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FIDIC Disp...
 
 
 
 

FIDIC Dispute Adjudication 1999 and 2017

By Rechtsanwalt Dr. Götz-Sebastian Hök


Whenever possible, it is advisable to solve any differences or disputes by amicable settlement, since disputes are time-consuming and expensive. Most international contract forms therefore provide express stipulations through which the parties to them attempt to avoid disputes. Some of them even require endeavours to be made to reach an amicable settlement before any difference or dispute can be referred either to the courts or to arbitration. As both court and arbitration proceedings are expensive and time-consuming the business community has developed so called alternative dispute resolution (ADR) proceedings, which are either used exclusively or as compulsory interim proceedings, thus baring the referral to courts or arbitration until these preliminary proceedings have come to an end. 

FIDIC has at a very early stage adopted the concept of alternative dispute resolution. Since 1995 the Orange Book provides Dispute Adjudication as a regular feature of dispute resolution. The concept was maintained when FIDIC published the 1999 Rainbow Edition. A more sophisticated set of rules has been adopted in the new Design, Build & Operate form of FIDIC, also referred to as the Gold Book or DBO form. The second Eidtion of the FIDIC Rainbow as launched in December 2017 also includes Dispute adjudictaion provisions. 

Ever since then Dispute Adjudication is recognised as a useful and appropriate feature of dispute resolution. Naturally, other dispute resolution concepts exist, some of which are also used by FIDIC. For example the FIDIC White Book, 4th Edition, 2006, still referred to mediation. However, also the 5th Edition of the FIDIC White Book (2017) now includes a Dispute adjudication clause.

Under FIDIC, traditionally disputes were initially determined by the Engineer within 84 days of reference, then by arbitration under ICC Rules (Sub-Clauses 67.1, 67.3 FIDIC, 4th edition 1987). Arbitration had to be noticed within 70 days of Engineer's decision or after the period for such decision had expired (Sub-Clause 67.1).

The 1999 series of the Books, following the Orange Book 1995, has changed this dispute resolution system. The Engineer is and was no longer a quasi-arbitrator and has been replaced in so far by a Dispute Adjudication Board (Sub-Clauses 20.2, 20.4). Thus actually the FIDIC Engineer and the DAB are to some extent fraternal twins. In order to avoid prolonged disputes the DAB is the natural complement of the traditional FIDIC Engineer who is no longer decision-maker and quasi-arbitrator in one.

If any dispute arises under a FIDIC 1999 contract the parties to the contract may refer it to the Dispute Adjudication Board (DAB). A nomination procedure for the appointment of the DAB members is ruled in Sub-clauses 20.2 and 20.3. The DAB has full power to open up, review and revise any certificate, determination, instruction, opinion or valuation of the Engineer. However a DAB may also be used for dispute avoidance purposes. increasingly and quite often dispute avoidance is the major task of DAB´s. 

Under the FIDIC Red Book, Yellow Book and Silver Book, 2nd Edition, 2017, the DAB was renamed and is now headed Disputre Avoidance and Dipsute Adjudication Board (DAAB). A new Clause 21 was dedicated to  dispute resolution including dispute avoidance language, adjduciation and arbitration stipulations. While the General ideas and concepts on how to proceed and to make decisions remained unchanged, the wording on access to DAABs has become much more sophisticated. The terms "Claim" and "Dispute" have become defined. Dispute adjudication has become a consequential and mandatory annex to the Claims´procedure under Clause 20 FIDIC 2017; at least the matter should have been first treated by the Engineer under Sub-Clause 3.7 FIDIC 2017.

How to avoid disputes?

In any case a permanent DAB, as recommended in the FIDIC Red Book 1999 and the FIDIC Gold Book 2008 as well as by the FIDIC Rainbow Edition 2017 and quite often also appropriate for a FIDIC Yellow Book 1999 contract, shall attempt to avoid disputes or to settle them at an early stage. FIDIC Books therefore allow the DAB to give opinions and recommendations, if both of the parties jointly require the DAB to do so. Quite often the main services of a permanent DAB consist in such kind of dispute avoidance services. Any other means of Dispute avoidance is possible and admissible if the Parties so agree.

Actually a Dispute Adjudication Board should be understood being a valuable member of the contract management team. It may be involved in issues of all kind upon joint request of both parties.  

Unless otherwise agreed by the Employer and the Contractor, the DAB shall visit the Site at intervals of not more than 140 days, including times of critical construction events, at the request of either the Employer or the Contractor. The timing of and agenda for each site visit shall be as agreed jointly by the DAB, the Employer and the Contractor, or in the absence of agreement, shall be decided by the DAB. The purpose of site visits is to enable the DAB to become and remain acquainted with the progress of the Works and of any actual or potential problems or claims.

