Should You Use the DRB or Go Straight to Arbitration?

Laura Brazil and Anthony Labib | Forum on Construction Law

Dispute Resolution Boards (“DRBs”) continue to grow in popularity, particularly for major infrastructure projects. As such, we can expect that construction lawyers will increasingly be advising clients on whether to send a dispute to the DRB or go directly to arbitration. In this post, we outline a few of the factors that may inform whether your client should submit a dispute to the DRB or go straight to arbitration.

DRBs (also known as “Review Boards”) are most common in major infrastructure projects. They typically consist of three independent and impartial experts, such as engineers. Lawyers can also make up the DRB. The DRB is actively involved in the project from its inception so its members are familiar with the parties and need little time to get up to speed on the events leading to a dispute.

When disputes arise, the parties may refer it to the DRB. The DRB will then typically investigate the dispute, hear submissions from each side through an informal process, and render either a binding or a non-binding opinion, depending on the nature of the DRB. The precise process followed by a DRB depends on the terms of the applicable contract.

DRBs usually play a very important role in major projects by dealing with issues as they arise on site.By providing prompt decisions, they allow construction projects to proceed without delay. Real-time prevention and resolution by the DRB often promotes open communication, trust, and cooperation between the parties.

When considering whether to refer a dispute to the DRB, clients may be concerned that most DRB decisions are non-binding recommendations. There is a risk the parties will still need to arbitrate (or even litigate) after a DRB recommendation is rendered. Fortunately, it appears that the vast majority of disputes resolved by DRBs do avoid further dispute resolution steps.1

However, DRBs may also have some downsides. In Canada, there are reports that parties are increasingly seeking a lawyer to chair the DRB committee because of their knowledge of legal processes.2 The emphasis on legal procedure may erode the cost and time-saving benefits of the DRB while leaving the parties without the benefits of arbitration, such as finality of the decision.

Moreover, the nature of the dispute may not be within the DRB members’ expertise. While members of the DRB with engineering expertise may be well positioned to adjudicate technical disputes, claims involving contract interpretation and other legal matters may be outside their expertise. Such disputes might be better left to an adjudicator with legal training.

Parties should also consider whether they will end up arbitrating or litigating related disputes. In one high profile project involving the construction of a subway station in Toronto, Canada, one dispute was resolved through the DRB but over 40 individual claims are still being litigated.3 If the parties are already incurring the expense of complex litigation, there may be little benefit gained by hiving off one issue for a separate hearing through the DRB.

The DRB’s heavy involvement in the project can sometimes be problematic too. Depending on the relationships that form on site, parties may benefit from the fresh perspective of an arbitrator who is new to the project. An arbitrator may alleviate any concerns about bias from members of the DRB who have worked on site for months or years.

Overall, DRBs are usually an excellent option for resolving disputes in real time on site. However, it is still important to weigh the other dispute resolution options carefully before choosing to proceed with the DRB.



“Construction Dispute Resolution Arbitration and Beyond”, American Jurisprudence Trials, August 2021 Update, by Thomas H Oehmke and Joan M Brovins.
https://canada.constructconnect.com/dcn/news/government/2019/10/dispute-resolution-board-use-on-the-rise-in-canada.
Walsh Construction Company Canada v. Toronto Transit Commission, 2020 CarswellOnt 8055, 2020 ONSC 3688.

Waiving the Right to Arbitrate Under Federal Law

David Adelstein | Florida Construction Legal Updates

If there is an arbitration provision in your contract that you want to enforce, you do not want to take action inconsistent with those rights as this could give rise to a waiver argument, i.e., that you waived your rights to arbitrate, particularly if the other party has been prejudiced.

Under federal policy and law, establishing waiver requires the party arguing waiver to “bear a heavy burden of proof.”  U.S. f/u/b/o John Wayne Construction, G.S.A. Division, LLC v. Federal Ins. Co., 2021 WL 4526727 (M.D.Fla. 2021) quoting Stone v. E.F. Hutton & Co., 898 F.2d 1542, 1543 (11th Cir. 1990).

“To determine whether the right to arbitrate has been waived, courts apply a two part test: i) whether, “‘under the totality of the circumstances,’ the party ‘has acted inconsistently with the arbitration right’”; and ii) “whether, by doing so, that party ‘has in some way prejudiced the other party.’”  Id. quoting Ivax Corp. V. B. Braun of Am., Inc., 286 F.3d 1309, 1315-16 (11th Cir. 2002).   Substantial participation in litigation prior to invoking the right to arbitrate supports a party acting inconsistent with the right to arbitrate.  Id.   And, “‘[p]rejudice has been found in situations where the party seeking arbitration allows the opposing party to undergo the types of litigation expenses that arbitration was designed to alleviate.’”  Id. quoting Morewitz v. W. of Eng. Ship Owners Mut. Prot. & Indem. Ass’n (Luxembourg), 62 F.3d 1356, 1366 (11th Cir. 1995).

