Undisputed Facts

Newsletter of The Chicago International Dispute Resolution Association
Winter 2003

Index:

The Ninth Circuit Introduces a "Due Process" Defense to the Recognition and Enforcement of Foreign Arbitral Awards

by Mahir Jalili

The Seventh Circuit Says that Party-appointed Arbitrators are Supposed to be Advocates

by Mahir Jalili

English-Style Adjudication of Construction Disputes

by Mahir Jalili

Introduction
Minimum Requirements
Procedure
Adjudicator's Decision
Effect of the Decision
Enforcement
Ambush
Mistakes
European Convention of Human Rights
Conclusion

"A Dispatch from the Front": Dispute Boards at 2002

by Gordon L. Jaynes

At the World Bank
At FIDIC
The American Arbitration Association ("AAA")
The Dispute Review Board Foundation ("DRBF")
The Institution of Civil Engineers
At the International Chamber Of Commerce ("ICC")
Pitfalls For The Practitioner
The Future

Editor in Chief of UNDISPUTED FACTS: Mahir Jalili
Assistant to the Editor: Alexander Jeglic

The Ninth Circuit Introduces a "Due Process" Defense to the Recognition and Enforcement of Foreign Arbitral Awards

by Mahir Jalili ¹

The New York Convention provides in Article V for seven defenses to the recognition and enforcement of foreign arbitral awards. These defenses are:

1. The parties were under some incapacity or the arbitration agreement was invalid.
   
   
2. The respondent in the arbitration was not given proper notice or was otherwise unable to present his case.
   
   
3. The award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration.
   
   
4. The composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties or with the law of the seat of arbitration.
   
   
5. The award has not yet become binding on the parties or has been set aside or suspended by a competent authority.
   
   
6. The subject matter of the difference is not capable of settlement by arbitration in the country where recognition and enforcement is sought.
   
   
7. The recognition and enforcement of the award would be contrary to public policy in the country where recognition and enforcement is sought.

In a recent case ², the Ninth Circuit appears to introduce a "new" defense, namely that the court in the country where recognition and enforcement is sought must have jurisdiction over the party against whom enforcement is sought or his property.

The facts are summarized as follows: A Dutch company, Glencore, entered into a contract with an Indian company, Shivnath, for the purchase of Indian rice FOB Port of Kandla, India. The contract was governed by English law and provided for arbitration under the rules of the London Rice Brokers' Association ("LRBA"). A dispute arose between the parties, which was referred to arbitration in London.

In 1997, the LRBA arbitral tribunal awarded about $7 million to Glencore. Shivnath neither paid up nor challenged the award in England. Glencore filed suit in New Delhi, India, to enforce the award, but that action is still pending. In 2000, Glencore filed an application in the U.S. District Court in California seeking confirmation of the award under the New York Convention. Glencore provided evidence that Shivnath had shipped rice to California on several occasions and also had a U.S. sales agent based in California.

The District Court dismissed the application on the grounds that the court had no jurisdiction over Shivnath. The Ninth Circuit affirmed the decision. It stated that Shivnath's contacts with California made it, at most, a visitor to the forum, and that the "physical presence" required for assertion of jurisdiction required more.

The Seventh Circuit Says that Party-appointed Arbitrators are Supposed to be Advocates

by Mahir Jalili

In a surprising decision, the United States Court of Appeals for the Seventh Circuit recently stated that party-appointed arbitrators are supposed to be advocates. ³

The case related to an international arbitration, not a domestic one. The arbitration was between Sphere Drake, a U.K. company, and All American, a U.S. company, and was conducted under the auspices of the Association Internationale de Droits des Assurances ("AIDA").

Sphere Drake appointed Mr. Jacks, a Chicago lawyer, as its arbitrator. Four years before this arbitration, Mr. Jacks had been engaged by the Bermudan subsidiary of Sphere Drake as counsel in another arbitration. At the arbitrators' initial meeting, Mr. Jacks said that he had "known of Sphere Drake over the years." Subsequently, Mr. Jacks informed his co-arbitrators that he had provided limited corporate advice to the President of Sphere Drake's Bermudan subsidiary and that he recommended that his former law firm be retained to represent the company in arbitration. However, he did not disclose that he had personally rendered legal services in the prior arbitration.

