Since 1949

Scope of an arbitration inspection panel’s right to review

Scope of an arbitration inspection panel’s right to review

Claude D Zacharias

Attorney

1. Articles and court rulings in recent years have described how the law relating to total works has been transformed into part of general civil law (cf., for example, SvJT 2015, p. 258). The Supreme Court is gradually changing and creating new case-law relating to total works which in many respects overturns old customs and perceptions. This may have consequences for, for instance, the scope of an ‘arbitration inspection’ under the General Conditions of Contract for Design and Construct Contracts for Building, Civil Engineering and Installation Works (ABT 06).

2. The purpose of the inspection is to investigate the extent to which the total works satisfy the requirements of the Contract, i.e. investigate the existence of defects (cf. ABT 06, Chapter 7, Section 11, Hedberg, Kommentarer till AB04 och ABT 06 [Comments on General Conditions of Contract for Building and Civil Engineering Works and Building Services (AB 04) and General Conditions of Contract for Design and Construct Contracts for Building, Civil Engineering and Installation Works (ABT 06)], 2007, p. 148 and Liman, Entreprenad- och konsulträtt [Total works and consultancy law], 2007, p. 134). The rather comprehensive provision contained in Chapter 7, Section 6 ABT 06 is relevant as regards which issues fall within the ambit of the powers of the arbitration inspection panel, stating that:

The arbitration inspection shall consider the matters which have led to the request for the arbitration inspection, e.g. the question of approval of the total works, the existence of defects or liability for defects.

3. Let us assume that the total works were approved at a final inspection. Let us also assume that the Employer is claiming a defect that should result in the total work not being approved by the person conducting the final inspection. According to the Employer, the defect is the critical factor that led to the request for an arbitration inspection. Let us also assume that the Contractor states the following:

The Contractor cannot see that the claim made relates to any matter/circumstance that was in any respect the subject of the final inspection in respect of which the Employer has requested an arbitration inspection. The purpose of an arbitration inspection is to reconsider the assessments and standpoints made at the inspection to which the arbitration inspection relates.

4. The wording in ABT indicates that there are certain limitations relating to which matters can be considered by an arbitration inspection panel. Torgny Håstad states the following in SvJT 1991, p. 577 Besiktningens rättsverkan [The legal effects of inspections]:

“[…] such issues that lie outside the powers of an arbitration inspection panel, e.g. an assessment of the amount of liquidated damages or the right of cancellation” (see p. 599).

5. Torgny Håstad’s article thus demonstrates that there are limitations, but these are not complete in relation to the provision regarding scope. Hedberg states the following in the same publication referred to above in relation to the restrictions that hereby exist, that the review (cf. Hedberg, a.a., 2007, p. 144):

[…] is limited first to issues referred to the panel, second to issues that could be reviewed [author’s underlining] by the inspection that led to the call for arbitration inspection.

6. Hedberg’s statement supports the view that one central issue is whether the particular matter referred for arbitration inspection is of such a nature that it could have been reviewed at the inspection that led to for the call for arbitration inspection. However, whether this has actually occurred is not crucial. The Contractor’s argument that the sole purpose of the arbitration inspection is to re-examine assessments/standpoints that actually arose at the inspection that led to the call for arbitration inspection is, in the opinion of the author, erroneous.

7. By and large the scope of the provision is unclear and, considering the precedence set by the Supreme Court in disputes relating to total contracts in recent years, it is right to emphasise that the principles gradually established by the Supreme Court in recent years are also binding for the arbitration inspection panel.

8. It is no secret that traditional construction contract law lawyers share an aversion to the legal developments of recent years, where ‘obvious’ perceptions have been cast aside by judicial practice. Nevertheless, the situation is such that it would be inappropriate for members of an arbitration inspection panel to choose to cling to case-law referable to time past, particularly when this may result in other complications relating to the process by the arbitration inspection panel and claims for compensation, something that may finally thereby be reconsidered by a general court (in this context a particular reminder should be made that the content of a statement from an inspection (including a statement from an arbitration inspection and thereby a decision by the arbitration inspection panel) are not binding between the parties but can in all respects be reconsidered by a court/arbitration board (cf. Chapter 7, Section 16 ABT 06)). The ultimate time limit for such a review is only set by the generally applicable ten-year limitation under the Statute of Limitations (cf. Chapter 7, Section 16 ABT 06 and Hedberg, a.a., p. 165). Hedberg also states that it is (cf. Hedberg, a.a., p. 144.):

[…] doubtful whether the arbitration inspection panel may on its own initiative address defect issues that are not covered by the statement from the previous inspection.

9. The statement demonstrates that the powers of the arbitration inspection panel thus can also include such issues, relating to defects, liability for defects, etc. that have not been expressly dealt with in the statement, in any event if the initiative to address the issue comes from one of the parties, and not just from the arbitration inspection panel. The purpose of the inspection under Chapter ABT 06 and the wording contained in Chapter 7, Section 6 ABT 06, case-law in recent years and also the writings of legal scholars referred to therefore clearly suggest that the powers of the arbitration inspection panel cover all issues that could have been considered by the inspector at the previous inspection. This includes, for examples, all issues relating to whether or not the contractor performed its contractual obligations, the presence of multiple defects and whether the contractor is liable for the defects that exist.
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1) That stated above regarding an arbitration inspection panel also applies to an arbitration inspection surveyor (cf. Chapter 7, Section 8 ABT 06).

2) General Conditions of Contract for Design and Construct Contracts for Building, Civil Engineering and Installation Works.

If you wish to regulate any of the matters referred to above to any extent when drawing up an AB or ABT contract in accordance with customary standard forms, you should make a written reservation regarding this or formulate a well-balanced, written regulation between the parties to avoid complications subsequently arising in the event of disagreement regarding this matter. Total contract law issues represent part of the normal work at Zacharias Advokatbyrå and thus we also help our customers on a regular basis by providing expertise on, among other things, the issues raised in this article. 

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