The Guide to Construction Arbitration

Global Arbitration Review The Guide to Construction Arbitration

General Editors Stavros Brekoulakis and David Brynmor Thomas QC

Third Edition

Editors Stavros Brekoulakis and David Brynmor Thomas QC

Reproduced with permission from Law Business Research Ltd This article was first published in October 2019 For further information please contact [email protected] arg

© Law Business Research Publisher David Samuels Account Manager Bevan Woodhouse Editorial Coordinator Hannah Higgins Head of Production Adam Myers Deputy Head of Production Simon Busby Copy-editor Claire Ancell Proofreader Rakesh Rajani

No photocopying: copyright licences do not apply.

The information provided in this publication is general and may not apply in a specific situation, nor does it necessarily represent the views of authors’ firms or their clients. Legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of September 2019, be advised that this is a developing area.

Enquiries concerning reproduction should be sent to Law Business Research, at the address above. Enquiries concerning editorial content should be directed to the Publisher – [email protected]

ISBN 978-1-83862-211-4

Printed in Great Britain by Encompass Print Solutions, Derbyshire Tel: 0844 2480 112

The publisher acknowledges and thanks the following firms for their learned assistance throughout the preparation of this book:

39 ESSEX CHAMBERS

3 VERULAM BUILDINGS

ADVOKATFIRMAN RUNELAND AB

AKIN GUMP STRAUSS HAUER & FELD LLP

ANKURA

ARGOS CONSTRUCTION

BÄR & KARRER

CENTRE FOR COMMERCIAL LAW STUDIES, QUEEN MARY UNIVERSITY OF LONDON

CLIFFORD CHANCE

CORRS CHAMBERS WESTGARTH

COVINGTON & BURLING LLP

CROWN OFFICE CHAMBERS

DEBEVOISE & PLIMPTON LLP

DECHERT (PARIS) LLP

HERBERT SMITH FREEHILLS LLP

KING & SPALDING

i © Law Business Research KPMG SA

MATTOS FILHO, VEIGA FILHO, MARREY JR. E QUIROGA ADVOGADOS

PAKSOY

QUINN EMANUEL URQUHART & SULLIVAN LLP

SCHELLENBERG WITTMER LTD

THREE CROWNS LLP

TOWER CHAMBERS

VINSON & ELKINS

WHITE & CASE LLP

ZHONG LUN LAW FIRM

ZULFICAR & PARTNERS LAW FIRM

Introduction �� 1 Stavros Brekoulakis and David Brynmor Thomas QC

Part I: International Construction Contracts 1 The Contract: the Foundation of Construction Projects �� 7 Aisha Nadar

2 Parties to a Construction Contract �� 18 Scott Stiegler

3 Bonds and Guarantees �� 27 Jane Davies Evans

4 Pricing and Payment �� 43 Tony Dymond and Sophia Burton

5 Introduction to the FIDIC Suite of Contracts �� 54 Ellis Baker, Anthony Lavers and Rebecca Major

6 Allocation of Risk in Construction Contracts �� 74 Ellis Baker, Richard Hill and Ibaad Hakim

7 Contractors’ Claims, Remedies and Reliefs �� 94 James Bremen and Leith Ben Ammar

iii © Law Business Research Contents

8 Employers’ Claims and Remedies ��105 James Bremen and Mark Grasso

9 Delay and Quantum: the Role of Delay Analysis Programmes and Financial Methods for the Computation of Costs and Damages in Construction Arbitration ��114 Jean-François Djanett and Jean-Luc Guitera

10 Comparative Approaches to Concurrent Delay ��127 Hamish Lal, Brendan Casey and Josephine Kaiding

Part II: Dispute Resolution for Construction Disputes 11 Claims Resolution Procedures in Construction Contracts ��145 Philip Norman and Leanie van de Merwe

12 Dispute Boards ��155 Lindy Patterson QC and Nicholas Higgs

13 Alternative Dispute Resolution in Construction and Infrastructure Disputes ��165 Marion Smith QC, Hannah McCarthy and Joe-han Ho

14 Suitability of Arbitration Rules for Construction Disputes ��172 David Kiefer and Adrian Cole

15 Agreements to Arbitrate Disputes in Construction Contracts ��179 Paul Darling QC and Samar Abbas

16 Subcontracts and Multiparty Arbitration in Construction Disputes ��188 Stavros Brekoulakis and Ahmed El Far

17 Interim Relief, Including Emergency Arbitrators in Construction Arbitration ��201 Philip Norman and Leanie van de Merwe

iv © Law Business Research Contents

18 Organisation of the Proceedings in Construction Arbitrations: General Considerations and Special Issues ��212 Pierre-Yves Gunter and Anya Marinkovich

19 Expert Evidence in Construction Disputes: Arbitrator Perspective ��226 Nathalie Voser and Katherine Bell

20 Expert Evidence in Construction Disputes: Expert Witness Perspective ��236 Guy Elkington and Paul Taplin

21 Documents in Construction Disputes ��246 Bartosz Kruz˙ewski and Robert Moj

22 Awards ��257 Roger ter Haar QC, Crispin Winser and Maurice Holmes

Part III: Select Topics on Construction Arbitration 23 Investment Treaty Arbitration in the Construction Sector ��273 Tony Dymond, Gavin Chesney and Laith Najjar