The arbitral tribunal ruled, by a majority decision, in favour of Sphere Drake. Mr. Jacks joined the chairman of the tribunal to make a majority. All American asked the United States District Court for the Northern District of Illinois to set aside the award under Section 10(a)(2) of the Federal Arbitration Act on the grounds that Mr. Jacks displayed "evident partiality."

The District Court vacated the award but the Seventh Circuit reversed the judgment. The appellate court held that an arbitral award could not be vacated on the grounds of "evident partiality" under the FAA based on the fact that a party-appointed arbitrator had previously represented that party in an unrelated arbitration. In essence, the Seventh Circuit observed that Mr. Jacks could have served as a federal judge in this case without challenge on grounds of partiality, and that what was good for a federal judge was certainly good for an arbitrator.

The decision is probably correct because of Mr. Jacks's apparent limited involvement, some time ago, with a subsidiary of the party that had appointed him as an arbitrator in the present case. It is therefore unfortunate that the Seventh Circuit included in its decision the dictum that, "party-appointed arbitrators are supposed to be advocates."

This may be an accepted American rule in domestic arbitrations but, in international arbitrations, all arbitrators, including party-appointed arbitrators, must be and remain independent of the parties who have appointed them as arbitrators. See, e.g., Article 5.2 of the LCIA Arbitration Rules, which states that, "All arbitrators conducting an arbitration under these Rules shall be and remain at all times impartial and independent of the parties; and none shall act in the arbitration as advocates for any party." This statement reflects the accepted international practice.

English-Style Adjudication of Construction Disputes

by Mahir Jalili

Introduction

The resolution of disputes in the construction industry has been the subject of a number of recent developments. In England, the Housing Grants, Construction and Regeneration Act of 1996 (the "Act") introduced the right to adjudication in all construction contracts. A party to a construction contract has a statutory right to refer a dispute to adjudication.

A "construction contract" is defined as an agreement with a person for the carrying out of construction operations or for arranging the carrying out of construction operations by others, including subcontractors. The definition includes an agreement to do architectural, design or surveying work or to provide advice on building or engineering.⁴

The term "construction operations" include the construction, alteration, repair, maintenance, demolition or dismantling of buildings, roadworks, power-lines, telecommunication apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defense. ⁵ However, "construction operations" do not include drilling for, or extraction of, oil or natural gas; the extraction of minerals, tunneling or boring, or construction of underground works; or the assembly, installation demolition of plant or machinery on a site where the primary activity is power generation, nuclear processing or bulk storage of chemicals, pharmaceuticals, oil, gas, steel or food and drink. ⁶

Minimum Requirements

The Act gives a party to a construction contract the right to refer a dispute to adjudication. If the construction contract does not contain an adjudication clause, or if the adjudication clause does not comply with the Act, then the adjudication provisions of the Act would apply automatically. The minimum requirements ⁷ are as follows:

The contract shall enable a party to give notice at any time of his intention to refer a dispute to adjudication.

The contract shall provide a timetable with the object of securing the appointment of the adjudicator and the referral of the dispute to him within 7 days of such notice.

The contract shall require the adjudicator to reach decision within 28 days of referral or such longer period as is greed by the parties after the dispute has been referred.

The contract shall allow the adjudicator to extend the period of 28 days by up to 14 days, with the consent of the party by whom the dispute was referred.

The contract shall impose a duty on the adjudicator to act impartially.

The contract shall enable the adjudicator to take the initiative in ascertaining the facts and law.

The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement.

The contract shall also provide that the adjudicator is not liable for anything done or omitted in the discharge of his functions as adjudicator unless the act or omission is in bad faith, and that any employee or agent of the adjudicator is similarly protected from liability.

