The use of dispute boards in international disputes

The use of dispute boards in international disputes

The Chartered Institute of Arbitrators (CIArb) announced recently that it is planning to draft a set of international commercial dispute board rules that can be used on any medium- to long-term project, whether construction, IT, commercial or otherwise. If involved in the contract project from the outset, dispute boards are able to intervene early when issues arise and propose solutions before the parties positions have grown entrenched. Accordingly, dispute boards can be a useful tool for avoiding and resolving disputes.

In this article, LexisPSL Arbitration contributors Joseph Tirado (Partner), Matthew Page (Of Counsel) and Daniel Meagher (Associate) of Winston & Strawn provide an overview of the use of dispute boards in international disputes, and discuss the key components of dispute board procedure, the similarities to and differences from arbitration as well as the advantages and disadvantages of using dispute boards.

What are dispute boards?

Dispute boards are boards of one or several individuals who determine disputes in connection with a contract.

Dispute boards are typically agreed by the parties to long-term contracts as a method of resolving disputes without resort to arbitration or litigation proceedings. Dispute board panels can consist of specified individuals appointed at the outset of a contract project (a standing dispute board) or can be appointed on an ad hoc basis when a dispute arises.

Dispute board panellists tend to be drawn from a wider range of professional backgrounds than arbitrators. Whereas arbitrators are typically lawyers, dispute board panellists can be, for example, engineers, accounting experts or other specialists depending upon the relevant industry. Lawyers are also frequently appointed as dispute board panellists.

Dispute boards are most frequently used in international construction and infrastructure projects. The recent CIArb consultation (which ends on 21 November 2013) also demonstrates that the scope for using dispute boards in projects across other industry sectors is currently the subject of some debate.

Most dispute boards will issue a decision, which will become final and binding if neither party objects to that decision. If a party objects to a decision of a dispute board (within a set time period), the dispute will proceed to arbitration or litigation, depending on the terms of the contract.

Are decisions by dispute boards binding?

Depending on the applicable institutional rules of procedure, as well as the agreement of the contractual parties, dispute boards can issue interim-binding decisions or non-binding recommendations.

A non-binding recommendation is, as its name suggests, not binding upon the parties at the time it is issued. However, such a recommendation becomes binding if neither party files a notice objecting to the recommendation (often referred to as a notice of dissatisfaction) within the relevant time period. If such a notice is filed, then the recommendation has no effect and the parties' dispute will be finally determined by arbitration or litigation proceedings. Whether or not the dispute proceeds to arbitration or litigation proceedings will depend upon what is agreed by the parties (most often in the underlying contract).

By contrast, an interim-binding decision is binding from the time it is made through to the filing of an objection to the decision, and if such an objection is filed, the decision remains binding until the dispute is finally resolved pursuant to arbitration or litigation proceedings.

In either case of an interim-binding decision or a non-binding recommendation, an objection to the decision or recommendation of the dispute board is typically referred to as a notice of dissatisfaction. The time limit for lodging such a notice is typically prescribed by the relevant institutional rules or the contract (see below).

Types of dispute boards and key institutional rules of procedure

The term 'dispute boards' is a generic term, but in fact there are different types of dispute boards referred to by different names, operating under different institutional rules of procedure and with different key characteristics. Generally, there are two key types of dispute boards: dispute adjudication boards (DABs) and dispute review/resolution boards (DRBs).

DABs are boards that issue interim-binding decisions and DRBs are boards that issue non-binding recommendations.

Similar to international arbitration, a number of institutions offer a standard set of procedural rules for resolution of disputes by use of a dispute board. These institutional rules provide a framework for parties for ease of agreement or incorporation into the relevant contract, and in order to help provide structure for the dispute board procedure.

The key dispute board institutions include the Dispute Resolution Board Foundation (DRBF), the American Arbitration Association (AAA), the International Federation of Consulting Engineers (commonly referred to as FIDIC), the Institute of Civil Engineers (ICE) and the International Chamber of Commerce (ICC).

Different institutions have adopted different types of dispute boards into their rules, most notably distinguished by whether such boards issue a non-binding recommendation (and are therefore a DRB) or interim-binding decisions (and are therefore a DAB).

DRBF and AAA adopt DRBs into their rules. In contrast, the standardised FIDIC contracts and the ICE dispute board rules adopt DABs. The ICC offers a choice of three types of dispute boards, including DRBs and DABs (the third type is called a Combined Dispute Board, which is a board that normally issues recommendations but can issue decisions in specified circumstances).

