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Welcome to the first edition of the Construction Law Quarterly for 2024. We hope our readers have had a restful break, and hope the year ahead is a year of growth and learning.

This issue contains papers covering a variety of topics that commonly arise for those practicing in the field of construction law. From multi-tiered dispute resolution clauses to the intersection of competition law and construction contracts, we hope this issue proves to be an interesting read for all construction law practitioners.

Our first paper takes us through an area that dispute lawyers often face: preconditions to commencing arbitration, and how the International Federation of Consulting Engineers (Fidic) prescribes these steps to parties. The authors take us through a recent case from the Singapore International Commercial Court where the issue of the correct interpretation of a multi-tiered dispute resolution clause was explored. Helpful practical tips are also provided for practitioners involved in drafting these types of clauses.

Our second paper looks at a growing area of focus for the construction industry – the applicability of competition law environmental sustainability agreements where firms operate at the same level of the supply chain. The Competition and Markets Authority (CMA) has recently published its Green Agreements Guidance1 and the authors provide their own useful guidance on how this impacts those who operate in this space within the construction industry.

Our third paper also covers a topical area, and one which has been in demand from our readers. We explore the intersection between advances in technology and how that impacts disputes in the construction industry. The authors explore whether and how parties are able to utilise technology such as building information modelling (BIM) to streamline and find efficiencies during the dispute process.

Our final paper covers the curious world of serial adjudications. The paper explores recent court guidance on this issue, and asks readers to consider whether engaging in such a course of action can be unpredictable. The author concludes that whether referring or defending cases which involve serial adjudication, it may be risky business. An interesting read for all those considering this increasingly common course of action.

As ever, should you have a short article or legal update that you would be interested in submitting for inclusion in a future issue please contact the journal editor at support@emerald.com.

The content and the opinions expressed have been provided for information purposes only. It should not be relied on as a substitute for specific legal advice on any particular topic.

Construction contracts often provide for settlement discussions to occur before an arbitration is commenced. However, this type of ‘multi-tier’ dispute resolution clause can lead to disputes over whether or not the occurrence of settlement discussions is a compulsory requirement before arbitration can be validly commenced.

The recent decision of the Singapore International Commercial Court (SICC) in CZQ v. CZS [2023]2 illustrates why parties must use clear and unequivocal language to make a specific action (e.g. settlement discussions) a mandatory precondition to arbitration. CZQ also sheds light on an uncertainty about the dispute resolution mechanism in the 1999 Fidic standard form, indicating that the requirement under the standard subclause 20.5 for pre-arbitration settlement discussions is not a mandatory precondition to commencing arbitration. This may have significant implications for users of the 1999 Fidic standard forms.

CZQ involved an amended 1999 Fidic Yellow Book.3 The parties deleted subclause 20.2 and revised subclause 20.5 to exclude any reference of disputes to a dispute adjudicate board (DAB) and provide for settlement discussions ahead of arbitration under subclause 20.6. The revised provisions stated:

A dispute arose between the parties. No settlement meetings took place. The employer commenced arbitration against the contractor and its guarantor. The respondents challenged the arbitral tribunal’s jurisdiction, arguing that the settlement meetings required by subclause 20.5 were a mandatory precondition to arbitration that had not been complied with. The tribunal rejected the respondents’ challenge and found that it had jurisdiction. The respondents subsequently appealed the tribunal’s decision under section 10 of the Singapore International Arbitration Act.4 

The SICC dismissed the respondents’ challenge, finding that the tribunal had jurisdiction. Settlement meetings under subclause 20.5 were not a precondition to a party commencing arbitration under subclause 20.6. The SICC made the following key points.

• The SICC rejected the respondents’ argument that the words ‘unless settled amicably’ were a reference to the amicable settlement procedure in sub-clause 20.5. Subclause 20.6 did not expressly refer to subclause 20.5 or the amicable settlement procedure in subclause 20.5, and this reference could not be implied.

