1. What Is a Dispute Board?
Dispute boards[1] are often found in large construction projects[2] to assist parties in resolving or avoiding disputes and, ideally, preventing such disputes from escalating to international construction arbitration.[3]
Dispute boards are purely a creature of contract. This means that normally there will be no supporting statute to regulate the dispute board proceedings,[4] as there is in international arbitration. This also means that the dispute board agreement has to be carefully drafted to cover, to the extent practical, all possible eventualities.[5]
This issue has been addressed by reputable institutions, such as the ICC, FIDIC, World Bank, AAA, CIArb and DBF (discussed below in Section 6), which have developed their own set of standard dispute board rules. These may be adopted by interested parties to ensure that they will have a tested and workable set of rules in place.
Historically, dispute boards were first used in the United States during the 1970’s (on the Eisenhower tunnel project) and expanded to international projects in the 1980’s (being used during the construction of the Honduras El Cajon Dam).[6] Over the last 50 years, dispute boards have evolved into an effective and increasingly popular tool for overcoming disagreements and disputes in the construction industry.[7] The main reason for their popularity is their perceived value for money, as it is estimated that they cost less than 1% of the total amount of the construction contract and generally do resolve the parties’ disputes within a reasonable amount of time.[8]
2. Types of Dispute Boards
Because dispute boards are formulated by way of a contract agreement, parties have considerable leeway to agree to a formulation that suits their particular project.
In practice, three types of dispute boards can be identified:[9]
- Dispute Adjudication Boards, which issue binding decisions that must be complied with immediately;
- Dispute Review Boards, which issue recommendations that are not binding on the parties; and
- Combined/Hybrid Dispute Boards which, depending on the discretion given, may issue recommendations or binding decisions.
3. Role of Dispute Boards
The role of dispute boards is twofold:
- Dispute avoidance/proactive role: Dispute boards can be designated before any dispute even arises, for example, at the start of a construction project or in the midst of it, as a preventative mechanism to monitor and ensure the unhindered implementation of the project. Such dispute boards (often referred to as standing boards) essentially become part of the project team. They can perform regular visits on site and normally provide workable solutions to difficult or contentious matters, following a “hands-on” approach, before the parties become polarised in their views.
- Dispute resolution/responsive role: Dispute boards can also be formulated once the dispute has arisen to provide the disputing parties with a satisfactory solution on how the matters at issue should be resolved.
If the dispute board’s decision does not find acceptance by the parties, the matter can be subsequently referred to arbitration for final and conclusive resolution.[10] The idea behind a dispute board, however, remains that the decisions rendered therein will be respected by the parties so as to be saved from the need of pursuing international arbitration.
4. Mandatory Condition to International Arbitration?
As the very purpose of dispute boards is to avoid the time and expense of international arbitration, resort to dispute board proceedings will normally be a condition precedent to arbitration.[11]
This is, for example, reflected in Section 9(2) of the 1996 English Arbitration Act: « An application [for a stay of legal proceedings] may be made notwithstanding that the matter is to be referred to arbitration only after the exhaustion of other dispute resolution procedures. »
As a general rule, if the contract provides for a dispute board phase, such a procedural step cannot be circumvented, unless both parties agree to do so.
In practice, where arbitral tribunals have found that referral to dispute board proceedings had unilaterally not been respected, they have typically dismissed the case for lack of jurisdiction or suspended the arbitration in order to allow the condition precedent (i.e., referral to dispute board) to be fulfilled.[12]
5. Dispute Board Proceedings: Overview
Unless stipulated otherwise, in order to set in motion the dispute board procedure, the interested party may send to the other party a notice of intention to refer the disputes to a dispute board.[13] Such notice can be brief, containing only the parties’ details, a summary of the dispute, the claims and relief sought and, preferably, also a proposal concerning the nomination of board members, if a dispute board is not already in place.
The parties then need to appoint the members of the dispute board by mutual agreement or, if there is no consensus, by instructing a third-party expert panel or institution to do so. Dispute boards are usually composed of one or three independent and impartial professionals, who are qualified, experienced and knowledgeable in the technical field of the project.[14]
The parties are also required to determine the precise issues that will be referred to the dispute board for resolution. The delineation of the scope of the dispute is a step of particular importance because dispute boards are only vested with jurisdiction to hear and advise/rule on the resolution of the particular issues that the parties agreed to refer to them.
