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ADR WEDNESDAY: Dispute Boards: Do they have a future beyond construction disputes? 2017-02-22

Dispute Boards: Do they have a future beyond construction disputes?

What are Dispute Boards?

In dispute resolution practice, the term ‘Dispute Board’ (DB) refers to a panel of experts chosen by the contracting parties to assist them on the resolution of disputes arising during the performance of the contract.

A Dispute Board can be set on an ad hoc or standing basis. In the first case, a DB is constituted when a dispute between the parties arises, whereas in the second (and more frequent) - upon the conclusion of the contract, before there are any disputes, hence the DB acts as an ‘on-site’ and ‘quick-response’ dispute avoidance and resolution mechanism.

Dispute Boards typically consist of one or three ‘suitably qualified and experienced persons’, with both technical and legal background, impartial and independent of the parties, yet selected by the parties in the why that their qualifications reflect the subject matter of the contract.

There are two most common types of Dispute Boards: Dispute Review Boards (DRBs) and Dispute Adjudication Boards (DABs). The key distinguishing feature between them is the effect of their determinations. Namely DRBs issue only non-binding recommendations on how the referred matter should be settled, whilst DABs are empowered to issue binding decisions, the non-performance of which constitutes a breach of the contract.

The Dispute Boards’ Origins

The earliest use of Dispute Boards (in a form of DRBs) occurred in the United States in the 1970s in the setting of large scale public works projects. The practice developed as a result of doubts regarding the Engineer’s role as an impartial and independent decision maker, based on the position of an Engineer in the project, including the fact that he is appointed and remunerated by the Employer pursuant to a separate agreement.

Dispute Boards quickly gained popularity also in Europe and Asia. Consequently, in 1999 the International Federation of Consulting Engineers (FIDIC) introduced the proceedings before the DABs to its Suite of Contracts (FIDIC Red, Yellow and Silver Books (1999)), making them a part of the dispute resolution process provided by clause 20 ("Claims, disputes and arbitration"). In this way, for over a decade the FIDIC Suite of Contracts played a significant role in promoting Dispute Boards as an efficient dispute avoidance and adjudication tool[1], well suited especially to construction disputes arising out of the large-scale international projects.

What if not construction disputes?

Although originating in the construction and infrastructure industry, there are more and more voices in favour of using Dispute Boards in other areas of economy, including industries such as energy, defense, telecommunications, insurance and finance, to name a few. This is particularly the case in the context of any medium or long term complex contractual relationships, such as: concession agreements, join venture agreements, public-private partnership contracts, production sharing agreements, supply contracts, contracts for software development, license agreements, telecommunication agreements, insurance agreements and financial agreements.

The opportunities for Dispute Boards’ application are therefore enormous. This has been confirmed by the International Chamber of Commerce (ICC) which extended the scope of its Dispute Board Rules to commercial agreements in general. Yet, as for now, the frequent lack of understanding of the DB’s concept by the lawyers and businesspeople as well as the (mis)perception of significant  costs diminish its widespread application. Hopefully this will change once representatives of both private and public sector identify the benefits of establishing Dispute Boards and start to see them as a cost-effective risk insurance policy providing cover for all types of disputes that can affect not merely the proper performance of the contract, but also the parties’ future relationships.

[1] The DAB’s role in avoiding disputes has been indicated by the change of the name of the DAB to “Dispute Avoidance/Adjudication Board” in the newest 2nd Edition of the Yellow Book (2017).

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