• A dispute could be settled amicably in various ways. One of which was the subclause 20.5 procedure. The contract did not prevent the parties from exploring other forms of amicable settlement and such a limitation would have been commercially unrealistic.

• The final sentence of subclause 20.5 did not make compliance with the clause a condition precedent to arbitration. It simply meant that if either party initiated the subclause 20.5 settlement procedure and the dispute remained unresolved, either party was entitled to notify the other party that the dispute would be referred to arbitration.

CZQ is a useful reminder that precise language in multi-tier dispute resolution clauses is critical, as uncertainty in drafting can otherwise frustrate a party’s ability to rely on the clause.

An agreement which merely states that parties will seek to settle their disputes amicably and only refer the matter to arbitration where they cannot settle is generally not a legally enforceable obligation under English law (and many other common law jurisdictions). Such an agreement lacks certainty as there would be no objective criteria to measure a party’s compliance with the provision (Kajima Construction Europe (UK) Limited and another v. Children’s Ark Partnership Limited [2023]5).

For amicable settlement to be enforceable as a mandatory pre-condition to arbitration, parties will need to precisely define the means by which an attempt to resolve the dispute should be made, including what the form or process of resolution should be (e.g. negotiation) and who is to be involved (e.g. directors).

However, even if this level of detail is provided, it will not automatically make amicable settlement a mandatory precondition. For that, parties must state so explicitly. CZQ helpfully summarises the language that common law courts generally expect for the creation of preconditions to arbitration as follows.

• Explicitly state the order of steps to be followed before arbitration. In Emirates Trading Agency LLC v. Prime Mineral Exports Private Ltd [2014],6 the contract stated that if any dispute or claim should arise, ‘the Parties shall first seek to resolve the dispute or claim by friendly discussion…If no solution can be arrived at in between the Parties for a continuous period of 4 (four) weeks then the non-defaulting party can invoke the arbitration clause and refer the disputes to arbitration’. This language was upheld as a mandatory pre-condition.

• Arbitration clause should cross-refer to specific contractual step(s): in International Research Corp PLC v. Lufthansa Systems Asia Pacific Pte Ltd [2014],7 clause 37.2 provided for the reference of disputes to mediation. Clause 37.3 – the arbitration clause – then referred to clause 37.2 in providing for the arbitration of disputes ‘which cannot be settled by mediation pursuant to Clause 37.2’. Again, this language was upheld as a mandatory pre-condition.

In contrast, the bespoke dispute resolution clause in CZQ lacked this type of language. Parties should therefore take this guidance into account when drafting and negotiating multi-tiered dispute resolution clauses that are intended to impose mandatory pre-conditions to arbitration (or litigation).

There is some uncertainty as to whether amicable settlement under subclause 20.5 in the 1999 standard Fidic forms is a mandatory precondition to arbitration. Unlike in the bespoke clauses in CZQ, parties using the 1999 standard forms can refer a dispute to a DAB and if a party wishes to challenge the DAB’s decision by way of arbitration:

• ‘both Parties shall attempt to settle the dispute amicably before the commencement of arbitration’; but also that

• unless the parties agree otherwise ‘arbitration may be commenced on or after the fifty-sixth day after the day on which notice of dissatisfaction was given, even if no attempt at amicable settlement has been made’ (emphasis added).

This is seemingly contradictory language which has split commentaries on whether an attempt at amicable settlement is a mandatory precondition to arbitration. CZQ clarifies, albeit in passing, that attempting amicable settlement under the standard subclause 20.5 is not a mandatory precondition. This is consistent with the standard subclause 20.6 lacking an express reference to the amicable settlement procedure in subclause 20.5 (in contrast to the position in the Lufthansa case noted above). Accordingly, a party technically only has to wait out the 56-day ‘waiting period’ in the standard subclause 20.5 before commencing arbitration, subject to it having first issued a notice of dissatisfaction against the DAB’s decision as required by the standard subclause 20.4.

