I INTRODUCTION

Dispute Boards (DB) are an increasingly popular method, not only for resolving disputes, but also for avoiding them or for preventing them from escalating to arbitration or litigation.1

DB present several advantages. First, the mere existence of a DB may be a deterrent against disputes. Second, regardless of whether it is voluntarily complied with or enforced in arbitration or litigation, a DB determination may per se be an incentive to settle the dispute. By bringing an objective view into the parties’ disagreement or dispute, a DB helps the parties preserve their business relationship. Last but not least, the binding nature of DB determinations ensures that parties, particularly contractors in complex construction projects, do not have to wait until the dispute is resolved to receive payments, and maintain cash flow that allow them to continue the project, thus minimizing disruption to the contractual relationship.

For these characteristics, DB have recently been described as a "project management tool," or as "an integral part of contract management,"2 useful not only in large construction projects, which are DB’s original and natural environment, but also in other types of contractual relationships.3 Long term and technically complex contracts, such as IT projects, IP transactions,4 services agreements, concession projects,5 joint ventures and maintenance agreements, are also particularly suitable for DB.

II THE REVISION OF THE ICC DISPUTE BOARD RULES

The first edition of the ICC DB Rules was adopted in 2004.6 The intention of the institution at the time was to offer parties a standing mechanism to resolve disputes at a contractual level, but also to avoid disputes.

Years after the introduction of the first ICC DB Rules, the ICC Commission on Arbitration and ADR (Commission) considered that the Rules serve a useful purpose in obtaining the parties’ agreement on important aspects before any controversy arises. Moreover, the functioning and purpose of DB are not always adequately understood. Finally, by setting out a procedural framework for DB, the Rules increase predictability of the process. Based on these considerations, the Commission therefore decided to maintain the Rules and to undertake a revision process to take into account developments in the practice and suggestions for improvements that were received from various sources. A designated task force was created, whose function was to make suggestions and review the various proposals received. Some of these proposals were then discussed at a special meeting of DB experts along with suggestions from the ICC International Centre for ADR (Centre) based on its experience of rendering services under the Rules. A drafting committee was created to draft a text, which was eventually submitted to the task force and the DB experts for comments. The revised Rules were reviewed by the ICC Commission on Arbitration and ADR at its plenary session in Tokyo in October 2014 and finally approved by ICC’s Executive Board. The revised Rules came into force on 1 October 2015.

The revision process lasted approximately four years and resulted in a set of rules which govern the functioning of three different types of dispute boards (as under the 2004 Rules), namely: (i) Dispute Review Board (DRB), which had been introduced in the practice of construction contracts and infrastructure projects from the early 1970s, and which issue recommendations; (ii) Dispute Adjudication Board (DAB), which were introduced in the Conditions of Contract of the International Federation of Consulting Engineers (FIDIC) since its 1995 edition and which issue "decisions"; and (iii) Combined Dispute Board (CDB), which were an innovation of the 2004 ICC DB Rules and which can issue recommendations or decisions depending on the wishes of the parties and the circumstances of the case. The three different types of DB correspond to three different approaches (the DRB is less coercive, the DAB is more coercive, and the CDB lies in between). All three models can serve a useful purpose depending on the circumstances. The ICC does not recommend one approach rather than another. Parties are encouraged to consider the pros and cons of each approach and to decide jointly which is the one is best tailored to their needs.

The aim of the revision process was limited to introducing improvements based on suggestions from users and experts only to the extent they responded to a genuine need. As better described below, increased emphasis was put on dispute avoidance and informal assistance.

Another guiding principle was the flexibility of the process. Most of the provisions in the Rules can be modified by agreement of the parties and the DB members. This applies particularly to the relationships between the parties and the DB members. Each DB member must enter into an agreement with all of the parties. Attached to the Rules is a Model Dispute Board Member Agreement. This document is a model intended to assist the parties and the DB members in agreeing upon the terms of the DB members’ mission. However, the provisions in the model can be modified to suit the needs of all concerned.