24 Construction Arbitrations in the Nuclear Sector ��288 Jane Davies Evans

25 Energy Sector Construction Disputes ��301 Scott Stiegler and James L Loftis

26 Construction Arbitration and Concession Contracts ��309 Philip Dunham and José Manuel García Represa

27 Construction Arbitration and Turnkey Projects ��320 James Doe, David Nitek and Noe Minamikata

28 Construction Arbitration in the Context of China’s Belt and Road Projects ��330 Aisha Nadar

v © Law Business Research Part IV: Regional Construction Arbitration 29 Construction Arbitration in Australia ��345 Andrew Stephenson, Lee Carroll and Lindsay Hogan

30 Construction Arbitration in Turkey ��361 Serdar Paksoy and Simel Sarıalioğlu

31 Construction Arbitration in the MENA Region ��373 Mohamed S Abdel Wahab

32 Construction Arbitration in Brazil ��411 Flávio Spaccaquerche Barbosa and Thiago Fernandes Moreira

33 Construction Arbitration in Mainland China and Hong Kong ��423 Wei Sun, Adela Mao, Zhao Yingfu and Wang Ziyue

About the Authors ��445

Contact Details ��469

Stavros Brekoulakis and David Brynmor Thomas QC1

It is a pleasure to introduce the third edition of The Guide to Construction Arbitration. The Guide has evolved since its first edition to form, we hope, a valuable resource for clients, in-house counsel, experts and external counsel involved in construction arbitration, whether they are dealing with construction arbitration for the first time or have extensive experience in it. The construction industry is a major contributor to economic growth worldwide. In the United Kingdom it has been estimated that every £1 investment in construction out- put generates £2.84 in total economic activity.2 In India, the BJP, which now forms the government, proposed infrastructure spending of 100 lakh crore rupees (over US$1,300 bil- lion) over the next five years in its 2019 manifesto. The industry covers a wide range of different types of projects, from building offices, factories and warehouses, shopping malls, hotels and homes to major infrastructure projects that involve more complex civil engineering works such as the construction of harbours, railroads, mines, highways and bridges. Other construction projects involve specialist engineering works such as shipbuilding; bespoke plant and machinery such as turbines, genera- tors and aircraft engines; or works that aim to support energy projects such as upstream oil and gas projects or renewables (wind, wave, solar) and nuclear plants. These complex construction projects are rarely completed without encountering risks that lead to changes to the time and cost required for their execution. Those changes in turn give rise to disputes, the majority of which (possibly the vast majority) are submitted to alternative dispute resolution (ADR) processes and eventually arbitration. The reasons that lead construction parties to choose ADR and arbitration owe as much to the (perceived or

1 Stavros Brekoulakis is a professor and the director of the School of International Arbitration at Queen Mary University of London and an associate member of 3 Verulam Buildings. David Brynmor Thomas QC is a barrister at 39 Essex Chambers and visiting professor at Queen Mary University of London. 2 Report of Economic Consultants LEK for the UK Contractors Group.

1 © Law Business Research Introduction real) inefficiencies of national courts as to the (perceived or real) advantages of out-of-court dispute resolution. For example, with a few notable exceptions such as the Technology and Construction Court in England and Wales, most national courts lack construction specialist departments or judges with construction expertise and experience. Arbitration, on the other hand, allows construction parties to appoint arbitrators with the necessary specialised knowledge and understanding of complex construction projects. Importantly, arbitration allows construction parties to ‘design and build’ (to stay in tune with the theme of The Guide to Construction Arbitration) the dispute resolution procedure in a way that addresses a number of procedural challenges in construction arbitrations, including the typically large volume of documentary evidence, the most effective use of experts to address delay and quantum, as well as complex technical issues, and programme analysis. While the use of some ADR methods such as dispute adjudication boards has spread relatively recently,3 arbitration has traditionally been included as the default dispute resolution mechanism for disputes arising out of international construction contracts.4 A question that often arises is: what is special about international construction disputes that they require specialist arbitration knowledge? In the first place, construction projects are associated with considerably more risk than any other typical commercial transaction, both in terms of the amount of risk allocated under them and the complexity of that risk. Their nature and typically long duration lead to risks including unexpected ground and cli- mate conditions, industrial accidents, fluctuation in the price of materials and in the value of currency, political risks (such as political riots, governmental interventions and strikes) and legal risks (such as amendments in law or failure to secure legal permits and licences). Further, time is very often critical in construction projects. An Olympic Games stadium must be delivered before the hard deadline that is the date of the games. If a shopping mall is not ready for the commercially busy Christmas period, significant amounts may be lost in seasonal retail trade. The late delivery of a power station can disrupt the project financ- ing used to fund it. Moreover, arguments as to causation, especially of delay, in construction projects are typically complex. Many phases of a construction project can run concurrently, which often makes it difficult to identify the origins and causes of delay. Legal concepts such as concurrent delay, critical paths and global claims are unique to construction disputes. Equally, the involvement of a wide number of parties with different capacities and divergent interests adds to the complexity of construction disputes. A typical construction project may involve not only an employer and a contractor, but several subcontractors, a project manager, an engineer and architect, specialist professionals such as civil or structural engineers and designers, mechanical engineers, consultants such as acoustic and energy consultants, lenders and other funders, insurers and suppliers. A seemingly limited dipute arising on one subcontract may lead to disputes under other subcontracts and the main construction contract, and may have financial and legal consequences for many of the above parties, triggering disputes under much wider documentation such as shareholder agreements, joint operating agreements, funding documents and concessions. That often

3 Dispute adjudication boards were first introduced in FIDIC contracts (in the Orange Book) in 1995 and in ICE contracts as recently as in 2005. 4 Arbitration has been included in FIDIC contracts since the publication of the first FIDC contract in 1957.

