The first claim in the multi-billion dollar Panama Canal dispute between an international consortium of construction companies, Grupo Unidos por el Canal composed of Spain-based Sacyr Vallehermoso, Italy-based Salini-Impregilo, Belgium-based Jan de Nul, and Panama-based Construtora Urbana, and the agency that operates the Panama Canal, the Panama Canal Authority, concerning a temporary cofferdam built to restrain the Pacific Ocean from the site so that work could be done on the Canal, is being heard by an international arbitral tribunal constituted under the Rules of Arbitration of the International Chamber of Commerce in Miami this week.
The dispute arose out of the first expansion of the Panama Canal since its original construction in the early 1900s, which opened on June 26, 2016, almost 102 years after the canal’s initial opening. Ten years in the making and initially scheduled to be completed in October 2014, this major expansion project of one of the world’s main shipping canals had been approved by the Panamanian government and subsequently by national referendum back in 2006. The recent expansion includes a new set of locks and a wider, deeper channel, and will allow super-sized ships known as post-Panamax vessels (three times the size of Panamax vessels), which make up roughly 15% of the world’s maritime fleet, to pass the canal. Several ports on the East Coast of the United States. have been preparing for the expansion by dredging their channels to greater depths, which will enable them to receive these post-Panamax “super-tankers” traveling through the Canal from Asia which previously had to dock on the West Coast due to the Canal’s limitations.
Work on the Canal expansion began in 2009, but by late 2013 the project had gone over budget by at least $1.6 billion. The parties attempted to negotiate the funding for the final $1.6 billion necessary to complete the expansion. When negotiations broke down in early 2014, production levels had dropped to 25% putting the completion of the expansion project in jeopardy. In late February 2014, the parties reached a preliminary agreement allowing work on the project to continue, but they were unable to resolve the underlying disputes, some of which now are being heard by the arbitral tribunal in Miami this week.
Sandra Friedrich is the Director of the White & Case International Arbitration LL.M. Graduate Program and a Lecturer in Law at the University of Miami School of Law. She previously practiced law at Latham & Watkins in New York where she worked in the firm’s International Dispute Resolution practice group focusing on complex commercial and investment arbitration matters as well as related litigation proceedings. At Miami Law, she teaches courses on international arbitration and litigation matters as well as international business transactions.
Why is a construction dispute with no immediate connection to the United States heard by an arbitral tribunal in the U. S.?
As is common in international construction projects, the parties agreed to settle disputes arising out of the Canal expansion project in a neutral venue, outside of the local Panamanian courts. The parties’ contract includes a three-step dispute settlement mechanism, which provides for negotiation among the parties. Reportedly, early on such negotiations involved not merely the GUPC and ACP as parties to the contract but also representatives of the Spanish government – GUPC is led by Spain-based Sacyr Vallehermoso – and the European Commission, who attempted to mediate the dispute. If the parties cannot reach an amicable agreement, such negotiations are followed by dispute resolution before a Dispute Adjudication Board. Such dispute boards are commonly used in construction disputes. The Panama Canal Dispute Adjudication Board is a standing body composed of three members, which to date has decided over a dozen claims arising between the parties in connection with the Panama Canal expansion. Finally, if a party is dissatisfied with the decision of the Dispute Adjudication Board, it may escalate the dispute to an international arbitral tribunal, which will settle the dispute by final and binding arbitration under the ICC Rules.
The specific claim concerning a temporary dam which is being heard by an ICC tribunal in Miami this week previously had been referred by GUPC to the Dispute Adjudication Board, which had ruled in favor of ACP. GUPC now is appealing the Dispute Adjudication Board’s ruling to the ICC tribunal.
The dispute is being heard by an international arbitral tribunal in Miami because the parties provided in their dispute resolution clause that the ICC arbitration would be seated in Miami. However, the three arbitrators which make up the tribunal are not Miami-based judges or even U.S. citizens. They hail from Belgium, Spain and the United Kingdom. Each party to the dispute appointed one arbitrator and the two party-appointed arbitrators nominated the president of the tribunal.
Why did the parties choose Miami as the seat of their arbitration proceedings?
Of course, without asking them we cannot know for sure why the parties chose Miami as a seat, but it is a choice more and more international corporations make. Miami has become one of the main international arbitration hubs in the U. S., together with New York City and Washington, D.C.
