Chern on Dispute Boards

Cyril Chern

• Publisher: Wiley
• Year: 2011
• ISBN:
  9781119951995
• Edition: 2
• Topic: Technologie et ingénierie
• Subtopic: Ingénierie civile

A dispute board is a panel of impartial members, appointed at the outset of the construction contract, whose purpose is to monitor progress, resolve disputes as they arise and provide a forum for discussing difficult matters.
This book provides an in depth analysis of dispute board law and detailed, practical explanations of how dispute boards work in construction contracts for those actively involved. as well as for those who need to learn the process. Important features of the book include:

Explanation of how a dispute board works: Insider knowledge of board operations: Key documents to run a dispute board: Detailed discussion of dispute board law (covering key jurisdictions worldwide): Forms of practice and procedure, and sample documents

Reviews of the previous edition

"Chern's book provides an extremely practical guide, covering not only an introduction to the process but also providing check lists and sample documentation.... This book will be welcome by practitioners in the area and newcomers to the dispute board process."
— The International Journal of Arbitration, Mediation and Dispute Management, November 2009

"This book will provide a very useful, perhaps essential, guide to parties commissioning large capital construction projects, those advising them and those bidding to carry out such works, and importantly, the project funders."
— The Expert & Dispute Resolver

"This is a must-have book for grown up contractors"
— Tony Bingham, Building

"His timely work …concentrating on what may prove to be the primary means of dispute resolution for major international construction projects is to be welcomed."
— HHJ Humphrey Lloyd, QC, The International Construction Law Review

"This excellent book on Dispute Boards is a must for every construction lawyer, engineer, architect and contractor who is either involved in Dispute Boards or wants to be"
— Herbert Wilson, The Journal of the Dispute Board Federation

Chapter 1

The Dispute Board Concept

Worldwide, substantial sums of money are transferred with great trepidation several hundred times annually from municipalities to construction engineering firms. This is because statistically the construction industries have a high rate of disputes and delay, and until recently these have not been easily resolved without recourse to lengthy arbitrations or worse yet to the courts.

In 1986 Lord Donaldson, one of England’s great judges, put it best when he said:

‘It may be that as a judge I have a distorted view of some aspects of life, but I cannot imagine a civil engineering contract particularly one of any size, which does not give rise to some disputes. This is not to the discredit of either party to the contract. It is simply the nature of the beast. What is to their discredit is that they fail to resolve those disputes as quickly, economically and sensibly as possible.’

The ‘nature of the beast’ is changing, however, thanks in great measure to the use of dispute boards. As an example, the Ertan Hydroelectric Dam in China valued at US$2 billion¹ had 40 disputes referred to its dispute review board for decision and no decision of this dispute board went on to arbitration or litigation of any kind. The Hong Kong International Airport valued at US$15 billion had six disputes referred to its dispute board and of those only one went on to arbitration, at which time the decision of the dispute review board was upheld, and the Katse Dam in South Africa valued at US$2.5 billion had 12 disputes referred to its dispute board and of these only one went on to arbitration where, again, the decision of the dispute review board was upheld. In each instance, the dispute board did resolve those disputes as quickly, economically and sensibly as possible.

Dispute boards work, and sometimes their mere presence and the ability of the dispute board members to give informal opinions before any dispute even arises can be of immense assistance. A good example of this in the United Kingdom is the Docklands Light Railway valued at US$500 million, where no disputes ever fully arose or were submitted to the dispute board, or the Saltend Private Gas Turbine Power Plant in the north of England valued at US$200 million, where both the number of disputes referred to the dispute board and the number that went to arbitration were zero. Needless to say, such statistics were unheard of in the construction industry before the advent of the dispute board.

What Is a Dispute Board?

In the scheme of dispute resolution, the methods most familiar are either arbitration or a court trial. In both you have a ‘judge’, be it an actual judge or an arbitrator chosen by the parties, and in each the ‘judge’ is presented with evidence of an event or set of events that have happened in the past which have caused a dispute and which now the parties hope to resolve. A similar method is adjudication, where the title ‘judge’ is substituted with the title ‘adjudicator’. Here the adjudicator again reviews events from the past to come to a decision in the same way that a ‘judge’ or arbitrator does, but usually on a shorter time schedule. Following along this line we come to dispute boards. A dispute board is different in a number of ways. For starters, it is specific to the ‘job-site’ and as a dispute adjudication process it typically comprises three independent and impartial persons (adjudicators) selected by the contracting parties. The significant difference between dispute boards and most other alternative dispute resolution techniques (and possibly the reason why dispute boards have had such success in recent years) is that the dispute board is appointed at the commencement of a project, before any disputes arise and before any events have occurred which would lead to any dispute, and by undertaking regular visits to the site it is actively involved throughout the project (and possibly any agreed period thereafter).

