As construction disputes are almost inevitable particularly in large and complex projects, there are dispute resolution clauses included in standard conditions of contract to manage these issues. These dispute resolution provisions involved a delicate balancing act. In general, dispute resolution provisions ought to provide quick resolution to disputes so that the issues do not deteriorate to the point where it becomes disruptive to the progress of works. On the other hand, disputing parties should also be afforded with reasonable time and opportunities to prepare their claims and present their respective cases. In view of these competing priorities, dispute resolution provisions usually allow a speedy, interim but binding decision to be made by a neutral certifier or statutory adjudicator. Therefore the aggrieved party gets its remedy in a timely manner but the dissatisfied party is not barred from having the dispute outcome reviewed sometime later. What if more details relating to the dispute were disclosed after the determination resulting in serious doubts over the substantive merit of the interim decision? Should an appeal be allowed swiftly and if so how soon? To complicate the situation further, what if the dissatisfied party is accused of not timely disclosing those additional material information? Should there be a timeline regulating the manner in which evidence is presented? Additionally, should the interim decision continue to be binding on the parties in spite of these problematic circumstances?

Whilst there is no absolute right or wrong to the queries raised above, parties ought to be aware that they have the ability to shape the structure of their preferred dispute resolution provision. It is important to understand that dispute resolution provisions in and of itself can often be subject to dispute. This is why the design of dispute resolution provisions is often an art rather than science. This article examines how dispute resolution provisions may differ between Public Sector Standard Conditions of Contract (PSSCOC) published in 2020 and Singapore Institute of Architects (SIA) Building Contract published in 2016. This is Part 11 of an article series comparing these two contract forms that are widely used in Singapore. Whilst most commercial and contracts managers for contracting firms may consider dispute resolution provisions as ‘legal matters’ reserved for in-house counsels or external lawyers, it is fundamentally a subject that involves commercial judgment calls. This is because one is often required to make business decisions on the amount of resources that should be expended to pursue certain amount of claim in dispute. 

One of the key considerations to this decision making process is an in-depth understanding of the agreed dispute resolution provisions. How much resources should be expended over a claim at a juncture where the outcome is interim? What type of claims administration system should be put in place to ensure condition precedents are complied with in order to preserve rights to claim at a future date? What are the most cost effective dispute resolution options available under the contract that preserves parties’ working relationship? These questions often require careful assessment of risk versus reward.

Apart from the conventional legal action through state court i.e. litigation, there are alternative dispute resolution options prescribed under the contract such as arbitration, mediation, expert determination, reference to certifier etc. This article examines how various options are structured under the PSSCOC and SIA form. Due to the significance of arbitration as one of the alternative dispute resolution avenues under PSSCOC and SIA form, a separate article will be dedicated in Part 12 of this article series.

Multi-Tiered Dispute Resolution Provision

Multi-tiered dispute resolution provision can commonly be found in standard forms of construction contract, where it stipulates sequences of steps that shall be fulfilled by the parties prior to the final method of dispute resolution, which is typically arbitration or litigation. These prior steps are generally references of dispute to certain dispute resolution alternatives such as mediation, negotiation, expert determination, dispute avoidance board etc in a certain prescribed order or sequence. These prior steps can either be made mandatory or optional. Arbitration or litigation as the final method provides parties with least amount of ‘control’ over their dispute outcome since the determination is made by a neutral judge or arbitral tribunal of which the decision is final and binding. The working relationship between parties is usually irreversibly damaged at this point. The prior steps therefore provide parties with greater degree of control over their dispute outcome whilst preserving their working relationship. 

PSSCOC adopts multi-tiered dispute resolution provision which can be found in its Clause 35 relating to settlement of disputes. On the other hand, the SIA form does not expressly include a multi-tiered dispute resolution provision where parties shall directly refer any dispute between them to a sole arbitrator as stipulated under its Clause 37. Notwithstanding that, there are optional dispute resolution methods available to the parties under SIA form, which they may refer their disputes to at any time on a voluntary basis. These include mediation stipulated under Clause 38 as well as expert determination under Clause 39.

Under Clause 35.1 of the PSSCOC, any contract related dispute shall first be referred to the Superintending Officer of which his decision shall be made within 30 days of receipt of such reference. Such dispute shall only be submitted to arbitration by the dissatisfied party within 90 days of receipt of the Superintending Officer’s decision pursuant to Clause 35.2. Any breach of this multi-tiered dispute resolution provision by premature submission to arbitration without first making reference to Superintending Officer will likely be detrimental to the jurisdiction of the arbitral tribunal. This is because of the PSSCOC’s mandatory approach to the sequence of steps in respect of submission of disputes. In other words reference to Superintending Officer is a condition precedent to commencement of arbitration.