It often serves as the gateway to Latin America for North American, European and Asian companies doing business in the Americas. Hence, it has a multi-lingual professional workforce and more direct flights to Latin American and the Caribbean than any other arbitration hub. In addition, the legal framework in Florida is supportive of international arbitration proceedings. In 2010, Florida enacted the Florida International Commercial Arbitration Act, an almost verbatim adoption of the United Nations Commission on International Trade Law’s Model Law on International Commercial Arbitration, which together with the Federal Arbitration Act governs international arbitration proceedings seated in Florida. Florida’s Eleventh Judicial Circuit Court, which has jurisdiction in Miami, also created an International Commercial Arbitration Court as a sub-section to the Complex Business Litigation Section of its Civil Division, which exclusively handles international commercial arbitration matters. In addition, the Federal jurisprudence of the U.S. Court of Appeals for the Eleventh Circuit, which encompasses Florida, is one of the most international arbitration-friendly in the U.S.
Will the losing party in the arbitration be able to appeal the decision to a court in Florida?
Generally, arbitral awards cannot be appealed in national courts. However, a party to an international arbitration in Florida may challenge the resulting award and request either a state or federal court to set it aside for egregious procedural shortcomings in the arbitral process. On the other hand, a challenge of the award based on the merits of the dispute generally is barred by the governing state, federal and international legal instruments. The finality of international arbitration and the relative ease of enforcing resulting arbitral awards are two of the main advantages of international arbitration over litigation in local courts.
How is a resulting award enforced against any of the foreign parties involved?
Generally, non-domestic arbitral awards are enforced under international treaties, the New York and Panama Conventions. While the U.S. has not signed a single treaty providing for the enforcement of U.S. court judgments abroad, the U.S. and over 150 other countries have adopted these conventions, which ensures that foreign arbitral awards are recognized and enforced in all contracting states in the same way as their domestic judgments. Therefore, any resulting award would be enforceable in accordance with these international treaties in over 150 countries, including Belgium, Italy, Spain, the U.S., and Panama. A refusal by a contracting state’s court to enforce a foreign arbitral award would need to be based on the very limited grounds for non-enforcement enumerated in these legal instruments. This is why ease of enforcement of arbitral awards is one of the major advantages of international arbitration, compared to the enforcement of domestic court judgments.
Are there other disputes between the parties which might be resolved in ICC arbitration in Miami in the future?
Yes. This week’s arbitration hearing in Miami will not determine who is responsible for the entire overrun costs estimated at $1.6 billion. It is but the first of several disputed construction costs that will be resolved by ICC arbitral tribunals in Miami. The issues will be addressed claim by claim, in separate arbitral proceedings. Even though international arbitration proceedings generally are confidential and the general public cannot access case documents on a docket online as is usually possible in litigation proceedings in the U.S., we know that in March 2015, GUPC and ACP filed competing ICC cases against each other over delays and costs overruns specifically related to the cement quality and concrete mix design used for the project. Even though these disputes arise between the same parties and in relation to the same construction project, they are separate proceedings and the respective tribunals are composed of different arbitrators than in the first case (although ACP appointed the same arbitrator as in the first arbitration).
Other issues relating to the Canal expansion still are in dispute between the parties and have been referred to the Dispute Adjudication Board. In the future, some of them likely will cumulate in ICC arbitration proceedings seated in Miami as well.
Lastly, one of the members of the GUPC consortium, Italy-based Salini-Impregilo, was reported in July 2015 to have filed a notice of dispute against Panama under the Italy-Panama Bilateral Investment Treaty, signed in 2009, which triggered a six-month negotiation period. This international treaty potentially enables Salini to sue the Republic of Panama for breaches of international law, in addition to the pending contractual disputes between GUPC and ACP. According to the treaty’s dispute resolution clause, arbitration proceedings might be instituted by the investor either under the UNCTRAL Arbitration Rules or under the International Convention for Settlement of Investment Disputes. However, the treaty does not specifically provide for Miami as place of the arbitration hearing. To date, Panama has been sued by foreign investors in five ICSID arbitrations, two of them still pending, and in at least one non-ICSID treaty arbitration. Entities of the Salini group have been involved in at least three ICSID arbitrations arising in connection with highway and dam construction projects in Argentina, Jordan and Morocco.
CONTACT: Catharine Skipp at 305-773-5801 or email@example.com