Woods LLP partner Alexandre Baril-Furino, whose diverse litigation practice includes high-stakes disputes in construction and PPP sectors, shares his insight and expertise around the trends he’s seeing recently.
Q: From your perspective, what are the key legal trends that will shape disputes and dispute resolution in the construction and PPP sectors in the near future?
A: Although arbitration is common, and custom dispute resolution procedures (“DRP”) are frequently built into PPP and construction project contracts, there are still a number of instances where such clauses have not been included and the parties are forced to resort to court in the case of disputes or litigation.
I predict that the use of DRP clauses, while already quite popular, will continue to increase and such clauses will be used more and more frequently going forward — particularly because of the delays and the public nature inherent to court proceedings. While DRPs may be more costly, they are in principle more flexible, expedited and private, which is attractive for stakeholders involved in PPPs or large construction projects.
What we tend to see more often in these large construction projects are complex and multi-step DRP processes built into the contract, which go beyond classic mediation and arbitration clauses. And when I say multi-step, I mean, multiple tiers that the parties must follow prior to mediation or arbitration altogether. For example, in terms of steps or tiers, it would typically start with negotiations between the parties, at a lower representative level; this step is followed by another negotiation step between the parties' representatives at an executive level; this step is followed by mediation; the next step would be determination or adjudication by an independent expert; and finally the DRP concludes with arbitration. What we see from our clients is that there is an appetite for these intricate procedures that are adapted to their specific projects, in view of encouraging the parties to negotiate and maintain a dialogue in order to find a solution.
For more in depth information on this topic, I wrote an article with my partner in which we go over DRP processes and what we think is important. Ultimately, we find that although it is good to have multiple steps, the most important thing is for the DRP to be efficient. The key here for these procedures is to have a process which will push the parties to a timely resolution of their dispute.
Looking ahead, it will be interesting to see how the jurisprudence will develop with respect to the court’s involvement in such multi-step and complex DRP processes. I anticipate an increase in jurisprudence with respect to the court's role in intervening in a DRP process at early stages beyond what we typically see, which is, for example, court intervention for arbitrator nomination, or when there are jurisdictional or competence arguments that are raised by the parties. It will be interesting to see to what extent the court will want to intervene with respect to preliminary steps in a DRP process.
Q: How have recent global events and the subsequent supply chain disruptions impacted disputes in the construction and PPP sectors?
At the end of the day, it frequently comes back to delays and cost increases. Supply chain disruptions impact disputes in the construction and PPP sectors in various manners, but in my practice what I see more often are delays in the delivery of required materials and equipment for construction projects. As we know, delays are a very frequent source of disputes in PPP and construction projects. For instance, we often see liquidated damages clauses, other damages, or indemnification, depending on the contract, in the event a project is delivered late and there are frequent disputes on the application of these clauses related to delays.
Also, supply chain disruptions lead to escalated costs in procurement and the delivery of the required materials and equipment for construction projects — and such cost increases may not have been foreseen at the time of the conclusion of the contract. Parties often disagree as to who is to assume the risk and consequences related to cost fluctuation, especially in relation to supply chain disruptions or other global events, and contracts are sometimes unclear or leave room for debate on both sides, which leads to disputes.
Global events, such as the pandemic and geopolitical conflicts, have far-reaching impacts as well. They also interfere with supply chains as well as cause delays and hyperinflation of construction costs which, again, will turn into disputes. We see this problem more and more often, and although contracts may contain clauses addressing inflation, the hyperinflation is usually not anticipated at the conclusion of the contract. COVID-19 has also resulted in labour shortages and much greater complexity in the management of construction sites and the security of workers onsite. These restrictions and considerations have shown to slow down the progress of a project and potentially increase the costs of management.
In addition, on another note, these events have shown that DRP processes are more flexible than the court system for dispute resolution. They are particularly adaptable in terms of procedure to reach a final decision and resolution, and this enhances the appeal of the DRP processes for large-scale construction or PPP projects.
Q: How has the interpretation and application of force majeure clauses evolved in light of recent global crises?
This question is interesting — and hard to answer — in the sense that force majeure clauses are not the same in all construction or PPP contracts. They're applied on a case-by-case basis, depending on the wording of the clause: for example, some clauses specifically deal with the eventualities of a pandemic or war. So, the interpretation and application of the clauses will depend on their wording, the circumstances, and the consequences of the specific event that is invoked.
That being said, it is likely that parties, at the time of the conclusion of the contract, will pay particular attention to the wording of such clauses to include and deal with global events such as pandemic or war, or other disruptive events that we've seen recently.
Q: How does inflation impact on existing and future construction contracts? Are cost escalation clauses, for example, being designed or modified in response? What does that mean for dispute resolution?
Similarly to force majeure clauses, I foresee heightened attention to inflation or cost escalation clauses during contract negotiations, to try to anticipate situations such as hyperinflation. As I mentioned earlier, cost increases that were not foreseen at the conclusion of the contract are often a source of disputes. One way to try to cope with that is to adjust the relevant clauses when you negotiate the contract to have it deal with as many situations as possible and to avoid uncertainty, as some of these clauses are not entirely clear on these issues. Going forward, construction contracts will most probably be worded or clauses will be drawn up to try to deal with these issues and avoid or minimize future disputes around them.