The rationale behind PSSCOC’s approach is likely to be driven by practical consideration because arbitration proceedings can be extensive where the entire duration could take many months or even years. Part of the reasons for such extensive duration is due to the finality of its outcome where parties are rightly afforded reasonable opportunities to be heard. If the time for completion for a typical construction project takes two to three years, arbitration can hardly provide parties with a swift resolution. Therefore reference to Superintending Officer makes practical sense particularly given the legal requirement for such independent certifier to act in an impartial and neutral manner notwithstanding its concurrent role as the Employer’s agent. As Superintending Officer is likely to be intimately involved with the project in hand, there should sufficient level of background knowledge of the issues to enable him to make a reasonable and swift interim decision. This is mostly true apart from certain notable exceptions. 

Whilst the SIA form does not adopt the multi-tiered dispute resolution approach, it offers other voluntary options to the parties such as mediation and expert determination which are relatively more time efficient than arbitration. As the Architect is the independent certifier appointed under the SIA form, it is already discharging its regular certification functions e.g. assessment of extension of time, certification of delay, certification of practical completion etc. These certificates are essentially a manifestation of determinations made by the certifier on various contentious claims. There are also unique requirements under SIA form for the Architect to make his decision or certification in a timely manner such as the in-principle intimation for extension of time as found under Clause 23(3)(d). Additionally, under Clause 37(4)(h) of the SIA form the arbitrator is bound to give temporary effect to most certificates, rulings and decisions of the Architect until such time when the final arbitral award is rendered. Therefore the need for interim and binding decisions under SIA form is mostly addressed notwithstanding the absence of multi-tiered dispute resolution provision. 

Multi Party Arbitration Provision

In large and complex construction projects, most of the scope of works under main contract are outsourced to various subcontractors. If and when there are any disputes pertaining to a specific trade of works, it is likely to implicate multiple parties along the supply chain, beyond just the main contractor and the Employer. Such dispute is also known as multi-party dispute. One of the important features of any dispute resolution provision is consistency in outcome. If the Employer gets a favourable outcome in an arbitration over curtain wall works whilst the curtain wall subcontractor gets a favourable outcome in a separate arbitration, the main contractor will be severely aggrieved. This is because the main contractor will be financially crushed by inconsistent outcomes assuming these collective proceedings are based on the same set of disputes and facts. When certain subcontract works gets rejected by the Employer’s consultants, the dissatisfied subcontractor can only advance its claim against the main contractor due to contract privity. The main contractor had to correspondingly claim against the Employer. The main contractor can sometimes act as a ‘proxy’ between the Employer and its subcontractor which is the essence of multi-party dispute. 

The scenarios described above are unfortunately the unintended consequences of having arbitration agreements included in most if not all standard forms of construction contracts. This multi-party dispute conundrum can quite easily be resolved by way of litigation since the state court typically has the power to order a joinder so as to consolidate overlapping disputes between multiple parties into one proceedings. Arbitral tribunals do not typically have such powers without consent of all parties due to the principle of party autonomy. Therefore the SIA form provides a unique solution as found in its Clauses 37(5) and 37(6), to those with arbitration agreements in their contracts. The enforcement however can be tricky in reality.

Under Clause 37(5)(a) of the SIA form, the Employer and contractor shall use their ‘best endeavours’ to ensure that the same arbitrator shall hear the multi-party dispute or part of such dispute under the contract where it relates to the nominated or designated subcontract or supply contract which was the subject of a Prime Cost Item. Subsequent Clause 37(5)(d) further conceded that if for any reason the same arbitrator cannot be or shall not be appointed to hear such disputes, then this arbitration clause shall lapse and cease to have any effect. Under such case, the authority of any arbitrator already appointed under this clause shall be revoked. It would appear that Clauses 37(5)(a) and 37(5)(d) recognise that whilst the aspiration of consolidation of arbitral proceedings for multiple parties appear sensible in its objective, it is entirely possible for it to fail for various reasons. Some of these reasons will be elaborated shortly. It is also interesting to note that Clause 37(5)(d) seems at odds with the arbitral doctrine of kompetenz-kompetenz which states that arbitral tribunal shall have the jurisdiction to rule on its own jurisdiction. Clause 37(5)(d) could be interpreted as denying such jurisdiction from the arbitral tribunal since the tribunal’s authority could be revoked by the operation of this clause rather than by its self determination. Where the Employer and main contractor are unable to agree on the appointment of the same arbitrator, they could rely on Clause 37(5)(b) by applying either to the President or Vice President of the Singapore Institute of Architect or the state court for the appointment of such an arbitrator for the purposes of enforcing the multi party arbitration. The challenges that may confront the enforcement of Clause 37(5) will be examined in the next few paragraphs. 