The SICC’s clarification is important as the 1999 Fidic standard forms are still widely used internationally. Users should consider their contracts which incorporate the standard terms unamended, as tribunals and courts applying common law principles may find that amicable settlement attempts are not a precondition to arbitration in light of CZQ. This can have a significant impact on negotiating strategies and pre-arbitration preparations. Further, a misunderstanding of the standard Fidic multi-tier dispute resolution procedure can risk parties incurring wasted time and costs by having to first argue jurisdictional issues before being able to address the substantive issues in dispute in an arbitration.

On 12 October 2023, the CMA published its Green Agreements Guidance1 on how competition law applies to environmental sustainability agreements between firms operating at the same level of the supply chain, to help them act on climate change and environmental sustainability.

The guidance follows the environmental sustainability advice the CMA provided to the UK government in March 2022. As part of that work, the CMA found businesses wanted more clarity about what is, and what is not, legal when working together towards environmental sustainability goals.

As explained in the guidance, one of the aims of the guidance is to ensure that competition law does not impede legitimate collaboration between businesses that is necessary for the promotion or protection of environmental sustainability. The guidance is drafted with those aims in mind and seeks to balance those objectives.

Environmental sustainability agreements are agreements between competing businesses that involve co-operation to achieve green outcomes, such as tackling climate change.

The guidance sets out the key principles which apply, along with practical examples that businesses can use to inform and shape their own decisions when working with other companies on environmental sustainability initiatives. In terms of situations where this guidance will be relevant, examples are given of businesses deciding to combine expertise to make their products more energy efficient or wanting to use packaging material that meets certain standards to reduce waste.  

When entering into an environmental sustainability agreement with another competing business, a business must ensure that it complies with competition law. The CMA advises that businesses should review the guidance before entering into any environmental sustainability agreements with their competitors.

The CMA advises that environmental sustainability agreements are likely to restrict competition if they are likely to result in: (i) an increase in price; and (ii) a reduction in choice, quality, or output.

Some agreements can be particularly harmful and are therefore very likely to be unlawful. These include:

• restrictions on the use or development of more environmentally sustainable products or services

• price fixing

• the allocation of customers or markets between competitors

• bid rigging

• limitations on quality or innovation.

Examples are provided by the CMA of when environmental sustainability agreements are unlikely to infringe competition law and the guidance. Some of the examples given include:

• agreements about internal corporate conduct (for example, to eliminate the use of single-use plastic in the workplace)

• agreements to run joint campaigns to raise awareness about environmental sustainability (as long as it does not amount to joint advertising or joint selling)

• agreements to set non-binding industry-wide environmental sustainability targets or ambitions

• agreements to participate in an environmental sustainability standard (such as a green labelling initiative) or to phase out unsustainable products

• agreements that cover less than 10% of the market and are not trying to restrict competition through, for example, price fixing, market sharing or bid rigging.

Circumstances where an agreement is capable of exemption are addressed in sections 5 and 6 of the guidance.

An environmental sustainability agreement that restricts competition may still be lawful if it meets the criteria for an exemption. One of the criteria for exemption is that the benefits consumers receive from the agreement outweigh the harm caused by the agreement. For example, agreements that result in price rises (for example, because the more sustainable input is more expensive) may be permitted if businesses can show the benefits of the agreement to consumers who purchase the product or service outweigh the additional costs to those consumers. If an agreement helps to combat climate change, the benefits of that agreement for all UK consumers may be able to be considered.

For companies in doubt as to how the guidance may or may not apply, the CMA is operating an open-door policy where businesses (and representative bodies such as trade associations), non-governmental organisations and charities can approach the CMA for informal guidance on proposed environmental sustainability initiatives.

The guidance expressly says that the CMA does not expect to take enforcement action against agreements that are in line with the guidance. For parties who engage openly in the CMA’s open-door policy, the CMA goes as far as to say it would not issue fines against parties implementing an assessed agreement even if it subsequently concluded the agreement infringed the Competition Act.8 However, parties to these agreements should keep their agreements under review to ensure that they continue to correspond clearly to the principles of the guidance.