Hence the heavy burden for a party to support to prove waiver– establishing both substantial participation in litigation that is inconsistent with the right to arbitrate AND prejudice.

An example of this heavy burden to support waiver can be found in the Federal Magistrate’s Report and Recommendation in U.S. f/u/b/o John Wayne Construction, G.S.A. Division, LLC.  Here, a prime contractor on a federal project in Louisiana hired a drywall subcontractor.  The subcontract contained a detailed provision to address disputes with the final process as follows:

[I]t may choose to pursue the matter in court, subject to the requirements on venue and alternative dispute resolution agreed to herein. Any claim by[subcontractor] filed in state or federal court against [prime contractor] and/or [prime contractor’s] surety shall only be filed and/or resolved in anycourt within the exclusive venue of Duval County, Florida. At [prime contractor’s] sole option, [prime contractor] may require Alternative DisputeResolution (ADR) methods to be used to resolve the dispute, including binding arbitration in accordance with the Construction Industry Rules ofthe American Arbitration Association, instead of litigation in a court of law. In the event [prime contractor] elects binding arbitration, any claimsthat [subcontractor] may have against any bonds provided by [prime contractor] shall be stayed, pending the result of such binding arbitration.

(As an aside, an arbitration provision is enforceable if it gives one party – perhaps the prime contractor—the sole option to select arbitration as the binding dispute resolution procedure, as was the situation in this arbitration provision.)

Due to a dispute between the drywall subcontractor and prime contractor, the prime contractor filed a lawsuit in state court in Louisiana.  The subcontractor, after a mediation between the parties reached an impasse, moved to dismiss the lawsuit and contemporaneously filed a lawsuit in Florida federal court against the prime contractor and Miller Act payment bond surety (based on venue provision in the subcontract).  The prime contractor did not dispute the dismissal contending it was formally invoking its right to arbitrate with the subcontractor. The prime contractor further moved to compel arbitration of the subcontractor’s Florida federal court lawsuit pursuant to its rights under the subcontract’s dispute resolution procedure.

The subcontractor argued that the prime contractor waived its right to compel arbitration by virtue of it initially filing a lawsuit against the subcontractor in Louisiana state court.  The prime contractor countered that the subcontractor cannot meet the required heavy burden to support waiver and, nonetheless, it did not act inconsistent with its rights to arbitrate.  The Federal Magistrate agreed with the prime contractor finding that waiver did not occur recommending the parties be compelled to binding arbitration.

First, the Magistrate found that the prime contractor filing the Louisiana lawsuit where there was limited litigation was insubstantial and did not result in the substantial participation in litigation to demonstrate it was acting inconsistent with its right to arbitrate. Further, once the subcontractor filed its lawsuit in the Florida federal court, the prime contractor filed its motion to compel the lawsuit to arbitration and did not substantially participate in litigation in the Florida federal court.  “Under the ‘totality of circumstances,’ it does not appear that the Louisiana Lawsuit or the current case [in Florida federal court”] before this Court amount to ‘substantial participation in litigation’ to a point that was inconsistent with the intent to arbitrate.” U.S. f/u/b/o John Wayne Construction, G.S.A. Division, LLC, supra.

Second, the Magistrate found that even if the prime contractor acted inconsistent with its right to arbitrate by initiating the Louisiana lawsuit, this would not matter because there was no prejudice to the subcontractor. The Magistrate noted that while the subcontractor incurred costs due to the Louisiana lawsuit, the subcontractor filed only one motion, a hearing was not held on the motion, and the dispute was dismissed without prejudice; thus, the expenses were not so prejudicial to the subcontractor.   Moreover, “looking at the totality of circumstances (along with the finding that the Louisiana Lawsuit amounted to insubstantial litigation), the undersigned [Magistrate] find that [the subcontractor] is not so prejudiced to satisfy its heavy burden.” U.S. f/u/b/o John Wayne Construction, G.S.A. Division, LLC, supra.

Group, Class and Collective Arbitration: Recent Developments in US Commercial Arbitration

Martin J. Valasek and Ernesto M. Hernandez | Norton Rose Fulbright

Group arbitration can offer certain advantages over class litigation (not least, the ability to enforce awards across multiple jurisdictions). However the consent-based nature of arbitration can lead to jurisdictional obstacles for such claims. This article explores the US line of authorities dealing with group arbitration of commercial disputes, one of the most developed globally.

