Nicholas Gould in an extract from a paper given to the DRBF 6th Annual International Conference in Budapest on 6-7 May 2006 discusses the establishment of dispute boards and focuses on selecting, nominating, appointing and establishing dispute boards. Consideration is given not just to the legal issues and standard form provisions available, but also to the practical issues and difficulties of identifying and appointing board members for international projects.
From a practical perspective, the challenge for the parties is to establish a dispute board at the outset of the project, rather than waiting for a dispute to arise. There is a need to identify, consider and agree the identity of appropriate individuals for the project, as well as to consider independence and impartiality, and establish, and be seen to establish, a level playing field for the contractor and employer or owner.[1] The identification of individuals with appropriate skills, experience and qualifications, especially in relation to the dispute board chair, can be difficult and time consuming. However, the parties must overcome these issues in order to appoint a dispute board (DB).[2]
Those who do not appoint their DB at the outset, or in the early stages of the project, find that it is far more difficult to identify, agree upon and appoint a board once a dispute has arisen. Nonetheless, many DBs are appointed once a dispute has arisen, which in many instances is too late for the board to be effective in the management and resolution of disputes during the course of the project.
A brief overview of dispute boards
The use of the term “dispute boards” (DBs) is relatively new. It is used to describe a dispute resolution procedure which is normally established at the outset of a project and remains in place throughout the project’s duration. It may comprise one or three members who become acquainted with the contract, the project and the individuals involved with the project in order to provide informal assistance, provide recommend-dations about how disputes should be resolved, and provide binding decisions. The one person or three person DBs are remunerated throughout the project, most usually by way of a monthly retainer, which is then supplemented with a daily fee for attending site visits and dealing with issues that arise between the parties by way of reading documents and attending hearings and producing written recommendations or decisions if and as appropriate.
The term has more recently come into use because of the increased globalisation of adjudication during the course of projects, coupled with the increased use of Dispute Review Boards (DRBs), which originally developed in the domestic USA major projects market. DRBs were apparently first used in the USA in 1975 on the Eisenhower Tunnel. As adjudication developed, the World Bank and FIDIC opted for a binding dispute resolution process during the course of projects, and so the Dispute Adjudication Board (DAB) was borne from the DRB system; the DRB provides a recommendation that is not binding on the parties.
The important distinction then between DRBs and DABs is that the function of a DRB is to make a recommendation which the parties voluntarily accept (or reject), while the function of a DAB is to issue written decisions that bind the parties and must be implemented immediately during the course of the project. The DRB process is said to assist in developing amicable settlement procedures between the parties, such that the parties can accept or reject the DRB’s recommendation. Genton, adopting the terminology of the International Chamber of Commerce (ICC), describes the DAB approach “as a kind of pre-arbitration requiring the immediate implementation of a decision”.[3] He goes on to state that:
“the DRB is a consensual, amicable procedure with non-binding recommendations and the DAB is a kind of pre-arbitration step with binding decisions.”[4]
Building upon this distinction, the ICC has developed three alternative approaches:
- Dispute Review Board: the DRB issues recommendations in line with the traditional approach of DRBs. An apparently consensual approach is adopted. However, if neither party expresses dissatisfaction with the written recommendation within the stipulated period, then the parties agree to comply with the recommendation. This recommendation therefore becomes binding if the parties do not reject it.
- Dispute Adjudication Board: the DRB’s decision is to be implemented immediately.
- Combined Dispute Board (“CDB”): this attempts to mix both processes. The ICC CDB rules require the CDB to issue a recommendation in respect of any dispute, but it may instead issue a binding decision if either the employer or contractor requests and the other party does not object. If there is an objection, the CDB will decide whether to issue a recommendation or a decision.
The “standard form” procedures that are available have principally arisen from the sequential development of adjudication:
- 1970: A contractual adjudication process was introduced into the domestic subcontractor standard forms in the UK in order to primarily resolve set-off issues between the contractor and main contractor.
- 1994: Latham issues his final report
- reviewing procurement and contractual arrangements in the construction industry.
- 1995: FIDIC introduced a DAB in its Orange Book.
- 1996: FIDIC introduced as an option the DAB in the Red Book.
- 1996: The Housing Grants, Construction & Regeneration 1996 (“HGCRA”) included adjudication provisions in Section 108. Legislation introduced on 1 May 1998.
