LIDW21: A view from London and India - How dispute avoidance and alternative dispute resolution can keep construction and infrastructure plans on track
2020 was a difficult year, and 2021 continues to pose a challenge across many industries including the construction industry. The pandemic is not over and the true fallout is yet to be determined. There will inevitably be a rise in disputes, cash remains king and we have seen parties fight harder for less. As projects take hold, we will see the usual challenges in delivering projects on time and within budget which will also see a rise in disputes.
With construction forming such a large part of GDP, the need for speedy and efficient dispute resolution has never been greater. The webinar discusses how dispute avoidance and ADR can be used in order to keep growth plans on track. We will also look at how the UK and India can work together in respect of legal process to assist in this recovery.
What can we do from the UK to assist India to allow liberalisation?
- The benefits to the UK include access to a major, dynamic and growing market for legal services and access to a pool of excellent Indian lawyers.
- The benefits to India include exposure to international standards and processes which in the long-term will help their development in the context of the international market.
- The creation of a common law centre of excellence in India which has the capability of rivalling those of New York, Singapore, and Hong Kong broadly covering the Middle East and Far Africa would have the benefit of being located in a major growth area. There would be increased FDI and revenue.
- We must ensure that any unequal competition is removed. At present, India has a restriction of 20 partners in a firm, LLPs have an adverse tax consequence, and advertising is strictly controlled and limited. The UK government must work with the Indian Government to enact legislation to remove these restraints.
- The UK Law Society and Bar Council must work with their Indian counterparts to create trust, understanding and transparency in the process for a phased entry.
- Certain elements of Indian law should be which are unique to small one-man entities.
- However, we need arrangements to protect the integrity of the legal profession. Indian advocates must be appointed in leadership roles at international firms without any loss of a right to practice. The UK has to recognise and be prepared to address the concerns of the Indian profession as to restrictions placed on Indian advocates in the UK market.
- UK and Indian governing bodies should work together to ensure full engagement with all the Indian legal profession and to introduce effective public relations strategies.
- Following liberalisation, the slice of the legal services pie will decrease in size for Indian lawyers, but the size of the pie will increase enormously. This will provide increased security and revenue for Indian lawyers going forward.
What are the key challenges facing India in resolving construction disputes?
- Issues are the same globally – the pandemic has led to projects grinding to a halt, employers asking for extensions of time and cost and contractors and employers not willing to accede, the usual force majeure etc.
- Statutory framework – 2015 and 2019 amendments to the Arbitration Act have achieved their objectives substantially in terms of the appointment process for arbitrators, timelines for completion of arbitration etc.
- The dispute arises when you draft the contract. Contractually, the allocation of risk must be equal or so designed that the party suited to bear the risk must bear that risk.
- Contract forms across the construction industry in India pose a question mark. India adopts FIDIC in large public procurement processes. However, when you use a substantially FIDIC-based contract but then you start amending it that is bound to cause issues.
- Contract management skills are needed to ensure that the contract is implemented in a manner that is cost-efficient and timely. This will minimise disputes.
It is ever too early to start thinking about dispute resolution or dispute avoidance? When and how should we first address dispute resolution?
- It is never too early to think about dispute avoidance.
- One of the best dispute avoidance tools is a clear, well drafted and well understood dispute resolution clause. It is a very powerful tool in the avoidance of lengthy and expensive arbitrations and litigations.
- A tiered dispute resolution process is recommended which has as part of its obligation, a referral to an independent mediator or adjudicator – someone whose involvement can narrow the issue, focus on the essence of the dispute and create an environment where the dispute is more scalable in terms of negotiations and settlement.
- Need to make sure the parties focus on the dispute resolution clause and understand it.
- Conflict avoidance measures: number of processes which are now being produced by various industry bodies, such as the Conflict Avoidance Pledge – promoted by RCIS, ICE, RCC – talks about collaborative working, early intervention techniques.
- Proper risk assessment and risk matrix pre-contract – identifying those risks and issues which may negatively impact upon the performance of the contract and give rise to a dispute. Arrange them by range of severity (using a traffic light system) and how likely they are to occur.
- Administrative process which updates the risk matrix as issues arise and develop; provides all notices required by the contract; and is responsible for maintaining all records necessary to identify issues which may arise and develop into a dispute. This will enable parties to be fully equipped with the information they need to avoid a dispute which would otherwise happen.
During the webinar, we asked the audience 'Does your standard dispute resolution clause provide for early conciliation or a mandatory mediation?
- 32% of the attendees said 'Yes, although it doesn't work'
- 27% of the attendees said 'Yes, it's effective'
- 2% of the attendees said 'Yes, but we ignore it'
- 20% of the attendees said 'No'
- 20% of the attendees said 'Do not know'
Is there a particular trend in the way in which mediation has been used in the UK?
