Construction Law International – October 2023 – Conference Report
Berlin skyline. Credit: JFL Photography/Adobe Stock
Addressing high volumes of low value claims in construction arbitration: what are the options?
Nils Brammer
Standardkessel Baumgarte, Duisburg
Bernd Ehle
LALIVE, Geneva
Jane Davies Evans
3VB, London
Matei Purice
Freshfields, Paris
Construction disputes often involve high volumes of low-value claims. These include for example many minor variations that are disputed in principle and/or quantum, discrete disruption events, and defects. When considered in isolation, these claims are of limited monetary consequence. If they are not settled before a formal dispute resolution process such as arbitration, or if they are addressed in the same way as other, higher-value claims, there is a risk of disproportionate costs. On the other hand, when considered together across a project, their cumulative value can be significant and therefore they cannot simply be waived or otherwise abandoned by the claiming party. Adequate tools are however necessary to ensure that such claims are addressed in a time and cost-efficient manner.
The table below summarises the panel discussions held during the 8th Biennial Conference on Construction Projects from Conception to Completion held on 16-18 March 2023 in Berlin. It lists some of the options available to parties and arbitral tribunals to deal with high volumes of low-value claims, ensuring that proceedings are conducted efficiently. The table also highlights the main advantages and disadvantages of each proposed option. There is room for creativity and pragmatism. As always, it is important for tribunals to manage cases proactively from an early stage and implement solutions which are tailored to the particular case constellation and claims portfolio, while maintaining fairness and adhering to due process.
Tools/options | Description | Advantages/disadvantages |
Non-statistical sampling and extrapolation | • Claimant looks at only some of the events which resulted in a loss. • Claimant gives evidence of claim events, and expert opines as to the resulting loss. • Technical expert opines that the sample was representative. • Quantum or technical expert extrapolates findings in ‘samples’ to overall project. • Claimant relies on results from sample to demonstrate overall loss claimed. | Advantages • Selected samples are intended/expected to be representative of the whole. • Accepted in principle (see Amey LG v Cumbria County Council [2016] EWHC 2856 (TCC)). Disadvantages • Requires subjective judgement in selecting the sample. • ‘Sample’ has no statistical basis. • Difficult to demonstrate that the sample is truly representative. • Particularly vulnerable to criticisms of bias. • Can be difficult to obtain buy-in on the use of the selected sample from the other side or tribunal. • Failure rate is high. |
Statistical sampling and extrapolation | • Expert evidence is provided by a statistician. • Expert defines the population and sample. • Expert sets the procedure for assessment of samples by others. • Expert monitors assessment for consistency. • Expert extrapolates the findings of others to the overall population. | Advantages • A high degree of confidence can be achieved from very small sample sizes. • Difficult to challenge (the right expert) in cross-examination. • Can produce large figures through extrapolation. Disadvantages • The level of confidence in the outcome depends on: homogeneity of population; and consistency in application of assessment procedure. • High failure rate (see, eg, Amey LG v Cumbria County Council [2016] EWHC 2856 (TCC); Imperial Chemical Industries Ltd v Merit Merrell Technology Limited (No 2) [2017] EWHC 1763 (TCC)). |
Scott Schedule | A document/table setting out the parties’ evidence and legal basis for each item claimed to provide the tribunal with a single convenient document setting out the disputed claims. | Advantages • Can increase possibility of parties reaching a settlement on at least some portion of the issues in dispute. • Each party can identify and clarify areas on which they agree, or have no basis to disagree with the other party. • Allows parties to identify any items on which the difference in their positions is less than the cost of arbitrating them. • Assists in avoiding confusion at hearing as the items being claimed and the alleged costs of repairing those items is set out by each party. Disadvantages • Does not fully deal with evidentiary issues. • Can become impractical where there are a multitude of small value but factually/evidentiary complicated claims. |