In terms of steps businesses should take, the following should be considered.

• Environmental sustainability agreements will be important moving forwards for businesses – both for the climate and commercially. They are likely to become more and more prevalent. This guidance is therefore important.

• However, parties need to keep in mind the issues that can arise outlined in the guidance and act in conformity with that guidance.

• The CMA does have an open-door policy and where doubts exist in a business’ mind as to the correct approach to take, it would be prudent to discuss the agreement with the CMA. An open approach with the CMA will be helpful for businesses and make enforcement action against the business less likely.

The last decade has seen the emergence of ‘big data’ platforms allowing parties to major construction projects to digitise and integrate more and more of the engineering, design and build phase of their projects. Such digitisation has led to the unlocking of vast amounts of data, allowing both owners and contractors greater insight into their processes. Given the razor-thin margins and the fact that most large projects across mining, infrastructure and oil and gas asset classes are delayed by 20% and up to 80% over budget,9 any technology that can improve efficiencies is welcome. However, from a disputes perspective, greater visibility and collaboration may lead to even larger or more frequent disputes.

Big data software platforms that allow BIM applications are the most innovative and standard technology platforms available to construction projects. In the simplest terms, BIM is an intelligent three-dimensional model of a project that contains all of the data necessary for its life cycle. This includes materials, labour, costs and the project’s physical footprint.

Generally, material, labour and engineering/design management are siloed processes, spread across a network of contractors and subcontractors and their respective information technology (IT) platforms. BIM integrates all of these processes and overlays them into a single digital space. Together, these data work together to allow for predictive simulation and alerting capabilities. Thus, this digital representation of the project can enable stakeholders to:

• identify critical materials or labour bottlenecks and predict downstream effects

• model decisions to optimise efficient outcomes

• communicate with contractors and subcontractors to proactively mitigate upcoming issues

• generate a complete project record shared between all stakeholders, creating an important evidentiary record for audits, insurance claims and dispute resolution.

Accordingly, BIM creates the potential to reduce information asymmetries on projects by providing owners, lenders and other participants with real-time access to data regarding the status of project execution and performance against metrics.

The authors observe that increased transparency into project execution may have significant implications for the timing and frequency of disputes, as well as the forms of evidence relied upon in disputes. Under a traditional engineering, procurement, and construction (EPC) contracting structure, the owner has relatively few touchpoints while a project is underway, and the contractor has significant discretion as to the means and methods by which it progresses the work, subject to its information tracking and reporting obligations to the owner in weekly and monthly reports, contemporaneous schedule updates and other project documents. In turn, financing parties rely upon the owner’s periodic updates and provision of information to track the status and risk level of their investments.

BIM creates the possibility of establishing a more level playing field among project participants, in which owners, lenders and contractors all have nearly equivalent levels of access to project information in real time. This increased transparency may shift forward the timing and frequency of disputes, by enabling owners and lenders to identify problems early in the course of projects and to attempt course correction, before delays and cost overruns accumulate to a significant degree. From a contractor’s perspective, increased early interventions by owners may limit the ability of contractors to control their means and methods and to exercise their judgment in keeping projects on track. BIM may obviate traditional forms of project reporting, while significantly increasing the body of documentation available to owners and contractors in evaluating requests for cost and schedule relief. The accuracy of BIM data and the conclusions to be drawn from it may itself be the subject of significant disagreement between the parties. It is thus foreseeable that BIM may change the pacing of disputes on projects and enable owners and contractors to raise disputes on a real-time basis in response to trends in project data. Lenders may also demand greater rights of participation in projects, to the extent that they are in a position to assess performance issues on a real-time basis.