Group arbitration – “class” versus “collective” and other foundational aspects

It is important to distinguish between two types of group arbitration. “Collective arbitration” (which refers to any joint, consolidated or mass arbitration) is a procedure allowing a group of similarly situated claimants to pursue identical or related claims in a single action. By contrast, “class arbitration” is an arbitration brought by a class representative asserting claims on its own behalf and on behalf of similarly situated (absent) class members. Whereas collective arbitrations bind absent parties only if they opt in, class arbitrations bind absent parties unless they opt out.

Group arbitration stems from the same economic imperative that drives class actions in the litigation context. When a party bound by an arbitration agreement has a claim of relatively low value that does not justify the cost or burden of commencing an individual arbitration, that party may benefit from joining others with similar claims to advance those claims in a single arbitration, thereby splitting the cost of the proceeding among all claimants instead of each claimant having to commence and pay for its own arbitration. Assuming that some of the individual claimants would have proceeded on an individual basis notwithstanding the costs, proceeding on a group basis may have additional benefits stemming from the avoidance of multiple parallel proceedings against the same defendant (such as avoiding duplicative discovery and briefing and inconsistent awards). Further, group arbitration may have advantages over class litigation, notably in respect of selecting a specialist neutral, tailoring procedure to the particularities of the case and enforcing the award across multiple jurisdictions. Group arbitration may therefore represent real and effective access to justice versus a theoretical or notional right to commence arbitration that cannot be exercised in any practical or realistic way.

Even so, the putative efficiencies of group arbitration often come up against a roadblock embedded in the very foundation of arbitration: the notion of consent. The issue of a collective or class arbitration is straightforward where parties have expressly consented to proceed as such: there can be no objection by a respondent to a claimant bringing such a proceeding. More typically, however, claimants have attempted to bring a collective or class arbitration based on a standard arbitration clause, which is silent on the issue.

Under the legal framework for arbitration, strictly speaking, the only parties who can take part in an arbitration are the parties that are bound by the same arbitration clause in the same agreement. Thus, in these circumstances, there is a tension between any efficiency rationale favouring group arbitrations and the consent-based framework governing arbitration.

In the commercial context, the United States has grappled with this tension the most and has adopted a relatively strict approach. Recent developments in this context are described below.

Commercial class arbitration

US courts have recognised that by consenting to arbitrate their disputes, parties to an arbitration agreement select the benefits of private dispute resolution by foregoing comprehensive judicial procedures and substantive appellate review. Under the Federal Arbitration Act (FAA), the United States’ primary arbitration statute, US courts place arbitration agreements on an equal footing with other contracts and enforce them according to their terms. The contractual requirements for class arbitration, however, have been subject to additional scrutiny.

Historically, US courts generally maintained a strict approach to interpreting arbitration clauses and rejected attempts by claimants to bring collective or class arbitrations unless the parties’ arbitration agreement expressly provided for it. In the early 1980s, some courts began to favour class arbitrations, reasoning that economic efficiency and effective access to justice justified avoiding the unfair result of forcing numerous individual parties to litigate individually in separate arbitral fora.

The pro-class arbitration trend arguably reached its pinnacle in 2003. In Green Tree Financial Corp v Bazzle,(1) the Supreme Court was asked to determine whether the FAA permitted class arbitrations when arbitration agreements were “silent” on the issue. In a plurality opinion, the Court held that absent express language to the contrary, whether an arbitration agreement authorises class arbitration is an issue for an arbitrator to decide. On the underlying facts of the case, the
Court vacated the state supreme court’s judgment and remanded the case so that the arbitrator could determine whether the parties’ arbitration agreement was actually “silent” on the availability of class arbitrations.

The Bazzle decision led to a substantial increase in class arbitrations in the United States. By remanding cases for further proceedings, courts were signalling that class arbitrations were not necessarily inconsistent with the FAA and that the availability of class arbitration depended on the terms of the parties’ arbitration agreement. Subsequent decisions from the Supreme Court, however, clarified and curtailed the availability of class arbitration.

In Stolt–Nielsen SA v AnimalFeeds International Corp,(2) the Supreme Court addressed the question it had not reached in Bazzle and held that a party may not be compelled to submit to class arbitration if the parties’ agreement is “silent” on the issue. The Court reasoned that a shift from bilateral arbitration to class arbitration is a fundamental change to the “nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator”. Thus, consent to arbitrate a dispute, without more, is not consent to arbitrate a dispute on a class basis, and the parties’ arbitration agreement must explicitly authorise class arbitration or class procedures.

More recently, the Supreme Court has restricted access to class arbitration even further. In Lamps Plus, Inc v Varela,(3) the Court held that “ambiguous” arbitration agreements do not provide the necessary contractual basis to compel class arbitration. Relying on Stolt-Nielsen, the Court found that “[l]ike silence, ambiguity does not provide a sufficient basis to conclude that parties to an arbitration agreement agreed to ‘sacrifice[ ] the principal advantage of arbitration'” by agreeing to class arbitration.

