Anthony Albertini, partner at Clyde & Co discuses how firms can resolve construction disputes across Europe
For participants in European projects, construction continues to pose risks of disputes. Following the recessions of recent times, economic growth is now being experienced in the UK, but other parts of Europe remain in the doldrums, and are nervous about possible exits of Greece and other countries from the Eurozone. These factors increase the risk of confrontation between parties and can lead to disputes.
Recovery brings new opportunities, but what are the legal risks and market issues facing you? Anthony Albertini, a partner in the law firm Clyde & Co, addresses these issues for companies operating in the UK and Europe, and explains some common causes of disputes, and how they tend to be resolved, and some of the pitfalls to avoid if you are doing business around Europe.
A lack of economic buoyancy in Europe has caused disputes in the region. Many infrastructure companies have experienced financial hardship, which has required them to toe a tough contractual line. This often means that contractor’s profit margins are squeezed, suppliers tighten lines of credit, schemes are mothballed, payment cycles are lengthened and cash flows slow down. In worst-case scenarios, monies do not change hands, contracts are terminated, and insolvencies occur.
As a result of the prevalence of disputes, the ways of dealing with them have fallen sharply into focus. In the UK, statutory adjudication (which has been in operation since the late 1990s and has proved very popular) provides a fast and cheap means of interim dispute resolution. Adjudication involves short timeframes for making and defending claims, and seeks to ensure security of payment. Although an adjudication decision is binding on the parties, it may not be a final determination of the dispute; a party may still take the same dispute to court or arbitration.
Ireland aside, adjudication has not spread across Europe. Indeed, arbitration continues to play an important role in construction dispute resolution on the Continent. It is initiated by a party referring a dispute to arbitration under an arbitration agreement, which can often be found within multi-tiered dispute resolution clauses. These tend to require the parties to attempt to resolve their dispute amicably through meetings, and mediation, before a referral to arbitration occurs.
In cross-border transactions, which are common in Europe, arbitration provides a dispute resolution forum by which parties may agree on the seat of the arbitration and the law that will apply to any dispute. This offers a level of certainty to employers and contractors alike, especially where the applicable court system is less advanced in dealing with complex construction disputes.
The International Chamber of Commerce and the London Court of International Arbitration, based in Paris and London respectively, can assist in administering international arbitrations, and they continue to be the most popular arbitral institutions for European construction disputes.
FIDIC contracts, common to parts of Europe, provide for various dispute resolution methods tailored to resolve disputes on international projects. An engineer or employer may make an initial determination, which may be referred to a dispute adjudication board (“DAB”), then to amicable settlement procedure, and, ultimately, to arbitration. There has been a growing use of DABs on larger European projects, and many wish to see DABs taking on a greater “dispute avoidance” role, especially by the giving of informal (non-binding) opinions.
Each country in Europe also has its own court procedures, based either on civil or common law systems, which are equipped to deal with construction disputes. Some are more effective than others. England and Wales, for example, have a dedicated Technology and Construction Court with its own “pre-action protocol” procedure requiring each party to “lay its cards on the table” before proceedings start, and France has administrative and civil courts that may deal with construction disputes.
Each European jurisdiction poses different legal risks for stakeholders, who must be aware of them, and their court and arbitral procedures in particular, before doing business in the jurisdiction. For example, bar one or two exceptions, it is rare in most European countries to have a court dedicated to construction disputes. As a result, presiding judges may have little or no knowledge of the industry. Further, some countries may be less favourable to the arbitration process, demonstrated by increased court intervention in the arbitration process, and the court’s reluctance to enforce arbitral awards.
Also, there are differing “limitation periods” across the region within which actions must be commenced. A failure to comply with the time periods may time-bar a party from bringing a claim. In Romania, a three year time limit generally applies for a claiming party to take its claim through all dispute procedures into court or arbitration, running from the time the claim first arose, whereas in the UK, a claim for a breach of a contract generally has to be made within six years of the date of the breach (but in some cases, this is extended to 12).
European infrastructure markets may be some distance away from full recovery, and dispute are likely to continue to abound. As always, it is important to research the legal landscape of the project’s location and the law of the contracts, before committing to a project.