Procedure

Following the giving of a notice of adjudication and subject to any agreement between the parties to the dispute as to who shall act as adjudicator, the referring party will request the person (if any) specified in the contract to act as adjudicator. ⁸ If no such person is named in the contract or agreed between the parties, the referring party can request an adjudicator nominating body to select a person to act as adjudicator. ⁹

Once the adjudicator is selected, the referring party must, not later than 7 days from the date of the notice of adjudication, refer the dispute in writing to the adjudicator. ¹⁰ The adjudicator takes the initiative in ascertaining the facts and the law and decides on the procedure to be followed in the adjudication. ¹¹ The procedure can include oral representations ¹² by lawyers. ¹³

The adjudicator is required to reach his decision not later than 28 days after the date of the referral notice or 42 days after the referral notice if the referring party so consents. ¹⁴ Alternatively, the parties may agree to any other period exceeding 28 days. ¹⁵

Adjudicator's Decision

The adjudicator may open up, revise and review any decision taken or any certificate given by an engineer/architect unless the contract states that the decision or certificate is final and conclusive. ¹⁶ He may decide that any party is liable to make payment under the contract as well as the rate of interest. ¹⁷

The parties are required to comply with any decision of the adjudicator immediately on delivery of the decision. ¹⁸

If requested by one of the parties, the adjudicator must provide reasons for his decision. ¹⁹

Effect of the Decision

In his decision, the adjudicator may, if he thinks fit, order any of the parties to comply peremptorily with his decision or any part of it. The decision of the adjudicator is binding on the parties, and they must comply with it until the dispute is finally determined by litigation or arbitration or by agreement between the parties.

Enforcement

The English courts will generally enforce any decision made by the adjudicator as long as he has jurisdiction to adjudicate the dispute. The appropriate procedural route for enforcement is by summary judgment.

It is accepted that adjudication is a summary procedure using a timetable that may make it inherently unfair. However, such procedure was deliberately introduced in all construction contracts as a speedy, provisional stage in the dispute resolution process. If the losing party is unhappy with the adjudicator's decision, he has the normal right to commence litigation or arbitration for a final resolution of the dispute.

The first occasion upon which the courts had to consider these adjudication provisions was in Macob Civil Engineering Ltd. v. Morrison Construction Ltd. ²⁰ The highly-regarded Mr. Justice Dyson made the following observations:

"The intention of Parliament under the Act was plain. It was to introduce a speedy mechanism for settling disputes and construction contracts on a provisional interim basis, and requiring the decision of adjudicators to be enforced pending the final determination of disputes by arbitration, litigation or agreement. … The timetable for adjudication is very tight ... many would say unreasonably tight, and likely to result in injustice. Parliament must have taken to be aware of this. … It is clearly Parliament's intention that the adjudication should be conducted in a manner which those familiar with the grinding detail of the traditional approach to the resolution of construction disputes find it difficult to accept. But Parliament has not abolished arbitration and litigation of construction disputes. It has merely introduced an intervening provisional stage in the dispute resolution process. Crucially, it has made it clear that decisions of adjudicators are binding an are to be complied with until the dispute is finally resolved."

Ambush

Despite Parliament's good intentions, adjudications have produced very unfair results. The referring party has built-in advantages, which sometimes have been used to ambush the other party. There are two kinds of ambush:

The referring party spends months preparing his case and then gives notice of adjudication, sometimes just before a traditional construction industry holiday. The opposing party would come under tremendous pressure to prepare an adequate defense considering that the adjudicator, who is already in possession of the referring party's voluminous submission, has to reach his decision not later than 28 days after receiving the referral notice. Although the Scheme allows for the extension of this 28-day period, no extension is possible without the consent of the referring party.

A number of subcontractors decide to serve referral notices on the same main contractor at the same time.

Adjudicators must be alert to such tactics so that, within the limited time available to them, they can treat the parties with fairness and equality.

In addition, some employers have appointed the same adjudicator in their "take it or leave it" standard adjudication clause. Such adjudicator tends to favour the employer in his rulings, but it is difficult to prove lack of independence or actual bias.

Mistakes

Courts will enforce the adjudicator's decision even if there is an obvious error in his reasoning. In Bouygues UK Ltd. v. Dahl-Jensen UK Ltd.,²¹ the adjudicator made a mistake in his figures, which meant that his award was in favour of one party instead of the other. The court still enforced the decision. Mr. Justice Dyson made some frank comments regarding the risk of injustice in adjudication:

"It is inherent that injustices will occur, because from time to time, adjudicators will make mistakes. Sometimes those mistakes will be glaringly obvious and disastrous in their consequences for the losing party. The victims of mistakes will usually be able to recoup their losses by subsequent arbitration or litigation, and possibly even by a subsequent adjudication. Sometimes, they will not be able to do so, where, for example, there is intervening insolvency, either of the victim or of the fortunate beneficiary of the mistake."

