Arbitration on Panama Canal dispute to begin in Miami

07/20/2014 2:12 PM

07/20/2014 8:13 PM

Arbitration of the first claim in a $1.6 billion dispute over cost overruns in the expansion of the Panama Canal gets under way Monday.

It will start with a teleconference to determine procedures, both sides’ positions and a timeline. Then the impasse will be arbitrated by an international tribunal seated in Miami, said Carolyn Lamm, an attorney who is representing the Spanish-led consortium that temporarily halted work on the canal earlier this year.

Ports throughout the Americas, including those in South Florida, are avidly following Panama’s efforts to expand its canal to handle post-Panamax ships that are too long, too wide and too heavy for the current canal. And they’ve made big plans of their own based on the canal expansion.

The money dispute pits the Panama Canal Authority, which oversees operations of the 50-mile-long canal, against Grupos Unidos por el Canal, a consortium of international construction companies that is the main contractor on the $5.25 billion expansion.

The tribunal will work through the dispute claim by claim, said Lamm, a partner in the Washington, D.C., office of White & Case. “Both sides are interested in completing work on the canal as quickly as possible and moving forward on this dispute,” she said. “Both parties do want a quick process.”

GUPC — which includes Sacyr Vallehermoso (Spain), Salini Impregilo (Italy), Jan del Nul Group (Belgium) and Constructora Urbana (Panama) — walked off the job for two weeks in February after several weeks of negotiations failed.

On Dec. 30, Sacyr, the leader of the consortium, gave the canal authority 21 days to cover its additional costs or face a work suspension. The canal authority has always contended that the contract gives the contractor no grounds to suspend work.

Work on the expansion resumed Feb. 20 after the canal authority agreed to pay $37 million to cover December invoices. GUPC also agreed to deliver all rolling gates for the massive new locks by February 2015, and both sides signed off on a financing structure that allows construction to go forward during the period of the dispute.

“In parallel to this, the dispute resolution is going on,” Lamm said.

In their contract, both sides agreed to arbitration to resolve their differences using International Chamber of Commerce rules and Miami as the arbitration venue. Private arbitration in a neutral location is growing in popularity as a way to resolve cross-border disputes among multinationals.

The high-profile arbitration comes at a time when Miami is coming into its own as an international arbitration center. Arbitration activity in Miami increased by 161 percent between 2010 and 2013 when there were 128 proceedings, according to the International Centre for Dispute Resolution.

Ultimately, the canal dispute will be settled by a tribunal composed of Bernard Hanotiau of Hanotiau & Van den Berg in Brussels, Bernardo Cremades from Madrid (appointed by GUPC) and Robert Gaitskell of London (appointed by the canal authority). Hanotiau is serving as president of the tribunal.

“There is no appeal,” Lamm said. But in the case of “something fairly egregious,” Lamm said, there is a legal mechanism in which an award can be set aside.

Arbitration tribunals often meet in a hotel, but it will be up to the Panama Canal tribunal to designate a place for its closed-door sessions.

GUPC won a $3.1 billion contract in 2009 to build a third set of bigger locks for the canal. Its bid was $1 billion lower than its closest competitor and there have been criticism that it was a low-ball bid. GUPC says it needs more money to finish the project because, among other things, it ran into unanticipated geological conditions at the work site.

The canal’s current locks will be used in conjunction with the new locks when the project is finished. Originally, the canal authority had hoped the expansion would be completed this year — in time for the 100th anniversary of the canal in August.

But the completion date has been pushed back several times and it may be early 2016 before big ships begin transiting the canal. The canal authority says the expansion project is now more than 76 percent completed.

PortMiami plans to have a dredging project finished by the summer of 2015, making it the only East Coast port south of Norfolk, Virginia, expected to be big-ship ready by the time the canal expansion is completed.

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