- 1999: FIDIC adopted a DAB/Dispute Review Expert (“DRE”) procedure in favour of the additional approach of relying upon the engineer acting as the quasi-arbitrator as well as an agent of the employer or owner. The DAB procedure became mandatory rather than an option.
- 2000: The World Bank introduced a new edition of Procurement of Works which made the “Recommendations” of the DRB or a DRE mandatory unless or until superseded by an arbitrator’s award.
- 2002: ICC Task Force prepared draft rules for DBs.
- 2004: The World Bank, together with other development banks, and FIDIC started from May working towards a harmonised set of conditions for DAB.
- 2004: ICE published a DB procedure. Designed to be compliant with the HGCRA.
FIDIC DAB (Clause 20)
Clause 20 of the FIDIC form deals with claims, disputes and arbitration. Emphasis is placed upon the contractor to make its claims during the course of the works and for disputes to be resolved during the course of the works. Clause 20.1 requires a contractor seeking an extension of time and/or any additional payment to give notice to the engineer “as soon as practicable, and not later than 28 days after the event or circumstance giving rise to the claim”.
Some have suggested that the contractor will lose its right to bring a claim for time and/or money if the claim is not brought within the timescale.[5] Under UK law this seems unlikely given that timescales in construction contracts are generally directory rather than mandatory,[6] and also because Clause 20.1 does not go on to clearly state that the contractor will lose its right in the event of a failure to notify within a strict timescale.[7] Nonetheless, a contractor would be well advised to notify in writing any requests for extensions of time or money claims during the course of the works and within a period of 28 days from the event or circumstances giving rise to the claim.
The benefit then of the DAB is that it should be constituted at the commencement of the contract, so that its members will visit the site regularly and be familiar not just with the project but with the individual personalities involved in the project. They should, therefore, be in the position to issue binding decisions within the period of 84 days from the written notification of a dispute pursuant to clause 20.4.
The DAB is appointed in accordance with clause 20.2. It could comprise individuals who have been named in the contract. However, if the members of the DAB have not been identified in the contract, then the parties are to jointly appoint a DAB “by the date stated in the Appendix to Tender”. The DAB may comprise either one or three suitably qualified individuals. The appendix to the FIDIC contract should identify whether the DAB is to comprise one or three people.
The appendix does not provide a default number, but clause 20.2 states that the parties are to agree if the appendix does not deal with the matter. If the parties cannot agree, then the appointing body named in the appendix will decide if the panel is to comprise one or three members.[8] The default appointing authority is the president of FIDIC, or a person appointed by the president of FIDIC. The appointing authority is obliged to consult with both parties before making its final and conclusive determination.
On most major projects a DAB will comprise three persons. If that is the case, then each party is to nominate one member for approval by the other. The parties are then to mutually agree upon a third member who is to become the chairman. In practice, parties may propose a member for approval, or more commonly propose three potential members allowing the other party to select one. Once two members have been selected, it is then more common for those members to identify and agree upon (with the agreement of the parties) a third member. That third person might become the chairman, although, once again with the agreement of all concerned, one of the initially proposed members could be the chairman.
The terms of the General Conditions of Dispute Adjudication Agreement are incorporated by reference on clause 4 of the Dispute Adjudication Agreements. The retainer fee and daily fee of each member is set out in both the Dispute Adjudication Agreements. The employer and contractor bind themselves jointly and severally to pay the DAB member in accordance with the General Conditions of the Dispute Adjudication Agreement. Details of the specific FIDIC contract between the employer and contractor also need to be recorded, as it is from this document that the employer and contractor agree to be bound by the DAB and it is also from this document that the DAB obtains its jurisdiction in respect of the project.
Selecting the board members
The appendix to the FIDIC General Conditions of Dispute Adjudication Agreement provides a tripartite General Conditions of Dispute Adjudication Agreement. It is tripartite in the sense that it is entered into between the employer, Contractor and the sole member or three members of the DAB.