2 © Law Business Research Introduction gives rise to issues about multiparty arbitration proceedings and third-party participation in arbitration proceedings. Another important feature of construction disputes is the widespread use of standard forms, such as the FIDIC or the ICE conditions of construction contracts. Efficient dispute resolution requires familiarity and understanding of the, often nuanced, risk allocation arrangements in these standard forms. Good knowledge of construction-specific legislation is necessary too. While the resolution of most construction disputes will depend on the factual circumstances and the provisions of the contractual agreement of the parties, legal issues may often arise in relation to statutory (frequently mandatory) warranty and limitation periods for construction claims, statutory direct claims by subcontractors against the employers,5 statutory prohibition of the pay-when-paid and pay-if-paid provisions6 and, of course, mandatory legislation on public procurement.7 Finally, as already mentioned, construction disputes are technically complex, requiring efficient management of challenging evidentiary processes, including document management, expert evidence, programme analysis and quantification of damages. The evidentiary challenges in construction disputes have given rise to the use of tools, such as Scott Schedules (used to present fact intensive disputes in a more user friendly format), that are unique in construction arbitrations.8 It is for all these reasons that alternative dispute resolution and arbitration of construction disputes require special focus and attention, which is what The Guide to Construction Arbitration aims to provide. The Guide to Construction Arbitration is designed to appeal to different audiences. The authors of the various chapters are themselves market-leading experts, so it can provide a ready resource for specialist construction arbitration practitioners who already have a view of the information they seek. Beyond that, it has been compiled and written to offer practical information to practitioners who are inexperienced in international construction contracts or dispute resolution in construction disputes. For example, in-house lawyers who may be experienced in negotiating and drafting construction contracts but not in running disputes arising from them, or construction professionals who may have experience in managing construction projects but may lack experience in the conduct of construction arbitration, will findThe Guide to Construction Arbitration useful. Lawyers in private practice who are familiar with arbitration, but lack experience in construction will also benefit. Last but not least, students who study construction arbitration will find it to be a helpful source of information. While the main focus of The Guide to Construction Arbitration is the resolution, by arbitration, of disputes arising out of construction projects, Part I is devoted to important substantive aspects of international construction contracts. To understand how construction disputes are resolved in international arbitration, one has to understand how disputes arise out of a typical construction contract in the first place, and what are the substantive rights, obligations and remedies of the parties to a construction contract.

5 For example, in France, Law No. 75-1334 of 31 December 1975 on Subcontracting. 6 For example, in the United Kingdom with the UK Housing Grants Construction and Regeneration Act 1996. 7 For example, EU Directive 2014/24. 8 J. Jenkins and K. Rosenberg, ‘Engineering and Construction Arbitration’, in Lew et al. (editors) Arbitration in England, Kluwer (2013).

3 © Law Business Research Introduction

Thus, this book is broadly divided in four parts. Part I examines a wide range of substantive issues in construction contracts, such as The Contract: the Foundation of Construction Projects, Bonds and Guarantees, an Introduction to the FIDIC Suite of Contracts, Allocation of Risk in Construction Contracts, Contractors’ and Employers’ Claims, Remedies and Reliefs. Chapters valuably address the quantification of delays, the role of programmes and the various methods used for the computation of costs and damages in construction arbitrations, while an entire chapter is devoted to an examination, from a comparative law perspective, of the practically critical topic of concurrent delay. Part II then focuses on dispute resolution processes in construction disputes. The aim of this Part is to look into special features of construction arbitration, and the following chapters are included: Suitability of Arbitration Rules for Construction Disputes, Subcontracts and Multiparty Arbitration in Construction Disputes, Interim Relief, including Emergency Arbitrators in Construction Arbitration, Organisation of the Proceedings in Construction Arbitrations, Documents in Construction Disputes and Awards, and the role and management of expert evidence. Part III examines a number of select topics in international construction arbitration by reference to some key industry sectors and contract structures, including the nuclear sector, energy sector, concession contracts and turnkey projects. Part IV examines construction arbitration in specific jurisdictions of particular interest and with very active construction industries We have taken the opportunity to add to the chapters in this third edition, to address matters identified by users of the first two editions. These include chapters examining dispute boards, ADR in construction contracts, agreements to arbitrate and interim relief in detail. There are chapters on pricing and payment, investment treaty arbitration in the construction sector, a discussion of the typical parties to a construction contract, further discussion of the organisation of expert testimony and a chapter on construction arbitration in Brazil. Overall, the third edition of The Guide to Construction Arbitration builds upon the success of the first two editions and has been further expanded. The structure and organisation of The Guide to Construction Arbitration is broadly based on the LLM course on International Construction Contracts and Arbitration that we teach at Queen Mary University of London. The course was first introduced by HH Humphrey Lloyd in 1987 and was taught by him for more than 20 years. Humphrey has been an exceptional source of inspiration for hundreds of students who followed his classes, and we are personally indebted to him for having conceived the course originally and for his generous assistance when he passed the course on some years ago. We want to thank all the authors for contributing to The Guide to Construction Arbitration. We are extremely fortunate that a group of distinguished practitioners and construction arbitration specialists from a wide range of jurisdictions have agreed to participate in this project. We further want to thank Gemma Chalk, Bevan Woodhouse and Hannah Higgins for all their hard work in the commission, editing and production of this book. They have made our work easy. Special thanks are due to David Samuels and GAR for asking us to conceive, design and edit this book. We thoroughly enjoyed the task, and hope that the readers will find the result to be useful and informative.