Computer modelling (eg, system dynamics) | System dynamics is a computer-based mathematical modelling methodology based on a fully validated causal framework for disruption and delay that uses actual data and information about the target projects. This approach uses computer-aided simulation methodology based on feedback systems theory which complements the other Systems Thinking approach. Developed by Professor Jay Forrester at MIT’s Sloan School of Management in the late 1950s, it was initially applied to the study of global macroeconomic and social development forces. In 1976 it was used to analyse disruption and delay on a naval project (to support a contractor’s claim against the US Navy). It has since been utilised to analyse the performance of hundreds of projects worldwide, in the construction, aerospace, engineering, automotive, software and shipbuilding industries. While rarely accepted by tribunals, there is at least one reported instance where the arbitral tribunal in a construction case accepted system dynamics to demonstrate the impact of disruption (Consolidated Contractors and Orascom Construction v Golden Pyramids, Award 17 December 2014). | Advantages • Sophistication. • Ability to isolate and analyse impact on discrete events across a project. Disadvantages • Cost/complexity. • Subject to reliability of the underlying data used to create the model. |
Pareto principle | The Pareto principle is named after Vilfredo Pareto, an Italian civil engineer, economist and philosopher in the late 19th/early 20th century who developed the principle. It stated, among other things, that 80 per cent of the wealth in Italy belonged to about 20 per cent of the population. Subsequently, in a simplified form: 20 per cent of the causes produce 80 per cent of the effect. A tribunal identifies claims with the highest claim amounts until they reach 80 per cent of the total value of all claims. These claims would be argued fully by the parties and their experts and decided by the tribunal. The remaining claims are awarded on the same percentage basis as the ‘success rate’ achieved by the claimant with respect to claims examined specifically. | Advantage • Efficiency. Disadvantages • It only makes sense in cases with a few larger claims and many low-value claims. • The need for representativeness of larger claims for entire population of claims. |
Standing adjudication | Parties agree on a standing final and binding adjudication process to address low value claims during the project on a fast-track basis (eg, 30 days). Arbitration is limited to outstanding claims at the end of the project. | Advantages • Addresses claims as they arise on a fast-track and simplified manner. • Limits access to arbitration to outstanding issues. Disadvantages • Requires agreement at the outset of a project prospectively. • Room to challenge findings of the adjudication panel which brings back claims to the full arbitration process. |
Expert determination/‘outsourcing’ | • No submissions from the parties on low-value claims. • Tribunal appoints an independent expert who goes through a list of low-value claims with parties. • Expert tries to “mediate” the claims (ie, help parties reach an agreement) or else make a recommendation of decision on liability and quantum. • Tribunal adopts the expert’s findings. | Advantages • Efficiency. • Speed. Disadvantage • Tribunal delegates some of its decision-making power. • Only permissible with the express agreement of the parties. |
Value threshold for examination of witnesses/experts | • Parties and tribunal agree on monetary threshold for the examination of witnesses/experts. • Claims below threshold amount would be limited to submissions and expert/witness evidence without being addressed at evidentiary hearing (unless critical to other aspects of the case). | Advantage • Reduced cost and time at hearing allowing parties and tribunal to focus on the core issues. Disadvantage • May be inadequate for claims which are low in value but complicated in terms of legal basis/entitlement. |
Abandonment theory | • Parties and tribunal agree on monetary threshold. • Claims below threshold amount are deemed abandoned. | Advantage • Straightforward method for limiting small value claims. Disadvantages • Simplistic. • Risk of waiving valid claims with strong legal entitlement that, taken together, overall exceed the agreed monetary threshold. • Risk of parties artificially inflating value of claims to avoid falling under the agreed monetary threshold. |
While the above table is not intended to provide a comprehensive or ‘one-size-fits-all’ answer to the question of how to deal with high volumes of low value claims in construction arbitration, it is hoped that at least it can assist in identifying potential ways of dealing with such claims. This will depend on the specific circumstances of each project (or related dispute) in question.
Nils Brammer is General Counsel at Standardkessel Baumgarte Holding GmbH in Duisburg, Germany and can be contacted at nils.brammer@sb-group.com. Bernd Ehle is a partner at LALIVE in Geneva and can be contacted at behle@lalive.law. Jane Davies Evans is a barrister at 3VB in London and can be contacted at jde@3vb.com. Matei Purice is counsel at Freshfields in Paris and can be contacted at matei.purice@freshfields.com. |