Decision-making in International Construction Arbitration

By Haytham Besaiso

Published by: Informa Law, Routledge
ISBN: 9781032299204
234 pages, £150
Publication date: October 2023

Reviewed by Nick Longley, HFW

It is unusual to pick up a construction or arbitration textbook and read it from cover to cover. However, Decision Making in International Construction Arbitration is no usual textbook. Haytham Besaiso’s fascinating and, in some cases, provocative review of how arbitral tribunals make their decisions is unique.

As Besaiso explains, the book enquires into how international arbitrators decide on the substance of construction disputes arising from international construction contracts. It aims to construct an arbitral decision-making conceptual framework that identifies the substantive norms that international arbitrators apply, assesses their effects on arbitrators’ decisions on the merits of international construction claims, and explains the reasons for the determined effects.

He charts a course towards this framework by examining to what extent arbitrators use law as a substantive norm (including whether they are required to apply mandatory rules of foreign law), adopt commercial norms, adopt principles of fairness or use their background in making their decisions.

Besaiso uses two main sources of information for this task. First, he uses an analysis of published arbitration awards. This allows for a considered assessment of decision-making, albeit the confidential and private nature of the arbitration forum means that the extent of this resource is limited. Second, he uses information directly provided by arbitrators themselves obtained from a series of semi-structured interviews. Inciteful and often frank quotations from these arbitrators are used in the book to provide evidence to support the contentions made.

Besaiso’s book is the first attempt (that at least I am aware of) to provide a structured analysis of some of the issues which have polarised construction arbitration for some time. These issues include the following.

The extent to which an arbitral tribunal should and actually does apply the law in its decision-making

Although it sounds somewhat heretical to a common lawyer, one view is that arbitrators do not have to follow the law in determining the parties’ dispute but instead should follow business common sense. Besaiso says that both sides have formed the basis for their view of the parties’ expectations, although he found no evidence to support this. The commercial side of the debate points to a significant gap between the ‘real deal’ and the ‘paper deal’, although as Besaiso points out, a failure to follow either the law or the contract is likely to lead to uncertain outcomes which is probably not what the parties had intended. It is reassuring to learn that all of the arbitrators that Besaiso interviewed said that they would apply the law strictly unless the parties have agreed not to do so. Besaiso also acknowledged that it is only in rare cases (approximately two per cent) that arbitrators are asked to decide as amicable compositeur or ex aequo et bono.

The extent to which there is an ‘international construction law’

International construction law is the construction equivalent of lex mercatoria. Chapter 5 of the book examines international construction law in detail and identifies the extent to which this law is applied by arbitration tribunals. Besaiso concludes that international construction law is used for contract interpretation and can be used in some jurisdictions to fill in gaps in the law.

Although he acknowledges the existence of international construction law is ‘deeply contested’, he identifies ten possible principles of international construction law including:

1. pacta sunt servanda – agreements are to be kept;

2. contract variations are inherent in construction contracts and do not amount to a breach of contract; and

3. decisions regarding the programme and construction methodology reside with the contractor.

Although most would agree that these three principles are likely to be universally acceptable (subject to the express words of the specific contract in dispute), the list also includes ‘the good faith principle’ and common law implied terms, which it is said can have a similar effect and that notice provisions can be ignored as a procedural technicality when the employer is aware of the facts. These two in particular are likely to spark greater debate.

The extent to which tribunals follow the mandatory rules of foreign law

Chapter 7 features an interesting debate concerning whether, in situations where the parties have deliberately chosen a governing law for their contract which is different to the law of the jurisdiction where the construction site is situated, the tribunal should apply mandatory rules from that jurisdiction. For example, does party autonomy take precedence over a nation’s tax rules or import/export controls? The answer, as in most things, depends upon the circumstances.

Conclusion

Experienced practitioners are likely to find some support for their long-held beliefs, such as that a substantial majority of cases are decided by reference to the facts rather than the law and that the same or similar results are likely notwithstanding the legal framework that has been provided.

The book also contains a number of useful reminders, including that arbitral tribunals are more interested in finality than accuracy. Tribunals do not want to be appealed or have their awards set aside. Second, tribunals generally do not consider enforcement or what might be required for enforcement in their awards. As one arbitrator put it, they want their award to be ‘enforceable, not enforced’. It is for the parties to ensure that the arbitrators comply with any local rules to allow for enforcement in any particular jurisdiction.

As Besaiso points out, this book presents the first empirical account of decision-making in international construction arbitration. It provides the first comprehensive descriptive and explanatory framework for decision-making. However, it is true that the sample size for the questionnaire was small; only 28 arbitrators. This small sample size, and the fact that the number of arbitrations held each year is unknown, inevitably leads to the conclusion that Besaiso’s findings cannot be considered representative of global construction arbitration decision making. However, what this book can and does achieve is to provide a framework for further research and analysis. This book provides the starting point for future assessment of decision making.

It is recommended reading for anyone interested in construction arbitration, from cover to cover.