4 © Law Business Research Part II

Dispute Resolution for Construction Disputes

Dispute Boards

Lindy Patterson QC and Nicholas Higgs1

Concept and purpose of dispute boards Dispute boards are a regular feature of international construction and infrastructure contracts. They are one of the alternative dispute resolution options within such contracts and are intended to provide contemporaneous determinations, or recommendations, in disputes. Such decisions are binding unless or until revised by the ultimate dispute resolution forum, namely, arbitration or litigation. The theory is that parties ‘comply now, argue later’, so allowing the contract to proceed without undue interruption while preserving parties’ right to seek an ultimate determination of the dispute through the usual channels of court or arbitration. As the aim of this process is to avoid, if possible, the time and expense of arbitration, most contracts with dispute board provisions require a board decision or recommendation as a necessary precondition to arbitration. Many of these boards also have a dispute avoidance role, as explained further below.

History of dispute boards Modern dispute boards were first developed in the United States in the 1970s as a replace- ment for engineer’s adjudication. An independent dispute board was seen by contractors as preferable to the engineer, who is invariably appointed and remunerated by the employer, being the penultimate arbiter of disputes prior to arbitration and litigation. The success of dispute boards on major infrastructure projects such as the Eisenhower Tunnel Contract in Colorado in the 1970s and on the World Bank-funded El Cajon Dam in Honduras in the 1980s encouraged both the World Bank and FIDIC to introduce them as the first stage of

1 Lindy Patterson QC and Nicholas Higgs are barristers at 39 Essex Chambers.

155 © Law Business Research Dispute Boards dispute resolution in their contract documents in the 1990s.2 Notable early examples of their use included the Channel Tunnel project,3 Hong Kong International Airport and the Ertan Hydroelectric Power project in Sichuan, China. The 1999 editions of the FIDIC conditions of contract for Construction (the Red Book); Plant & Design and Build (the Yellow Book) and EPC /Turnkey (the Silver Book) all provide for dispute boards in one form or another.4 The 2017 editions of the FIDIC ‘rainbow suite’ maintain and expand the dispute board provisions, as explained further below.5 The New Engineering Contract Fourth Edition (NEC4) provides for dispute boards that issue recommendations.6

The dispute board within the contract The dispute board is a creature of contract. Accordingly, the dispute board only has those powers that are expressly given to it by agreement. There is no place for implied powers. The process is not underpinned by legislation or conventions, unlike arbitration or statutory adjudication.7 The contractual provisions will be contained within the dispute resolution section of the underlying contract. It will state how and when the dispute board is to be formed. It may also provide that the board’s powers are contained within either separate dispute board rules or the template agreement that each member must sign with the parties. This is the dispute board member’s agreement, which each dispute board member enters into with both parties to the contract. Certain institutions have templates or styles for each of these three contractual sources, namely, the dispute board contract clause; the dispute board rules and the dispute board member’s agreement.8

Different forms of dispute board The standing board Many contracts provide that the board is to be appointed at the beginning of the contract – for example, within a prescribed time from contract signature or contract commencement – and that it is to operate throughout the lifetime of the contract. Such boards are described

2 FIDIC Conditions of Contract for Design Build and Turnkey (Orange Book) 1995. 3 The Channel Tunnel used a version of dispute board: a panel of five experts and one lawyer chair where each of the disputes was decided by selected number of the panel members according to discipline and nature of dispute. 4 Described by the umbrella term of the ‘rainbow suite’. 5 Some of the changes in the 2017 editions were presaged in the FIDIC ‘Gold Book’ for Design Build and Operate Projects 2008. 6 See dispute resolution Option W3 in the NEC4 suite of contracts published by the Institution of Civil Engineers, London. 7 Except for Honduras and Peru where there is some supporting legislation, see Dante Figueroa, ‘Dispute Boards for Infrastructure Projects in Latin America: A New Kid on the Block’, Dispute Resolution International Vol. 11, No 2, October 2017, p.151. 8 Examples of institutional dispute board rules commonly incorporated by reference or used as a base are the ICC Dispute Board Rules 2015 (ICC Rules), which are not limited to construction projects; FIDIC dispute board rules, see below; the Chartered Institute of Arbitrators Dispute Board Rules 2014; and the American Arbitration Association Dispute Resolution Board Hearing Rules and Procedures 2000.

156 © Law Business Research Dispute Boards as ‘standing’ boards. A standing board will receive regular progress updates and visit the site at intervals to be agreed with the parties. The powers of a standing board often include a dispute avoidance role, as well as adjudicating disputes.