Mr. Justice Dyson seems to be saying, "There is nothing I can do about this piece of legislation."

The available unfairness-correction mechanism in "subsequent arbitration or litigation" may be of no use to the losing party even if there is no intervening insolvency. Some losing parties may be so devastated by the adjudicator's decision that they give up and decide not to arbitrate or litigate. They may conclude, rightly or wrongly, that the judge or arbitrator is likely to reach the same result as the adjudicator.

European Convention of Human Rights

England has incorporated the European Convention of Human Rights into its domestic laws by enacting the Human Rights Act of 1998, which came into force in October 2000. Article 6 of the Convention states as follows:

"In the determination of his civil rights or obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law."

It is thought that Article 6 does not apply to adjudications because they are not a final determination: An adjudicator's decision is binding only until the dispute is finally determined by arbitration or litigation.²²

Conclusion

Adjudication provides a statutory "quick fix," which is subject to correction in a subsequent arbitration or litigation. This can be a useful interim step, for example, where a main contractor treats with contempt the claims of a small subcontractor who cannot afford arbitration or litigation. However, adjudication is a rough procedure that can be exploited by unscrupulous parties to produce unfair results.

"A Dispatch from the Front": Dispute Boards at 2002

by Gordon L. Jaynes ²³

Much is afoot in the international engineering and construction industry with respect to Dispute Boards. The purpose of this paper is to provide a "snapshot" of this activity at the outset of 2002.

Although entitled as a dispatch from "the front", the activity is on multiple "fronts". FIDIC's publication of the 1999 First Editions of its three major sets of Conditions of Contract has been followed in 2001 by the publication in hard copy of its Guide to the use of those Conditions, which includes detailed insight into the use of FIDIC's Dispute Adjudication Board System. In May of 2000, the World Bank published a new edition of its Standard Bidding Document, " Procurement of Works" which includes the latest version of the Bank's Dispute Review Board system, significantly changed from its previous version. Starting in 2000, and continuing in 2001, FIDIC has conducted Training and Assessment Workshops for persons seeking admission to its President's List of Dispute Adjudicators. In June of 2001, the American Arbitration Association opened its first office outside the United States, one aim of which is increasing its international activities with respect to Dispute Boards. Also in June 2001 the Dispute Review Board Foundation held its first International Conference, with attendees from 13 countries. In September of 2001, the UK's Institution of Civil Engineers presented a seminar on Dispute Boards at the World Bank Headquarters in Washington, DC. The International Chamber of Commerce, acting through the Commission of its Court of International Arbitration, and through its Centre for Expertise, is increasing its activities with respect to Dispute Boards.

Meanwhile, practitioners are encountering Dispute Board arrangements which differ significantly from past practice; also, the use of the Dispute Board technique has begun to be applied in aspects of large projects other than just engineering and construction, such as in the resolution of disputes arising in the operation of project financing arrangements for both projects undertaken as privately financed and those undertaken as "public-private partnerships".

At the World Bank

When, in January 1995, the Bank revised its Standard Bidding Document entitled Procurement of Works, it began its requirement that borrowers resolve disputes by use of a three-person Dispute Board if the financed contract was estimated to cost US$50 million or more (including contingency allowances), and gave its borrowers three options for financed contracts estimated to cost less than that US$50 million benchmark: a three person Dispute Board, a single Dispute Expert, or if the Engineer as "independent from the Employer", the Engineer. ²⁴

The current edition of "Procurement of Works" (May 2000) retains the US$50 million benchmark, but deletes the option to use the Engineer on contracts below that benchmark, and instead refers only to contracts "smaller than US$10 million", and indicates that they "should generally follow the Standard Bidding Documents, Procurement of Works, Smaller Contracts," which provide for a similar disputes review method. ²⁵ The similarity is that an outside party is used for dispute resolution. However, in the Smaller Contracts document, the "Adjudicator" becomes involved with the project only if, and after, a dispute arises, whereas in a traditional Dispute Board, the board is in place and active from the outset of the contract, and before any disputes arise.