The engagement of a member for the DAB is a personal appointment. If a member wishes to resign then a member must give at least 70 days’ notice. Members warrant that he or she is and shall remain impartial and independent of the employer, contractor and engineer. A member is required to promptly disclose anything which might impact upon their impartiality or independence.[9]
The general obligations of a member of the DAB are quite extensive. Clause 4 requires that a member shall:
- have no financial interest or otherwise in the employer, the contractor or the engineer;
- not previously have been employed as a consultant by the employer, contractor or engineer (unless disclosed);
- have disclosed in writing any professional or personal relationships;
- not during the duration of the DAB been employed by the employer, contractor or engineer;
- comply with any Procedural Rules;
- not give advice to either party;
- not whilst acting as a DAB member entertain any discussions with either party about potential employment with them;
- ensure availability for a site visit and hearings;
- become conversant with the contract and the progress of the works;
- keep all details of the Contract and the DAB’s activities and hearings private and confidential; and
- be available to give advice and opinions if and when required by the employer and contractor.
From the Agreement and the general obligations, it is possible to identify key considerations in respect of each potential individual board member. These include:
- neutrality;
- impartiality;
- independence;
- disclosure;
- qualifications;
- experience;
- availability; and
- confidentiality.
To take one of these, impartiality: undoubtedly, when a contractor and an employer put forward potential DB members they will already know, and perhaps have some form of relationship with, those candidates. The question then of whether those candidates are neutral, or to be more precise, impartial, can be reduced to a question of a perception of bias. The leading case under English law is the House of Lords Decision in John Magill v (1) David Weeks (2) Dame Shirley Porter[10].
In that case an auditor found two councillors guilty of wilful misconduct by devising or implementing a policy of targeting designated sales of council property. The key question to consider, according to the House of Lords, was not whether the councillors were in fact biased, but whether at the time the decision maker in question gives a decision that a fair-minded and independent observer having considered the facts might conclude that there was a real possibility that the decision maker was biased. The test is a useful one in that it draws a distinction between the need to prove actual bias and the appearance of a potential bias based upon the circumstances at the time when the decision was made. In practice, this means that the judge or judges considering the issue of impartiality must decide whether an independent and fair-minded observer would consider the decision maker biased but of course based upon the judge or judges’ perceptions.
Magill v Porter related to council members. It is equally applicable to tribunals. In respect of judges, any test for apparent bias is whether the circumstances would lead a fair-minded and informed observer to come to the conclusion that there was a real possibility that the tribunal was biased.[11] If the principle of judicial impartiality had been, or would be, breached, then the judge would be automatically disqualified from hearing a case or dealing further with the case.
In the infamous case involving General Augusto Pinochet, the House of Lords ruled that the links between Lord Hoffman – who sat on the original panel that ruled to allow General Pinochet’s extradition – and the human rights group, Amnesty International, were too close to allow the original panel’s verdict to stand.[12] Lord Hoffman had failed to declare his links with Amnesty International before ruling in the original hearing. Lord Hoffman was a chairman and a director of Amnesty International Charity Limited. Lord Hope stated that in view of Lord Hoffman’s links “he could not be seen to be impartial”. Although it was not suggested that Lord Hoffman was actually biased, his relationship with Amnesty International was seen to be such that, he was, in effect, acting as a judge “in his own cause”.
In respect of adjudication, this approach has been applied in the case of Amec Capital Products Limited v Whitefriars City & Estates Limited18[13] In that case, Amec applied under Part 8 of the Civil Procedure Rules to enforce an adjudicator’s decision. The JCT 1998 Edition with Contractor’s Design provided for the appointment of a named adjudicator.
The issues that arose at the Court of Appeal were:
- the scope of the appointment clause in the contract;
- whether there was a breach of natural justice by the adjudicator deciding something that he had already decided;
- whether there was an appearance of apparent bias carrying forward legal advice from the first decision to the second;
- whether the adjudicator had failed to deal with an issue in respect of clause 27 in his decision;
- whether a telephone conversation amounted to an appearance of bias;
- whether advice in respect of his jurisdiction amounted to an appearance of apparent bias; and
- whether the possibility of a claim against the adjudicator could amount to the appearance of bias on behalf of the adjudicator.
The carrying forward of a decision in respect of principally the same dispute (albeit that the first decision was a nullity) did not in itself create an appearance of bias. At paragraph 19 Lord Justice Dyson stated:
“The question that falls to be decided in all such cases is whether the fair-minded and informed observer would consider that the tribunal could be relied on to approach the issue on the second occasion with an open mind, or whether he or she would conclude that there was a real (as opposed to fanciful) possibility that the tribunal would approach its task with a closed mind, predisposed to reaching the same decision as before, regardless of the evidence and arguments that might be adduced.”