The ad hoc board The ad hoc board is where the board is appointed upon a dispute arising. The sole role of such a board is to deal with that dispute or disputes referred to it. The appointment of the board will expire on the board giving its decision unless the parties agree otherwise. The ad hoc board is often perceived to be cheaper.9

The different types of dispute board There are several different types of dispute board and accompanying acronyms. If the board is to adjudicate disputes by issuing decisions,10 it is a dispute adjudication board (DAB). The DAB will issue a decision that will be binding unless or until it is overturned by the ultimate dispute resolution forum, usually arbitration. The FIDIC 1999 standard forms provide for a DAB.11 If the board is to issue recommendations, it is described as a dispute review board (DRB). The acronym DRB is also used as the umbrella term for dispute boards. There is also a hybrid known as the ‘combined dispute board’, which can issue both recommendations and decisions. The ICC Rules provide options for all three types.

Constituting the dispute board The dispute board clause will provide, if dispute board members are not already named in the contract, in the case of a three person board,12 that each contracting party nominates one individual, and when those two individuals are agreed they shall appoint a chairperson. The party nominees will often be engineers or other construction professionals experienced in construction projects. The chair will often be a lawyer. Parties require to agree one another’s nominees and the chair. In the case of a one-person board, both parties must agree the identity of that individual. The dispute board clause will usually name a default appointing body for either the chair or all three board members, where one party refuses to appoint or agree the board or the board appointment process has broken down.

9 However, the reported average cost of a standing board with the potential benefits that go with it is between 0.06 per cent and 0.5 per cent of the outturn price, and as such may be considered value for money if it avoids the costs of lengthy disputes – see Peter M. Wolrich, Nael G. Bunni and Pierre M. Genton, ‘Drafters’ Insights into the 2015 ICC Dispute Board Rules’, ICC Dispute Resolution Bulletin 2016 No. 1, p.48, available at http://library.iccwbo.org/ and Chris Wilford, ‘ADR and civil justice reform: Chartered Institute of Arbitrators White Paper’, Construction Law Journal 2017, 33(6), pp.379–388. 10 Under ICC Dispute Board Rules (2015) (the ICC Rules) this is described as a ‘Conclusion’. 11 The 2017 editions of FIDIC rename this the dispute avoidance and adjudication board (DAAB). 12 On some significant projects, boards are made up of a greater number of individuals with different skills from whom sub-boards are drawn to deal with particular disputes. Examples include CERN’s Hadron Collider; ITER/Fusion for Energy and the Channel Tunnel, which had five-member and upwards boards, and the Hong Kong International Airport board, which had seven members.

The dispute board is constituted by each board member entering into a member’s agreement with the contracting parties. This will refer to the underlying contract provisions and identify by reference or set out the rules under which the board is to operate. The member’s agreement will also set out the member’s remuneration, usually a daily fee for time spent. With standing boards there may be provision for a monthly retainer to secure the board’s commitment and availability. Most contracts require an advance on payment of members’ fees and/or expenses before they embark on site visits or determine disputes.

Impartiality and independence of dispute board members and natural justice The concept of natural justice is important in the dispute board process, as a breach of natural justice may result in any decision being unenforceable. The dispute board clause or the member’s agreement or the rules will provide that a board member should be impartial and independent of the parties.13 It is advisable, even where the rules or member’s agreement do not expressly provide for this, that a member or prospective member apply the same rules of disclosure regarding any possible conflicts of interest as it would when acting as an arbitrator. As far as procedural fairness is concerned, for example, affording each party a reason- able opportunity to present its case, this must be looked at in the context of the procedure as a whole. Although not as fast-track as domestic adjudication, a board may be limited in the time that it has for its decision,14 and in the volume of evidence it can consider. Parties often agree to extended periods for the decision where the nature of the dispute or the location of the project require this. The decision of a board that has previously played a role in dispute avoidance could in certain jurisdictions be subject to challenge on natural justice grounds. As a result, boards are generally extremely careful as to how this dispute avoidance role is exercised.15,16 Since September 2018, a challenge made against a dispute board member for alleged lack of independence or impartiality ‘or otherwise’ under the FIDIC 2017 Contracts shall be determined by the ICC.17

13 ICC rules refer only to impartiality. 14 The timetable for a board decision or recommendation will vary from contract to contract but is typically round three months. FIDIC provides for 84 days. 15 This duel role is very topical given the spread of Med-Arb in several jurisdictions. See, for example, the HKIAC 2018 Administered Arbitration Rules and the SIAC-SIMC ARB-MED-ARB Protocol. 16 It is believed there has been no reported challenge to enforcement of a dispute board decision on these grounds. 17 See General Condition 11 of the Dispute Avoidance/Adjudication Agreement, Appendix to the FIDIC 2017 Editions and the appendices to ICC Dispute Board Rules.