The 2000 edition also changes the effect of the Dispute Board's "Recommendation". In the 1995 edition, a Recommendation was not binding if, within 14 days of receipt of a Recommendation, either party gave written notice to the other of intention to commence arbitration of the dispute. (If no such notice was timely given, the Recommendation became final and binding and was "to be implemented by the parties forthwith, such implementation to include any relevant action of the Engineer." ²⁶ ) The 2000 edition provides "The Recommendation of the Board shall be binding on both parties, who shall promptly give effect to it unless and until the same shall be revised, as hereinafter provided, in an arbitral award." ₂₇ It retains the 14-day deadline for notice of intention to commence arbitration, failing which the Recommendation becomes final and binding ²⁸. In both editions, there is not time limit for the actual commencement of arbitration, provided notice of intention to do so has been given timely.

Although the 2000 edition was published after the publication of FIDIC's 1999 First Edition of its Conditions of Contract for Construction, the Document continues the use of Part I, General Conditions, of FIDIC's 1987 Conditions of Contract for Works of Civil Engineering Construction (as amended in 1988 and 1992), but the Bank's Part II, Conditions of Particular Application, amends clause 67 of those General Conditions to substitute the Dispute Board for the Engineer in the resolution of disputes. ²⁹

At FIDIC

The use of Dispute Boards in the FIDIC forms first appeared in 1995, in clause 20 of the Conditions of Contract for Design-Build and Turnkey (the "Orange Book"), and next appeared in the 1996 Supplement to the Fourth Edition of the "Conditions of Contract for Works of Civil Engineering Construction". The three major forms published as 1999 First Editions all contain Dispute Board provisions, although in two versions-"full term" and "ad hoc". The Conditions of Contract for Construction use a "full term" Board (i.e., established before the Contractor commences work), whereas the forms Conditions of Contract for Plant and Design Build and Conditions of Contract for EPC/Turnkey Projects recommend "ad hoc" Boards (i.e. established only if, and after, a particular dispute arises). ³⁰

The Dispute Board provisions of the 1999 Conditions of Contract for Construction differ significantly from those of the 1996 supplement to the Fourth Edition of the Conditions of Contract for Works of Civil Engineering Construction. Also, the Dispute Board provisions of both the 1999 Conditions of Contract for Plant and Design-Build and those for EPC/Turnkey Projects differ from the provisions of the 1995 Conditions of Contact for Design-Build and Turnkey. The differences are more in detail than in fundamental structure. However, FIDIC's Dispute Board provisions, from their first arrival, have had significant differences from those of the World Bank, principally:

• FIDIC's provisions have been a substitution for a written decision of the Engineer, intended to take effect immediately, even if notice is given of intention to refer the dispute to arbitration. The Bank's provisions stemmed from the USA origins of the Dispute Board, in which the Board's Recommendations were intended to be persuasive rather than obligatory, and could be averted by timely notification of dissatisfaction. This difference is reflected in the terminology of the two organizations: FIDIC used the name "Dispute Adjudication Board"; the World Bank used "Dispute Review Board", the name in general use in the USA.
  
  
• FIDIC's provisions include a requirement for "amicable settlement" efforts following a notice of dissatisfaction. Resort to arbitration cannot occur before a minimum of 56 days of such efforts. The World Bank provisions permit immediate initiation of arbitration. Neither set of provisions set any time limit by which arbitration must be commenced. ³¹

Both the Bank Dispute Board provisions and those of the FIDIC include "default" appointment systems, akin to those found in typical arbitration Rules. FIDIC foresees the possibility of itself serving as the appointing entity selected by the parties and the new Guide includes detailed instructions to users on how to obtain that service from FIDIC. ³² The appointment is made by "the President of FIDIC or a person appointed by the President" ³³ and in connection with such appointing activity FIDIC has established the "FIDIC President's List of Approved Arbitrators", the introductory Note to which states: "FIDIC has established a high standard for [the List]. Successful attendees at an Adjudication Assessment Workshop will need to be fluent in English and familiar with FIDIC's 1999 Conditions of Contract. Attendees will be subject to rigorous testing, and will be expected to demonstrate compliance with the specified criteria for inclusion on the List." ³⁴

Although the clauses of the FIDIC Conditions do not include any requirements for us of FIDIC as a "default" appointing entity, the new Guide sets out a detailed procedure which must be followed if such use is made. ³⁵

The World Bank "default" appointment provision does not include comparable appointment services from any part of the Bank, although its suggested "appropriate international appointing authori[ties]" include the Secretary-General of the Bank's "sister" organization, the International Center for Settlement of Investment Disputes, in Washington DC. ³⁶

Other than a few footnotes, the World Bank provisions offer no guidance to users, whereas FIDIC's new Guide includes some six A4-size pages of detailed commentary.