Recent cases point to at least one way in which parties might access class arbitration: incorporation into their arbitration agreement of arbitration rules that give judges a basis to determine that it is up to the arbitrator to decide, in what seems like a throwback to the approach adopted in Bazzle. In Blanton v Domino’s Pizza Franchising LLC, the Sixth Circuit held that incorporation of the American Arbitration Association (AAA) National Rules for the Resolution of Employment Disputes (the AAA employment rules), which provide that an arbitrator shall have the power to rule on their own jurisdiction, “clearly and unmistakably” demonstrated that the parties agreed to arbitrate “arbitrability”.(4) The Fifth Circuit ruled to the same effect in Sun Coast Resources, Inc v Conrad.(5) In Blanton, the Sixth Circuit also found that the AAA employment rules, by extension, empowered the arbitrator to decide whether the arbitration would proceed as a class arbitration, which the Court ruled was an issue of arbitrability.

Comment

While there exist substantial barriers to commercial group arbitration, the mechanism may be available in the right circumstances.

Endnotes

(1) 539 US 444 (2003).

(2) 559 US 662 (2010).

(3) 139 S Ct 1407 (2019).

(4) (962 F 3d 842 (6th Cir 17 June 2020), cert denied sub nom. Piersing v Domino’s Pizza, No. 20-695, 2021 WL 231566 (US 25 January 2021).

(5) 956 F 3d 335 (5th Cir April 16, 2020).

Concurrent Delay in the Americas: Is There a Continental Shift?

Ted Scott and Meera Wagman | Global Arbitration Review

This is an extract from the 2022 edition of The Arbitration Review of the Americas. The whole publication is available here.

In summary

This article will address how concurrent delay is defined and how it is applied in different parts of the Americas. It will also discuss pitfalls, industry trends and current thoughts on apportionment.

Discussion points

  • Definition of concurrent delay
  • Variance of definition in different jurisdictions
  • How concurrent delay can be treated (ie, binary or apportioned)
  • Considerations to be taken when dealing with concurrent delay

Referenced in this article

  • George Sollitt Construction Co v United States
  • Weaver-Baily Contractors, Inc v United States
  • Armed Services Board of Contract Appeals in Utley-James, Inc
  • Association for the Advancement of Cost Engineering International
  • American Society of Civil Engineers
  • Society of Construction Law
  • Schindler Elevator Corporation v Walsh Construction Company of Canada
  • Brazilian Civil Code
  • Newport News Shipbuilding & Dry Dock Co v US
  • Raymond Constructors of Africa, Ltd v United States
  • Foundation Co of Canada v United Grain Growers Ltd

Introduction

On construction projects, the potential for two delay events to occur in parallel or overlap is very high. The probability significantly increases the more complex the project is, and there may be more than two delay contenders.

However, if delay events merely share common date ranges, it does not necessarily make them concurrent delays. The answer can be as complex as the projects themselves and entirely dependent on the governing law. How resulting damages get decided can be even more convoluted.

The problem has long stemmed from the fact that, no matter where you are in the world, there has been no uniform definition of concurrent delay and little guidance on how to assess resulting damages.

Although the problem is faced worldwide, this article focuses on the Americas, where recent rulings may be able to shed some light on what has often been termed ‘Black Magic’.

What is concurrent delay?

In principle, it is generally understood that concurrent delay occurs when two or more delays (which are the result of independent causes by independent parties) overlap during a given period. But what does that really mean?

Consider the following five scenarios.

  • Scenario one: there is an employer delay relating to permits that impacts the critical path. At the same time, there is a contractor delay relating to procurement of materials. However, the materials are not needed until later in the project; therefore, the delay does not impact the critical path (whereas the permits are needed to commence the project and are, thus, critical).
  • Scenario two: there are both employer and contractor delays impacting the start of critical path works at exactly the same time (ie, the permit and the contractor’s materials are both required to start the project).
  • Scenario three: there is first an employer delay related to permits that impacts the critical path. Later, there is a contractor delay related to material procurement that also impacts the critical path. Unlike the previous scenarios, the impacts do not start at the same time but they both get resolved at exactly the same time.
  • Scenario four: there are initially both employer and contractor delays impacting the start of critical path works. The employer’s permit delay is resolved while the contractor’s material procurement continues and causes a longer impact to the critical path.
  • Scenario five: there is first an employer delay related to permits that impacts the critical path. Later, there is a contractor delay related to material procurement that also impacts the critical path. The employer delay gets resolved first while the contractor delay continues to impact the critical path.