Who pays for the dispute board? The contract, the member’s agreement or the rules will determine parties’ liability for the dispute board members’ fees and expenses. The default is that each party is liable for one half. Many contracts provide that the contractor pay the fees in full and then include one half in its applications for payment.18 One of the complaints of employers regarding inclusion of dispute boards in their contracts on the insistence of external funders is that this funding often does not include its share of the cost of a board. However, one funder states in its standard bidding documents that the cost of a DAB is an eligible cost for inclusion in a loan application19 and it is understood that other multilateral development banks may well follow. In practice, where one party is reluctant to be involved in the dispute board process, the other may pay the board’s fees in their entirety so that the board can operate, and then that party recovers one half from the other.20

Practice and procedures of the dispute board Where it is a standing board, there will be provision for the board: • to identify what information it should or wishes to receive to keep it up to date with the operation of the contract; and • to establish the frequency of site visits.

This will normally be agreed and minuted at the first meeting between the board and the parties. There may be a stipulated minimum frequency of site visits. This may be adjusted depending upon the stage the works have reached. Should disputes arise, hearings on these disputes will usually be dealt with as part of a site visit. Such visits, as well as viewing the works themselves, will involve an update on progress and any issues arising. Where such visits or meetings identify issues between the parties, the rules may provide that the board can give informal advice or assistance. The aim in those situations is for a matter to be resolved before it becomes a full-blown dispute. The contract or rules may provide that this can only be given if both parties agree.21 Sometimes the mere act of bringing together the parties for a regular visit of the dispute board can assist in avoiding disputes.

18 See General Condition 9 of FIDIC 2017 Editions. 19 Japanese International Co-operation Agency (JICA) Standard Bidding documents. See: https://www.jica. go.jp/english/our_work/types_of_assistance/oda_loans/oda_op_info/guide/tender/c8h0vm0000aoesst-att/ civil_01.pdf. 20 Although the arbitration clause in FIDIC 2017 provides that a tribunal may have regard to the extent to which a party failed to cooperate in establishing a board when dealing with arbitration costs, it is not known how this will work unless any costs of that non cooperation can be identified and quantified. 21 See below regarding FIDIC informal assistance that requires agreement of both parties.

The rules contain details of the procedure, including how to refer a dispute, the time scale for the defence or response and the need for and nature of any hearing. A normal contractual timescale for determining a referred dispute is around three months.22 One or both parties may require a hearing. The dispute board will issue its decision or recommendation and will normally be required to provide reasons. The rules will provide for a majority decision.

Binding nature of a dispute board decision A typical dispute board clause will provide that parties shall comply with a dispute board decision. It will also normally provide a period within which a party that is dissatisfied with the decision issues a notice of dissatisfaction. In the event that such notice is not issued within the specified time, the clause will provide that the decision is final and binding. Where a notice of dissatisfaction is issued in accordance with the contract or rules, then the next stage is for the dispute to go to arbitration for final determination.

Where a dispute board decision is a condition precedent to arbitration Most contracts that incorporate dispute boards provide that a dispute requires first to be referred to a dispute board before it proceeds to arbitration.23 Issues can arise where one party obstructs or delays the process for obtaining such a decision or goes straight to arbitration. In such circumstances, an arbitration tribunal or court may be called upon to determine whether it can deal with the dispute without a dispute board decision. The question is whether this is an issue of jurisdiction or admissibility. This depends upon the approach taken by the arbitral tribunal. If treated as an issue of jurisdiction, the tribunal should dismiss the case. If treated as an issue of admissibility (i.e., procedural), the tribunal may suspend arbitration proceedings until the dispute board has been constituted if not in place and/or until it has issued a decision or recommendation on the dispute.24 When judicial support has been sought, the approach of the courts in some jurisdictions has been to prevent a party from benefiting from its own delay or failure to engage in the contractual dispute mechanisms. Thus, the English courts refused to allow a party to avoid following the dispute board provisions in the contract and proceed straight to litigation. The litigation was stayed pending a dispute board decision.25 By contrast, in a case where a party deliberately delayed the appointment of a board and then challenged the jurisdiction of an arbitral tribunal, the Swiss federal court upheld the arbitral tribunal’s jurisdiction.26

22 FIDIC has an 84-day period: see Sub-Clause 20.4 in the 1999 editions and Sub-Clause 21.4 in the 2017 editions. ICC determination is due within 90 days of statement of case being received by chairman of the DRB. 23 See FIDIC 2017 Sub-Clause 21.1: ‘Disputes shall be decided by a DAAB in accordance with …’ and Option Clause W3.2 of NEC4. 24 See Swiss Case No. 4A_124/2014 and Peterborough City Council v. Enterprise Managed Services Ltd [2014] EWHC 3193 (TCC) where the admissibility approach has been preferred, contrasted with ICC Cases 6535 (1992) and 16262 (2010). 25 Peterborough No. 24. 26 Swiss Case No. 24.

