Archive:September 2022

By: Justin Leonelli and Rich Paciaroni

Effective 1 September 2022, the American Arbitration Association (AAA) has updated its Commercial Arbitration Rules and Mediation Procedures, representing their first revisions since 1 July 2013. These amendments provide key updates and improvements to the commercial arbitration process, including with respect to the following:

CONSOLIDATION AND JOINDER

In likely the most significant revision of the amendments, under revised Rule R-8, parties can now request to consolidate arbitrations or join additional parties. The decision to permit consolidation or joinder rests with the case arbitrator (if one has been appointed) or a special arbitrator appointed by the AAA for the sole purpose of deciding consolidation or joinder. In assessing a request to consolidate, the arbitrator will consider (a) the terms and compatibility of the agreements to arbitrate, (b) applicable law, (c) whether the arbitrations raise “common issues of law or fact,” and (d) whether consolidation of the arbitrations would serve the interests of “justice and efficiency.” While consolidation and joinder have been available under the AAA’s Construction Industry Arbitration Rules for years, this is the first time such a procedure will be available under the Commercial Rules.

DISPOSITIVE MOTIONS

The amendments to Rules R-34 and R-49 now give arbitrators the ability to limit dispositive motion practice and award fees and expenses in accordance with any dispositive motion decision. Therefore, parties should be weary of excessive motions practice and confer on issues outside of formal submissions when possible.

CONFIDENTIALITY

Under new Rule R-45, the AAA and arbitrators are obligated to keep all matters relating to the arbitration confidential, which includes any ultimate award.  In addition, arbitrators may now issue confidentiality orders relating to any matters in connection with the proceeding. 

PROCEDURES FOR LARGE, COMPLEX COMMERCIAL DISPUTES

Under revised Rule R-1, the amount-in-controversy to qualify for the “Procedures for Large, Complex Commercial Disputes” has increased from US$500,000 to US$1,000,000. The key features of these procedures include, among other items, a mandatory preliminary hearing with the arbitrator(s), broad authority of arbitrator(s) to control and limit the discovery process, and a mandatory requirement that hearings take place on consecutive days to maximize efficiency and minimize costs. Moreover, absent an agreement of the parties, in order for a large complex case to qualify for a panel of three arbitrators, the amount-in-controversy must now be at least US$3,000,000 (up from the previous US$1,000,000 threshold). Otherwise, one arbitrator will hear the case.

PROCEDURES FOR EXPEDITED ARBITRATIONS

In order to qualify for the Expedited Procedures, revised Rule E-2 provides that the amount-in-controversy must not exceed US$100,000 (up from the previous US$75,000). Furthermore, the new amendments further restrict discovery in cases governed by the Expedited Procedures. Except for exchanging exhibits that each parties intends to rely on at the hearing, no further discovery is permitted unless expressly allowed by the arbitrator upon a finding of good cause.

CONDUCT OF PARTIES

The AAA’s expectations for professionalism of all participants in the arbitration have been codified at revised Rule R-2. In fact, the AAA may now decline further administration of the case if the parties’ and their representatives fail to uphold the AAA’s Standards of Conduct.

REMOTE HEARINGS

Likely as a result of the manner in which hearings took place during the COVID-19 pandemic, amended Rule R-25 now expressly allows arbitrators to conduct hearings remotely by electronic means.

IMPACT ON ONGOING ARBITRATIONS

Unless otherwise stipulated to by the parties, the recent amendments to the AAA’s Commercial Arbitration Rules and Mediation Procedures will not apply to any arbitrations initiated prior to the amendments’ effective date of 1 September 2022.

By: Kevin Greene and Ruth Chang

Advance JV (A Joint Venture between (1) Balfour Beatty Group Limited; and (2) MWH Treatment Limited); and Enisca Limited [2022] EWHC 1152 (TCC)

The parties in this case carried out works pursuant to an amended form of NEC3 Engineering and Construction Contract (Option A). The works consisted of the supply and installation of LV electrical equipment for design and construction of a new water treatment works and hydro-electric power generation facility in Cumbria.

The relevant timeline is as below.

Timeline

• Enisca Limited (“Enisca”) submitted an application for payment (AP24) on 22 October 2021 for approximately £2.7million;
• Advance JV (“Advance”) failed to issue a pay less notice against that application;
• On 19 November 2021, Enisca made a further application for payment (AP25);
• On 25 November 2021, Advance issued a pay less notice, making reference to AP 25 only.

The pay less notice issued in November made reference to AP25 only and Enisca’s argument was that no notices were issued by Advance against AP24, and as such Enisca was entitled to the notified sum (i.e. £2.7million) listed in AP24.

Advance argued that the pay less notice was a valid response to both AP24 and AP25, and that the pay less notice issued in November time indicated that Advance did not intend to make any further payment in respect of either applications.

Enisca issued an adjudication for payment of the sum in AP24 and won the adjudication.

Before the adjudicator’s decision was issued, Advance however commenced part 8 proceedings in the Technology and Construction Court (“TCC”) seeking declaratory relief in respect of the validity of the pay less notice.

Decision

The TCC held that:

1. The crux of the matter is that – or the issue is that – “how a reasonable recipient would have understood the notices”, and in this case no reasonable recipient in Enisca’s shoes would have understood, or construed the pay less notice as a response to AP24;

2. The Court will always take a common sense approach, and adopt a practical viewpoint in respect of the contents of any notice issued (as required under the Construction Act) and an unduly restrictive interpretation is not to be welcomed;

3. The TCC also rejected Advance’s argument that there was nothing in the Construction Act precluding a pay less notice from responding to two different payment applications.  The TCC responded saying this is a “novel proposition for which no support can be found” either from the wording of the Construction Act, or from the drafting of the relevant contract as between the parties;

4. The TCC reiterated that any pay less notice must make specific reference to that individual payment cycle and rejected firmly the contention put forward by Advance that the Construction Act is only aiming to regulate the time limits in serving pay less notices – that the Act did not command pay less notice to make specific reference of the relevant payment cycle in question. The TCC made this point clear in the judgment: “….. it is plain from a review of the payment regime under the Act that payment notices are required to be referable to individual payment cycles”;

5. The Court also found that, perhaps, even if the pay less notice was, as Advance argued, intended to respond to AP24, such intention was neither clear nor unambiguous, as evidenced by the parties’ overall conduct.

Analysis

This case makes it clear that a valid pay less notice must make clear reference to a particular payment notice and/ or payment application and must relate to a particular payment cycle.