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Dispute Prevention, Management and Resolution and Construction Projects

Using Dispute Boards to Make a Project Successful Kwadwo Sarkodie Partner

020 3130 3335 ksarkodie@mayerbrown.com

4 November 2014

What is a dispute board?

• Background.

• Contractual process: not statutory (unlike English adjudication).

• Short timescale to decision – issues resolved in “real time”.

• May be binding or advisory.

• Independent and impartial.

• Interim: Step prior to reference to arbitration.

Initial considerations

• Dispute adjudication or dispute review:

– DAB v. DRB

– Binding or advisory decision?

• Standing or ad hoc?

• Enforcement: Can binding decisions be enforced?

• Tribunal

– When to establish

– Composition

– Appointment

How do they work?

• Dispute Review Board

– Issues advisory decisions/opinions to assist the contract parties in resolving disputes

– Responsibilities extend to dispute prevention

– Reviews and monitors the progress of the project

• Dispute Adjudication Board

– Independent and impartial tribunal

– Issues binding decisions to resolve disputes between the contract parties

Standing or ad hoc?

• Importance and benefits of project knowledge.

• FIDIC:

– Red Book, MDB and Gold Book provide for a standing DAB;

– Yellow and Silver Books provide for an “ad hoc” DAB;

– Rationale for difference.

• Is a standing dispute board proportionate in view of the size of the project?

Composition of tribunal

• A combination of disciplines may be desirable.

• A compromise in a 3-member tribunal may be to have a lawyer (as chairman) and two construction professionals.

• Different considerations apply depending on whether appointment is to a standing or an ad hoc dispute board.

FIDIC DAB provisions: who should sit as a DAB?

• Contractual framework: Clause 20.2/Appendix (General Conditions of DAB Agreement)/Annex: Procedural Rules.

• Identity

– “Suitably qualified persons” (Clause 20.2)

– “Experienced with the work” (Clause 3(a), DAB Agreement)

– “Experienced in the interpretation of contract documentation” (Clause 3 (b), DAB Agreement)

– “fluent in the language” (Clause 3(c), DAB Agreement)

FIDIC DAB provisions: Procedure

• DAB hearings usually take place but this is not a requirement – initial short procedural hearing can be useful.

• DAB has no power to extend time for decision beyond 84 days.

• DAB can appoint advisors on law and technical issues.

• FIDIC Guide provides for exchange of two rounds of submissions.

• Hearing procedure in FIDIC Guide: oral submissions and DAB questions to parties.

FIDIC DAB provisions: Procedure (contd.)

• Less complex disputes may only require one round of submissions and a short hearing.

• No power to award costs and expenses to winning party.

• Proportionality is key for appropriate and proper resolution of disputes, given that arbitration is the next step.

• Care should be taken not to substantially extend the process without ensuring that decision is final and binding.

FIDIC DAB provisions: Appointment

• FIDIC forms envisage that the DAB will be constituted of either one or three members.

• Default position is for DAB to comprise three members (Clause 20.2).

• Number of DAB members will depend on: size of contract, complexity and project needs in terms of expertise.

DAB decisions: Enforcement

• FIDIC DAB decisions are binding and should be complied with by the parties during the project (Clause 20.4).

• If no Notice of Dissatisfaction (NoD) is served within 28 days of the decision, it becomes final and binding.

• NoD is a condition precedent to arbitration (FIDIC, Clause 20.6).

• A failure to comply with a DAB decision can be referred for enforcement by arbitration.

• FIDIC contracts do not provide a route for enforcement of a binding but not final decision.

DAB decisions: Enforcement (contd.)

• Singapore courts have declined to enforce an award arising from a binding DAB decision because it was not final and binding.

• Obtaining provisional awards or interim measures may be the answer to deal with this lacuna.

• Depending on size and complexity of dispute, it may be quicker to launch an arbitration than to enforce a binding DAB decision.

Conclusions

• Dispute boards offer a good means for avoiding, resolving and managing disputes in international projects.

• Under either the DAB or DRB process, the effectiveness will depend on the goodwill of the parties throughout process.

• Appointment/procedure needs to be tailored to take into account project needs.

• A proportionate approach is required.

Speaker details

Kwadwo Sarkodie, Mayer Brown International LLP Partner, Construction & Engineering Group

Kwadwo’s practice focuses on dispute resolution and risk management in complex construction and infrastructure projects in the UK and in emerging markets. Kwadwo has extensive experience acting for clients in DABs, international arbitrations (ICC, LCIA, UNCITRAL and ICSID) and court proceedings in various jurisdictions.