INTERNATIONAL ARBITRATION 1/3LY
LESSONS LE ARNT FROM SINGAPORE The Singaporean SOP regime
AD-HOC ADJUDIC ATION IN THE MIDDLE E A ST TheMiddle 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 fromcontract drafting and typically forms part of amulti-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 It is worth noting that the process still relies on fairly outdated procedures; for instance, the 1987 edition of the FIDIC Red Book still dominates the contractual landscape in the region. InMark’s experience, the types of disputes that are typically referred to adjudications are of two types: (i) simplemeasurement 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 theMiddle East is that the process is not recognised in the underlying Civil Codes as a formof dispute resolution and therefore it is only of contractual effect and does not give rise to a binding award. Thismeans 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 flowand swift resolution of disputes, thereby benefitting contractorsmore than employers. The incentives for main contractors are therefore limited: the lack of a largely international supply chainmeans that they risk being caught in an uncomfortablemiddle position if they introducemechanisms that benefit subcontractors. Thirdly, andmore widely, there is a distrust of new techniques and evolution in theMiddle 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 theMiddle 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, adjudicationwould, to a large extent, unlock uncomfortable situations inwhichmain contractors (and thus the subcontract supply chain) are facedwith exposures to unresolved payment issues. It is believed that, if adjudicationwere 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 aremandatory and cannot be opted out of. The aimof the Act was to provide amechanism for promoting the quick resolution of claims, so as tomaintain cash flow to contractors, subcontractors and suppliers. The provisions also restrict themaximumallowable 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 buildingmaterial 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 tomake a determinationwithin 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 interimdetermination. Parties are free to have the same dispute arbitrated or litigated subsequent to the adjudication determination. Enforcement ismade as if determinationwere a judgment debt. In addition, the Act confers on the claimant a right to exercise a lien on unfixed goods, suspendwork 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 themajor 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 themonies 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 whommay lack the appropriate skillset or experience. Contrasting starklywith arbitration, which allows for multi-party disputes to be resolvedwithin the same forum, the statutory adjudication process does not allow for such amechanism, thereby creating a risk for conflicting determinations in disputes involvingmultiple parties.
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