Whether any of the stated delays in the above scenarios are considered concurrent delay, in their entirety or in part, depends on the governing law; however, even in common law jurisdictions (eg, the United States and Canada) wherein the courts have grappled with concurrent delay in their decisions, it is still not crystal clear.

For instance, in the United States, the Court of Federal Claims in George Sollitt Construction Co v United States[1] found the following in relation to concurrent delays:

The exact definition of concurrent delay is not readily apparent from its use in contract law, although it is a term which has both temporal and causation aspects. Concurrent delays affect the same ‘delay period.’ A concurrent delay is also independently sufficient to cause the delay days attributed to that source of delay.

The court in Weaver-Baily Contractors, Inc v United States[2] formed a slightly different definition of concurrency, as did the Armed Services Board of Contract Appeals in Utley-James, Inc,[3] the latter stating:

Strictly speaking, there can be but a single delay over a given period of time, and when that delay has multiple, indivisible causes, it is attributable not to either party but to both. Hence it would probably be more accurate to speak not of concurrent delays but of a single delay with concurrent causes.

There is no court decision that defines concurrent delay, and industry associations are also generally unaccommodating. The Associates for the Advancement of Cost Engineering International’s Recommended Practice No. 10S-90 Cost Engineering Terminology[4] lists five separate (albeit similar) definitions for concurrent delay:

(1) Two or more delays that take place or overlap during the same period, either of which occurring alone would have affected the ultimate completion date. In practice, it can be difficult to apportion damages when the concurrent delays are due to the owner and contractor respectively.(2) Concurrent delays occur when there are two or more independent causes of delay during the same time period. The “same” time period from which concurrency is measured, however, is not always literally within the exact period of time. For delays to be considered concurrent, most courts do not require that the period of concurrent delay precisely match. The period of “concurrency” of the delays can be related by circumstances, even though the circumstances may not have occurred during exactly the same time period.(3) True concurrent delay is the occurrence of two or more delay events at the same time, one an employer risk event, the other a contractor risk event and the effects of which are felt at the same time. The term „concurrent delay” is often used to describe the situation where two or more delay events arise at different times, but the effects of them are felt (in whole or in part) at the same time. To avoid confusion, this is more correctly termed the „concurrent effect” of sequential delay events.(4) Concurrent delay occurs when both the owner and contractor delay the project or when either party delays the project during an excusable but non-compensable delay (e.g., abnormal weather). The delays need not occur simultaneously but can be on two parallel critical path chains.(5) The condition where another delay-activity independent of the subject delay is affecting the ultimate completion of the chain of activities.

The American Society of Civil Engineering (ASCE) defines concurrent delay simply as follows: ‘Delay to the project critical path caused concurrently by multiple events not exclusively within the control of one party.’[5]

The Society of Construction Law (SCL), which originated in the United Kingdom but has since crossed the pond and established a presence in the Americas, confirms that the occurrence of ‘true concurrent delay’ (ie, ‘two or more delay events at the same time’) is a ‘rare occurrence’.[6] It clarifies that ‘a more common usage of the term “concurrent delay” concerns the situation where two or more delay events arise at different times, but the effects of them are felt at the same time.’[7]

Considering all of the above, it is likely that the following would be found regarding the five scenarios described above:

  • scenario one: no concurrent delay;
  • scenario two: the entirety of the impacted period could be considered concurrent; and
  • scenarios three, four and five: the overlapping period could be considered concurrent.

However, concurrent delay is often not that simple.

In Canada, the recent Ontario Superior Court case, Schindler Elevator Corporation v Walsh Construction Company of Canada (2021 ONSC 283),[8] added clarity to the definition by finding:

[i]t is not necessary for the independent causes of delay to occur exactly at the same time for them to be considered concurrent. Indeed, it is rare that concurrent delays start and end at the same time. Concurrent delays are more commonly experienced as overlapping events.

Given the apparent alignment on the rareness of exact concurrency, it is likely that the results in Canada for the scenarios described above would be similar to those found in the United States.

Civil law jurisdictions, however, prove to be far opaquer in their definition of concurrent delay, if they provide a definition at all.

In Mexico, although the affected party can allege a concurrent delay, the law is silent on the matter.[9]

In Brazil, while there is no established concept of concurrent delay, there is the concept of concurrent fault which is defined by article 945 of the Brazilian Civil Code:

Concurrent fault is a broader concept than concurrent delay. It applies generally when there is any action of the victim that contributes to its own damage, resulting in a reduction of its indemnification to be determined by the court taking into consideration the specifics of each case.[10]

Peru deals with public and private construction disputes differently. Public works are regulated in accordance with the Public Procurement Law No. 30225 and Legislative Decree No. 1224 on the private investment promotion framework through public–private partnership for projects on assets; however, neither directly address concurrent delays. Private works, on the other hand, offer different routes to resolve concurrent delays, considering foreign legal case law.