Notwithstanding the potential of BIM to aggravate tensions between and among project participants, enhanced access to timely project information may also enable early amicable resolution of disputes, whether through direct negotiations or dispute review board mechanisms, rather than allowing disputes to fester and become intractable. Greater access to data on all sides may also reduce the need for project participants to resort to letter-writing campaigns and heated allegations, since project participants and their advisors can assess the data and reach robust conclusions as to the causes and consequences of issues on the project. The authors do not suggest that BIM will avoid high-stakes disputes on all projects; however, BIM may help project participants identify and resolve many disputed issues at an incipient stage and without resort to formal proceedings.

Finally, BIM platforms have the ability to enhance the dispute resolution process and optimise learnings after construction completion. The BIM data accumulated throughout the lifespan of a project will be an important source of evidence for all parties in a dispute arising from the project. The existence of a common evidentiary foundation may limit the need for costly and burdensome document production and may enable the parties’ experts to establish agreement from the outset as to the principles and data on which their respective analyses will be based. At the same time, disputes over the accuracy, integrity and completeness of BIM data may become a significant facet of post-construction disputes. Beyond the dispute resolution context, BIM data may allow owners, lenders and contractors alike to extract detailed insights from past projects and to refine their assumptions, contracting and execution strategies for further projects.

In summary, BIM offers both opportunities and risks for the construction industry and mega-project participants. Increased access to project data on a real-time basis may result in significant efficiencies, enable proactive resolution of project issues, and limit the extent to which disputes magnify beyond the limits of amicable resolution, even as BIM creates the possibility that disputes may occur earlier and more frequently on projects.

After more than 25 years in use, it is interesting, sometimes surprising, to see that there is still much to occupy the courts when it comes to issues arising from serial adjudications under the Housing Grants, Construction and Regeneration Act 199610 (as amended) (HGCRA). Let’s look at a recent example of this issue.

Mounting serial adjudications is a popular strategy with clients but the bane of the lives of most adjudicators and judges. What did adjudicator one say and how does that impact on the issues then referred to adjudicator two in a subsequent adjudication? How do we avoid the pitfalls of serial adjudications? The simple answer might be, just not to have them, but under a statutory regime where a party is permitted to refer only one dispute at a time, in all but the simplest and briefest of construction contracts, how likely is that? A sensible alternative is to appoint the same adjudicator for each dispute but human nature is such that when a decision is given against a party, there is often objection from that losing party to the same adjudicator’s appointment to act in later referrals. It gets messy.

The established principle or test is that if a later referral to adjudication includes the same or substantially the same dispute already decided in an earlier adjudication, the adjudicator in the later referral will have no jurisdiction. This principle is rooted in section 108(3) of the HGCRA10 which provides:

The principle is also supported by the provisions of paragraphs 9(2), 20 and 23(2) of the statutory scheme. Together they provide that a second adjudicator cannot decide a dispute which is the same or substantially the same as a dispute that has already been decided in an earlier adjudication.

In addition, where an earlier adjudicator has decided certain matters of principle relevant to a later referral, the adjudicator in the later referral will be bound by those earlier decisions and their jurisdiction will be limited accordingly. An example would be where a dispute on liability has been decided in one adjudication, and the issues of quantum are referred for decision in a later adjudication. Another, less straightforward example is where the underlying issues are concerned with delays to a project. In such cases there is a greater risk of disagreement about whether a dispute involving delay claims has already been decided or whether it is a fresh dispute. It is not hard to appreciate the principle, the difficulty arises when it comes to understanding and applying it to the decisions of the earlier adjudicator(s).

A dispute meeting this dilemma head-on was the subject of the Court of Appeal’s recent judgment in Sudlows Ltd v. Global Switch Estates 1 Ltd [2023].11 The issue before the court was whether adjudicator number six acted in breach of natural justice by deciding that he was bound by certain findings made by adjudicator number five.