The American Arbitration Association ("AAA")

20 June 2001 marked the opening of a European office of the AAA's International Center for Dispute Resolution. This reflects the increasing involvement of the AAA in international dispute resolution since the establishment of its International Division in 1996. The Division has administered disputes in 70 different countries, and during 2000 the Division received 511 new cases. The European office of the Center is already involved in service to Dispute Boards, including the expansion of the International Division's Roster of Dispute Review Board Members from various countries, presently including more than 60 persons.

The European office of the Center is headed by Mr Mark Appel, Senior Vice-President. He can be contacted by e-mail at or by fax at 00 (353) (1) 418 2223. The address of the Center is Harcourt Centre (Block 3), Harcourt Road, Dublin 2, Ireland. The Center's Dispute Board Guidelines, Hearing and Meeting Protocols, and Three Party Agreement, all offered as suggestions and not mandates, can be found at www.adr.org.

The Dispute Review Board Foundation ("DRBF")

This not-for-profit corporation has as its purpose the promotion of the successful use of Dispute Boards. In addition to its Annual Conferences, the DRBF publishes a small journal, Foundation Forum, and operates training programs on the use, and the chairing, of Dispute Review Boards. Although the DRBF publishes a list of its members, at present it does not maintain any list of persons formally recommended by the DRBF for service on Dispute Boards. Also, the Foundation Members have published a book, Construction Dispute Review Board Manual. ³⁷

The DRFB's first International Conference was held at London Heathrow airport hotel in June 2000, and attracted over 40 attendees from Canada, Eire, England, Iceland, Italy, Japan, Lesotho, The Netherlands, Northern Ireland, Poland, Scotland, Switzerland, and the USA. A second International Conference is planned to be held on 25-26 May of this year, in Rome. ³⁸

The Institution of Civil Engineers

Although this organization is based in London, England, it has local associations in various countries, one of which is the Mid-Atlantic States Local Association ("ICE MASLA") ³⁹. In September of 2001, it co-sponsored with the World Bank a seminar held at the World Bank entitled "Ten Years of DRB Success at China'a Ertan Dam", featuring a report by the Ertan Dispute Board Members on this difficult and complex project which was completed ahead of schedule, with all disputes amicably settled by the end of construction. In addition to ICE members, the seminar was open to all interested professionals, including members of the DRFB, and the American Society of Civil Engineers. Some 70 people attended from various countries.

At the International Chamber Of Commerce ("ICC")

Last year there was increased ICC activity relating to Dispute Boards which continues this year. In April 2001, the ICC Commission on International Arbitration received from its Forum on Arbitration and New Fields the final report of that Forum's Construction Arbitration Section, which highlights the growing use of Dispute Boards and their impact on construction arbitrations (and arbitrators). ⁴⁰

A deeper involvement of the Commission with respect to Dispute Boards is arising from its Forum on ADR, which to some extent is working in parallel with the Commission's Working Group on ADR. The Forum is preparing a "White Book" survey of ADR techniques in use throughout the world and is considering the most recent developments with respect to Dispute Boards, as well as possible future activities of the Commission in respect of the promotion of successful use of Dispute Boards. (In passing, it is noted that the Commission established a July 2001 publication date for its new Rules and Guide for ADR. ⁴¹)

Additionally, the ICC's International Centre for Expertise is revising the Rules of the Centre, to include, inter alia, provisions highlighting and improving its service as a source for suitable experts available to serve as Members of Dispute Boards. ⁴²

Pitfalls For The Practitioner

Notwithstanding the detailed formats of the Dispute Board provisions of the World Bank and FIDIC, individual contract provisions must be studied with some care because, despite overall appearance of conformity with the format of the Bank or FIDIC, it is not unusual for individual contract provisions to contain significant alterations to those formats. Also, all of the formats suggested by the Bank and FIDIC are extant and in use in all of their various past and present editions, so practitioners must be alert to the differing procedures apt to be encountered. Also, as with other standard documents, Employers often "edit" the dispute provisions in ways which may not be noticed from the general appearance of the clauses, and which require careful study of the particular wording.