Although there does not appear to be a legal definition of concurrent delay in Colombian law, it does seem to be common practice for real estate developers and contractors to include a concurrent delay provision in contracts.[11]

From the above, attempting to determine a likely outcome for the five given scenarios in civil law countries is difficult and would probably be dependent on whether the contract itself provided a definition.

Challenges in determining damages owing to concurrent delay

Apportionment is a buzzword in concurrent delay discussions. In the not-so-distant past, if concurrent delay was deemed to have occurred, it typically meant a contractor was due ‘time but not money’.

In recent times, there has been a trend towards apportionment. However, if the definition of concurrent delay was confusing, the meaning of apportionment is even more so. Part of the confusion stems from whether the apportionment is referring to time or damages.

In the United States, the ‘time but no money’ concept originated in the 1934 case Newport News Shipbuilding & Dry Dock Co v US, which found that neither party could recover if both parties contributed to the same total delay.[12]

Later, the George Sollitt Constr Co v United States case found that a party may recover damages where there are multiple causes of delay to project completion, but only ‘when clear apportionment of the delay attributable to each party has been established’.[13]

In this case, it would seem that apportionment is referring to the allocation of delay (time) to each party. In other words, if a delay period can be refined such that segments of time can be allocated individually to the separate parties, then damages can likewise be apportioned.

As an example, and using scenario three from above, if delay can be measured at the time the contractor delay commences (while the employer delay was already ongoing), then it should be possible to segregate the time when only the employer delay was occurring from the time when both the employer and contractor delay were overlapping.

In the United States and Canada, it is common for a critical path delay analysis to be used in expert evidence to support such an apportionment (ie, allocation of delay). However, in civil law jurisdictions, such technical analysis is less common.

If courts find the delays to be truly concurrent and intertwined (ie, the specific amount of time attributable to each event or party cannot be determined), does it still mean that the damages also cannot be?

In the United States, there is precedence where courts have apportioned damages using a percentage based upon factual records.[14] In Raymond Constructors of Africa, Ltd, v United States, the courts viewed the overall delay as being concurrent and caused by three different parties.[15] The court therefore split the responsibility into thirds.

Canadian courts are also said to apportion damages in instances of concurrent delays. In Foundation Co of Canada v United Grain Growers Ltd,[16] a case in which there was a four-month delay to the project and each party alleged different causes for the delay, the court found that one party was responsible for three months of the delay, and another party was responsible for one month of the delay. The damages were then ‘apportioned’ as follows: 75 per cent to United Grain Growers and 25 per cent to the Foundation Company.

However, the recent Canadian case Schindler Elevator Corporation v Walsh Construction Company (WBP) of Canada[17] reaffirmed the challenges with precisely quantifying resulting damages. The Court stated that, in addition to proving that claimed delays impacted the critical path and to what extent (ie, via a reliable critical path analysis), a causal connection is required to link claimed damages to those delays:

while I am obliged to “do my best” in assessing WBP’s damages, any determination that I make must still be supportable on the evidence. I cannot undertake an exercise that amounts to guesswork that may effectively vitiate WBP’s evidentiary onus of proving damages. WBP is not relived of its burden to demonstrate both delay by Schindler and cause of material contribution to losses and damages simply because the analysis is difficult.

The SCL’s Delay and Disruption Protocol[18] recommends a common-sense approach to assessing concurrent delay, recognising the imprecise nature and challenges in exacting apportionment:

In considering whether concurrent delay exists, the Protocol recommends a common sense approach to delay analysis. In particular, the Protocol recognizes that delay analysis is rarely precise down to the day (or even few days). The application of common sense requires that the margin for imprecision should be taken into account in reaching a conclusion on concurrency.

It seems that North America may be trending towards (or at least entertaining) this concept of a practical view; however, these practical decisions must still be supported by evidence and analysis.

Delay analyses are, therefore, of utmost importance as courts try to more accurately apportion concurrent delay.[19] The concept of apportionment, which will be discussed further below, has become a commonly discussed and debated topic.

In Latin and South America, given the prevalence of civil law, a trier of fact may be less concerned about supportable evidence and apportion the delay based on what is deemed fair and reasonable. In Brazil:

If there is specific provision addressing concurrent delays, each party’s responsibility will be proportionate to the fraction of the delay it has caused.Considering that the contractor’s fault contributed to the delay, the employer shall not be required to pay the total costs regarding the concurrent delay and the contractor will not be entitled to an extension of time with respect to the whole period of the delay. The purpose is to avoid any imbalance and to compensate proportionally the employer’s delay with the contractor’s concurrent delay.[20]

In Columbia:

in a public works contract, if concurrent delay is caused by events attributable to force majeure, public interest, or to the contracting authority and they severely affect the financial equilibrium of the contract, the contracting party may request to the contracting authority compensation of damages or the recognition of additional costs. Even though these theses have been greatly developed by case law, Article 40 of Law 80 of 1993 provides that the addition of a public works contract to recognize additional costs to the contractor cannot exceed fifty percent (50%) of its initial price.[21]

Based on the above, it seems that in Latin and South America, unless concurrent delay is specifically defined by the contract, the concept may not be recognised by the courts.