Firstly, the two parallel arbitrations under both the main contract and subcontract that are intended to be consolidated by such provision may be complicated by any discrepancy between their timelines. By way of illustration, the subcontract arbitration between main contractor and subcontractor could have progressed to an advance stage in its procedural timetable such as in the midst of their evidentiary hearing whilst the main contract arbitration could have just commenced. If the Employer could not agree to the appointment of subcontract arbitrator due to prior conflicts, it will be difficult to justify any attempt to revoke the authority of the subcontract arbitrator in favour of a fresh consolidated proceedings. Apart from wastage of precious financial and legal resources already expended to the existing proceedings, justice delayed is justice denied. This is perhaps why under Clause 37(6)(a), such multi-party arbitration clause shall lapse if for any reason the same arbitrator cannot be or shall not be appointed in both the main contract and subcontract proceedings. 

Secondly, whilst the issues under the two parallel arbitrations may be largely similar based on identical set of facts, the issues could be framed differently. One of the criteria in consolidation of arbitral proceedings according to Clause 37(5)(a)(ii) is that the dispute or part of a dispute shall arise out of or connected with the same facts. Just because both the proceedings may be connected with the same facts, it does not necessarily mean that the issues under two separate proceedings are identical. By way of illustration, if such construction dispute pertains to rejection of curtain wall facade works, the issues for determination could either be a question of fact or a question of law. Occasionally it could be a blend of both. Under question of fact, the arbitrator may be required to make a factual finding of what was the  parties’ agreement as regards the standard of requirement for the facade? Under the question of law, the arbitrator may be required to make an assessment on proper construction of the relevant terms and conditions, whether the works in issue were compliant? Whilst the issues are framed according to the strategy deployed by the respective legal representatives, it may change the line of enquiry and terms of reference of the proceedings quite significantly. The disposition of one issue does not render the other issue res judicata. 

Thirdly, these provisions relating to consolidation of proceedings are only intended to include nominated subcontract works or nominated supply contracts. The rationale for such limitation is because the Employer is not in the position to dictate the terms under domestic subcontract or whether subcontracting was even carried out for non Prime Cost Items. Any inconsistency in arbitral outcomes are likely to impact the main contractor more than the Employer. Therefore it is incumbent upon the main contractor to do what it considers necessary to protect its own interest including harmonising main contract and subcontract terms. The importance of multi party dispute continues to be very real regardless of whether it is under a domestic or nominated arrangement. However the ability to enforce the terms becomes more elusive under domestic arrangement. Given the above mentioned practical issues, it is no wonder that the PSSCOC does not have an equivalent multi party dispute arbitration clause. 

Mediation Under PSSCOC vs Mediation Under SIA

Both the SIA and PSSCOC have mediation clauses included as part of its dispute resolution provision. These contract forms have a fairly identical substantive approach in their mediation clauses notwithstanding some minor differences in its mediation procedural rules. These mediation provisions can be found in Clause 38 of SIA form and Clause 35.6 of the PSSCOC. In essence mediation is neither a condition precedent for commencement of arbitration nor part of any mandatory sequence of steps in multi-tiered dispute resolution clause. Parties are free to commence mediation at any time subject to the prevailing agreed mediation rules. Under the SIA form, mediation shall be conducted under the Mediation Rules of the SIA whilst the PSSCOC requires parties to state their agreed mediation rules in the Appendix to Conditions. In this regard, the one that is more commonly used is the Singapore Mediation Centre (SMC) procedure rules. 

Mediations conducted wholly or partly in Singapore and/or where Singapore law is the governing law is subject to Mediation Act. Under Singapore Convention on Mediation, parties involved in cross border dispute could seek the relevant state court’s assistance to enforce mediated settlement agreement if those jurisdictions had ratified and signed the international treaty. Therefore whilst mediation is largely a voluntary process where parties have considerable control over its dispute settlement outcome, the enforcement mechanism is fairly robust and not at all inferior compared to other forms of dispute resolution. 

Under both SIA and PSSCOC, neither party can be compelled to participate in mediation due to the voluntary nature of the dispute resolution language. The existence of these mediation clauses does not create an obligation to mediate. In other words the refusal to participate in mediation is not a breach of contract. Given the above mentioned considerations, what is the purpose of having a mediation clause under contract forms? There are perhaps a few practical benefits of having mediation clause. 

