Arbitration, Dispute Resolution
Role of Quantity Surveyor
S A Reddi, FNAE
Management Consultant
Nov 2011
“What I hear, I forget;
What I see, I remember;
But what I do, I understand.”
Confucius 451 BC
Why Arbitration?
Arbitration awards are easier to enforce
internationally and cannot so easily be dragged
through appeal courts for years;
Neither party is willing to have disputes decided
by the other party's national courts
Arbitration enables parties to have their
disputes decided by a neutral tribunal, made up
of legal and/or industry experts of the parties'
own choosing
What Is Arbitration?
A system of dispute resolution selected by the
world's leading international companies
By inserting an arbitration clause into their
agreements with trading partners, they opt to
have disputes decided by 'arbitral tribunals’
rather than litigating them in national courts
Common in the insurance, construction and
engineering, oil, gas & shipping industries
UNCITRAL International Commercial Arbitration
(a) the parties to an arbitration agreement have,
at the time of the conclusion of that agreement,
their places of business in different countries; or
(b) one of the following places is situated
outside the country in which the parties have
their places of business:
(i) the place of arbitration if determined in, or
pursuant to, the arbitration agreement;
UNCITRAL International Commercial Arbitration
(ii) The place with which the subject-matter of
the dispute is most closely connected; or
(c) the parties have expressly agreed that the
subject matter of the arbitration agreement
relates to more than one country
An arbitration agreement may be in the form of
an arbitration clause in a contract or in the form
of a separate agreement
Definition of arbitration agreement
(adopted in 2006)
“Arbitration agreement” is an agreement by the
parties to submit to arbitration all or certain
disputes which have arisen or which may arise
between them in respect of a defined legal
relationship, whether contractual or not
Composition Of Arbitral Tribunal
Number of arbitrators
The parties are free to determine the number of
arbitrators; Failing such determination, the
number of arbitrators shall be three
Generally, the appointment of a sole arbitrator
will be appropriate where the value of a dispute
is low or, in the case of a higher value dispute,
where the issue in dispute is straightforward
Three member tribunals are more appropriate
for high value or complex cases
Sole Arbitrator
The appointment of a sole may sometimes
result in a more efficient procedure which is
less costly to the parties
the need to coordinate the schedules of a 3
member tribunal and the time required for the
tribunal to reach consensus both on procedural
issues and on the resolution of the dispute can
result in more lengthy proceedings than is the
case where a sole arbitrator is appointed
Three member Tribunal
A three member tribunal can provide checks &
balances against mistakes, misunderstanding
of the evidence or misapplication of the law
Many parties to construction contracts continue
to prefer three member tribunals both because
of the influence that this gives the parties in the
constitution of the tribunal and in order to better
assure sound and reasonable determinations.
Seat Of Arbitration
Parties may and often do choose a seat of
arbitration which is unconnected with the
substantive law which governs the contract
For example, Paris could be chosen as the
seat of arbitration for a dispute regarding a
contract governed by the law of India
Select a seat of arbitration where local courts
have a track record of not setting aside an
award or interfering in the arbitral process
Neutral Seat Of Arbitration
Parties are also advised to select a neutral seat
of arbitration i.e. a seat in a jurisdiction different
from the nationality of either of the parties in
order to prevent one party having an actual or
perceived home advantage
In particular, a private party entering into a
contract with a country is advised to avoid
agreeing to a seat of arbitration in the country’s
own jurisdiction
The language in which the arbitration will be
conducted should be specified in the contract
arbitration clause
Many Middle East Countries specify Arabic
A Food Grain Silo Contract in Libya had
German Prime Contractor and Indian
Subcontractor; Project Management by a
Bulgarian Consultant;
Seven different languages were involved
Causes Of Claims
 Quality
Delay in Construction
Subsoil Conditions
Delay In Payments
Rate of Progress
Adverse Weather
Materials Quality
Tests Results Interpretation
Quantity Surveyor Maintains
Contemporary Records
Crucial For Determination Of Claim
Records for Present / Future dispute
Quantity Surveyor obliged to keep records
Establishes Procedure for this work
Employer & Engineer Agree On Actions
Maintain Weather Reports
Maintain Site Diary
Record Of Force Majeure Events
Counterclaims And New Claims
Role Of Quantity Surveyor
The Arbitration Rules Provide Wide Latitude To
Respondent Parties Regarding The Nature Of
Counterclaims That May Be Introduced In The
Arbitration Provided These Are Within The
Scope Of The Contract Agreement
Counterclaims May Not Be Admitted If They
Fail To Satisfy Applicable Contractual Clauses
QS Responsible For Alertness & Timely Action
Counterclaims And New Claims
Arbitration rules are restrictive regarding the
introduction of new claims and counterclaims
after the opening pleadings have been
exchanged or, Terms of Reference established
May be inefficient where a project gives rise to
multiple claims over time potentially requiring
parties to commence separate arbitration
proceedings each time a new claim arises.