III THE SERVICES PROVIDED UNDER THE 2015 ICC DB RULES

After the adoption of the 2004 DB Rules, it became increasingly clear that DB play an important role in helping parties avoid and informally resolve disagreements before they become disputes that can be referred to the DB in a formal referral.7 To put emphasis on this function, a new section entitled "The Three Services Provided by the Dispute Board" was introduced in the 2015 Rules, which deals with three different services: (i) Avoidance of Disagreements (Article 16); (ii) Informal Assistance with Disagreements (Article 17); and (iii) Formal Referral for a Conclusion (Article 18). This approach emphasizes that, while formal referral is the most complex and developed of these procedures, the other ones are not less important Article 16 on Avoidance of Disagreements is an entirely new article. It provides for a proactive role of DB, which, instead of awaiting a request from the parties, can encourage the parties to resolve their Disagreements on their own. Whenever DB become aware of potential Disagreements between the parties, they can raise the matter with the parties and encourage them to try to avoid the Disagreement on their own, without further involvement by the DB. In the avoidance process, the DB may nonetheless assist the parties in defining the potential Disagreement and also suggest a specific process to be followed.

The description of the services provided with respect to informal assistance and formal referral has not changed significantly in the 2015 Rules. The DB can meet separately with the parties, organise joint meetings, and informally advise the parties as to how they might resolve their Disagreements. However, when issuing a Conclusion, the DB is not allowed to take into account information that has not been available to all parties.

Informal assistance may lead to the resolution of the Disagreement by the parties themselves. In a formal referral pursuant to Article 18, the parties submit a Statement of Case and a Response, followed by a hearing. During a formal referral, no informal conversations or separate meetings between any party and the DB members on any issue covered by the formal referral is allowed. The advantage of a formal referral is that it results in a Conclusion by the DB, which can become contractually binding on the parties if they do not express dissatisfaction with it. If the parties have opted for a DAB, the Conclusion of the DAB is provisionally binding on them, regardless of any expression of dissatisfaction with it. In the event that a party expresses dissatisfaction, the dispute can be resolved by arbitration or litigation.

IV DEFINITIONS

Several changes have been made in Article 2 of the Rules entitled "Definitions". These changes aim at emphasising the differences between the services offered by DB and increase consistency in the terminology.

Article 2 makes clear that a Disagreement means any difference between the parties that has not been formally referred to the DB for a Conclusion. Once a Disagreement has been formally referred to the DB, it becomes a Dispute. A Conclusion means either a Recommendation or a Decision issued by the DB following formal referral. These new definitions clarify that avoidance of Disagreements and informal assistance with Disagreements concern the provision of assistance before a Disagreement becomes a Dispute. Disputes are dealt with by DB only under a formal referral for a Conclusion.

Finally, the term "Conclusion" replaces "Determination" used in the 2004 Rules, but has exactly the same meaning. The change is intended to avoid confusion with the definition "Determination" in FIDIC documents.

V ENSURING COMPLIANCE WITH THE CONCLUSIONS

One of the goals of the revision process that led to the adoption of the 2015 DB Rules was to ensure compliance with any Conclusions issued by a DB that have become contractually binding on the parties

While the Rules cannot bind arbitral tribunals or state courts, the 2015 Rules have strengthened the binding force of Conclusions vis-à-vis the parties by expressly providing that a party that has failed to comply with a Conclusion of the DB when it was required to do so under the Rules shall not raise any issue on the merits as a defence to its failure to comply (Articles 4(4), 5(4) and 6(1)). This approach is intended to avoid any attempt to re-argue the merits of any Conclusion that has become contractually binding. Moreover, Conclusions are now referred to as being "final and binding" as soon as the parties are contractually bound to comply with them. This reference to the "final" nature of the Conclusions was added to the 2015 Rules and is now even reflected in the model clause published by the ICC. Articles 4(4), 5(4) and 6(1) of the Rules specify that any party may refer a failure by another party to comply with a Conclusion directly to arbitration or a competent court, without having to refer it to the DB first.

VI THE CONSTITUTION OF THE DB

Article 2(v) of the Rules expressly provides that a DB may be composed of more than three members, although this is very rare in practice.

As for arbitration, the selection of DB members is of the utmost importance. Article 7(7) of the Rules provides that the parties can call upon the Centre for assistance. The Centre shall consider candidates that fulfill requirements of independence, impartiality and availability. The requirement of impartiality has been added to Article 8 for reasons of consistency with the 2012 Arbitration Rules. Article 7(8) contains a longer list of attributes which have to be taken into account by the Centre when appointing a DB member. These include nationality, residence, language skills, training, qualifications, experience, availability and ability to conduct the work. Experience and familiarity with the type of contract, the technical and financial aspects of the project and the applicable law will also be major considerations. For construction projects, engineers with experience of dispute resolution are natural candidates, but lawyers specialising in construction law are also often considered.