Some dispute resolution procedures have wording, which suggests that Dispute Boards are being established but in fact they do not conform to all of the traditional features of Dispute Boards. Interesting variants have been developed on the Channel Tunnel, the new Hong Kong International Airport, and the continuing use by the Hong Kong Architectural Services Department of "dispute resolution advisers." ⁴³

For whatever reasons, Dispute Boards continue to be established late. The parties to contracts used for several major projects financed by the World Bank have failed to establish the required Dispute Boards until years after commencement of construction. This deprives the Boards of their essential characteristics of being conversant with construction as it progresses and being in place to assist in resolution of disputes as soon as they arise. It also leads to a "backlog" of disputes awaiting the Dispute Board when established-disputes on which parties have developed entrenched positions.

Whether from lack of understanding or from determination to involve the Engineer in dispute resolution, many contracts on several projects financed by The World Bank have had "double decker" dispute resolution vehicles, involving a traditional written decision of the Engineer followed by Dispute Board consideration of the dispute if either party is dissatisfied with the Engineer's decision. (There also have been instances of the reverse- a Dispute Board consideration followed by an Engineer's decision if either of the parties is dissatisfied with the Dispute Board's determination.) Apart from creating great potential for delay in resolution of disputes, such "hybrids" lack the essential characteristics of traditional Dispute Boards, and almost invite friction between Engineer and Dispute Board.

The current FIDIC "ad hoc" Dispute Board provisions for the Plant and Design-Build Conditions and the EPC/Turnkey Projects Conditions also deprive the Board of its traditional advantages of being in place from the outset of the contract and, as with the Boards established late, convert the Board into an ADR device akin to a "pre-arbitrarian quasi-arbitration".

Users should note the seeming contradiction in the present version of FIDIC's Appendix to the General Conditions entitled "General Conditions of Dispute Adjudication Agreement": unless otherwise agreed in writing, clause 5(c) excludes Dispute Board Member liability for "anything done or omitted in the discharge or purported discharge of the Member's functions, unless the act or omission is shown to have been in bad faith." ⁴⁴ However, clause 8, a broad and Draconian provision states: "If the Member fails to comply with any obligation under clause 4, he/she shall not be entitled to any fees or expenses hereunder and shall, without prejudice to their other rights, reimburse the Employer and the Contractor for any fees and expenses received by the Member and the other Members (if any), for the proceedings or decisions (if any) of the DAB which are rendered void or ineffective." ⁴⁵ Clause 4 lists 11 obligations of Members, and clearly a Member could fail to comply with some of them without having any bad faith.

Although FIDIC's Guide comments that Dispute Board Members are entitled to finance charges in respect of delay in payment of their invoices ⁴⁶, the text of the relevant clause does not so state. ⁴⁷

There are obvious advantages to restricting nationalities of Dispute Board Members to other than those of Employer, the Contractor (including those of constituent members of a multinational Contractor), and the Engineer-especially if either or both the Employer and the Engineer are state organizations. Some Employers insist on freedom to use persons of the Employer's own nationality. Indeed, some Employers restrict all Board membership to persons of the same nationality as the Employer. Such arrangements create the risk of at least the appearance of probable bias within the Board, which undermines confidence in (and ultimate acceptability of) the Board's determinations. However, there is an inherent dilemma for Employers, especially those of developing countries: if they do not inject Board Members from their own countries, how can those countries develop a suitable number of experts experienced in service on Dispute Boards?