Enforcement of a dispute board decision As a creature of contract, enforcing a dispute board decision without any underpinning of legislative support means that it cannot be enforced in the same way as, for example, an arbitration award. A party must go to the court or to arbitration. What is being enforced is, in effect, a contractual agreement. The ordinary recourse for failing to abide by the dispute board’s decision would be an action for breach of contract against the defaulting party. The failure of a party to comply with a dispute board decision is, therefore, a dispute under the underlying contract that requires to be referred to arbitration and an arbitral award sought. That assumes that the issue of non-compliance does not itself need to be referred first for another dispute board decision as a pre-requisite to arbitration.27 At enforcement stage, the question is whether an arbitral tribunal or court will review the merits of the dispute board decision or enforce it on its terms, either in a final award or as an interim measure. A number of courts and arbitral tribunals have dealt with these issues. Enforcement is made more difficult when the decision that it is sought to enforce is challenged and therefore is potentially only temporarily binding. This is especially the case in jurisdictions that are unused to processes that produce similar-type decisions that are only temporarily binding.28 Lack of specificity in the 1999 FIDIC editions as to a remedy for non-compliance with a temporarily binding decision contributed to the difficulties of enforcement. FIDIC initially issued a memorandum to clarify that the failure itself could be directly referred to arbitration,29 with revised drafting in the 2017 editions. The well-known example in Singapore is the Persero case,30which concerned a DAB decision for the payment of S$17 million arising out of a gas pipeline project in Indonesia. Initially, the Singapore Court of Appeal set aside an arbitral award that solely considered the failure to pay under the DAB decision and required payment of the amount determined by the DAB. This court decision was the subject of much criticism by commentators.31 The contractor launched a second arbitration, this time on the substantive merits of the dispute, and asked the tribunal to issue an interim award requiring payment of the S$17 million. The employer’s challenge to this award was unsuccessful, with the Court of Appeal stating that there was a ‘distinct contractual obligation on a paying party to comply promptly with a DAB decision.’32

27 This illustrates the difficulty with enforcing a dispute board decision where the underlying contract does not set out what is its contractual effect and parties’ obligations re compliance. 28 Those jurisdictions that now have adjudication incorporated within their domestic building contracts have adopted legislation to enable the decisions of adjudicators to be directly enforced by the courts, despite their temporarily binding nature. The Housing Grants, Construction and Regeneration Act 1996 in England and Wales is one such example. 29 FIDIC Guidance Memorandum to Users of the 1999 Conditions of Contract dated 1 April 2013. 30 The first instance decision: PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation [2010] SGHC 202, 137 Con L.R. 69; and the Court of Appeal judgment: CRW Joint Operation v. PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33. 31 Chris Seppala, ‘Construction: ICC award should not have been set aside’, Global Arbitration Review 2011, 6(6), p.34. 32 In the final Court of Appeal judgment in the case: PT Perusahaan Gas Negara (Persero) TBK v. CRW Joint Operation [2015] SGCA 30 [88].

The issue of enforceability continues to be a major issue in certain jurisdictions, in particular where contracts with government bodies are categorised as administrative or public procurement contracts.33

Referral to arbitration The dispute resolution clause will typically provide that the arbitral tribunal looks at the dispute anew, regardless of the existence of a dispute board decision. The clause will be silent as to the weight, if any, that should be given to a decision, although the dispute board decision will likely be produced.

Dispute boards under FIDIC contracts All FIDIC forms of contract contain provisions for dispute boards. As a result, much of the case law and guidance on dispute boards concerns the interpretation and application of the FIDIC dispute board provisions. The FIDIC 2017 ‘rainbow suite’ editions all provide for standing boards. Such boards can provide informal assistance, as they could under the First Edition Red Book, but only if both parties agree. To emphasise the avoidance element, the boards have been renamed ‘dispute avoidance and adjudication boards’ (DAABs). The dispute provisions are to be found in: (1) Clause 21 of the General Conditions; (2) the General Conditions of the DAAB Agreement incorporating the DAAB Procedural Rules; and (3) the DAA Agreement (the member’s agreement) – with (2) and (3) annexed to the General Conditions. Particular features of dispute boards under FIDIC Contracts include the following.

Constituting the DAAB A referral of a dispute to a DAAB is a prerequisite to arbitration or litigation.34 There is a stated exception to this where ‘there is no DAAB in place or no DAAB being constituted, whether by reason of the expiry of the DAAB’s appointment or otherwise.’35 Although not express, this has been interpreted in the English courts as only offering a direct route to arbitration where the mechanism has failed, not simply because one party chooses not to use the procedure.36 Parties have the option of a sole member or a three-person board, with the latter being the default position. The contract data allows parties to stipulate at tender stage the name of their proposed nominees to avoid the delay that often ensues when parties try to agree nominees later.

33 See ‘Applying Dispute Resolution Concepts and Dispute Boards in the CEE Region’ by Maciej Jamka, ICC Dispute Resolution Bulletin 2019 No. 1. 34 See Sub-Clause 21.6. 35 See Sub-Clause 21.8. 36 Peterborough City Council No. 22 above at paragraph 32 referring to the same provision in the First Edition Silver Book at Sub-Clause 20.8.

Clause 21 provides for the named body within the contract to appoint where parties cannot agree the dispute board members or delay in doing so. In those circumstances, this clause states that parties acknowledge they are deemed to have signed and are bound by the member’s agreement.37 This provides a route for the constitution of the board when one party refuses to participate in, or delays, their appointment.

