Introduction
Infrastructure contracts can contain hundreds of pages of technical and commercial provisions. Yet when a dispute arises, one of the most important provisions may be the clause dealing with how that dispute will be resolved.
Arbitration has become an important mechanism for infrastructure disputes because large projects frequently involve complex technical and commercial questions.
Background
A typical infrastructure dispute may involve the government or project authority, the main contractor, subcontractors, consultants, engineers and financiers.
A dispute regarding one event can therefore generate thousands of documents and several competing explanations about what caused the problem.
Court's Findings / Legal Analysis
The Arbitration and Conciliation Act, 1996 provides the principal statutory framework for arbitration in India. A carefully drafted arbitration agreement can determine where the dispute is heard, how the tribunal is constituted and what procedural mechanism applies.
Infrastructure contracts may also provide for decisions by engineers, project managers or designated authorities before arbitration can be commenced. The contract should make clear whether such decisions are final, reviewable or subject to arbitration.
Why the Judgment Matters
A poorly drafted arbitration clause can create a preliminary dispute before the actual commercial dispute is even examined.
There is also a practical distinction between having an arbitration clause and having an effective dispute-resolution mechanism. An infrastructure contract may contain an arbitration provision but still generate years of preliminary litigation if the clause is ambiguous.
Key Takeaways
Parties should examine the dispute-resolution mechanism before signing the infrastructure contract.
Technical disputes should be capable of being determined by persons with appropriate expertise.
The arbitration clause should clearly address appointment, jurisdiction, seat and procedural requirements.
Conclusion
Arbitration should not be treated as a clause that is read only after a project fails.
For infrastructure projects, dispute resolution should be designed at the same time as the commercial structure of the contract. The best arbitration mechanism is often the one that prevents a manageable dispute from becoming a project-threatening dispute.
