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Dispute Boards (DBs) are an increasingly common method of resolving contractual disputes during the lifetime of a contract, particularly in the context of long-term contracts.
Following our previous discussion of The use of dispute boards in international disputes, Joe Tirado, Daniel Meagher and Arpan Gupta of Winston & Strawn’s London office discuss the recently issued draft CIArb Dispute Board Rules.
Much like arbitration, DBs may benefit from pre-existing procedural rules or frameworks which can be easily referenced and incorporated into a contract. As a result, a number of institutions have created specialised DB procedural rules, including: 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)).
The Chartered Institute of Arbitrators (CIArb) recently released its draft CIArb Dispute Board Rules (the Draft Rules).The Draft Rules are currently subject to a second round of public consultation, with any comments and feedback due no later than 22 April 2014. CIArb has also released a draft Tripartite Agreement for a Dispute Board (the Draft Agreement) which is similarly open to public consultation.
The Draft Rules allow for resolution of disputes by either a Dispute Review Board (DRB) or a Dispute Adjudication Board (DAB), and provide draft clauses for either. The key difference is that a DRB issues a non-binding recommendation, while a DAB issues a decision which is binding pending further proceedings, if any, to challenge that decision (see below). If either party rejects either a DRB recommendation or a DAB decision, the dispute can then proceed to arbitration or the courts (in accordance with any agreement of the parties). While that arbitration or litigation is pending, the DAB decision is binding on the parties, whereas the DRB recommendation is not.
This level of choice for parties is attractive in that it allows parties a degree of flexibility in selecting a DB process appropriate to their type of contract and any other relevant circumstances. As Article (2)(3) of the Draft Rules points out, the parties will need to insert additional language so as to agree to arbitration or jurisdiction of particular courts.
The Draft Rules also provide that the 'true mission of a Dispute Board is not judicial; rather it is to prevent formal Disputes' (Art 12). In this sense, the Draft Rules encourage parties to refer matters to a DB (whether DRB or DAB) which can then provide an advisory opinion or other informal assistance in resolving the dispute and assisting the parties to continue with the contract project. The commentary to the Draft Rules notes the success of such approaches under the DRBF rules and in the context of dispute boards issuing non-binding recommendations in USA-related construction projects.
This type of guidance for DBs is a welcome attempt to encourage a more engaged dialogue between the parties and a DB, perhaps on an informal basis. The only real difficulty may come from what starts as an informal reference to a DB, where one of the parties then insists on escalating such a dispute to a more formal status. The DB will then need to consider whether to issue informal guidance or a recommendation/decision.
The Draft Rules do not include any provision for the filing of a notice of dissatisfaction, which under some DB rules is a mechanism by which a dissatisfied party can challenge a decision by a DAB and refer the dispute to (usually) arbitration—but that absent such notice, a decision becomes final and binding.
In comments accompanying the Draft Rules, CIArb observed that some non-final DAB decisions have been enforced by arbitral tribunals and courts despite the filing of a notice of dissatisfaction. It also noted that in FIDIC contracts a valid timely notice of dissatisfaction is a condition precedent to arbitration. As a result, CIArb has decided not to include a mechanism for notices of dissatisfaction under the Draft Rules in order to avoid what it refers to as ‘jurisdictional pitfalls’.
Under Articles 3 and 4 of the Draft Rules, the parties have 21 days to accept or reject the recommendation or decision of a DRB or DAB respectively. If one party rejects the recommendation or decision within the time limit, then either party may submit the dispute to arbitration or to the courts (as agreed under the contract).
The Draft Rules and the Draft Agreement together set out the parameters governing appointment and remuneration of the members of a DB.
The guidance accompanying the Draft Rules points out that CIArb recommends standing DBs over ad hoc DBs. As the name implies, standing DBs are those where the members are appointed at the outset of a contractual arrangement and remain in place and available to address minor (or major) disputes which arise during the lifetime of a contract.
CIArb has attempted to encourage the use of standing DBs by emphasising the early establishment of such DBs—either by the date stated in the underlying contract or, if the contract is silent, within 28 days of the effective date of the contract (Article 6(2) of the Draft Rules). If the parties fail to appoint members of a DB, then CIArb shall appoint such members within 28 days of a written request by one or both of the parties (Art 6(5)). It is not immediately clear from the Draft Rules how CIArb would select such members, although Article 7 of the Draft Rules sets out that members of DBs shall have expertise appropriate to the contract in relation to which they are appointed, and should additionally have ‘excellent management and communication skills and be fluent in the language for communications as defined in the Contract or as agreed by the Parties’.
The benefit of encouraging the use of standing DBs is that the individual members of a standing DB have familiarity with the contract project from the outset. Accordingly, they may be able to assist the parties and reach commercial outcomes over any disputes which arise, thereby preventing disputes from escalating into time-consuming and costly arbitration or court proceedings. The down-side is that the cost of such standing DBs can be high. Therefore, it may be that DBs appointed under the Draft Rules will be more suitable for medium to high-value projects.
The Draft Rules also provide for written declarations by prospective members of any conflicts of interest (Art 8). If a member considers himself or herself not to be impartial and independent of the parties despite disclosed facts or circumstances, then the individual must decline appointment or resign (Art 8(4)). Article 8(5) sets out situations in which an individual would be precluded from becoming a member of a DB. The appointment of an individual may be terminated by mutual agreement of the parties.
The one issue which is not clear from Article 8 is the process if one of the parties objects to the disclosed facts or circumstances but despite such objection a DB member refuses to resign. However, given that either a DRB recommendation or a DAB decision are procedurally open to challenge as part of their inherent nature, such refusal to resign may be less of an issue than as in the case of binding arbitral awards which can only be subject to challenge on very narrow grounds.
Finally, the Draft Rules together with the Draft Agreement provide a useful framework for appointment of DB members. The remuneration options under the Draft Agreement are either for a periodic retainer fee plus expenses, or else for payment for services in the event of a dispute.
Overall, the Draft Rules (together with Draft Agreement) are well thought-out and provide an interesting addition to the suite of DB rules currently in existence. Of course, success of such rules will depend on adoption by the parties. Given the relative dominance of certain DB regimes in certain sectors and in certain regions, it will be interesting to see whether users adopt the Draft Rules in the future.
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Produced in partnership with Joseph Tirado, Matthew Page and Arpan Gupta of Winston & Strawn LLP
This article was first published on Lexis®PSL Arbitration on 17 April 2014. Click here for a free trial of Lexis®PSL.
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