A dispute board becomes a part of the project administration and thereby can influence, during the contract period, the performance of the contracting parties. In contrast to other methods of dispute resolution in the construction industry, a dispute board acts in ‘real-time’ as compared with dealing with events in the far distant past, such as in court proceedings and arbitrations. The idea behind a standing dispute board is that it may be called upon early in the evolution of any dispute, which cannot be resolved by the parties, and asked to publish decisions or recommendations on how the matters in issue should be resolved. It is usual (but not compulsory) that an opportunity remains for the matter to be referred to arbitration or to the courts if the dispute board’s decision does not find acceptance by the parties. Thus a dispute board may be likened to the UK’s adjudication process, either under statutory-compliant contracts or under the regime established by statute itself.² What a dispute board does that UK statutory adjudication does not do is to provide a regular and continuing forum for discussion of difficult or contentious matters; to identify ways forward by acting in an informal capacity and to create valuable opportunities for the parties to avoid disputes by keeping proactive communication alive. Another aspect, which is less often discussed, is that by establishing a dispute board from the inception of the project, the dispute board members become part of the project team and are thought of in a different fashion, and because of their ‘hands-on’ approach they can be trusted to be fair and impartial and their advice is respected and taken more readily than would be the case with a third party or stranger to the project.

The term ‘dispute board’ is a generic term that includes (a) the dispute review board (DRB), which is a device that originated in the USA (and continues to be used most often there) and provides non-binding recommendations; (b) the dispute adjudication board (DAB), which is a device emerging from the earlier USA model, but which provides a decision that has interim-binding force and which is used most everywhere else in the world except the USA; and (c) the combined dispute board (CDB), which is a hybrid of dispute review boards and dispute adjudication boards and was created by the International Chamber of Commerce (ICC) in 2004. Various other terms have been used, such as dispute settlement panel, dispute mediation board, dispute avoidance panel, dispute resolution board and dispute conciliation panel. Fundamentally these different varieties of dispute review devices are the same, each providing early adjudication based on the contractual bargain between the parties.

A dispute board is a creature of contract; the parties establish and empower a dispute board with certain jurisdiction to hear and either advise on the resolution of disputes or to make decisions on the disputes presented – hence the difference between a dispute review board and a dispute adjudication board. Within the UK it is entirely possible for the contracting parties to establish a dispute adjudication board to adjudicate construction contract disputes within the statutory requirement for adjudication.³ As yet, there are no statutory requirements for dispute review boards to be established to adjudicate disputes under construction contracts.

While the origins of dispute boards are found in the construction industry, their ambit is far wider than construction and dispute boards are now found in the financial services industry, the maritime industry, long-term concession projects and operational and maintenance contracts. The scope for dispute boards is substantial. The emergence of the ICC as an active supporter of dispute boards,⁴ as well as the Dispute Board Federation (DBF)⁵ and the Dispute Resolution Board Foundation (DRBF), makes it highly probable that dispute boards will be established in a range of industries that, until now, have not used adjudication to any great extent.

What Makes a Dispute Board Unique? What Can Be Achieved by Using a Dispute Board?

The construction industry has a reputation for disputes and conflict. Anecdotal evidence from Australia, as just one example, indicates that 50 per cent of all legal costs associated with construction are expended in connection with disputes. In almost 10 per cent of projects, between 8 and 10 per cent of the total project cost was legal cost. Not surprisingly, these projects have a high incidence of disputes. This expenditure, which globally represents an enormous sum each year, does not begin to take into account the hidden costs of disputes: the damage to reputations and commercial relationships, the cost of time spent by executive personnel and the cost of lost opportunities. The situation is aggravated by the increased use of joint ventures, both in consulting and in contracting. Such organisations are less autonomous and perhaps less able to negotiate settlements of their contractual problems.

Every construction project is unique and perhaps this is why there is a general absence of ‘corporate memory’ in the construction industry. Regrettably, similar-type disputes arise on many construction projects and it is naive to think we can eradicate disputes by clever contract drafting alone. Differences will occur, many of which will involve sizeable sums of money and thus provide fertile ground for disputes to arise. What parties want is a dispute-solving device that is considered fair, is economic and will cause the least damage to the full performance of the contract. This is especially true for large projects, where contract periods are lengthy and good interparty relationships are important to satisfactory performance.

Contracts do not always provide the necessary mechanisms to determine entitlements with certainty. Many disputes concern ‘non-absolute’ matters and, in such cases, the dispute board can devise solutions which avoid ‘win–lose’ situations whilst keeping within the contractual boundaries. Working relationships are less injured and site-level partnering can continue.