Counterclaims And New Claims
Arbitration proceedings may be postponed until
after the project has been completed and all
potential claims have crystallised
Most construction contracts, including the FIDIC
permit arbitration to be commenced during the
course of a project
Arbitration proceedings are frequently lengthy,
contractors may be reluctant to postpone
commencement of proceedings
Claims And Counterclaims
Alternative Approach
Quantity Surveyor anticipates that a project is
likely to give rise to claims in the future but
which are not presently admissible in arbitration
He can draft a request for arbitration that asks
the tribunal to accept jurisdiction over claims
which are presently admissible and any future
claims that arise in relation to the same project
Role Of Quantity Surveyor
Does not require the “wholesale, indiscriminate
production of documents
Instead,The Quantity Surveyor is Required,
initially, to produce documents He Relies On
Either Party May Then Submit A Document
Production Request To The Arbitral Tribunal
Such Request Pertain To Specific Documents
And Describe “How The Documents Requested
Are Relevant And Material To The Case”
Place of Arbitration
Parties free to agree on the place of arbitration.
Failing such agreement, the place of arbitration
shall be determined by the arbitral tribunal
having regard to the circumstances of the case,
including the convenience of the parties.
The tribunal may meet at any appropriate place
for consultation among members, for hearing
witnesses, experts or the parties, or for
inspection of goods, other property / documents
Expert Appointed By Arbitral
Unless otherwise agreed by the parties, the
arbitral tribunal (a) may appoint one or more
experts to report to it on specific issues to be
determined by the arbitral tribunal;
(b) may require a party to give the expert any
relevant information or to produce, or to provide
access to, any relevant documents, goods or
other property for his inspection
Role Of Quantity Surveyor
Expert appointed by arbitral tribunal
If a party so requests or if the arbitral tribunal
considers it necessary, the Quantity Surveyor
shall, after delivery of his written or oral report,
participate in a hearing
Parties have the opportunity to put questions to
him and to present expert witnesses in order to
testify on the points at issue
Decision-making by panel of
Any decision of the arbitral tribunal shall be
made, by a majority of all its members
However, questions of procedure may be
decided by a presiding arbitrator, if so
authorized by the parties or all members of the
arbitral tribunal
If, during arbitral proceedings, the parties settle
the dispute Based on QS Evidence, the arbitral
tribunal shall terminate the proceedings and, if
requested by the parties and not objected to by
the arbitral tribunal, record the settlement in the
form of an arbitral award on agreed terms
The award shall state the reasons upon which it
is based, unless the parties have agreed that
no reasons are to be given or the award is an
award on agreed terms under article 30
Termination of proceedings
(a) the claimant withdraws his claim, unless the
respondent objects thereto and the arbitral
tribunal recognizes a legitimate interest on his
part in obtaining a final settlement of dispute;
(b) the parties agree on the termination;
(c) the arbitral tribunal finds that continuation of
the proceedings has for any other reason
become unnecessary or impossible
Interpretation Of The Award
If so agreed by the parties, a party, with notice
to the other party, may request the arbitral
tribunal to give an interpretation of a specific
point or part of the award.
