Arbitration in Construction Disputes in Nepal

Construction disputes refer to disagreements or conflicts that arise during the planning, design, bidding, or execution phases of construction projects. Arbitration in the context of construction disputes is a form of alternative dispute resolution (ADR) where parties agree to submit their disagreement to an impartial third party, known as an arbitrator or a panel of arbitrators, instead of pursuing litigation in court. 

In construction arbitration, the parties involved present their cases before the arbitrator, who then renders a binding decision, known as an arbitration award. Arbitration clauses are commonly included in construction contracts to outline the procedures for initiating arbitration, selecting arbitrators, and conducting the proceedings.

1. Legal Provisions and Laws on Construction Disputes in Nepal

Arbitration Act, 2055 (1999) has provisioned for Settlement of Diputes through Arbitration where if the Contract Agreement if explicitly mentions Arbitration, then such disputes shall be settled through Arbitration.

Construction Business Act, 2055 (1999) handles the Management and Expansion of Construction Business in Nepal where Procurement of Construction Works, Obligations of Entrepreneurs and contract documents has been effectively addressed.

Construction Business Rules, 2056 (2000) has established procedural guidelines for Application of Construction License and its Issuance along with the classification of Construction Entrepreneurs and relevance of Contracts in Nepalese Construction Law. 

2. Procedure of Arbitration in Construction Disputes

In Nepal, the arbitration proceedings in construction disputes follow a structured process outlined in the Arbitration Act, 2055 (1999). The procedure for settling disputes through arbitration involves several distinct steps:

2.1 Submission of Construction Claims:

The commencement of arbitration proceedings commences with the submission of construction claims by the plaintiff. The plaintiff is required to submit their claim in writing, accompanied by supporting evidence.

2.2 Counter-Construction Claims

he opposing party is obligated to submit its objections within the timeline stipulated in the agreement. If the agreement does not specify a timeframe, counterclaims related to construction issues should be made within 30 days from the date of receiving the initial construction claim.

2.3 Extension of Submission Time in Construction Arbitration

If a party is unable to submit construction-related counterclaims or rejoinders within the specified time due to circumstances beyond its control, an application for an extension can be submitted to the arbitrator within 15 days from the expiry of the time limit. The arbitrator may grant an extension if the reasons provided are deemed satisfactory.

2.4 Actual Proceedings in Construction Arbitration

Once all construction claims, objections, counterclaims, and rejoinders are received, the arbitrator initiates the arbitration proceedings. Parties are informed of the scheduled date, time, and nature of the proceedings. In cases involving three or more arbitrators, the proceedings collectively progress, except during the final decision-making phase. The construction arbitration continues even if one of the parties is absent.

2.5 Hearing in Construction Arbitration

After hearing the construction claims and counterclaims and upon the completion of the actual proceedings, the arbitrator issues a final decision based on the information and evidence presented. An order is then issued to signify the conclusion of the construction arbitration proceedings.

2.6 Written Decision in Construction Arbitration

Within 30 days from the issuance of the order that provides the final decision and concludes the construction arbitration proceedings, the arbitrator is required to issue a written decision.

3. Attributes of Government Party Arbitration

In Circumstances where Government is one of the Parties of a Construction Dispute, Arbitration has been deemed Compulsory and Mandatory through verified Arbitration Centers of Nepal. In Nepal, the resolution of construction disputes involving government parties is governed by established legal frameworks such as the Arbitration Act. 

When a construction dispute arises involving government parties, it is imperative to note that the contractual agreements typically incorporate a mandatory arbitration clause. These clauses obligate the disputing parties to resort to arbitration as the primary avenue for resolving conflicts. The jurisdictional aspects of government party arbitration in construction disputes in Nepal are typically delineated within the construction contracts.

4. Attributes of Private Party Arbitration

In Nepal, private party arbitration in the context of contractual disputes is primarily contingent upon the contractual stipulations agreed upon by the involved parties. Unlike government party arbitration, where the process is typically compulsory, private party arbitration hinges on the inclusion of an arbitration clause within the contractual agreement. 

When a contract incorporates an arbitration clause, it signifies the parties’ mutual agreement to resolve any disputes through arbitration rather than resorting to conventional litigation. The initiation of arbitration proceedings under private contracts in Nepal is generally characterized by the freedom of choice in selecting arbitrators and determining the procedural rules.

5. Arbitration Centers of Nepal

Nepal Council for Arbitrators (NEPCA) AND Nepal International ADR Centre (NIAC) are the two Primary Arbitration Centers of Nepal. The Nepal Council for Arbitrators (NEPCA) is a significant arbitration center in Nepal, established in 1991 as a non-profit organization with the primary objective of administering arbitration and various other dispute resolution mechanisms. NEPCA plays a crucial role in facilitating fair and efficient resolution of disputes through arbitration, thereby contributing to the overall development and promotion of alternative dispute resolution (ADR) in Nepal.

The Nepal International ADR Centre (NIAC) is a non-profit organization and holds a distinct position as a member institution of the Asia-Pacific Center for Arbitration and Mediation (APCAM). NIAC’s secretariat, located in Kathmandu, serves as a centralized hub accessible to both domestic and international clients. Its services beyond the borders of Nepal. Operating in eight countries within the Asia Pacific region, NIAC facilitates cross-border dispute resolution.

6. Conclusion

The procedure for arbitration in construction disputes in Nepal follows a structured process governed by the Arbitration Act. Commencing with the submission of construction claims accompanied by supporting evidence, parties engage in a formal process of presenting objections, counterclaims, and rejoinders within specified timelines. 

Extensions may be granted under circumstances beyond a party’s control. The actual arbitration proceedings involve a hearing where the arbitrator issues a final decision based on the information and evidence presented. A written decision is then issued within 30 days, concluding the arbitration process.

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