Given the pervasive lack of clarity that still remains on the issue, we offer several points for consideration.

Parties should not only define concurrent delay in the contract but also how damages will be handled. For example, the contract could expressly limit delay damage entitlement to critical path delays pursuant to proof based on a critical path analysis.

Alternatively, if the parties want to allow for an alternative approach to the treatment of concurrent delay, such as specifying some portion of recoverable costs or establishing a percentage split between owner and contractor delay responsibility, that approach also can be specified in the contract.

There is a clear trend in the courts regarding the preference of fact-based delay analyses that apply practicality and common sense. Modelled or theoretical types of analyses can often be manipulated to give an illusion of concurrency where none actually exists.

The same can be said for a contractor’s contemporaneous schedule updates. Whether purposeful or misguided, a schedule can show multiple critical paths, again giving the illusion of concurrency. Without a real-time understanding of the actual critical path, contractors may find themselves barred from compensable delay claims later on.

‘Pacing’ may also need to be given consideration in concurrent delay. As an example, an employer event is known to have caused delay to the project. As a result of the delay, a contractor decides to reduce its manpower as this would not cause delay to the project.

Using a purely retrospective analysis, the contractor’s ‘slow’ progress may appear to have caused a concurrent delay event, although the employer event happened first and should have created relative float in the contractor’s work. To avoid this misconception, if the contractor is purposefully pacing its work, it should document its intent contemporaneously. Looking at scenario three above, the contractor delay could be seen as pacing (ie, not concurrent).

The above gives rise to the concept of ‘primacy of delay’. The basis behind this argument is that whatever event happened first is the primary cause of delay and creates relative float to the other paths of work. The key in making this argument is whether the extent of the delay was known at the time the event arose.

If a known delay impact could be reasonably quantified at the time, and the other concurrent delay candidate known to be less, it could then be considered to be the driving, or dominant, cause of delay. Looking at scenario four, the contractor delay could be seen as dominant, and the employer delay non-critical (ie, not concurrent).

The covid-19 pandemic has impacted construction projects throughout the world. It will be interesting to see how the various courts treat delay moving forward in terms of concurrency with pandemic-related impacts. The challenge of apportioning concurrent delays will likely be faced with even more layers of complexity.

In Brief: Arbitration Agreements in USA

Matthew E. Draper | Draper & Draper

Arbitration agreement

Arbitrability

Are there any types of disputes that are not arbitrable?

There are very few restrictions on the types of disputes that can be arbitrated under federal law. Certain intrastate family, consumer and municipal matters may be considered non-arbitrable under state law.

Requirements

What formal and other requirements exist for an arbitration agreement?

The FAA and the New York Convention require arbitration agreements to be made in writing. However, courts interpret this requirement in a commercially practical manner and, in appropriate cases, have enforced arbitration agreements where, for example, the final contract was unsigned or where the agreement to arbitrate was entered into via email or in circumstances discussed in answer 12.

Generally, US law permits non-signatories to be bound to an arbitration agreement through application of traditional principals of state law such as assumption, corporate veil piercing, alter ego, incorporation by reference, third-party beneficiary theories, waiver and estoppel. This year, the US Supreme Court clarified that in arbitrations governed by the New York Convention, a non-signatory to the arbitration agreement can be compelled to arbitrate based on the doctrine of equitable estoppel (see GE Energy Power Conversion Fr. SAS, Corp. v Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 [1 June 2020]).

An agreement to arbitrate may be set out in a document other than the contract in dispute, such as where that document is incorporated by reference into the main agreement. Parties may also agree to arbitrate after a dispute has arisen.

Enforceability

In what circumstances is an arbitration agreement no longer enforceable?

FAA section 2 permits challenges to arbitration agreements ‘upon such grounds as exist at law or in equity for the revocation of any contract’, such as mistake, lack of capacity, fraudulent inducement, incapacity, rescission and termination of the arbitration agreement. Nonetheless, US policy strongly favours the enforcement of arbitration agreements, and these challenges will be scrutinised closely.

Courts respect the principle of separability, which requires that the arbitration agreement be treated as a distinct agreement that is not rendered invalid, non-existent or ineffective simply because the contract itself may be treated as such.

Separability

Are there any provisions on the separability of arbitration agreements from the main agreement?