Dispute avoidance should be subject of clear standards and rules: Promptly or shortly after having been apppointed the DAB should start to establish rules of the game. FIDIC Books only allow for joint referrals of matters (see Sub-Clause 20.2 Red Book 1999). Further details will be set out by the DAB or under FIDIC 2017 by the DAAB.
 
What is a Dispute?
 
There is a need for a Dispute Adjudication Board if there is a Dispute, because any dispute must first be referred to the DAB and can only then (after having obtained a DAB decision which did not yet become final and binding) be heard in arbitration. Under the FIDIC Red Book, Yellow Book and Silver Book a dispute is an undefined term with a legal background:
 
Unless defined by Contract a dispute arises if there is more than a difference and objection. The Courts have variously proposed definitions of the term such as:
  • The word "dispute" which occurs in many arbitration clauses and also in section 108 of the [English] Housing Grants Act should be given its normal meaning. It does not have some special or unusual meaning conferred upon it by lawyers [Civil Engineering Ltd v. Secretary of State for Transport [2004] EWHC 2339 (TCC) (11 October 2004)].
  • The term dispute means a controversy having both positive and negative aspects. It postulates the assertion of a claim by one party and its denial by the other … [Gujarat State Co-operative Land Development Bank Ltd. v. P.R. Mankad, AIR 1979 SC 1203, 1207 - India]
  • A 'dispute' can only arise once the subject matter of the claim, issue or other matter has been brought to the attention of the opposing party and that party has had an opportunity of considering and admitting, modifying or rejecting the claim or assertion. In order to constitute a dispute, a claim must have been made which has been rejected [Fastrack Contractors Limited v Morrison Construction Limited [2000] Building Law Reports 168, HHJ Thornton QC, at paragraphs 27-29 ]
  • In order to constitute a dispute, a claim must have been made, which has been rejected [ICC International Court of Arbitration Bulletin 74, Case N° 5898 (1989)].
  • In MAN Enterprise SAL v. Al Waddan Hotel Ltd, [2013] EWHC 2356 (TCC) the court has held that in circumstances where the Engineer is not acting, it is arguable that the absence of an Engineer’s decision is not a point which could be relied upon by the party who employed the Engineer. 
Under the FIDIC Gold Book the term Dispute has been defined meaning “any situation where (a) one Party makes a claim against the other Party; (b) the other Party rejects the claim in whole or in part; (c) the first Party does not acquiese, provided however that a failure by the other Party to oppose or respond to the claim, in whole or in part, may constitute a rejection if, in the circumstances, the DAB or the arbitrators, as the case may be, deem it reasonable for it to do so (Sub-Clause 1.1.31)”.
 
FIODIC 2017 also defines the term Dispute in Sub-Clause 1.1.29.

Dispute” means any situation where:

(a) one Party makes a claim against the other Party (which may be a Claim, as defined in these Conditions, or a matter to be determined by the Engineer under these Conditions, or otherwise);

(b) the other Party (or the Engineer under Sub-Clause 3.7.2 [Engineer’s Determination]) rejects the claim in whole or in part; and

(c) the first Party does not acquiesce (by giving a NOD under Sub-Clause 3.7.5 [Dissatisfaction with Engineer’s determination] or otherwise),

provided however that a failure by the other Party (or the Engineer) to oppose or respond to the claim, in whole or in part, may constitute a rejection if, in the circumstances, the DAAB or the arbitrator(s), as the case may be, deem it reasonable for it to do so.

In essence, the new FIDIC definition requires any matter to be determined by the Engineer or deemed to be determined by the Engineer. 
What is the legal status of Adjudicators and DABs?
 
Adjudicators, DABs and DAABs borrow their powers from the fact that the Parties have agreed on to bestow judicial powers on Ajudicators or DABs. Dispute Adjudication is a mere alternative and complementary contractual dispute review method which in principle does not replace jurisdiction of state courts or arbitration unless agreed otherwise. Like arbitrators, adjudicators are bound to the FIDIC Contract and the governing law and have to make a legal decision (with regard to all relevant circumstances).
 
There is authority for the view that DABs have judicial powers meaning that they have to apply the law and to follow the principles of natural justice. Conversely the Engineer has only to act independently and honestly; but there is no implied duty to comply with the principles of natural justice. For the avoidance of doubt it should be emphazised that there is a great difference between an Engineer's decision under clause 66 ICE and an adjudicator´s decision … [Amec Civil Engineering Ltd v. Secretary of State for Transport [2005] EWCA Civ 291 (17 March 2005)]. The same applies to an Engineer´s determination under a FIDIC Book.
 
