“The further off from England, the nearer is to France – / Then turn not pale, beloved snail, but come and join the dance.”1
7.1 In August 2014, the Chartered Institute of Arbitrators (the CIArb) published a set of international commercial dispute board rules (the CIArb Rules) [Appendix 10]. This publication followed an extensive consultation with users and members of the CIArb. The CIArb Rules are designed to be easily incorporated into contracts, by inserting one of two alternative precedent clauses, and they can be used under any medium, or long-term, project, whether construction, IT, commercial, or otherwise. Whilst a variety of other dispute board rules already exist, these others tend to focus solely upon construction. In addition, certain rules are drafted as an integral part of standard contractual terms and conditions, extracting from which rules requires very careful drafting, such as under the FIDIC “Rainbow” suite of contracts, referred to further below (and also in chapter 8 below).
7.2 The CIArb Rules were drafted with the intention of resolving the issues that have become evident in the existing dispute board rules and in order to simplify and clarify the procedure. Furthermore, there is a stronger emphasis upon dispute avoidance. Key features of the CIArb Rules are, set out below.
7.3 The CIArb Rules are the sole set of international dispute board rules that can be used for any commercial, or construction, contract. Some the Rules’ decisive features are that:
- .1 The parties may empower the dispute board, either to make binding decisions (ie a DAB), or to make non-binding recommendations (ie a DRB);
- .2 Standing dispute boards are only provided for, with one, or three, members;
- .3 Dispute boards must be involved throughout the contract, holding periodic meetings, including site meetings and providing informal advice upon the joint request of the parties;
- .4 The dispute board procedure is simplified and is subject to clear steps, or escalation provisions, with default time frames to be applied, if the contract is silent; and
- .5 DAB decisions can be enforced summarily, or by expedited relief, if the parties so agree; this provides a more direct route to enforcement to certain other sets of DB rules.
7.4 This chapter discusses dispute boards as a dispute resolution mechanism and the manner in which the new CIArb Rules apply by comparison with the other leading forms of DB rules.
7.5 Dispute boards (DBs) typically comprise one, or three, independent and impartial members, who will usually have expertise in the type of work, or services, to be performed under the contract and who assist the parties in resolving disagreements arising in the course of the contract. This is designed to provide recommendations, or binding decisions, to keep projects moving forward and moneys due under the contract flowing.
7.6 Although DBs are currently used almost exclusively in construction projects, the scope of DBs is substantial and they are beginning to be established in a range of other industries worldwide, such as in the financial services industry, the maritime industry, IT contracts, intellectual property licences, operational and maintenance contracts and long-term concession projects.
7.7 Well-drafted rules will allow parties a flexible approach in avoiding and resolving disagreements, which may arise during the performance of their contract and to facilitate the rapid resolution of disputes. This can be crucial, particularly in long-term contracts, where maintaining commercial relationships and cash flow are very important.
7.8 The CIArb Rules provide for standing DBs, the benefit being that the DB members may be called upon as soon as a potential problem arises. They may thus help the parties to resolve their differences before they become polarised in their positions. Resolving conflicts at an early stage (or even before they arise via dispute avoidance) is an obvious benefit, which greatly minimises costs, such as legal fees, and reduces the loss of productive time and goodwill between the parties. In addition, the resolution of disputes in “real time” usually minimises the aggregation of claims, which means that the disputes can be resolved in readily manageable packages.
7.9 However, it must be acknowledged that a standing DB, which remains in place for the duration of a contract, is an additional expense for the parties. It is therefore likely that the CIArb Rules will mainly be suitable for mid- to high-value projects, because of the cost involved and this issue is touched upon further below.
7.10 There are several established types of DBs and, within those types, the powers granted to DBs can vary widely. The key types are summarised briefly below.
7.11 DRBs are required to make non-binding recommendations about disputes arising during a project. The DRB (usually a panel of three experienced reviewers) takes in all the facts of a dispute and makes recommendation on the basis of those facts and the board’s own expertise. DRBs are widely used in the United States and, although it may appear counter-intuitive, DRB recommendations are generally complied with and the matter goes no further, not least because both DRB recommendations and DAB decisions are generally admissible in subsequent arbitral, or judicial, proceedings.
7.12 DABs issue decisions, which must be implemented immediately. By contrast with DRBs, this decision is binding upon the parties, unless revised by a subsequent amicable settlement, arbitration, or litigation.
7.13 CDBs are a hybrid between the DRB and DAB, whereby CDBs are empowered to issue recommendations, but also (if one party requests and no other party objects) temporarily binding decisions. CDBs can create some considerable uncertainty and there is therefore no provision for CDBs in the CIArb Rules.
7.14 Over the last 20 years, DBs have become increasingly used and there is a growing interest in using DBs outside of construction projects. However, prior to the CIArb Rules, there was no single set of international dispute board rules which could be used on a wide range of commercial projects. The ICC DB Rules are the closest, but these are still focused upon the construction industry. The FIDIC DAB procedure is woven into the fabric of the FIDIC contracts and extracting the rules requires very careful drafting. A comparison of the leading sets of published rules is set out below.
Fédération Internationale Des Ingénieurs-Conseils (FIDIC) (The International Federation of Consulting Engineers)
7.15 The FIDIC “DB Rules” are included in the FIDIC Conditions of Contract for Construction, first edition 1999, which is widely used throughout the construction industry globally (the Red Book). Amongst others, the World Bank and other multilateral development banks (MDBs) use it in the form of the harmonised edition of FIDIC 1999 Conditions of Contract for MDB-Financed Contracts (the Pink Book).
7.16 The FIDIC DB Rules allow parties to use either standing2 (Red Book), or ad hoc, DABs3 in the Conditions of Contract for Plant Design and Build and Conditions of Contract for EPC/Turnkey Projects (the Yellow Book and the Silver Book). These are also empowered to make binding decisions. The parties are required jointly to appoint either one, or three, DAB members by the date stated in the contract. However, there is no provision for what is to happen where the contract is silent on the date for appointment of the DAB.
7.17 In order to refer a matter to a DAB, sub-clause 20.4 of the FIDIC contracts states as a precondition that there must be a “dispute (of any kind whatsoever)” between the parties. Provided that this is satisfied, the DAB must proceed to adjudicate the dispute and give its decision, together with its reasoning, within 84 days of receiving the referral.4
7.18 Because the FIDIC DB Rules only provide for a DAB (ie not a DRB, or CDB), the DAB decision is binding and the parties must “promptly” give effect to it. However, the decision is only temporarily binding and it will only become final and binding if:
- .1 Neither party serves a “notice of dissatisfaction” within 28 days of receiving the decision; or
- .2 A notice of dissatisfaction is served, then upon final determination by arbitration, or litigation.
7.19 Although DAB decisions under the FIDIC DB Rules are expressly stated to be binding upon the parties,5 the wording of the rules creates some ambiguity regarding the precise effects of this, prior to finality being achieved. In addition, the issues posed by enforcing a DAB decision under the FIDIC contract are wide-ranging. These principally revolve around whether a decision may be enforceable, either by an interim, or partial, final arbitration award.