Problems inherent in multi-party construction disputes: Consolidation of Arbitration

Author: Thuo

The construction industry in Kenya is witnessing continuous growth, with both government and private sectors investing billions in construction projects across the country. Major projects include the construction of ports, railways, major roads, shopping malls, skyscrapers, etc.

With the rise of construction activities in the country, construction disputes are also increasing. In 2018 alone, for example, Courts of Appeal rendered more than five judgments in respect of construction contracts, not to mention numerous judicial decisions that were rendered by the High Court, subordinate courts, arbitrators, and mediators.

The most common causes of construction disputes in Kenya are failure to comply with contractual obligations and contract omissions or errors. Another cause of the dispute is the failure to properly administer the contract.

Many parties to a construction contract choose to resolve disputes through arbitration because contracting parties usually agree on the arbitrator, save time, and promote confidentiality. Over the years, I have noted that many parties to construction contracts downplay the importance of including a provision that deals specifically with consolidation of arbitration when drafting construction contracts. This is despite knowing that construction disputes can extend their effect to parties not contemplated in the contract.

It is common to see either an owner or a contractor having at least two or more unique, non- interlocking contracts with arbitration provisions. When a dispute arises, those inconsistent arbitration clauses not only delay the resolution of the substantive dispute but can also lead to inconsistent decisions. For a moment, imagine a scenario where a dispute involves an owner, contractor, and architect. If the conflict between the owner and the contractor and one between the owner and the architect are resolved in different arbitral forums, the architect may successfully blame the contractor for poor workmanship and the contractor may successfully blame the architect for delays in giving required information or design defects. Consequently, both forums may dismiss the owner’s claim for damages despite the owner being the only blameless party in the process.

A unified arbitral proceeding is therefore necessary for most construction disputes if the interests of all parties are to be protected. It is the only way the pillars of arbitration such as efficiency and consistency can be safeguarded from such disputes.

In Kenya, there is only one arbitral institution that has adopted provisions in its institutional rules that allow the consolidation of related disputes. The Nairobi Centre One International Arbitration (Arbitration) Rules, 2015 contain a set of provisions for consolidation.

The only issue I have with the Nairobi Centre International Arbitration (Arbitration) Rules, 2015 is that the Rules do not permit the consolidation of arbitrations commenced under different sets of institutional arbitration rules (for example, the Chartered Institute of Arbitrators Rules). In fact, the rules provide that consolidation of the arbitration proceedings can only take place where all the proceedings are commenced under its rules.

The lack of arbitral institutions with institutional rules that allow consolidation of various arbitral proceedings instituted under different rules negatively affects parties in multi-party contractual disputes, especially those involving construction. For this reason, some people have felt that the arbitration institutions are not fully serving their needs.

In light of the above, parties in construction disputes should address consolidation of arbitrations in their contracts to avoid any issues that may arise if separate arbitrations are filed. Depending on the parties’ preference and the given project, that clause may preclude consolidation, require the other parties’ consent to consolidate related arbitrations, or provide for automatic consolidation upon the request of either party. Lastly, consolidation should be sought as promptly as possible.