Out-Law Guide 5 min. read
03 Jul 2023, 6:12 am
The refocused dispute adjudication board (DAB) under the 1999 FIDIC Red Book has been renamed the dispute avoidance / adjudication board (DAAB). The changes introduced in 2017 go some way towards tackling the difficulties parties may experience when enforcing DAB decisions under the 1999 FIDIC Red Book in circumstances where the other party refuses to comply with that decision.
This is clear from the new title of the board as a dispute avoidance / adjudication board (DAAB) rather than merely a dispute adjudication board as under the 1999 FIDIC Red Book.
Read more on construction disputes under the FIDIC Red Book
Differences between the DAB and DAAB include:
The disputes resolution mechanism under the 2017 FIDIC Red Book essentially retains the same multi-tiered process found in the 1999 FIDIC Red Book, although it is now split over two clauses (Clauses 20 and 21):
Sub-Clause 21.4.3 confirms that both parties are required to promptly comply with a DAAB’s decision regardless of whether a NOD is given, and any payment required as a result of a DAAB decision is immediately due and payable absent a NOD.
Sub-Clause 21.7 is the key clause under the 2017 FIDIC Red Book that addresses the inherent problems with enforcing compliance with a DAB decision under the 1999 FIDIC Red Book, allowing immediate enforcement of a dispute board’s decision that is binding but not final.
This clause provides that:
“[i]n the event that a Party fails to comply with any decision of the DAAB, whether binding or final and binding, then the other Party may, without prejudice to any other rights it may have, refer the failure itself directly to arbitration…[t]he arbitral tribunal…shall have the power…to order, whether by an interim or provisional measure or an award (as may be appropriate under applicable law or otherwise), the enforcement of that decision…[i]n the case of a binding but not final decision of the DAAB, such interim or provisional measure or award shall be subject to the express reservation that the rights of the Parties as to the merits of the Dispute are reserved until they are resolved by an award”.
Sub-Clause 21.7 now makes it clear that:
Compliance with this multi-tiered dispute resolution process under both the 1999 and 2017 versions of the FIDIC Red Book is a condition precedent to arbitration. If the process, including the DAB or DAAB process, is not adhered to, depending on the governing law of the arbitration agreement, this could be considered an issue of jurisdiction or an issue of admissibility.
In states where this is considered a jurisdictional issue, the arbitral tribunal simply does not have the jurisdiction to hear and determine the dispute referred to it. In states where it is an admissibility issue as opposed to a jurisdictional issue, this is less of a problem. Here, the tribunal will have jurisdiction to hear the dispute and can determine the issue of admissibility arising from the failure to comply with the agreed multi-tiered dispute resolution process.
There may be other contractual remedies or modes of recourse available in the case of the other party’s non-compliance with a DAAB decision.
For instance, a contractor may suspend or reduce the rate of work to encourage compliance with the DAAB decision (Sub-Clause 16.1(d)); an employer may encash a performance security to claim for the amount payable by the contractor under a DAAB decision (Sub-Clause 4.2.2(b)); and either party may terminate the contract (Sub-Clauses 16.2.1(d) and 15.2.1(a)) or obtain a further DAAB decision to enforce the initial decision.
Where there is a payment security in place, the contractor may be able to make a demand for the amount payable by the employer under the DAAB decision. Similarly, the employer may be able to recover its damages, losses or expenses arising from the contractor’s failure to comply, pursuant to a surety bond or a parent company guarantee if one has been procured. The availability of such other contractual remedies ultimately depends on the wording of the contract.
Co-written by Grace Fok of Pinsent Masons.
03 Jul 2023
03 Jul 2023