Law's principles.
• Resistance to Change: Established legal practices and
skepticism about arbitration can hinder the adoption of the
Model Law.
• Enforcement Issues: Ensuring the enforcement of arbitral
awards, especially in countries with weak legal frameworks,
remains a challenge.
Arbitration vs. Expert Determination
• Arbitration and expert determination are two different
methods of alternative dispute resolution (ADR).
• Nature of the Process:
• Arbitration: A formal, quasi-judicial process where an
arbitrator (or a panel) makes a binding decision on a
dispute.
• Expert Determination: A more informal process where
an expert in a specific field resolves a technical or specialized
issue.
• Role of Decision-Maker:
• Arbitrator: Acts like a judge, considering evidence, hearing
arguments, and issuing an award.
• Expert: Provides a decision based on their expertise, often
without formal hearings or procedural rules.
Arbitration vs. Expert Determination
• Scope of Disputes:
• Arbitration: Can address a wide range of legal disputes,
including commercial, contractual, and international issues.
• Expert Determination: Typically limited to technical
disputes (e.g., valuation, engineering, or accounting
matters).
• Enforceability:
• Arbitration: Awards are legally binding and enforceable
under the law (e.g., under the Arbitration and Conciliation
Act in India or the New York Convention internationally).
• Expert Determination: Decisions are contractually
binding, based on the agreement between parties, but not
directly enforceable as arbitral awards.
Arbitration vs. Expert Determination
Expert
Aspect Arbitration
Determination
Informal technical
Nature Formal process
decision
Decision-Maker Arbitrator Subject-matter expert
Scope of Disputes Broad Narrow, technical issues
Legally binding under
Enforceability Contractually binding
laws
Judicial Intervention Limited Rare
Time and Cost Higher Lower
Judicial Intervention in Arbitration
• The Arbitration and Conciliation Act, 1996, aims to minimize
judicial intervention to promote arbitration as an efficient
dispute resolution mechanism.
• Provisions for Judicial Intervention
• Appointment of Arbitrators (Section 11)
▫ If parties fail to appoint an arbitrator as per the agreement,
the court can step in to appoint one.
• Interim Measures (Section 9 & 17)
▫ Courts can grant interim relief before or during arbitration
proceedings to protect the subject matter of arbitration.
▫ Arbitral tribunals also have the power to grant interim
measures (Section 17).
Judicial Intervention in Arbitration