Protecting the Right to Prehearing Discovery in Arbitration of International Construction Disputes

Construction disputes often turn on detailed factual points, the evidence of which may be primarily in the hands of just one party to the dispute. A claim for work not shown in the contract documents, for example, may be determined by whether the contractor's actual estimating take-off sheets included the disputed work. Evidence of a contractor's actual cost of performing certain components of the work can be significant in testing the value of claims seeking adjustment to the contract price. Soils reports received by an owner, but not made available to the contractor, certainly bear on a claim that the owner had superior knowledge of problematic soil conditions. Discovery before trial of this type of information is invaluable not only to the effective preparation of claims and defenses, but to the early evaluation of the wisdom of settling the dispute.

In civil litigation in the United States, it is taken for granted that pretrial discovery and disclosure laws will allow the litigants to obtain discovery of relevant information. Federal and state pretrial rules almost universally allow for the parties to examine each other's documents, take depositions of party-affiliated and non-party witnesses, obtain information about proposed expert testimony and evaluations, and to obtain other discovery. Disputes resolved through international arbitration may not, however, be subject to these liberal discovery rules.

While arbitration has many perceived advantages in the resolution of construction disputes, especially disputes arising on international projects, parties to construction agreements need to take care that in electing the advantages of arbitration, they are not foregoing the right to obtain basic prehearing discovery.

Any right to prehearing discovery in arbitration proceedings is founded upon the rules of the chosen tribunal, the procedural laws of the forum jurisdiction, and the express terms of the agreement between the parties. Some tribunals that hear international construction disputes, such as the Court of Arbitration of the International Chamber of Commerce, provide for some limited discovery. (See, e.g., ICC Rules of Arbitration, Articles 3, 4 and 14; see also American Arbitration Association International Arbitration Rules, Article 19.) These rules of the tribunal typically give the arbitrators the power to order at least some pretrial exchange of specific information, but not the obligation to do so. They are not a guarantee that one party will have the right to conduct all the discovery that party deems prudent in preparing for or defending against a claim in the arbitration. The procedural rules of the jurisdiction hosting the arbitration (or the rules of another jurisdiction the parties may adopt by the arbitration agreement) will vary with respect to the rights of pre-arbitration discovery. Some jurisdictions may allow broad-ranging discovery in arbitration, while others limit discovery to the specific items stipulated by the parties. (See, e.g., California Code of Civil Procedure section 1283.5.) The only way parties can confidently provide for the right to prehearing discovery is to expressly address the availability and scope of discovery in the agreement that contains the arbitration clause.

The arbitration agreement can be structured in several ways to provide for discovery. A party with superior bargaining leverage may want to provide for unilateral discovery for certain types of claims. For example, an owner may place into a construction contract a provision requiring the contractor to submit detailed cost information with any claim, including the contractor's original estimating records, actual cost documents, and other information. This language, which would be subject to enforcement in the arbitration, provides the project owner a right to obtain basic discovery, without imposing a reciprocal obligation. Alternatively, the agreement can provide that both parties are required to exchange specified information in the event of a dispute. Many arbitration agreements, for example, provide that the parties will exchange all relevant documents, including the reports of any expert consultant, in advance of the arbitration. Finally, the parties can provide for the nearly limitless discovery common in U.S. litigation by incorporating the discovery provisions of the Federal Rules of Civil Procedure, or other similar procedural schemes, into the arbitration agreement. The last approach may be problematic, both from the standpoint of obtaining the agreement of multi-national parties to U.S.-style discovery, and in obtaining interim enforcement orders before tribunals not used to routinely hearing discovery motions. However the contract is structured, the parties should give careful thought in advance to the type of discovery likely to be relevant and necessary for disputes arising on the project, and provide for that discovery in the arbitration agreement.