The Federal Arbitration Act does not expressly provide for the separability of arbitration agreements from the main agreement. However, the US Supreme Court recognised this doctrine in Prima Paint, providing that ‘an arbitration clause in the contract is “separable” from the rest of the contract, and that allegations that go to the validity of the contract in general, as opposed to the arbitration clause in particular, are to be decided by the arbitrator, not the court’ (Prima Paint Corp v Flood & Conklin Mfg Co, 388 US 395, 409 (1967)).

Third parties – bound by arbitration agreement

In which instances can third parties or non-signatories be bound by an arbitration agreement?

Generally, third parties or non-signatories are neither bound by an arbitration agreement nor can they compel a signatory to arbitrate. There are, however, exceptions to this rule. Third parties and non-signatories can be bound to arbitrate a dispute based on common law contract and agency principles, such as incorporation by reference, assumption, agency, veil-piercing or alter ego, estoppel, succession in interest or assumption by conduct. The law governing the contract (or putative contract) is potentially relevant in such cases, as is the law of the place of incorporation and the law of the arbitral seat.

Third parties – participation

Does your domestic arbitration law make any provisions with respect to third-party participation in arbitration, such as joinder or third-party notice?

Many institutional rules provide mechanisms for joinder or consolidation of arbitration proceedings; US courts have generally respected these mechanisms.

Class arbitration may also be permitted, but only where the parties have expressly manifested their consent to such a procedure. Silence or ambiguity in the arbitration agreement is not a sufficient basis to permit class arbitration (see Stolt-Nielsen v Animalfeeds Int’l Corp, 559 US 662 (2010) and Lamps Plus, Inc v Varela, 139 S Ct 1407 (2019)). Waiver of class arbitration is also permitted. Consumer contracts that require arbitration but prohibit class arbitration are valid even when the cost of pursuing such claims on an individual basis would be prohibitively expensive, or seem to conflict with US labour protections (Epic Systems v Lewis, 138 S Ct 1612 (2018)); and even when an online user agreement notifies consumers of it simply through a hyperlink (Meyer v Uber Tech Inc, 868 F 3d 66 (Second Circuit, 17 August 2017)).

Groups of companies

Do courts and arbitral tribunals in your jurisdiction extend an arbitration agreement to non-signatory parent or subsidiary companies of a signatory company, provided that the non-signatory was somehow involved in the conclusion, performance or termination of the contract in dispute, under the ‘group of companies’ doctrine?

Although state and federal law do not recognise the group of companies doctrine, a non-signatory parent, subsidiary or affiliate of a signatory company may be bound to an arbitration agreement pursuant to the applicable law’s principles of agency, contract, estoppel or veil-piercing (Arthur Andersen LLP v Carlisle, 556 US 624 (2009)). Specific terms of the arbitration clause can be important in determining such matters.

Multiparty arbitration agreements

What are the requirements for a valid multiparty arbitration agreement?

A multiparty arbitration agreement must meet the same validity requirements as any arbitration agreement – it must be in writing and manifest the parties’ intent to be bound. Courts will generally enforce valid multiparty arbitration agreements.Consolidation

Can an arbitral tribunal in your jurisdiction consolidate separate arbitral proceedings? In which circumstances?

The FAA is silent on the consolidation of separate arbitral proceedings, as are the AAA Commercial Arbitration Rules and the JAMS Comprehensive Arbitration Rules and Procedures. However, the ICDR International Arbitration Rules provide for an appointment of a consolidation arbitrator under article 8, who may consolidate separate arbitral proceedings in the circumstances listed below. Rule 3.13 of the CPR Administered Arbitration Rules 2019 also provides for consolidation in certain circumstances. Further, certain state arbitration statutes, such as the California Arbitration Act (section 1281.3) (Cal Code Civ P paragraphs 1280-1294.4) also provide for consolidation.

Relevant considerations for consolidation are:

  • the parties’ express agreement to consolidation;
  • the appointment of one or more arbitrators in one or more of the arbitrations;
  • the existence of common issues of law or fact creating the possibility of conflicting decisions;
  • claims and counterclaims in the arbitrations arising out of the same arbitration agreement;
  • undue delay and prejudice from failing to consolidate outweighs the prejudice caused to parties opposing it; and
  • interests of justice and efficiency.

The US courts have provided arbitral tribunals with a substantial amount of discretion with respect to consolidation and have placed emphasis on the language of the arbitration agreement. A federal court in Ohio recently distinguished a bilateral arbitration from a class arbitration where the consent of every party is required for consolidation and held that courts do not require every party’s consent for consolidation (Parker v Dimension Serv Corp, 2018-Ohio-5248).

Law stated date

Correct on:

Give the date on which the information above is accurate.

1 January 2021