- Starting point is that the judiciary in the UK is focusing on ADR and mediation.
- In the UK, mediation is not a true alternative. Arbitration or adjudication are true alternatives – in arbitration the parties have given thought when they are forming their contract, as to their dispute resolution and have decided to take it out of the court process. Adjudication is taken out of the hands of the parties by statute.
- Mediation, 99 times out of a 100, is simply part of the litigation process and an adjunct to it. In most mediations, the parties are already a long way into the litigation process – they see mediation as a part of that process.
- Need better education in the commercial world about mediation.
- A change of ethos is also needed to put mediation first.
- American lawyers have done this far better than UK lawyers as they see mediation as ADR and as being another tool in the box as opposed to representing a fall in revenue. Lawyers need to have a better awareness
Why is there a challenge in relation to greater take up of mediation in the construction industry in India? How can these be overcome?
- Mediation and conciliation are interchangeably used in India further to the Arbitration and Conciliation Act (1996).
- The Civil Procedure Code has a mediation provision and recently one of the key amendments which was brought in was the Commercial Courts Act (construction disputes are covered in that). There is a mandatory mediation provision in the Act. Every High Court has a conciliation centre attached to it.
- Training of mediators and conciliators is very organised – there is a huge amount of enthusiasm amongst the younger lawyers to take up those positions.
- Parties are drawn to mediation as opposed to the drawn out litigation process in the courts.
- However, contracts are managed by the public sector and the government. The government is not willing to make thesedecisions which is where a key problem arises.
- There has to be a mechanism whereby in public procurement processes, there is an expert body of outsiders such as the Conciliation Committee. As of December, that body has resolved 66 cases, with a total value of c.$2bn.
- Need to bring in a culture of resolving disputes – there is mostly a need for a troubleshooting mechanism during the execution of the contract stage. Ultimately, the project must be completed on time to the extent possible and within the cost allocated.
Is there a case for compulsory mediation in the context of construction disputes?
- Parties need to feel like they are there because they want to be there, not because they have been made to be there.
- However, building a mediation clause into a contract means that parties have agreed to it and therefore it arguably remains part of the voluntary process.
- Mediation should be done through encouragement.
- At a turning point for mediation. The pandemic has shown us that there has been an ability to adapt and therefore get the best out of mediation. In the UK, that has happened without anyone making it compulsory.
- Necessity is the mother of invention – necessity has forced us to do it and in doing it, we have gotten better. In allowing more flexibility, that has encouraged its use.
- Comes down to mindset – the mindset that the best gift that any lawyer can give their client is the gift of settlement, however that is achieved.
- Lawyers need to take a lead in ensuring the mediation is suggested to the client and that we encourage it and do not over complicate it.
- Adjudication has become a pale imitation of litigation and we also tend to look at mediation similarly to how doctors look at alternative medicine. We do not trust that it will work properly and go back to our old adversarial processes. We need to ensure that as lawyers we encourage mediation as an option to the client.
Audience question: The main factor preventing mediations from being successful in India is that parties do not believe in the need to settle as the process is not binding. What can be done to change this and/or should there be a change to this?
- The driver of this has to be the public sector. Public procurement process is the leader of any movement. However, it is unlikely that the public sector will ever take these decisions. The parties must be prepared to sit and try to resolve the dispute through mediation.
- Need to have a movement backed by some sort of compulsion
We asked the attendees: 'would you accept a mandatory mediation process in your next major contact?
- 63% of attendees said 'Yes'
- 17% of attendees said 'No'
- 20% of attendees said 'Do not know'
Audience question: What advice would you give to parties in preparing for a mediation?
- Preparation is key. The best mediations are those where the parties and the lawyers have actually prepared and prepared so that they are on top of the case.
- Pre-empting what is going to be said.
- Being in settlement mode rather than a determinative mode.
- Asking, “is settlement possible, and if it is possible, what is that settlement itself?
Audience question: Taking ourselves forward 5 years, what influences might the new Indian-UK relationship have created?
- If it works and 5 years is a good time limit, there needs to be this phased entry.
- India has a fantastic geographic situation – right in the heart of the Middle East, Far East, Africa, in line with different time zones and suitable for travel.
- If India embraces liberalisation, it will be able to present itself as a centre of excellence for common law in an area of the world which is rife with the need for legal services.
- It will emerge as a dominant competitor to London, New York, Singapore, Hong Kong.
- In 5 years’ time, European lawyers will be looking over their shoulders as India will have become that centre of excellence for common law.
Watch the discussion with Link Legal and 2 Temple Gardens as the panel address the challenges represented by the seemingly inevitable rise in disputes that will emerge from the construction and infrastructure sector in India in the short to medium term as it grapples with both post pandemic reality as well as trying to realise its potential as a global superpower.