He held, at paragraph 20, that:
“In my judgment, the mere fact that the tribunal has previously decided the issue is not of itself sufficient to justify a conclusion of apparent bias … It would be unrealistic, indeed absurd, to expect the tribunal in such circumstances to ignore its earlier decision and not to be inclined to come to the same conclusion as before, particularly if the previous decision was carefully reasoned. The vice which the law must guard against is that the tribunal may approach the rehearing with a closed mind… He will, however, be expected to give such reconsideration of the matter as is reasonably necessary for him to be satisfied that his first decision was correct.”
The adjudicator had considered the matter again and therefore was not biased.
The legal advice that he had received in the first decision did not deal with clause 27, and therefore an informed third party would not consider that the adjudicator was biased because the issue of clause 27 was not dealt with in the initial legal advice. Further, the adjudicator did not deal with clause 27 in his decision and therefore there was no basis upon which any bias could be founded. Whitefriars had not made any submissions on clause 27 during the adjudication and so could not raise the issue now.
The allegation that the note of the telephone conversation between the adjudicator and legal advisers for AMEC was incomplete could not be supported as there was no evidence. The Court of Appeal stated that telephone calls should be avoided, but the telephone call in this case did not present a problem.
Of particular interest is the decision in respect of the application of natural justice to the adjudicator’s conclusion that he did or did not have jurisdiction. As the adjudicator did not have jurisdiction to rule on his own jurisdiction, natural justice was not applicable. This was because the court was to decide whether the adjudicator had jurisdiction, and the conclusion reached by the adjudicator could not affect a party’s rights. In this respect Lord Justice Dyson at paragraph 41 stated:
“A more fundamental question was raised as to whether adjudicators are in any event obliged to give parties the opportunity to make representations in relation to questions of jurisdiction. The reason for the common law right to prior notice and an effective opportunity to make representations is to protect parties from the risk of decisions being reached unfairly. But it is only directed at decisions which can affect parties’ rights. Procedural fairness does not require that parties should have their rights to make representations in relation to decisions which do not affect their rights, still less in relation to ‘decisions’ which are nullities and which cannot affect their rights. Since the ‘decision’ of an adjudicator as to his jurisdiction is of no legal effect and cannot affect the rights of the parties, it is difficult to see the logical justification for a rule of law that an adjudicator can only make a ‘decision’ after giving the parties an opportunity to make representations.”
Finally, the Court of Appeal considered whether the threat of a claim against the adjudicator for continuing with the adjudication when perhaps the adjudicator did not have jurisdiction might support an allegation of bias. Lord Justice Dyson referred to paragraph 26 of the Scheme stating that the adjudicator was immune from a claim, save in respect of bad faith. He therefore concluded that a fair-minded third-party observer would not consider that a threat of litigation against the adjudicator would make the adjudicator biased because the adjudicator enjoyed immunity from litigation save in respect of certain circumstances.
The Dispute Resolution Board Foundation provides some guidance for DB members during the course of their service or serving on the DB and then must not:
- be employed, either full-time or as a consultant, by any party that is directly involved in the contract, except for service as a DRB member on other contracts;
- be employed, either full-time or as a consultant, by any party that is indirectly involved in the contract, unless specific written permission for the other party is obtained; and
- participate in any discussion regarding future business or employment, either full-time or as a consultant, with any party that is directly or indirectly involved in the contract, except for services as a DRB member on other contracts, unless specific written permission from the other party is obtained.
How are board members selected in practice?
It may be cynical to suggest that the selection of board members in practice is somewhat limited by the sphere of appropriate individuals known to the key decision makers and the perception that a board member should be disposed towards the party nominating him or her. Some employers and contractors consider that the member nominated by them should perhaps decide all issues in their favour, or even act as an advocate “on the inside”.
An informed employer would consider the issues raised above, and when considering a nomination identify a series of attributes that should be displayed by any potential candidate. Some of these attributes should apply to all DB members, whilst others would be project dependent. So, for example, all potential DB members should be impartial (although a nominating party may hope for impartiality), while the type of project and construction techniques will dictate the final profile of the individual sought.