If the arbitral tribunal considers the request to
be justified, it shall make the correction or give
the interpretation within thirty days of receipt of
the request. The interpretation shall form part of
the award
Corrections, Additional Awards
May correct any error on its own initiative within
thirty days of the date of the award
Unless otherwise agreed by the parties, a party,
may request, within 30 days of receipt of the
award, to make an additional award as to
claims presented but omitted from the award
If the arbitral tribunal considers the request
justified, it shall make the additional award
within sixty days
Setting Aside Arbitral Award By The Court
The party making the application furnishes
proof that:
(i) a party to the arbitration agreement was
under some incapacity; or the said agreement
is not valid under the law to which the parties
have subjected it or, failing any indication
thereon, under the law of the Country; or
Setting Aside Arbitral Award By The
The party was not given proper notice of the
appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present
his case; or
The court finds that: (i) the subject-matter of the
dispute is not capable of settlement by
arbitration under the law of the country; or
(ii) the award is in conflict with the public policy
of the country
A sound basis for improvement of national laws
Covers all stages of the arbitral process from
the arbitration agreement to the recognition &
enforcement of the arbitral award
Represents accepted international legislative
standard for a modern arbitration law; many
countries have enacted arbitration legislation
based on the Model Law
Basis of Indian Arbitration Act 1996
Background to the Model Law
The Model Law was developed to address
considerable disparities in national laws on
The need for improvement and harmonization
was based on findings that national laws were
often particularly inappropriate for international
Inadequacy of domestic laws
Domestic Laws were drafted with domestic
arbitration primarily, in mind
This approach is understandable; even today
the bulk of cases governed by arbitration law
would be of a purely domestic nature
The unfortunate consequence is that traditional
local concepts are imposed on international
cases and the needs of modern practice are
often not met
Salient features of the Model Law
The Model Law was designed with International
commercial arbitration in mind; it offers a set of
basic rules that are not unsuitable to any other
type of arbitration
Countries may thus consider extending their
enactment of the Model Law to cover also
domestic disputes, as a number of enacting
countries already have
Agreement Format
The agreement to arbitrate may be in any form
(e.g. including orally) as long as the content of
the agreement is recorded; no longer requires
signatures of parties / exchange of messages
Permits use of electronic commerce by
adopting wording from the 1996 UNCITRAL
Model Law on Electronic Commerce & the 2005
UN Convention on the Use of Electronic
Communications in International Contracts
Default of A Party
Arbitral proceedings may be continued in the
absence of a party, if due notice has been given
This applies to the failure of the respondent to
communicate its statement of defence
Tribunal continues proceedings where a party
fails to appear at a hearing or to produce
documentary evidence without showing
sufficient cause for the failure
If the claimant fails to submit its statement of
claim, the tribunal terminates the proceedings
Default of A Party
Provisions that empower the arbitral tribunal to
carry out its task even if one of the parties does
not participate are of practical importance
Not uncommon for one of the parties to have
little interest in cooperating / expediting matters
Such provisions therefore provide international
commercial arbitration its effectiveness, within
the limits of fundamental requirements of
procedural justice
Making Of Award And Other Decisions
The award completed through deliberations
held at various places, by phone /
correspondence; need not be signed by the
arbitrators physically gathering at the same
The award must be in writing and dated; state
the reasons on which it is based, unless the
parties have agreed otherwise or the award is
“on agreed terms” (i.e., an award that records
the terms of an amicable settlement)
International Chamber Of Commerce (ICC)
Non-governmental organization of Cos,
business associations in over 130 countries
ICC National Committees present ICC views to
their govt and alert Paris HQ to national
business concerns
Harmonizes trade practices, formulates
guidelines for importers and exporters
ICC services include ICC International Court Of
Arbitration (Paris)
ICC International Court of Arbitration
World’s leading institution for resolving
international commercial and business disputes
The proliferation of international commercial
disputes is a by-product of the global economy
Today’s business and operating conditions
underscore arbitration’s advantages over
litigation, especially in cross-border disputes
Often the parties are from markedly different
national, cultural and legal backgrounds.
ICC International Court of Arbitration
They want to avoid litigation because they fear
bias by national courts, are unfamiliar with
national court procedures and want to be
spared damaging publicity
ICC arbitration is an attractive alternative
because it is international and confidential.
Usually, it is less time-consuming and less
expensive than litigation
International Chamber of Commerce
International Court of Arbitration
38, Cours Albert 1er
75008 Paris
Tel. +33 1 49 53 29 05
Fax +33 1 49 53 29 33
Dabhol Power Project, Maharashtra
GE and Bechtel recover their investments in
the Dabhol Power Project in India
Largest foreign investment in India $7 b
GE, Bechtel were both 10% shareholders in
a local project company created to own the
project – Dabhol Power Company (“DPC”)
Aside from plant & machinery, DPC’s main
asset was a long-term PPA with the State
Electricity Board
Dabhol Power Project, Maharashtra
After the Project was largely complete, the
State Electricity Board terminated the PPA
Political unpopularity of the Project
DPC could not sell power elsewhere, as by
law only the State Electricity Board could
purchase and distribute the plant’s power
DPC commenced arbitration in London
At the state’s request, each of the
arbitrations was enjoined by Indian courts
The effect was to deny DPC’s contractual
Overseas Private Investment Corporation OPIC
Political risk insurance policy (PRI) issued
by Overseas Private Investment Corporation
Claim for expropriation of the Project under
the policy denied by OPIC
GE and Bechtel commenced arbitration
against OPIC and won, recovering the full
policy limits. The award also provided
political impetus to the U.S. government to
apply pressure on India
Broad Investment Treaty (BIT)
Mauritius-based GE and Bechtel
subsidiaries launched a claim against the
Indian government under the BIT
The claim was for compensation, including
lost profits, for several breaches of the BIT
The anti-arbitration injunctions played a key
role in the expropriation claim
Settlement was reached before the final
hearing on very favourable terms
Local Labour Laws And Risks –
Local Work Force In Libya
A Contract for power station construction
No trained local work force available
The contract mandated employment of some
percentage of local work force
The local labour department insisted on fulfilling
the contract conditions
Local youngsters with no construction
background forced on the rolls of the contractor!