Dispute boards are normally not regulated by any legislative act, contrary to international arbitration, which is regulated both by national arbitration laws (for example, the 1996 English Arbitration Act) and international treaties (1958 New York Convention). This means that there is no default procedure that could take place (for example, for the appointment of the board members or for determining the scope of their powers) in the absence of an explicit stipulation by the parties.
Normally, dispute board members are given full power to determine the facts and the law of the case before them, as well as to request clarifications or additional relevant information from the parties, make site inspections, convene meetings/hearings and rule on extension of time requests.[15]
Taking into account that dispute boards are solely a creature of contract, it is prudent to adopt flexible and specific wording when drafting ad hoc dispute board contracts to prevent unscrupulous tactics and time-consuming procedural battles, while ensuring the efficiency of the procedure.
Notably, many of the disputes which arise in relation to dispute boards relate to deficiencies in the drafting of dispute board agreements.[16] That said, adopting standard institutional rules appears to be a safer solution in this respect.
6. Dispute Board Proceedings: Institutional Rules
A number of institutions have adopted procedural rules for dispute boards, as well as codes of conduct and standard agreements that can be adopted by the disputed parties and the dispute board members.[17]
Most rules consist of a comprehensive set of provisions for establishing and operating a dispute board, covering such matters as the appointment of the dispute board member(s), the types of dispute boards, the services they provide, their powers, the procedure to be followed and the compensation they receive.
Upon examination of the rules, one can easily observe several similarities with arbitration rules, which also explains the increasing tendency for dispute board procedures to become “mini arbitrations”.
ICC Dispute Board Rules
The first edition of the ICC Dispute Board Rules was adopted in 2004. The ICC Dispute Board Rules were subsequently revised in 2015 based on experts’ feedback, in order to adapt to modern practice requirements, with emphasis put primarily into dispute avoidance and informal assistance. The revised rules came into force as of 1 October 2015 and are available online in English, French, Spanish, Portuguese and Arabic.
The ICC has also developed a Model Dispute Board Member Agreement to be signed by all dispute board members and parties before dispute board activities can begin and a Standard ICC Dispute Board Clauses to be used by parties who wish to set up and operate a dispute board under the 2015 Rules.
An important feature of the 2015 Rules is their attempt to strengthen the binding force of the decisions vis-à-vis the parties by expressly providing that a party that has failed to comply with a dispute board Conclusion[18] when it was required to do so under the Rules shall not raise any issue on the merits as a defence to its failure to comply (Articles 4(4), 5(4) and 6(1) of the 2015 Rules). This approach is intended to avoid any attempt to re-argue the merits of any Conclusion that has become contractually binding.[19]
FIDIC Dispute Adjudication Boards
FIDIC has a long history in the publication of standard forms of contract for works.[20] FIDIC contracts are the most commonly-used standard form of international construction contracts in the world today.
Each of the 1999 FIDIC contracts, i.e., the Red Book, the Yellow Book and the Silver Book, adopt a multi-tiered approach to dispute resolution that includes the appointment of a Dispute Adjudication Board (“DAB”) for adjudicating the disputes arising during project execution.[21]
There are two types of DABs in the FIDIC forms:
(1) the standing DAB, which is appointed by the parties at the outset of the contract and remains in place until the end of contract performance; and
(2) the ad hoc DAB, which is appointed after a dispute has arisen.[22]
World Bank Dispute Review Boards
The World Bank has developed its own Standard Bidding Documents for Works (“SBDW”) for use by its borrowers in the procurement of certain contracts through international competitive bidding. The SBDW are updated every few years.
In 1995, the World Bank first introduced the requirement for Dispute Review Boards in its SBDW, based on the FIDIC Red Book.[23] Until today, the World Bank continues to endorse the use of dispute boards in the execution of the projects it finances by preserving the provisions for the establishment of such boards in its updated SBDW.
AAA Dispute Resolution Board Guide Specifications
The American Arbitration Association published its Dispute Resolution Board Guide Specifications on 1 December 2000, a stand-alone document, which can be incorporated into any contract.
Two features of the Guide Specifications that should be taken into consideration by intended users are:
(1) the heavy involvement of the AAA in the process by, inter alia, providing lists of potential dispute board members, scheduling meetings and site visits, communicating minutes of meetings and the dispute board’s recommendation to the parties, which is supposed to enhance the sense of neutrality; and
(2) the process of nominating the dispute board members which has the potential to become a drawn-out process if one party objects. Notably, the opposing party is also allowed to reject the nomination of a board member without stating reasons for its opposition.[24]
CIArb Dispute Board Rules
The Chartered Institute of Arbitrators published its Dispute Board Rules in 2014. The rules comprise 18 Articles, followed by a standard Tripartite Agreement for a Dispute Board.