Article 9(3) requires a written agreement of the parties if they wish to deviate from the principle that a DB member shall not act or have acted in any related proceedings. Finally, DB member may resign giving three months’ written notice to the parties unless otherwise agreed in the DB Member Agreement (Article 14(3)).

VII PROCEDURAL ISSUES

Under the 2004 Rules, which were silent in this respect, it was uncertain whether DB had the power to grant provisional relief. Article 15 of the 2015 Rules now specifically includes, among the powers of DB, the power to decide upon any request for provisional relief.

As mentioned, under Article 16 of the Rules, the parties are encouraged to resolve any Disagreements on their own. If this proves not to be possible, informal assistance may be given pursuant to Article 17 in an attempt to resolve the Disagreement, either at the request of one of the parties with the agreement of the other or at the initiative of the DB with the agreement of both parties. The success rate of DB in resolving disagreements has estimated at over 95%.8 The emphasis on dispute avoidance is consistent with recent initiatives of the ICC Dispute Resolution Services aimed at enhancing cost and time efficiency.

In a paper prepared jointly by the parties or separately by each party 15 days prior to a site visit, the DB is informed of the matter for which informal assistance is sought. This allows the DB to study the matter in advance. The DB will express its opinion orally or in writing. If the DB is subsequently required to take a position on the matter in a formal referral, it is not bound by any opinions it may have expressed when giving informal assistance.

In the event that a Disagreement cannot be avoided or overcome and becomes a dispute subject to formal referral, a request is filed, followed by an answer and then a hearing, in which each party is allowed to present its case and answer the DB’s questions. Even in this case, given their nature and purpose, DB proceedings should be kept concise and simple. In certain situations, particularly in complex cases, parties may be tempted to request the assistance of lawyers.9 However, this disregards the spirit and practice of DB proceedings, where submissions are normally not made by legal counsel, but by the representatives of each party (usually the project director or the project manager), possibly assisted by external experts, if required.10 Expert reports and oral evidence should be limited. 11

In recent years, attempts by some parties to complicate DB proceedings have been observed. This approach may depend on lack of familiarity with their role, or on a deliberate attempt to transform them into a process akin to arbitration and to obtain a first ruling, which, if unsatisfactory, may then be challenged in arbitration.

In order to avoid procedural difficulties and keep DB proceedings simple, Articles 19-21 of the Rules indicate how submissions should be filed by the parties and how hearings should be held. These provisions are intended to provide the parties with a clear procedural framework and to avoid misunderstandings. However, these rules may not be sufficient, and DB may have to adopt additional rules, which should be submitted to the parties for approval at the beginning of the proceedings in order for the parties to prepare their submissions and the hearing in the most appropriate manner.

The Rules do not expressly regulate multi-party situations. Article 15(4) provides that the parties may adapt the Rules to the multi-party context as appropriate, or, failing such agreement, that the DB can make the necessary adaptations.12

VIII COSTS

Costs represent one of the most controversial aspects of DB, and led to considerable debate during the process of revision of the ICC DB Rules. As mentioned, DB play a vital role in helping parties to construction and other contracts avoid and resolve their disagreements before they become disputes. They also play an important role in resolving disputes and avoiding the need to resort to arbitration or litigation. Therefore, while the use of a DB is an additional cost in a project, the majority view is that this additional cost is likely to result in a saving of the costs of arbitration or litigation.

Recourse to a DB has been described as an "insurance policy against the likelihood of long-running, complicated and cripplingly expensive arbitrations."13

Articles 28-34 of the 2015 DB Rules comprise a section entitled "Compensation of the Dispute Board Members and the ICC". Article 28 contains general provisions relating to costs. Articles 29 to 33 deal with the costs of the DB members and Article 34 with the administrative costs of the ICC. An essential feature of these provisions is their flexibility. The parties can agree to modify the provisions prior to the commencement of a project or thereafter with the consent of the DB members to better respond to their needs.