Repatriation of Profits
It might be difficult for contractors to repatriate
their profits back to their home nation because
of host country laws limiting the international
transfer of funds.
One alternative is to export goods out of the
nation instead of money, but this is risky if their
is no market for these good or prices decline for
the products so exported
Repatriation of Profits – case study
BHEL secured a turnkey contract for setting up
a thermal power station in Libya
A separate subcontract with an Indian company
for civil works , payments mostly in Libyan
currency which was non-convertible
The subcontractor specified advance payment
in dollars ( to convert profits )
Indian labour, paid in local currency, unable to
repatriate savings; ended up buying gold!
Cardinal Changes to Contract
Cardinal Changes to Contract
Earthwork Excavation, Power Station
Power station construction in Libya; Turnkey
contractor , civil subcontractor from India
Fixed price turnkey contract; item rate
Earthwork excavation quantity increased by
Dispute over rates for increased quantity
Revised (reduced) rates settled by negotiation
Bridge Project in Nepal – WB Contract
Local (Indian) vs Imported Steel
The deck of the bridge in structural steel
The grade of steel was specified but not the
country of origin
The Indian contractor quoted based on Indian
equivalent grade
During execution the British consultant insisted
on importing steel from Britain; denied the
Indian steel though it conformed to standards
Bridge Project in Nepal – WB Contract
Local (Indian) vs Imported Steel
A dispute arose; the contractor followed the
consultant’s directions, but claimed extra due to
higher cost of British steel, transhipment at
Kolkata, and surface transport through India
over a thousand km
Dispute referred to arbitration which lasted
several years compared to the contract period
of ten months!
Construction & Erection Risks of
Bridge in Nepal – Structural Steel imported
from the UK due to lopsided specifications
Food Grain Silo Project In Libya
Main contractor And Subcontractor
East German Govt Co
secured $80 m contract
by negotiation
Major portion ($70m)
consisted of civil works,
subcontracted to an
Indian Co by negotiation
The Libyan Employer
refused permit to
How was the Problem
Pamban Bridge, Rameshwaram
Scheduled contract period
: 1974 - 1978
 Actual completion
Cost overrun from Rs. 5 Cr. to Rs. 20 Cr.
Originally underestimated, escalation not
allowed Cyclone-prone site, initial award to
inappropriate contractor, contract terminated
Departmental work attempted
New experienced contractor 1984 to 1988
Pamban Bridge, Tamil Nadu
Delay in Award of Contract for Balance Works
Contract could not be awarded within the
validity period of the tender; repeated
extensions sought from the lowest bidder
The lowest bidder was reluctant to repeatedly
extend the validity, as in the mean while he had
further opportunities elsewhere
He offered a conditional extension; if the job is
not awarded within the extended period, the
contract price will be increased by 10% for each
month of delay in award of work
Pamban Road Bridge
Dispute Settlement – 2nd Contract
The second contract (1984-88) involved few
months time overrun; extension granted with
proviso of no payment for escalation
Dispute referred to sole arbitrator– 1992, settled
in 1995. The employer challenged the award
The court ruled in favour of the contractor
Employer appealed; court directed interim
payment of Rs 25 lacs + another Rs 25 lacs
against BGB.
Pamban Road Bridge
Disputes in Retrospect
In 1974 the contract value was about Rs.6 cr
Contract terminated at risk & cost of contractor
Contractor sought arbitration citing unfair
termination and almost succeeded in getting an
award of nearly Rs.6 cr
In 1984 the second contract awarded; including
escalation the C.V. ended up as 20 cr !!!
2nd contract arbitration award (Rs 75 lacs +
Interest about Rs 125 Lacs) paid in 2009
Any comments, queries, suggestions
are welcome
0 90080 96246

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