DBF Ad Hoc Dispute Adjudication Board Rules
The Dispute Board Federation published its Ad Hoc Dispute Adjudication Board Rules in 2011. The rules are available to be used in independently-administered dispute board matters. Thus, adoption of these ad hoc rules could be a cost-effective solution for the parties who wish to avoid the administrative costs charged by the other institutions, while having a tested set of rules in place.
7. Cost of Dispute Boards
Generally, dispute boards costs are less as compared to international arbitration costs,[25] as the procedure is normally less sophisticated and quicker.
The costs vary, however, depending, inter alia, upon the number of the members of the dispute board, their fees, the length of their service and the applicable institutional administrative costs (if any).
Further, unless otherwise specified, the default rule is that the dispute board costs are shared equally between the parties. If the opposing party refuses to pay its share, however, normally the other party will cover all costs in order to allow the dispute board to operate and subsequently seek reimbursement for the share owed by the other party.[26]
8. Enforceability of Dispute Board Decisions
As far as enforcement is concerned, dispute board decisions, if not enforced amicably, normally leads the parties to international arbitration.
Dispute board decisions are binding on the parties but not final, in the sense that the concerned parties are obliged to comply with them, unless or until such decisions are revised by the ultimate dispute resolution forum, i.e., arbitration or litigation.[27]
However, if the parties do not do so voluntarily, the winning party has no effective legal means to practically force the losing party to comply with them, besides an ordinary action for breach of contract.[28]
Consequently, in such a case, arbitration of the same subject matter in dispute normally has to be pursued, where compliance can be legally forced under the 1958 New York Convention, if the losing party continues to resist, in any of the (currently) 163 States that are parties to the New York Convention and under a simplified procedure where the case itself cannot be re-heard on the merits.
That said, the lack of an effective enforcement procedure is the most limiting aspect of dispute boards, which makes the decisions rendered therein less valuable for the winning party than an arbitral award or a court judgment.[29]
Ideally, the dispute board will arrive at an amicable outcome and prevent the dispute from reaching the arbitration (or litigation) phase. This is, however, not always possible, as the losing party may ignore the decision if it feels that it is unjustifiably prejudiced by it.
9. Benefits of Dispute Boards Even in the Absence of an Effective Enforcement Mechanism
One would, thus, reasonably wonder what purpose a dispute board decision serves, if its enforcement is ultimately dependent on the willingness of the losing party to comply.
The answer is that a dispute board decision provides the parties with a “comply now, argue later” solution, thereby allowing the performance of their main contract to proceed without undue complications, while preserving the rights of the parties to seek a final determination of their disputes at a later stage via arbitration (or litigation).[30]
It may also serve as an incentive to settle the dispute by bringing an objective view into the parties’ disagreements or disputes and help preserve their business relationship.[31]
Also, the dispute is at least to some extent already refined, which may have a positive impact in terms of the time and costs of subsequent arbitration proceedings.[32]
Last but not least, even though arbitrators (and national judges) are not stricto sensu bound by the decisions of the dispute board, they are influenced by them and do draw adverse inferences when the losing party has unjustifiably refused to voluntarily comply with them.
Conclusion
Dispute boards can be an efficient mechanism to resolve disputes in a speedy way, but only if the parties act in a bona fide manner and are willing to voluntarily comply with the decisions rendered. If it is suspected that this will not be the case, however, it would seem more cost and time-efficient to avoid, if possible, the dispute board procedure and to pursue international construction arbitration instead.
[1] Leading books on Dispute Boards include amongst others: C. Chern, Chern on Dispute Boards: Practice and Procedure (3rd ed., 2015); G. Owen and B. Totterdill, Dispute Boards: Procedures and Practice (2007); N. G. Bunni, The FIDIC Forms of Contract (3rd ed., 2005) and C. Chern, The Law of Construction Disputes (2010).
[2] Dispute boards are gradually making their appearance in other industries as well, such as the financial and maritime sectors.
[3] Or other forms of alternative dispute resolution and/or traditional court litigation.
[4] Countries which are reported to have laws regulating dispute boards are Honduras and Peru.
[5] C. Seppälä, Recent Case Law on Dispute Boards, in D. Ly and P. Gélinas (eds.), Dispute Prevention and Settlement through Expert Determination and Dispute Boards (2017), p. 120.