The Future

With so many organizations active in the establishment and operation of Dispute Boards, and with increasing number of Boards being established, it is inevitable that further developments will emerge. Already Dispute Boards are in use on project aspects not directly related to engineering and construction matters, including for example disputes arising from project financing arrangements, especially on privately financed infrastructure projects. ⁴⁸

1 Mr. Jalili practices from Chicago and London. He is qualified as an English barrister and an American attorney. His practice is concentrated on international arbitration. return
2 Glencore Grain Rotterdam BV v. Shivnath Rai Harnarain Co., decided March 26, 2002. return
3 Sphere Drake Insurance Limited v. All American Life Insurance Company, decided October 9, 2002.
return4 Section 104 of the Act. return
5 Section 105(1) of the Act. return
6 Section 105(2) of the Act. return
7 Section 108 of the Act. return
8 Section 2(1)(a) of the Part 1of the Scheme for Construction Contracts (England and Wales) Regulations of 1998 (the "Scheme"). return
9 Section 2(1)(c) of Part I of the Scheme. return
10 Section 7 of Part I of the Scheme. return
11 Section 13 of Part I of the Scheme. return
12 Section 13(g) of Part I of the Scheme. return
13 Section 16 of Part I of the Scheme. return
14 Section 19(1)(a) and (b) of Part I of the Scheme. return
15 Section 19(1)(c) of Part I of the Scheme. return
16 Section 20(a) of Part I of the Scheme. return
17 Sections 20(b) and 20(c) of Part I of the Scheme. return
18 Section 21 of Part I of the Scheme. return
19 Section 22 of Part I of the Scheme. return
20 [1999] BLR 93. return
21 [2000] BLR 49. return
22 KEATING ON BUILDING CONTRACTS (7th ed., 2001), page 535, 16-115. return
23 Mr. Jaynes is an American attorney based in England. His practice is concentrated on international construction and arbitration. return
24 Pp. v and vi. "Introduction" return
25 P.135 return
26 P.205 return
27 P.137 return
28 P.140 return
29 Pp.135 et seq. return
30 These differences of use have been subject of previous discussion in this Review. See, e.g. [2000] ICLR 42; and 477 at 491 and 504 at 531; see also [2001] CLR at 267. return
31 A more detailed comparison of the FIDIC and Bank Dispute Board provisions is appended to this paper. return
32 P.310 return
33 Ibid return
34 Details, including application procedure and forms, are at FIDIC's website, www1.fidic.org/resources/members_proc.asp. Alternatively, information can be obtained from FIDIC's headquarters in Lausanne, Switzerland, PO Box 86,1000 Lausanne 12, or fax 41 (21) 653 54-32, telephone 41 (21) 654 44 11. To date, three such workshops have been held by FIDIC and at present the List includes some 20 persons. return
35 P.310 return
36 P.136, r15 return
37 Published by McGraw Hill. 11 W 19th St (4th Flr). New York, NY 10011-4285, USA,. Fax 1 (212) 337-6056. Cost, US$45: proceeds help fund the DRFB. For additional information on USA practice, see [2001] ICLR 275. return
38 Details of DRFB membership and activities can be found at www.drb.org/ return
39 It can be contacted via Mr Lynn De Wolfe, McDonough Bolyard Peck, 8315 Lee Highway, Suite 44, Fairfax, VA 22031-2215, USA. Also an email discussion group has been established by ICE MASLA and it can be joined by contacting return
40 See [2001] ICLR 644. paras 12 et seq. return
41 See Commission Doc. 420/19-014 return
42 The Centre's present Rules were published in December 1992, as ICC Publication No 520, ISBN 92.842.1149.2 and appeared in this Review at [2001] ICLR 644. The text also is available from the Centre, which can be contacted at e-mail or by fax at 33 (1) 49 53 29 29. Details of the Centre can be found through this link on the website www.iccarbitration.org. return
43See. Pp 15 and 16. Asian Dispute Review June 2001, available from . return
44 Guide, p.324. return
45 Guide, p.331. return
46 P.329. return
47 Appendix, clause 6, pp. 325-329. return
48 The Workshops on "Privately Financed Infrastructures Projects" presented by the International Development Law Institute under the sponsorship of the Asian Development Bank during the past two years, in Bangladesh, (China, India, and Vietnam, have featured the use of Dispute Boards on such projects. Also, the UNCITRAL, Legislative Guide on Privately Financed Infrastructure Projects, published in the Summer of 2001 (UN Publication Sales No ) return