Consequently the members of a DAB are exempt from liability.

Decision making process

FIDIC 1999

Sub-Clause 20.4 FIDIC 1999 and the Procedural Rules lay down the procedure for the DAB. In a summary the procedural steps under FIDIC 1999 are as follows: 

  • The referral to the DAB includes all relevant information concerning the Dispute.
  • The DAB will issue directions concerning the procedure and a time schedule
  • The DAB has the power to investigate the facts.
  • Both parties will make available to the DAB any further or complementary information or facilities which it may require.
  • The DAB may decide to conduct a hearing to obtain evidence and/or to consider submissions on the dispute from the Parties.
  • The DAB shall give its decision within 84 days or any other agreed period, from the date of the dispute reference is received by the chairman of DAB.
  • If either Party is dissatisfied with the decision of the DAB or if the DAB fails to give its decision within the aforementioned period, it can issue a notice of dissatisfaction within 28 days. If the Parties fail to do so, the decision becomes final and binding.
A DAB does not have the full powers of an arbitral court and the principle of res judicata (meaning the preservation of its effects in further disputes) will not apply to its decision. However a DAB should follow the principles of natural justice and therefore recognise the maxim of audi alteram partem: "let the other side be heard". Proceedings should be conducted so they are fair to all parties. There is however broad contractual freedom to shape the procedure making it convenient to the parties. The Procedural Rules which are included in all FIDIC Books do mirror the principles mentioned above and should be strictly followed. They authorise and empower the DAB to set out its own procedural rules to the extent that they do not contradict with the Procedural Rules as incorporated by the Dispute Adjudication Agreement. Thus in practice the DAB will set out its own procedural rules and plan the procedure.
 
FIDIC 2017
 
Sub-Clause 21.4 FIDIC 2017 and the Procedural Rules lay down the procedure for the DAAB. In a summary the procedural steps under FIDIC 1999 are as follows: 
  • The referral to the DAB includes all relevant information concerning the Dispute.
  • The DAAB will issue directions concerning the procedure and a time schedule
  • The DAAB has the power to investigate the facts.
  • Both parties will make available to the DAAB any further or complementary information or facilities which it may require.
  • The DAAB may decide to conduct a hearing to obtain evidence and/or to consider submissions on the dispute from the Parties.
  • The DAAB shall give its decision within 84 days or any other agreed period, from the date of the dispute reference is received by the chairman of DAB.
  • If either Party is dissatisfied with the decision of the DAB or if the DAB fails to give its decision within the aforementioned period, it can issue a notice of dissatisfaction within 28 days. If the Parties fail to do so, the decision becomes final and binding.

FIDIC 2017 introduces some new features like a possible decision on a security to be obtained by the payee and also a procedure on how to remedy typographical and other minor errors in the DAAB decisions. IN Addition to that FIDIC 2017 provides for a sophisticated machinery in case a DAAB member gives one of the Parties the perception of bias (see Clause 11 DAA and Rules 10 and 11 Procedural Rules).

Is a DAB decision enforceable?

Enforceability is a critical thing. According to Sub-Clause 20.4 FIDIC 1999 “the [DAB] decision shall be binding on both Parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award as described below”. Sub-Clause 21.4 FIDIC 2017 stipulates similarily:

The decision shall be binding on both Parties, who shall promptly comply with it whether or not a Party gives a NOD with respect to such decision under this Sub-Clause.

Thus the Parties to the Contract have promised to each other to comply with any of the DAB´s decision whether final & binding or provisional & binding. According to Sub-Clause 20.7 FIDIC 1999, in the event that a Party fails to comply with this decision, then the other Party may, without prejudice to any other rights it may have, refer the failure itself to arbitration under Sub-Clause 20.6 [Arbitration].

 
Since the ICC Award No 10619 has been published it is common knowledge that DAB decisions can be enforced through arbitration. However, care has to be taken that appropriate steps will be initiated. The Singapore High Court in PT Perusahaan Gas Negara (“PGN”) v. CRW Joint Operation (“CRW”) [2010] 4 SLR 672 refused to uphold an ICC award by which the claimant intended to enforce a DAB decision for the reason of lack of jurisdiction. In fact the claimant had applied for a final award rather than to apply for an interim award. The above decision had been upheld by the Court of Appeal of Singapore.
  
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Guidance Memorandum to Users of the 1999 Conditions of Contract dated

















































































































































































































































































































































































































































































1st April 2013 - See more at:

















































































































































































































































































































































































































































































http://fidic.org/node/1615#sthash.yIROx8Ic.dpuf
On April 1st, 2013 FIDIC has published the Memorandum to Users of the 1999 Conditions of Contract. 
 
