Large public infrastructure projects typically involve several stakeholders and a complex array of contracts and subcontracts. A thoughtful approach to the negotiation and drafting of contractual dispute resolution clauses can help ensure that disputes are resolved in a timely and cost-effective way without disrupting project execution.
In this first bulletin in our series about public infrastructure projects, we provide an overview of key considerations for dispute resolution clauses. Our next bulletin about the recovery of near-indemnity costs in complex construction arbitrations will follow next month.
Stepped Resolution
Public infrastructure contracts often include dispute resolution clauses that require the completion of mandatory steps or processes, such as mandatory negotiation or mediation, before the parties are permitted to refer their dispute to a court or arbitration tribunal. Stepped clauses may deprive parties of the flexibility to proceed directly to court litigation or arbitration if needed and can create risks related to limitation periods.
If for example, a claimant wants to file a claim in court, it should consider the time that it will take to complete any mandatory dispute resolution steps before the limitation period to file a claim expires. To mitigate the risk that a limitation period will expire, parties can consider agreeing that any statutory limitation periods are suspended once a dispute has been referred to dispute resolution. That should be in writing, preferably as part of the dispute resolution procedure in the contract, given the strict requirements in provincial limitations statutes for agreements that extend limitation periods.
Disputes may also arise if a party fails to complete a step in the dispute resolution clause before filing a court claim or notice to arbitrate. For example, if a party were to skip a mandatory mediation step and file a court claim, the other party might apply to stay or strike the court claim until mediation has been completed. This can impose unnecessary delays and costs and may result in the expiry of the limitation period.
Accordingly, when drafting a dispute resolution clause, parties should consider whether mandatory steps in the dispute resolution procedure are necessary. In some cases, a streamlined approach allowing parties to refer disputes to court or arbitration without other mandatory steps may be more efficient and consistent with the project’s commercial objectives.
Referral to a Referee, Umpire or Dispute Resolution Board
Infrastructure contracts often include an expedited procedure for the adjudication of disputes by a neutral third party or tribunal, such as a referee, umpire or dispute board, as part of the dispute resolution process. This type of procedure can provide a way to obtain a quick and neutral determination of issues during a project, assist parties in better understanding their respective positions in a dispute and encourage consensual resolution.
A key consideration relevant to a referral process is whether the decision of the referee, umpire, or dispute board will be binding. It is typical to include a right for either party to appeal such a decision or to replace it with a de novo arbitration. However, parties may want to agree that decisions of a neutral party or tribunal that are below a certain monetary threshold cannot be appealed or arbitrated. Parties may also want to agree that there is a limited or expedited right to appeal or arbitrate determinations about technical issues that need to be resolved quickly to allow the project to proceed.
More generally, parties may want to have short deadlines, limit the number of pages for advocacy materials and restrict the evidence that may be used to ensure that any dispute is addressed efficiently and does not distract project personnel from the execution of an ongoing project.
Clear and Consistent Framework
Many of the key benefits of a consent-based dispute resolution process – confidentiality, speed, cost and finality – are undermined if dispute resolution requirements are not consistent throughout the series of contracts that collectively govern work on a public infrastructure project. For example, inconsistencies between a prime contract and various subcontracts may result in the referral of related disputes to separate proceedings. This can result in duplication of costs, inconsistent decisions and mean that related disputes are determined in different forums with different confidentiality and evidentiary requirements.
The project owner can ensure consistency in dispute resolution procedures by including a “flow-down” or “drag-along” clause, requiring that all subcontracts include a dispute resolution clause that is consistent with the prime contract. It can also be helpful for the prime contract to state that the clause is intended to govern non-parties involved in the project. Recent court decisions indicate that this type of language may allow for the enforcement of a dispute resolution clause against non-parties if they receive benefits from that contract.
An important but often overlooked feature of a flow-down or drag-along clause is an express agreement that the owner, subcontractors and sub-subcontractors will consolidate related proceedings. It is often not possible to consolidate multiple related proceedings when some or all of the proceedings are arbitrations unless there is express agreement by the parties. That multilateral consent can be captured in a well-drafted dispute resolution clause that is consistently incorporated into all related contracts and subcontracts.
Conclusion
The selection of a dispute resolution procedure involves important strategic considerations that can influence the outcome of a dispute. There is significant value in addressing these considerations during the contract drafting process to ensure that the parties’ intentions about dispute resolution are clear. Addressing these considerations proactively will help the parties to avoid a situation in which the procedure itself becomes the subject of disagreement and a distraction from project execution.
Our public infrastructure expertise at Blakes helps clients to effectively navigate issues involving dispute resolution clauses, and to draft clauses that meet their unique objectives for project dispute resolution.
For more information, please contact the authors or any other member of our Infrastructure Group.