Issuing a DAAB decision The board has 84 days within which to issue a decision or recommendation on a dispute as so defined, or longer as agreed with the parties. A claim does not become a dispute, and therefore capable of referral to the board, until it has been made to the other party or the employer’s representative as appropriate and that party has rejected it or delayed in dealing with it.38 As most countries do not have legislation that recognises the dispute board process, one must assume referral of a dispute to a dispute board will not interrupt the limitation period of a claim. The FIDIC 2017 Edition seeks to deal with this in Sub-Clause 21.4.1, where it provides that the reference of a dispute to a DAAB shall ‘unless prohibited by law be deemed to interrupt the running of any applicable statute of limitation or prescription period’. Given the consequences if this is unenforceable under the governing law of the contract, it may be inadvisable to rely on such a provision. Parties can jointly request in writing that the board give assistance or informally dis- cuss and attempt to resolve any issue or disagreement that may have arisen between them (informal assistance).39 Unless the parties agree otherwise, they must both be present at any discussions and are not bound by any advice that the DAAB may give. Similarly, the DAAB is not bound by any views expressed in this informal stage when making any future determination of a dispute. In order to be valid, a board decision must be given in writing to both parties, must be reasoned and must state it is given under the particular FIDIC Sub-Clause (Sub-Clause 21.4).

Enforcing a DAAB decision The decision is stated to be binding on both parties, and parties shall prompt comply with it whether or not the dissatisfied party has given a notice of dissatisfaction. Sub-Clause 21.4 provides that a notice of dissatisfaction must be given within the period stated in the contract or, if no period is given, within 28 days after receiving the decision. Otherwise the board’s decision becomes final and binding on both parties. Following issue of a notice of dissatisfaction there is a period of amicable settlement (the default is 21 days) before arbitration can be commenced. The Sub-Clause provides that a party may refer the non-compliance with a DAB decision directly to arbitration without following the dispute escalation provisions. This resolves the question as to whether a party must obtain a further DAB decision or undertake

37 This is to avoid an issue of the member not being in contract with the parties and unable to enforce payment of its fee. 38 See Sub-Clause 1.1.26 of Silver Book and 1.1.29 of Red Book. 39 See Sub-Clause 21.4.4 of Silver Book and 21.4 of Red Book.

163 © Law Business Research Dispute Boards amicable settlement discussions before enforcing a decision. It gives the arbitral tribunal express power to order that the decision is enforced and provides that this can be done by interim or provisional measures or an award. Concerns about enforceability of a decision that is binding but not final are addressed by expressly providing that such an interim or provisional measure or award is subject to an express term that the rights of parties as to the merits of the award are reserved until finally resolved by an arbitral award.

The dispute board decision and arbitration When a dispute that has been the subject of a DAAB decision is referred to arbitration, the arbitrator has full power to ‘open up, review, revise any … decision of the DAAB (other than a final and binding decision)’. It is, however, the Dispute that is referred to arbitration, not the decision of the DAAB.40 Neither party is limited to the arguments it puts before the arbitrator, to those it advanced before the DAAB or to its grounds for dissatisfaction as contained in the notice of dissatisfaction.41

40 There is specific provision that the dispute board decision is admissible as evidence – see Sub-Clause 21.6. 41 See Sub-Clause 21.6.

About the Authors

Lindy Patterson QC 39 Essex Chambers Lindy Patterson QC specialises in international arbitration, adjudication and other forms of ADR. She operates in the construction, energy and natural resources and general commercial sectors. She acts regularly as arbitrator and adjudicator and has extensive experience as counsel and as tribunal member and chair. She operates in many jurisdictions, both civil and common law, and with a variety of governing laws. She has chaired a number of dispute boards, both ad hoc and standing, across the world and plays an active role in promoting dispute avoidance by these means. She is past president of the Dispute Resolution Board Federation (Region 2). Lindy was previously a partner in a major law firm specialising in commercial, construction and energy disputes. She is also qualified in Scots law and has significant experience in civil as well as common law systems.

Nicholas Higgs 39 Essex Chambers Nicholas is a dual-qualified barrister and chartered engineer. He undertakes instructions in all areas of civil practice with a focus on construction and engineering disputes and international commercial arbitration. Prior to joining the English Bar, Nicholas was an associate at Ove Arup & Partners where he had a career as bridge designer and, latterly, as commercial and procurement manager. He has considerable experience in all the major construction contract forms with a speciality in FIDIC Silver Book contracts and has led work on projects including the Queensferry Crossing in Scotland, the Garden Bridge in London, the Brunei-Temburong Link in Brunei and the HS2 high-speed rail project in England.

39 Essex Chambers 81 Chancery Lane London WC2A 1DD United Kingdom Tel.: +44 20 7832 1111 [email protected] [email protected] www.39essex.com

446 © Law Business Research Edited by the academics who run a course on construction contracts and arbitration at the School of International Arbitration, Global Arbitration Review’s The Guide to Construction Arbitration brings together both substantive and procedural sides of the subject in one volume. Across four parts, it moves from explaining the mechanics of FIDIC contracts and particular procedural questions that arise at the disputes stage, to how to organise an effective arbitration, before ending with a section on the specifics of certain contracts and of key countries and regions. It has been written by leaders in the field from both the civil and common law worlds and other relevant professions. This third edition is fully up to date with the new FIDIC suites, and has new chapters on parties, pricing, expert witnesses, claims resolution, dispute boards, ADR, agreements to arbitrate, investment treaty arbitration, and Brazil. It is a must-have for anyone seeking to improve their understanding of construction disputes or construction law.

Visit globalarbitrationreview.com Follow @garalerts on Twitter Find us on LinkedIn ISBN 978-1-83862-211-4