Similarities and differences between the dispute board process and arbitration

There are some similarities between the dispute board process and arbitration:

  • the jurisdiction of both dispute boards and arbitration tribunals is premised upon the agreement of the parties
  • the process and outcome is typically confidential

However, while there are some similarities between dispute boards and arbitration panels, there are important differences in the way in which they function and the impact of any final determination or award:

  • arbitration tribunals issue an award, which is final and binding on the parties, whereas dispute board decisions or recommendations can be challenged by one of the parties and as a result the dispute proceeds afresh to either arbitration or litigation
  • arbitration awards are enforceable in most jurisdictions worldwide pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Enforcement of dispute board decisions and recommendations is less straightforward. There is no equivalent to the New York Convention, and if one party refuses to comply with a dispute board determination, the dispute board institutional rules typically provide for the issue of the failure to comply with the determination to be referred to arbitration or litigation
  • dispute boards are typically designed to address disputes as they arise during the lifetime of the contract, in theory allowing the parties the opportunity to continue with a functional contractual relationship and, in the case of a large-scale construction or infrastructure project, allowing the project to remain on schedule. In contrast, arbitration proceedings can sometimes (but not always) result in relatively lengthy proceedings and a severing or suspension of the contractual relationship
  • dispute board panellists can come from a range of professional backgrounds (including, for example, engineering), whereas arbitrators are typically lawyers
  • dispute board procedures are typically limited in their scope and duration, meaning that in the event of a complex dispute there is little opportunity for a detailed examination of evidence and full legal pleadings

Advantages and disadvantages of using dispute boards

As with any type of alternative dispute resolution, the dispute board procedure comes with advantages and disadvantages.

Advantages of dispute boards include:

  • in the case of standing boards, close familiarity of panellists with the underlying contract project
  • a focus on facilitating the continuation of the project despite any relatively minor disputes (in other words, helping to prevent a minor dispute from disrupting, stalling and perhaps ruining the entire project)
  • relatively quick and therefore often less costly proceedings (in comparison to arbitration and litigation)
  • industry expertise of dispute board panellists

Disadvantages of dispute boards include:

  • the often perceived need to quickly resolve the dispute and allow the project to continue can result in what is sometimes labelled 'rough justice'
  • the process, while not as lengthy as arbitration or litigation proceedings, still requires the disputing parties to incur the costs of the dispute board panellists and perhaps external legal counsel
  • the relatively short proceedings means that the process does not always result in full examination of the facts and pleading of the dispute to the extent there would be such examination and pleading in arbitration or litigation
  • the determination or recommendation may reflect a compromise between the parties' positions rather than a firm, final award in favour of one party or another (although, this could equally be an advantage in the right circumstances)

The above advantages and disadvantages will be amplified by the particular contractual context and should be considered in light of the anticipated contractual relationship between the parties and execution of the underlying contract project.

 Conclusion

Dispute boards can be a useful mechanism for resolving disputes, which arise during the lifetime of a contract, in particular in the context of international construction and infrastructure projects. They offer the opportunity to appoint a mixture of lawyers and industry specialists, and depending on the dispute board rules adopted can result either in recommendations that can help guide the parties prior to becoming binding, or interim-binding decisions, which provide a more immediate, firm ruling on where the parties stand. Dispute boards offer an opportunity for contractual parties to work together and negotiate outcomes of relatively minor disputes so that all parties involved may benefit from a successful contractual project.

It is important for parties and their lawyers to assess at the outset of a project whether to incorporate dispute boards into the contractual documentation. It will depend upon the type of project, the type of contract, and the parties involved. It may be that another form of dispute resolution, such as arbitration, would be more appropriate. It is an issue for parties and their counsel to carefully consider at the earliest possible stage, so that they are prepared to engage with the appropriate dispute resolution mechanism in the event of a dispute (or disputes) later in the contractual relationship.

Produced in partnership with Joseph TiradoMatthew Page and Daniel Meagher of Winston & Strawn LLP

This article was first published on Lexis®PSL Arbitration on 7 November 2013. Click here for a free 24 trial of Lexis®PSL.

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About the author:

Barry specialises in international arbitration and commercial litigation. He trained and practised at Jones Day before joining Pinsent Masons. At LexisNexis, Barry is Head of Arbitration and Head of the Lexis®PSL Dispute Resolution Group.

In practice, Barry’s work included commercial, aviation and technology arbitrations pursuant to international arbitral rules, involving UK and international clients. He also has a background in general commercial, civil fraud and IT litigation, including experience before the High Court. While in private practice, Barry worked with a broad range of clients from the private and public sectors.

At LexisNexis, when not focused on the strategic development and operational requirements of the Dispute Resolution Group, Barry’s content work focuses on the law and practice of international commercial arbitration and investment treaty arbitration. In addition to his work for Lexis®PSL, Barry contributes to the LexisNexis Dispute Resolution Blog and New Law Journal on litigation and arbitration matters