Arbitration Jurisdiction in Complex Construction Disputes
LegaTech recently represented a client in a challenging arbitration case involving an EPC contractor in a major construction project. The primary dispute arose when the project owner transferred its responsibilities and obligations to an employer closely associated with the owner. Although this transfer was intended to simplify and operationalize the project, it raised significant legal ambiguities regarding the employer’s role and liability in fulfilling the owner’s original obligations. These issues became especially critical when the project faced delays and operational challenges.
One of the main challenges in this case was the dispute resolution clause in the contract. This clause was vague and poorly drafted, simultaneously suggesting both arbitration and litigation in a competent court as options for resolving disputes. Such clauses, known as “pathological clauses,” created confusion regarding the proper forum for addressing claims. This ambiguity led to procedural complications, requiring the arbitration tribunal to determine whether it had jurisdiction over the case.
To address this uncertainty, the parties agreed at the outset of arbitration on a terms of reference document. This document defined the tribunal’s jurisdiction and clarified which disputes were to be resolved through arbitration. It provided a clear structure for the proceedings, ensuring both parties were aligned on the process and facilitating smooth progress in handling the case.
The transfer of responsibilities from the owner to the employer added an additional layer of complexity to the case. A key issue was whether the arbitration agreement, which was binding on the owner, also applied to the employer. Arbitration agreements are generally considered separate from the main contract under the principle of separability. However, whether such agreements transfer with assigned obligations depends on the specific terms of the assignment and the applicable laws. In this case, the tribunal carefully reviewed the transfer and concluded that the arbitration agreement had indeed been transferred along with the obligations, thereby binding the employer to resolve disputes through arbitration.
During the arbitration process, evidence was presented demonstrating the impact of delays on the project and how the employer had managed its responsibilities under the transfer. The tribunal reviewed this evidence, along with the contract and other relevant documents. After a thorough analysis, it confirmed its jurisdiction despite the vague language in the dispute resolution clause. Arbitration was affirmed as the appropriate forum for resolving the disputes, and the proceedings continued accordingly.
This case highlights the challenges that can arise in large construction projects, particularly when contracts include ambiguous dispute resolution clauses or when responsibilities are transferred between parties. By addressing these issues, the tribunal provided necessary clarity on procedural and substantive legal matters. Ultimately, arbitration proved to be an effective method for resolving disputes, allowing the parties to focus on core issues and advancing the project.