INTERNATIONAL ARBITRATION 1/3LY
LESSONS LEARNT FROM SINGAPORE The Singaporean SOP regime
AD-HOC ADJUDICATION IN THE MIDDLE EAST The Middle East differs from the other jurisdictions that were canvassed in the panel discussion because there is no statutory right to adjudicate and, as such, the process is utilised only infrequently in jurisdictions such as United Arab Emirates, Qatar and Saudi Arabia. Mark Blanksby, Partner in Clyde & Co’s Dubai office, noted that where adjudication is used, it arises from contract drafting and typically forms part of a multi-tier dispute resolution process of the Dispute Adjudication Board-type found in the International Federation of Consulting Engineers (“FIDIC”) 1999 suite of contracts. It is worth noting that the process still relies on fairly outdated procedures; for instance, the 1987 edition of the FIDIC Red Book still dominates the contractual landscape in the region. In Mark’s experience, the types of disputes that are typically referred to adjudications are of two types: (i) simple measurement or valuation disputes, referred to a quantity surveyor adjudicator, and (ii) broader final account disputes where the parties cannot face the prospect of lengthy and/or costly arbitration proceedings. Reasons for the infrequent use of adjudication The primary reason that adjudication is not widely used in the Middle East is that the process is not recognised in the underlying Civil Codes as a form of dispute resolution and therefore it is only of contractual effect and does not give rise to a binding award. This means that enforcement through arbitration or the courts necessitates that the parties re-litigate the substance of the dispute afresh. Secondly, there still remains a “master-servant” mentality at the employer-main contractor level. Employers perceive adjudication as a key to potentially unlock better cash flow and swift resolution of disputes, thereby benefitting contractors more than employers. The incentives for main contractors are therefore limited: the lack of a largely international supply chain means that they risk being caught in an uncomfortable middle position if they introduce mechanisms that benefit subcontractors. Thirdly, and more widely, there is a distrust of new techniques and evolution in the Middle East. This is illustrated by the fact that the FIDIC 1987 Red Book is still at the heart of many construction projects in the region. Lastly, there is also a limited pool of quality adjudicators in the Middle East. Where adjudication is on foot and is intended to operate within a tight timeframe, it is indeed necessary to have adjudicators on the ground, readily available. Prospects of promoting adjudication In an environment characterised by harsh contract conditions, incomplete designs and significant variation account and delay claims, adjudication would, to a large extent, unlock uncomfortable situations in which main contractors (and thus the subcontract supply chain) are faced with exposures to unresolved payment issues. It is believed that, if adjudication were to be introduced, there would be a need for statutory support to implement it successfully and for an upskill of the construction professionals currently present in the region.
Eugene Tan, Partner in Clyde & Co’s Singapore office, provided an overview of the situation in Singapore. There, the Building and Construction Security of Payment Act 2005 provides for statutory adjudication for construction contracts. The provisions are mandatory and cannot be opted out of. The aim of the Act was to provide a mechanism for promoting the quick resolution of claims, so as to maintain cash flow to contractors, subcontractors and suppliers. The provisions also restrict the maximum allowable period for payment of claims and render so-called ‘pay when paid’ clauses unenforceable. It covers both progress as well as final claims. The Act applies to construction-related contracts, such as building material supply contracts and consultants’ contracts (e.g. architects and engineers). The adjudication process can be as short as 14 days from the receipt of the adjudication claim. Unless otherwise agreed by the parties, the adjudicator has to make a determination within 14 days from receipt of the adjudication application, where there is no adjudication response; and 21 days where an adjudication response is submitted. Statutory adjudication in Singapore provides a binding and enforceable interim determination. Parties are free to have the same dispute arbitrated or litigated subsequent to the adjudication determination. Enforcement is made as if determination were a judgment debt. In addition, the Act confers on the claimant a right to exercise a lien on unfixed goods, suspend work or, in the case of a sub-contractor or supplier, obtain payment directly from the employer. Successes and Challenges Eugene noted that the introduction of adjudication in Singapore has had the effect of largely reducing the number of domestic construction disputes that are arbitrated or litigated. From the claimant’s point of view, this presents the major benefits of a significant reduction in time and costs spent on obtaining payment for its claims. Most parties are prepared to live with the determination even if they are dissatisfied once the monies are paid out, unless the sums are substantial. Whilst the introduction of SOP legislation in Singapore has been a success the quality of some determinations still remains questionable. The respondent is placed in an unfavourable position by the limited time allotted for submitting a payment response and for preparing a comprehensive rebuttal of the claims. This encourages ambush tactics similar to those in the UK. The short time frame for adjudication also limits the scope for discovery, examination of witnesses or challenges on the authenticity of documents. This can be especially problematic in cases which involve complex issues and/or voluminous documents. Furthermore, unlike in arbitration, parties do not have a say in the appointment of adjudicators, many of whom may lack the appropriate skillset or experience. Contrasting starkly with arbitration, which allows for multi-party disputes to be resolved within the same forum, the statutory adjudication process does not allow for such a mechanism, thereby creating a risk for conflicting determinations in disputes involving multiple parties.
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