Article 28 specifies that all fees and expenses of the DB Members shall be shared equally by the Parties. If there are three or more DB members, they all receive the same fees irrespective of their countries of origin and the average hourly fee in those countries. The fees are fixed for the first 24 months following the signature of the DB Member Agreement and adjusted on each anniversary of such agreement. If the parties and the DB members are unable to agree on the fees, the Centre will fix them if requested to do so by any party or DB member. The Centre will make its binding determination after consulting the parties and the DB members. The DB members must either accept it or decline the appointment. The Centre’s power to determine the fees in case of disagreement avoids the delay that often occurs in setting up the process.

Article 29 deals with the controversial aspect of the "Monthly Retainer Fee" (as it was called in the 2004 Rules). Despite the clear advantages of using DB, particularly in major projects, owners are sometimes reluctant to do so in order to avoid incurring the corresponding costs. This reluctance is sometimes attributed to the Monthly Retainer Fee, which was perceived as a source of excessive cost and would not reflect actual time spent on the project by DB members. It was argued that DB members should be remunerated exclusively on the basis of time spent.

On the other hand, proponents of the Monthly Retainer Fee have contended that it covers several activities and costs, including: (i) being available to attend meetings with the Parties and site visits; (ii) being available to attend internal DB meetings; (iii) becoming and remaining familiar with the contract and its performance; (iv) studying of progress reports and correspondence submitted by the parties; and (v) office overhead expenses in the DB member’s place of residence. In favour of the Monthly Retainer Fee it was also argued that, were DB members remunerated on the basis of time spent, the provision of progress reports, minutes of meetings, correspondence and other documents is likely to be limited or excluded in an attempt to reduce the costs. Yet, such documents are essential to the DB members, who need to study such material to perform that role effectively. Moreover, disagreement over what material should be made available to the DB members could be a source of conflict and misunderstanding. Likewise, disputes relating to the amount of time that the DB members should properly devote to their tasks should be avoided.14

To overcome this difference of opinions, and clarify that the monthly fee does not cover the costs of retaining the services of the DB, but rather the various management activities it performs, it was decided to change the reference to the Monthly Retainer Fee to "Monthly Management Fee". The activities, tasks and costs the Monthly Management Fee covers include: (i) becoming and remaining conversant with the contract and the progress of its performance; (ii) managing and coordinating the operation of the DB; (iii) studying progress reports, aiming, among other things, at identifying potential Disagreements; (iv) reviewing the correspondence between the parties; (v) being available to attend meetings with the parties, internal DB meetings and site visits; and (vi) office overhead expenses. The Monthly Management Fee is equal to three times the daily fee set out in the DB Member Agreement and is payable from the date of signature of the DB Member Agreement until its termination. This provision is subject to Article 10(2), which requires the parties to continue paying the DB Member the monthly management fee for a minimum of three months after termination, unless agreed otherwise. The Monthly Management Fee can be eliminated if the parties consider this to be appropriate in the circumstances.

Article 30 deals with the Daily Fee, which covers the time spent for meetings and site visits, travel, internal meetings of the DB, study of documents submitted by the parties in connection with procedures before the DB, work in connection with avoidance of Disagreements, informal assistance with Disagreements and formal referral for a Conclusion, including hearings. Article 31 indicates on what basis travel costs and other expenses will be reimbursed. Article 32 deals with taxes and charges and provides that these, including value added tax (VAT), levied in connection with the services rendered by a DB member by any country other than the country of the residence or nationality of the DB member shall be reimbursed by the parties, but not those levied in connection with such services by the DB member’s country of residence or nationality.

Article 33 deals with DB members’ invoices and how they are to be processed and paid by the parties. If any party fails to pay its share of fees and expenses within 30 days of receiving a DB member’s invoice, the DB member, in addition to any other rights, is entitled to suspend work 15 days after providing a notice of suspension to the parties and to any other DB members.15 In the event of a party’s failure to pay its share of a DB member’s fees and expenses when due, any other party, without waiving its rights, may pay the outstanding amount.16