[6] R. Appuhn, History and Overview of Dispute Boards Around the World, in D. Ly and P. Gélinas (eds.), Dispute Prevention and Settlement through Expert Determination and Dispute Boards (2017), p. 63.
[7] See an insightful database in excel format containing information about the use of dispute boards since 1982 prepared by the Dispute Resolution Board Foundation, a non-profit organisation promoting the use of dispute boards, following the link here.
[8] Y. Tan, Large-Scale Construction Project Management: Understanding Legal and Contract Requirements (2020), p. 173.
[9] J. Petkute-Guriene, Access to Arbitral Justice in Construction Disputes (Dispute Board-Related Issues, Time Bar and Emergency Arbitration), in C. Baltag and C. Vasile (eds.), Construction Arbitration in Central and Eastern Europe: Contemporary Issues (2019), p. 3.
[10] C. Chern, Chern on Dispute Boards: Practice and Procedure (3rd ed., 2015), p. 4.
[11] C. Seppälä, Recent Case Law on Dispute Boards, in D. Ly and P. Gélinas (eds.), Dispute Prevention and Settlement through Expert Determination and Dispute Boards (2017), p. 115.
[12] C. Seppälä, Recent Case Law on Dispute Boards, in D. Ly and P. Gélinas (eds.), Dispute Prevention and Settlement through Expert Determination and Dispute Boards (2017), pp. 115-116.
[13] J. Jenkins, International Construction Arbitration Law (2nd ed., 2013), p. 99.
[14] N. G. Bunni, The FIDIC Forms of Contract (3rd ed., 2005), p. 600.
[15] J. Jenkins, International Construction Arbitration Law (2nd ed., 2013), pp. 100-101.
[16] C. Seppälä, Recent Case Law on Dispute Boards, in D. Ly and P. Gélinas (eds.), Dispute Prevention and Settlement through Expert Determination and Dispute Boards (2017), p. 120.
[17] J. Jenkins, International Construction Arbitration Law (2nd ed., 2013), pp. 102-103.
[18] Pursuant to Article 2(ii) of the 2015 ICC Rules, “Conclusion” means either a Recommendation or a Decision, issued in writing by the dispute board.
[19] A. Carlevaris, The 2015 ICC Dispute Boards Rules, in D. Ly and P. Gélinas (eds.), Dispute Prevention and Settlement through Expert Determination and Dispute Boards (2017), pp. 72-73.
[20] A. Nadar, Settlement of Disputes Under FIDIC Forms of Contract, p. 88.
[21] N. G. Bunni, The FIDIC Forms of Contract (3rd ed., 2005), pp. 610-611.
[22] A. Nadar, Settlement of Disputes Under FIDIC Forms of Contract, p. 89.
[23] J. Jenkins, International Construction Arbitration Law (2nd ed., 2013), pp. 102-103.
[24] J. Jenkins, International Construction Arbitration Law (2nd ed., 2013), pp. 104-105.
[25] N. G. Bunni, The FIDIC Forms of Contract (3rd ed., 2005), p. 599.
[26] L. Patterson and N. Higgs, Dispute Boards, in S. Brekoulakis and D. B. Thomas (eds.), The Guide to Construction Arbitration (3rd ed., 2019),p. 159.
[27] L. Patterson and N. Higgs, Dispute Boards, in S. Brekoulakis and D. B. Thomas (eds.), The Guide to Construction Arbitration (3rd ed., 2019), p. 155.
[28] J. Jenkins, International Construction Arbitration Law (2nd ed., 2013), p. 116.
[29] J. Jenkins, International Construction Arbitration Law (2nd ed., 2013), pp. 115-116.
[30] L. Patterson and N. Higgs, Dispute Boards, in S. Brekoulakis and D. B. Thomas (eds.), The Guide to Construction Arbitration (3rd ed., 2019), p. 155.
[31] A. Carlevaris, The 2015 ICC Dispute Boards Rules, in D. Ly and P. Gélinas (eds.), Dispute Prevention and Settlement through Expert Determination and Dispute Boards (2017), p. 70.
[32] J. Petkute-Guriene, Access to Arbitral Justice in Construction Disputes (Dispute Board-Related Issues, Time Bar and Emergency Arbitration), in C. Baltag and C. Vasile (eds.), Construction Arbitration in Central and Eastern Europe: Contemporary Issues (2019), p. 3.