Recommendations vs Binding Decisions

When dispute boards first came into play about 20 years ago, they were created to ease the construction of projects which had both employers and contractors from different jurisdictions, different legal systems and differing standards of practice. Disputes arose, but rather than having a ruling on who was right or wrong, it was felt better to have experienced individuals – experienced in construction and construction contracts – review the situation and offer their opinion of what the difficulty was and perhaps a way forward to resolve the problems between the Employer and the Contractor. Thus the ‘recommendation’ form of a dispute board was born. Neither party had anything to fear from the dispute board, for all that would come from them was a recommendation. This quickly developed a step farther and the recommendations given would become binding after a certain period of time, unless objected to. This method also allowed the parties time to reflect on the comments made by the dispute board and to determine if their ‘suggestions’ were viable, and if so they became the rule: that is, a decision was made that would become binding. This then naturally led to the current model, which is a binding decision in each instance; a decision that is both binding and actionable immediately. The key differences now follow.

Non-Binding Recommendations

There is much trans-Atlantic debate over the benefits and shortcomings of non-binding recommendations and interim-binding decisions – thus the divide between USA-style dispute ‘review’ boards and the international use of dispute ‘adjudication’ boards. Even if the dispute review board recommendation is contractually ‘non-binding’ (as many still are, particularly in the USA), this does not appear to impair the efficacy of the decision. It is suggested that there are two main reasons for this: first, that if the dispute review board recommendation is admissible in later proceedings (as it often is), the parties know that an arbitrator or judge will be greatly influenced by a decision (on the facts) given by a panel of experienced, impartial construction experts who were familiar with the project during its construction. Thus the parties are likely to accept the recommendation. Secondly, it is unlikely that over the course of a large project the dispute review board will always find in favour of the same party. It is probable that each party will be pleased with certain decisions and if they expect the other party to honour the favourable decisions, they are obliged to accept those that are less than favourable⁶. In many of the early dispute review boards, parties were found to give notice of dissatisfaction with every unfavourable dispute review board recommendation (thereby keeping the matter live), only to drop the proposed arbitration or litigation when the contract was concluded and when close-out negotiations resulted in the dispute review board’s previous decisions being adopted in their entirety by both parties and without demur.⁷

The arguments in favour of non-binding recommendations from dispute review boards include:

(i) They often help parties in resolving a dispute by virtue of the advice the recommendation gives, so long as the parties have respect for the standing and competence of the members of the board.

(ii) Cultural backgrounds may be of influence: for example, in China the tradition of conciliation will often lead to the adoption of the recommendation by the parties to avoid further conflict.

(iii) It is a non-threatening process.

(iv) The preparation for any hearing is less than for other procedures.

(v) Hearings are shorter.

(vi) Hearings are simpler.

(vii) Hearing costs are reduced.

(viii) Experienced parties are very often able to resolve matters based on a recommendation alone.

(ix) In the USA the non-binding recommendation, which normally extends only as far as matters of entitlement and not quantum, generally finds acceptance because neither side is usually eager to pursue the matter through arbitration or the courts.

The arguments against non-binding recommendations from dispute review boards include:

(i) They enable the losing party to postpone the day of reckoning merely by giving the required notice of arbitration.

(ii) The effect of the recommendation may be nil.

Interim-Binding Decisions

By contrast, the interim-binding decision of a dispute adjudication board has meaning, in that the dispute adjudication board’s decision is contractually to be implemented immediately – even if one or other party is unhappy. Thus the ‘losing’ party will be in breach of contract if it does not pay/grant time in accordance with the dispute adjudication board decision.

The arguments in favour of binding decisions from dispute adjudication boards include:

(i) If necessary, they may be enforced by legal processes (these may not be without difficulty depending on jurisdiction, and this is discussed in later Chapters).

(ii) The binding nature of the decision w...

Table of contents

• Cover
• Chern on Dispute Boards
• Title page
• Copyright page
• The Author
• Preface
• Acknowledgements
• Chapter 1 The Dispute Board Concept
• Chapter 2 Types of Dispute Boards
• Chapter 3 Legal Basis for Dispute Boards
• Chapter 4 Case Histories
• Chapter 5 Appointing and Establishing a Dispute Board
• Chapter 6 Selection of a Dispute Board
• Chapter 7 Referral to a Dispute Board
• Chapter 8 Elements of a Referral
• Chapter 9 Site Visits
• Chapter 10 The Hearing Process
• Chapter 11 Board Member Conflicts
• Chapter 12 Removal of Board Members
• Chapter 13 Dispute Boards – Use, Training and Current Practice
• Chapter 14 Development Banks
• Chapter 15 Additional Forms
• Appendix 1 FIDIC (Red Book) Conditions of Contract for Construction
• Appendix 2 FIDIC (Yellow Book) Conditions of Contract for Plant and Design-Build
• Appendix 3 FIDIC (Silver Book) Conditions of Contract for EPC Turnkey Projects
• Appendix 4 FIDIC (Gold Book) Conditions of Contract for Design, Build and Operate Projects
• Appendix 5 Dispute Board Rules of the International Chamber of Commerce
• Appendix 6 Sample Oaths and Affirmations
• Appendix 7 The Dispute Board Federation Dispute Adjudication Board Ad Hoc Rules for Use in Independently Administered Dispute Board Matters
• Resources
• Table of Cases
• Index