As mentioned, Article 34 deals with the administrative expenses of the Centre, which will apply only if the Centre is expressly requested to perform certain services. The article is supplemented by a Schedule of Costs as an Appendix to the Rules. In addition to an introductory provision on the Centre’s administrative expenses, the article deals in turn with the expenses relating to each of the services offered by the Centre. The amount specified in Article 1 of the Appendix is payable for each request for the appointment of a DB member. For each decision upon a challenge of a DB member, the Centre shall fix administrative expenses in an amount not exceeding the maximum sum specified in Article 2 of the Appendix. The cost of each decision is borne by the party making the challenge. For the review of each Decision, the Centre shall fix administrative expenses in an amount not exceeding the maximum sum specified in Article 3 of the Appendix. The cost of reviewing each Decision is shared equally by the parties. The specified in Article 4 of the Appendix is payable for each request for the Centre to fix the fees of the DB members. This cost is shared equally by the parties.

Article 34 provides that the Centre shall not provide the service unless payment of the relevant amount has been received. Moreover, if a party fails to pay its share of the administrative expenses of the Centre, the other party is free to pay the full amount. For each service rendered by the Centre a non-refundable filing fee is payable. For the appointment of DB members and the determination of their fees this amount corresponds to the totality of the administrative expenses, whereas for challenges and the review of Decisions, the filing fee is credited to the total amount of the administrative expenses fixed by the Centre for the service.

NOTES

1
Seppälä, Commentary on Recent ICC Arbitral Awards dealing with Dispute Adjudication Boards under FIDIC contracts, in ICC Dispute Resolution Bulletin, 2015, No. 1, p. 23: "DABs have become the preferred method for resolving international construction disputes."

2
Genton, The DRB & DAB: An Attractive Procedural if One Takes Certain Precautions, in ASA Bulletin, 2000, p. 71.

3
See Gantenberg, Flecke-Giammarco, Dispute Boards Revival, in Austrian Yearbook on International Arbitration 2016, p. 202.

4
Halket, Arbitration of Intellectual Property Disputes, available at www.icc.fi/userData/5176/pdf/ICC-Arbitration-Court-English/brochure.pdf.

5
Chern, Chern on Dispute Boards, Practice and Procedure, 2015, p. 359.

6
Koch, The New Dispute Board Rules of the ICC, in ICC Court Bulletin, 2004, No. 2, p. 11 ff.

7
Gantenberg, Flecke-Giammarco, op. cit., p. 207.

8
Wolrich, Bunni, Genton, Drafters’ Insights into the 2015 ICC Dispute Boards Rules, in ICC Dispute Resolution Bulletin, 2016/1, p. 52.

9
Chern, ‘The Dispute Board Federation and the Role of Dispute Boards in Construction — Benefits without Burden,’ in Spain Arbitration Review, 2010, p. 6.

10
Jenkins, International Construction Arbiration Law, 2013, p. 112.

11
Gantenberg, Flecke-Giammarco, p. 206.

12
Genton, ICC Dispute Board Rules: Status and Perspectives of a Key Contribution to the Prevention of Disputes, in Ingen-Housz (ed.), Practice and Issues across Countries and Cultures, 2010, p. 414.

13
See the March 2012 Dispute Board Manual of the Japan International Corporation Agency, p. A-5:

it is to be remembered […] that the Contract Parties are investing in the DB as a means of trying to avoid the much more costly and time-consuming process of international arbitration or litigation. To use an old English expression, it is important not to be ‘penny wise but pound foolish’;

Wolrich, Bunni, Genton, op. cit., pp. 48 and 51:

In the author’s ten most recent arbitrations, the costs have varied from 2.58% to as much as 37% of the overall amount in dispute, with an average of 12.75%. Thus, the saving made by eliminating a single arbitration far exceeds the cost a Dispute Board represents, and in complex construction or engineering projects there may be several arbitrations!; Bunni, What Has History Taught Us in ADR? Avoidance of Disputes!, in Arbitration, 2015, p. 176.

14
Wolrich, Bunni, Genton, op. cit., pp. 48-49.

15
Such suspension will remain in effect until receipt of full payment of all outstanding amounts plus simple interest at one-year LIBOR plus 2%, or the 12-month prime interest rate in the currency agreed between the parties and the DB members.

16
The party making such payment shall be entitled to reimbursement from the non-paying party of all such sums paid, plus, unless prohibited by applicable law, simple interest at one-year LIBOR plus 2%, or the 12-month prime interest rate in the currency agreed between the parties and the DB members.