Out-Law Guide | 03 Nov 2021 | 2:26 pm | 6 min. read
They are most used in construction and consist of a permanent or temporary body which helps resolve disagreements. If it is a permanent DAB it is appointed at the start of the project, will receive regular updates on the contract and will visit the works regularly. This enables it to address potential disputes as they arise.
If the body is not permanent it will be appointed when a dispute arises.
DABs are most commonly used in relation to the FIDIC model contracts published by the International Federation of Consulting Engineers.
In the 1990s these contracts began to incorporate a pre-arbitration phase for a panel of experts to issue a recommendation or decision on disputes that arise.
DAB members are normally required to have experience in the specific field covered by the project and knowledge of the type of contract in question. Depending on the terms of the contract, they are required either to provide non-binding recommendations to the parties or to make decisions that will be binding on the parties.
There are various types of dispute boards. In addition to the traditional DAB, there are Dispute Avoidance and Adjudication Boards (DAABs) and Dispute Review Boards (DRBs).
DAABs are the dispute boards whose purpose is to avoid the dispute before it materialises. In other words, instead of simply making a decision, the DAAB helps at an early stage, in an informal but consensual manner, when any disagreement arises, at the request of the parties or on its own initiative. If the disagreement is not resolved at that early stage, the DAAB can later make a decision. The new 2017 FIDIC contracts include this as a mandatory step before arbitration, instead of the DAB provided for in the 1999 FIDIC edition.
It can also be agreed that decisions are non-binding and merely advisory, generally known as a Dispute Review Board.
Typically this method of dispute resolution is agreed in the contract. FIDIC contracts, for example, impose this mechanism prior to arbitration. However, nowadays this is not only the case in FIDIC contracts.Other contracts such as JCT and NEC have also included it in their latest updates.
In some cases the parties might agree to submit the dispute or disagreement to this method even when it is not specified in the contract.
In the contract or submission agreement the parties may also agree whether the DAB will consist of one or more members, usually either engineers or lawyers, or a combination if there are three members. The parties may agree on the necessary qualifications and degree of experience for the members.
The appointment of the members is usually agreed in the contract or separately in a DAB submission agreement. Alternatively, it may be appointed by an institution, such as the International Chamber of Commerce (ICC).
The main function of DABs is to resolve disputes before they go to arbitration or to court. A DAB can help both parties to see the truth of a situation and accept its decision, so that arbitration or court proceedings are no longer necessary. For example, in FIDIC contracts, the DAB's decision is final and binding on both parties if within 28 days neither party files a 'notice of dissatisfaction' (NOD). Even if a party files such a NOD, the FIDIC contract provides that the parties must comply with the DAB's decision until it is reviewed in arbitration or in court.
The same applies to the appointment of a DAB. The parties can agree on it in the contract or submission agreement, but there are also institutions such as the ICC that have rules of procedure.
They are usually simple in operation, the parties have the opportunity to present their positions to the DAB, and the DAB will then make a decision based on the information provided by the parties and its own expertise. It is intended to be a system that responds quickly to disputes that may arise, so a more complex operation would not make sense.
Anything that encourages early dispute prevention is to be welcomed and the use of a DAB has clear benefits, but the enforcement of a DAB decision is not done in the same manner as that of an arbitral award, for example, as additional aspects have to be considered.
As it is an agreement between the parties, the tool to seek enforcement of these decisions is the action for breach of contract, either before a local court or an arbitral tribunal, as agreed in the contract. However, some arbitral tribunals are reluctant to issue an award on the enforcement or not of a DAB decision without assessing the merits of the decision. With regard to local courts, uncertainties also arise in some jurisdictions.
It may be more difficult to enforce decisions of DABs against which the other party has filed an NOD as additional nuances arise.
There is a case in the Singapore courts that illustrates these nuances. A contractor began arbitration against its client for non-payment of the amount included in the DAB decision, against which the client had filed an NOD. The parties had entered into a construction contract based on the 1999 FIDIC Red Book. The contractor requested the arbitral tribunal to issue an award ordering the other party to pay the amounts included in the DAB decision, without going into the merits of the case. The arbitral tribunal issued the award and the Singapore Court of Appeal set it aside on the grounds that the arbitral tribunal had exceeded its powers by not going into the merits of the case.
The contractor then commenced a second arbitration, this time on the merits. In addition, it requested the arbitral tribunal to issue a partial award ordering the client to pay the amount that the DAB had established, since according to clause 20.4 of the FIDIC Red Book, the decision would be binding until it was reviewed in an agreement between the parties or in arbitration, and it had to be complied with as soon as possible. The arbitral tribunal made this partial award as requested by the contractor and this time the Court of Appeal did hold that this partial award was enforceable as it was aimed at the performance of the contract, but the arbitral tribunal would also review the merits, which was also a requirement of clause 20.4 quoted above.
Indeed, the new version of the 2017 FIDIC Red Book has made this concept of ‘pay now, argue later’ even clearer by stating that the DAB decision must be complied with by the parties at the earliest opportunity, "even if either party files an NOD".
The use of DABs and their variants has mainly occurred in Anglo-Saxon jurisdictions, in the Middle East and in Asia.
It is also beginning to spread in Latin America. Spanish companies that have already carried out projects in Latin American countries are very familiar with DABs, particularly in Peru and Brazil. In Peru, for example, they are widely used, as the state itself has promoted the use of FIDIC contracts and other international contract models for projects involving public investment.
In Spain, their use is not spreading in the same way as in Latin America, but perhaps it is only a matter of time. It would certainly be an efficient tool to manage potential claims in large projects in real time and would free the courts from a workload that can be resolved at an earlier stage.
Although decisions can ultimately be appealed, in many cases they have a deterrent effect on the parties who either abide by the decision in full or reach an agreement that does not reflect it 100% but is partly based on it. Another percentage of decisions are ultimately reviewed in arbitration or local courts for various reasons that may justify going to this last resort, but it undoubtedly resolves a significant number of disputes at an early stage and reduces the number of litigations and arbitrations, which are the main objectives of DABs.
By Sofia Parra Martinez and Claudia Fernández López-Areal of Pinsent Masons