In respect to FIDIC 1999 FIDIC emphasizes that this Guidance Memorandum is designed to make explicit the intentions of FIDIC in relation to the enforcement of the DAB decisions that are binding and not yet final, which is that in the case of failure to comply with These decisions, the failure itself should be capable of being referred to arbitration under Sub-Clause 20.6 [Arbitration], without Sub-Clause 20.4 [Obtaining Dispute Adjudication Board’s Decision] and Sub-Clause 20.5 [Amicable Settlement] being applicable to the reference. This intention has been made manifest in the FIDIC Conditions of Contract for Design, Build and Operate Projects, 2008 (‘Gold Book’) by the equivalent Sub-Clause 20.9.

To make FIDIC’s intention explicit this Guidance Memorandum provides changes to be made to the FIDIC dispute resolution Clause 20 (FIDIC 1999) and in particular to Sub-Clause 20.7 FIDIC 2017 and, as a consequence, to 14.6 and 14.8 of the FIDIC Conditions of Contract for Construction, 1999 (the ‘Red Book’), the FIDIC Conditions of Contract for Plant and Design-Build, 1999 (‘Yellow Book’), and the EPC/Turnkey Projects, 1999 (‘Silver Book’). Compliance with the guidance provided in this Memorandum is highly recommended when using the 1999 FIDIC Red, Yellow or Silver books.

However, the Memorandum also raises new questions, for example in respect of the authority of the DAB to require the payee to provide an appropriate security in respect of payments. It is currently not clear how and when such a ruling shall be given.

Meanwhile things have developed. In 2011 CRW undertook a second attempt to enforce the binding DAB decision through arbitration. The High Court Singapore (PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation (Indonesia) and another matter [2014] SGHC 146) this time held that the relevant arbitration award was duly given and that the arbitral tribunal had jurisdiction under Sub-Clause 20.6 because the claimant had chosen the "one Dispute Approach" meaning that he had referred the full case to Arbitration and requested for an interim award. The decision clearly shows that it was partially premature to speak about a gap in the FIDIC clauses. Subsequently the Court of Appeal in Singpore has upheld the High Court decision (PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation, [2015] SGCA 30). It seems now to be established law that merely binding DAB decisions are enforceable under the FIDIC Suite of Contracts 1999.

FIDIC 2017 has settled the issue in full. The new wording in Sub-Clause 21.7 applies to both, merely binding and also final and binding DAAB decisions. It reads:

In 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 under Sub-Clause 21.6 [Arbitration] in which case Sub-Clause 21.4 [Obtaining DAAB’s Decision] and Sub-Clause 21.5 [Amicable Settlement] shall not apply to this reference.

The author 

Dr. Hök is acting as an arbitrator (DIS and German Turkish Chamber of Commerce) and a fully accredited FIDIC trainer who has conducted FIDIC trainings wordwide.
 
Dr. Hök has field experience in various countries and was involved in infrastructure projects in Armenia, Bahrain, Botswana, Bosnia, England, France, India, Indonesia, Qatar, Saudi Arabia, South Africa, Tanzania, UAE, Uganda, USA, Vietnam, Zambia, Zimbabwe ...
 
Dr. Hök is the German Country Representative of the DRBF. He is also an assessed and listed FIDIC Adjudicator and is listed on the FIDIC President´s list and the German VBI list. He has been sitting on arbitral panels and Dispute Adjudication Boards in various countries (in particular in Armenia, Bosnia, Germany, India, Mexico, Morocco, Palestine, Poland, and Tanzania). Moreover he has been a friendly reviewer of the FIDIC Gold Book (2008) and of the FIDIC suite of Contracts, 2nd Edition (2017) and the FIDIC Subcontract for for Construction, Frist edition (2011), which all refer to dispute adjudication. Since 2011 he is the legal advisor of two FIDIC Task Groups. Last but not least he was a member of the JICA Study Team on the implementation of Dispute Boards. The Study Team has been involved in the publishing of the JICA DB Manual. He was also member of the expert team for the revision of the DIS Arbitration rules and acting as a court expert.
 
See for more details as to dispute adjudication also Jaeger/Hök, FIDIC for Practitioners, a book having been published in 2010.










Kanzlei Dr. Hök, Stieglmeier & Kollegen



Ansprechpartner: Dr.Götz-Sebastian Hök

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Contribution online since Wednesday, January 6th, 2010     
Last updated Thursday, March 15th, 2018     
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