As Coulson LJ said (at paragraph 3311):

He also referred to his judgment in the case of Benfield Construction Ltd v. Trudson Ltd [2008]12 where he had observed (at paragraph 57):

He makes a good point. He noted that the statutory limitation to the referral of a single dispute to adjudication was ameliorated by the decision in the case of Fastrack Contractors Ltd v. Morrison Construction Ltd (2000)13 which held that a single dispute could be made up of many claims. However, and as in this case, from time to time the court has had to consider what actually makes up an adjudicator’s decision. This could include what the adjudicator did or did not do, as in the case of Hyder Consulting (UK) Ltd v. Carillion Construction Ltd [2011]14 where Edwards-Stuart J explained (at paragraph 38) that the adjudicator’s decision included not only the actual award but also ‘…any other finding in relation to the rights of the parties that forms an essential component of or basis for that award’.

The Sudlow judgment discusses the leading cases on the binding nature of previous decisions. Quietfield Limited v. Vascroft Construction Limited [2007],15 also a decision of the Court of Appeal, was also a case concerning applications for extension of time. May LJ gave the main judgment and contrasted the first adjudicator’s decision, which was based on Vascroft’s claim for an extension of time based on grounds set out in in two letters, and the second referral which was a claim for an extension of time which formed the basis of Vascroft’s defence to Quietfield’s claim for liquidated damages, in which Vascroft’s case/defence relied on a lengthy document called ‘Appendix C’. The second adjudicator decided that he was bound by the earlier decision and therefore did not consider Appendix C, but Jackson J (as he then was) decided that he was not bound by it. The principles he set out were later approved by the Court of Appeal. May LJ pointed out that because Vascroft’s Appendix C contained a number of causes of delay not previously advanced in the two letters, it was substantially different from the claims for an extension of time which were advanced, considered and rejected in the first adjudication. Agreeing, Dyson LJ (as he then was) added that he saw no reason to construe the contractual provisions as prohibiting the contractor from relying on the same relevant event that he had relied on in support of the previous application for an extension of time, giving materially different particulars of the expected effects and/or a different estimate of the extent of the expected delay. He said that there was nothing in the express language of the contract which prevented the contractor making good earlier deficiencies in a later application. He drew an analogy with the leading cases on abuse of process and stated (at paragraph 4715):

In Harding (trading as MJ Harding Contractors) v. Paice & Anr [2015],16 the contractor tried to injunct a further adjudication on the basis that it sought to adjudicate a dispute which had already been decided. The court concluded it was a different dispute. In so doing Jackson LJ said (at paragraph 5716):

Coulson LJ went on to consider other cases, both at appellate level and first instance. He referred in particular to a decision of Akenhead J in Carillion Construction Ltd v. Smith [2011]17 where he decided that the dispute referred to the adjudicator in the third adjudication was the same or substantially the same as that referred in the second adjudication. The judge identified some guidance about the comparison exercise required for this type of case. In Hitachi Zosen Inova AG v. John Sisk & Sons Ltd [2019],18 Stuart-Smith J (as he then was) doubted some elements of Akenhead J’s guidance which appeared to focus on what was referred in the earlier adjudication rather than what was decided. His emphasis in Hitachi was on the importance of what was decided and not on what had been referred. In Lewisham Homes Ltd v. Breyer Group PLC [2021],19 Waksman J also summarised the applicable principles focusing on the key elements before and the decision of the previous adjudicator.

In his conclusions on the relevant principles, Coulson LJ stated:11 

Applying the principles of law discussed, and overturning the decision of the court below, the Court of Appeal unanimously concluded that the dispute decided in adjudication five was indeed the same or substantially the same as that referred in adjudication six, so that the adjudicator’s decision based on his finding that he was bound by the decision in the earlier adjudication was correct (thus he was not in breach of the principles of natural justice).

If there is a lesson to be learned from this case, it is that engaging in serial adjudication is a risky business. It matters not whether you are referring or defending a dispute in a case which involves serial adjudications. Notwithstanding more than two decades of experience and numerous contested cases, the outcome is by no means predictable.