A list of potential attributes based upon the above factors, and a list provided by the Dispute Review Board Foundation, should include:
- complete objectivity, neutrality and impartiality as a fact;
- independence (in the objective, freedom from financial ties sense);
- no conflict (in other words, passing the “perception of bias” test, which could be said to be distinct from the fact position in 1 and 2 above);
- experience in the type of project (for example, hydroelectric power station, as distinct from other forms of power station);
- experience with the types of construction technique (which may be peculiar to that particular project);
- experience with interpretation of contract documentation, the standard forms that might be applicable and sufficient legal understanding to deal with bespoke forms or amendments or interpretation issues;
- experience in the substantive law (desirable, although not necessary for all members of the panel);
- experience with the procedural rules of the DB;
- experienced training and understanding of the DB process;
- experience with the resolution of construction disputes;
- availability;
- a dedication to the objectives of the DB process; and
- well-developed communication skills, both orally and written.
In addition, the potential chairperson should be selected perhaps because they have chaired DBs before, but predominantly because they have experience in dealing with adversarial situations, the ability to run meetings effectively, and, in particular, conducted meetings in difficult circumstances.
Identifying potential board members
Potential board members could be identified from:
- existing DB members or other appropriate professionals who might be able to serve as DB members identified by the employer or employer or the project team;
- requests to the employer, or project team organisations in order to see whether any individuals may have experience of appropriate DB members. This may result in a recommendation, which may be that such a person is appropriate or, indeed, inappropriate;
- contacting one’s own professional institution, whatever that may be; and
- considering formal published lists from the DRBF, ICC, FIDIC or the ICE has recently begun to form a list of potential DB members.
The process of selection
Ideally, any party nominating a range of DB members for selection and then appointment should thoroughly and carefully investigate those individuals. Any potential DB members who are not appropriately qualified or would in any event be rejected because of a perception of bias, should have been identified and eliminated from the list.
The ideal situation is for the employer and contractor to agree upon all three members. This would usually require both the employer and contractor to identify a shortlist of individuals and exchange that shortlist in order to select and appoint a panel of three. In an ideal world, at least one of the names on the shortlist would be the same, such that that person could be perhaps the chairperson, and two further “wing members” could then be agreed from the remaining individuals. This is rarely the case in practice.
Selecting the chair
The chairperson could therefore either be identified by the agreement of the parties, or by agreement by the first two DB members nominated, or by agreement between the three appointed DB members.
Ideally, the chairperson should have DB experience, although the majority of DB members acting as chairman have most frequently obtained their dispute resolution experience by acting as arbitrators.
Conclusion
In order to establish a DB, it will be necessary to identify potential appropriate candidates, to nominate them and then to appoint them. Contractors and employers tend not to focus on disputes at the start of projects. DBs are therefore frequently not appointed and established at the commencement of projects. In those projects where a dispute subsequently arises, the contractor and employer will then struggle to agree upon and establish their DB. It is perhaps arguable that the benefits of it are substantially reduced by not having those individuals available at the commencement of the project.
Ideally, the DB should be established before work starts on the site. The DB can then follow the project and deal with any issues that might arise. The identification of appropriate DB members is crucial. Those members will need to be impartial and experienced in a wide range of matters, such as the type of construction in question, interpretation of contract and legal issues. In addition, they will need to have excellent management and communication skills, and be sufficiently available for the duration of the project, and sufficiently available to deal promptly with any disputes that might arise.
[1] In this paper the term employer is used to refer to the employer, owner or purchaser of the works (thus adopting FIDIC terminology).
[2] The term “DB” has been used to refer collectively to dispute boards, dispute adjudication boards, combined dispute boards or dispute resolution boards.
[3] Pierre N. Genton (2003) Dispute Boards.
[4] Ibid., para. 7-029.
[5] Christopher Seppala “Claims of the Contractor”, a paper given at The Resolution of Disputes under International Construction Contracts, ICC, Paris, 6-7 February 2003.
[6] Temloc v Errill Properties (1987) 22 BLR 30 (CA).
[7] Bremer Handelsgesellschaft mbH v Vanden Avenue-Izegem PVBA (1978) 2 Lloyd’s Rep 109 (HL). C/f City Inn Limited v Shepherd Construction Limited (2002) SLT 781, Second Division, Inner House, Court of Session.
[8] Clause 20.3.
[9] Clause 3, Warranty.
[10] [2001] UKH 67.
[11] Taylor v Lawrence (2002) EWCA Civ 90, (2000) QB 528.
[12] R v Bartle and the Commissioner of Police for the Metropolis and Others Ex Parte Pinochet (House of Lords, 24 March 1999).
[13] [2004] EWHC 393 (TCC).