Q: What are the common legal disputes concerning the appointment of arbitrators in construction or PPP projects and how are they being resolved?
Disputes on this subject vary depending on the arbitration clause, which will have either one arbitrator or a panel of three arbitrators deciding the dispute.
When one single arbitrator is to be appointed, the parties may disagree in relation to the expertise required of the arbitrator to deal with the specific issue at hand, for example, depending on their respective strategies and the nature of the file. Some parties may want an arbitrator that is more experienced on technical construction issues whereas other parties may prefer an arbitrator who has more experience in contractual interpretation. Of course, there are arbitrators that are good at everything but we all have strengths in some particular areas.
Also, disputes may arise regarding the availability of an arbitrator and the speed at which some parties want to seek resolution of their dispute. For example, if you have identified a qualified and experienced arbitrator you want to mandate but he is not available in the short term, the other party may want to proceed quicker and have another arbitrator hear the matter. As such, there may be disputes in relation to timeliness and delays for the arbitration to be heard as there are only a handful of arbitrators that can hear these specific matters.
When three arbitrators are to be appointed, disputes are less frequent because what typically happens is that each party names one arbitrator, and then those named arbitrators select the third one to preside the panel.
Q: How important is the arbitrator’s expertise in construction law for the resolution of disputes in PPP projects, and what challenges arise in selecting such arbitrators?
The arbitrator’s expertise in construction law and contractual interpretation of large and complex construction contracts is of paramount importance. The nature of the disputes in PPP projects is very specific and must be dealt with on a case-by-case basis. There are usually many issues within a dispute and experience comes in quite handy to be able to hone in on the crux of the matter and focus on the issues that are most important in the file.
Also, the litigators representing the parties in such disputes often have significant expertise in such matters and some arguments and positions that are put forward are quite technical in nature. Again, an experienced arbitrator will be able to get up to speed faster and move more efficiently towards the resolution of the dispute. As they are in the construction industry themselves, I know clients appreciate having an arbitrator who has significant experience in such matters.
With respect to challenges in selecting such arbitrators, in addition to the challenges discussed previously, there are increasing amounts of disputes in large scale PPP and construction projects but limited amounts of arbitrators who have the experience and track record typically sought by the parties. That said, looking on the bright side, this creates opportunity for younger arbitrators, or arbitrators who have less experience, to acquire the experience to do these types of files. This is very important as it will increase the pool of recognized arbitrators with experience and, over time, help us deal with this challenge.
Q: What advice would you give to parties involved in construction and PPP projects to better prepare themselves for potential legal disputes?
There are a few pieces of advice I would like to share. Some of them may seem obvious, but they are critical. The first one is to always seek legal advice before signing a construction contract in a large-scale construction project or PPP project. Do not just accept boilerplate contracts and assume you cannot negotiate. Obtain legal advice to understand the extent of your obligations and the risks involved with the project and the contract, and possibly attempt to negotiate to modify some clauses to your advantage to reduce your risk.
Second, during the course of the project, it is very important to keep your file in order and have a system where you document everything that happens, contemporaneously to the events occurring, just in case a dispute occurs down the road. The documentation helps the parties in the event of a dispute to provide evidence and enables them to explain to the arbitrator what happened in an accurate manner. In addition, you should ensure to send notices in a timely manner to the other party, if a notice needs to be sent for an issue that occurred.
Third, I recommend paying particular attention to delays for notices that need to be sent or for making claims under the contract. Many construction contracts have strict deadlines that must be respected by the parties. If they want to make a claim for a delay, a cost increase, site accessibility, or other issues, the parties typically have to send a notice quickly, such as five or seven working days after the event occurring. If the contractual deadlines aren’t respected, parties may lose the right to make a claim. The person in charge of the administration of the contract for a party should master the process for making a claim, to make sure the party's rights are preserved.
Finally, I recommend that, at the moment of the conclusion of the contract, parties should seek to incorporate an effective DRP process in the contract. Again, there are more details in the article I referenced earlier, but this essentially means a DRP process that is adapted to the specific nature of the contract and that will allow the parties to reach quick resolution of their disputes.
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Alexandre Baril-Furino is a Partner at Woods LLP, with a diversified practice, revolving around civil and commercial litigation, as well as arbitration. He leads, amongst others, large-scale professional and D&O liability cases, contractual disputes, competition and construction litigation matters. Alexandre advises and represents our clients in complex and sensitive business matters, as well as in injunction cases, both as counsel for plaintiffs and defendants. As a litigator, he has defended their interests before all levels of Quebec courts and before several arbitration and administrative tribunals.
Alexandre possesses specific expertise in disputes related to construction and real estate law. He has acted and currently acts in various high-stakes complex litigation matters, notably in the context of public-private partnerships, construction projects, as well as in the field of divided co-ownership (condominiums), where he represents the Syndicate of co-ownership or co-owners, developers, contractors or other actors.
Alexandre is also an accredited mediator of the Quebec Bar, in civil, commercial and employment matters.
The primary objective of Alexandre’s approach is to maximize results and ensure effective dispute resolution, regardless of the dispute.