Firstly, whilst mediation is a voluntary process, the actual procedure of mediation is quite consequential. Having a mediation clause provides clarity on how the mediation procedures should be conducted through an accepted procedural framework. By way of illustration, parties may disclose areas of concession during mediation on a ‘without prejudice’ basis as part of conciliatory effort led by the mediator. Mediation rules ensure that all these information shall be kept confidential and not to be weaponised to prejudice the counter party under any future arbitration. Such rules are essential for parties to trust the mediation process when the parties’ relationship is likely to be frayed. 

Some have also been hesitant to attempt mediation due to the prospect of delaying any legal action such as commencement of arbitration. As disputing parties may be seeking remedy in order to stay afloat financially, the speed at which issues are resolved can be of paramount importance. Mediation rules typically stipulates that the commencement of mediation shall not preclude any party from commencing legal action. In other words, there is no ‘stay of proceedings’. It is entirely possible for mediation to be in parallel with other dispute resolution alternatives.

Having mediation clause whilst does not guarantee a settlement outcome but at the very least provides certainty and clarity on the rules of engagement. 

Expert Determination Under SIA

The SIA form offers another unique dispute resolution alternative by way of expert determination that can be found under its Clause 39. This is not available under the PSSCOC. Under this provision, parties may refer any ‘technical disputes’ to a sole expert for full and final resolution in accordance with SIA Expert Determination Rules. Much like the mediation provision, parties may refer their technical disputes at any time and such reference shall not be construed as a condition precedent to arbitration. Such expert reference shall not amount to any stay of proceedings as well. Where certain dispute may be technical in nature such as defects rectification, compliance with technical specification and drawings etc, parties may prefer an expert with the relevant experience and in-depth knowledge. Such deep appreciation may result in a faster, cost effective and equitable determination.

One of the unique features of expert determination is that the sole expert shall have the power to act inquisitorially in determining the dispute, as provided for under Rule 18.3 of the SIA Expert Determination Rules. This is a departure from the adversarial nature of most dispute resolution proceedings under common law system which is adopted in Singapore. Under an adversarial system, the contesting parties are responsible for presenting their evidence and arguments, whilst the judge decides based on representations made by the parties. The judge in this regard is ‘passive’. Under an inquisitorial system, the judge plays a more active role where the he conducts investigation by questioning the witnesses and seeks evidence independent of the parties. The reason why inquisitorial approach may be necessary under expert determination is due to the sole expert’s command of technical knowledge. Such expert may have an independent perspective on the cause and effect of the technical issue in dispute, quite different from the way in which it is portrayed by the disputing parties. This is particularly so when the disputing parties may be represented by lawyers who are likely to frame their issues in contention from a legal perspective. The expert may have personally encountered a similar situation as that of the issue before him and therefore he could add more context and colour to the matters in contention. This is also the very reason why parties may prefer an expert who is in ‘control’ of the issues.

Whilst expert determination has undeniable merits as a method of dispute resolution, parties should also be aware of other alternative consideration in order to have a balanced perspective. Whilst Rule 1 of SIA Expert Determination Rules states that parties have agreed to have any technical disputes to be fully and finally resolved by a sole expert, very often the nature of a dispute can be multi-faceted and not solely confined within the ‘technical’ domain. Let us assume a scenario where parties dispute over whether certain construction works were compliant with the agreed technical specifications and decided to refer such issue to expert determination. The party who is dissatisfied with the expert’s decision may resurrect the very same issue by framing it differently e.g. by taking issue with how the technical specification should be interpreted according to certain rules of interpretation. Technical experts are not expected to provide legal interpretation and analysis of how certain conditions ought to be construed. That is why under Rule 2.1, the definition of ‘technical disputes’ is not inclusive of disputes which involve legal issues and interpretation of the conditions of building contract. Consequently under Rule 5, the decision of sole expert shall be final and binding save that in any subsequent arbitration or other proceedings between the parties, such decision may be confirmed, revised or replaced by that of the arbitrator or tribunal concerned. 

Therefore, the dispute outcome under expert determination could be interim by nature, particularly under an inquisitorial system where the expert may depart significantly from the issues submitted by the parties. The complexity with enforcement of sole expert’s decision may be one of the reasons why expert determination is not provided for under PSSCOC.

Conclusion

Navigating dispute resolution terrain can often be so complex that it may be more challenging than the substantive issues in dispute. Any commercial manager should have a good grasp of dispute resolution provision because the way in which one traverse through these terrain involve making business decisions. It is ultimately a key part of choosing the right battles.




Koon Tak Hong Consulting Private Limited