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ICC New Dispute Resolution Board Rules

In October 2004 the International Chamber of Commerce ("ICC") published its new Dispute Resolution Board Rules. These rules, as with the ICC's Arbitration Rules and ADR Rules before them, recognise a change in the demands being made by the business community from dispute resolution procedures.

What are Dispute Boards?

The introduction to the ICC New Dispute Resolution Board Rules ("ICC Rules") provides the following useful summary description of Dispute Boards:

"Dispute Boards (OBs) are normally set up at the outset of a contract and remain in place and are remunerated throughout its duration. Comprising one or three members thoroughly acquainted with the contract and its performance, the DB informally assists the parties, if they so desire, in resolving disagreements arising in the course of the contract and it makes recommendations or decisions regarding disputes referred to it by any of the parties. "

Since they were first used in the 1970's DBs have become increasingly popular in large international construction and engineering projects and have been mandatory in all projects financed through the World Bank IBRD since 1995 and those financed through the Asian Development Bank and European Bank for Reconstruction & Development since 1997. In addition, institutions such as FIDIC and NEC have more recently introduced supplements to their suite of contracts providing parties with the option of introducing DBs into the dispute resolution provisions. The introduction of the ICC Rules is another indication of the increasing popularity of DBs in other fields of commerce (although by their nature they are only appropriate for long term contracts).

Types of DBs

The ICC Rules are designed to govern DB proceedings and the ICC Dispute Board Centre has been set up to support parties and DB members (although it does not administer DBs). The Centre operates separately from the ICC International Court of Arbitration, the ICC International Centre for Expertise and the ICC ADR Secretariat.

The ICC Rules recognise the existence of three general types of dispute board procedure. The central distinction between the three is the status of their determinations (either Decisions or Recommendations):

  1. A Dispute Review Board ("DRB") issues "Recommendations" with respect to any dispute referred to it. It is often described as being the "consensual" approach as the parties are free to reject the decision so long as they do so within a prescribed time limit after the Recommendation has been made. Failure to express dissatisfaction with the time limit renders the decision contractually binding (effectively converting it into a Decision). By rejecting the Recommendation the dispute is then referred to arbitration or the courts for final determination (depending on the terms of the dispute resolution procedure in the contract).
  2. A Dispute Adjudication Board ("DAB") issues "Decisions", with which the parties are contractually obliged to comply as soon as possible after receipt. Decisions are effectively enforceable as a term of the contract. A party may express dissatisfaction with a Decision and is entitled to commence arbitration or court proceedings to finally resolve the dispute. However, they are obliged to honour the Decision until such time as they receive an Award or Judgment which states otherwise. There are a number of similarities between a DAB and the United Kingdom statutory adjudication procedure which applies to construction contracts, although they are different in constitution and statutory adjudication has a more rigid procedure. The UK procedure has now become the first (and, in a vast majority of cases, the last) step in the resolution of construction contract disputes in the UK. Perhaps the most important aspect in the success of adjudication is the relative ease with which a party can enforce decisions in court (circa 4-6 weeks).
  3. A Combined Dispute Board rCDB") is a hybrid of the first two, and can issue both Recommendations (non-binding) and Decisions (binding until an Award or Judgment states otherwise). The default position is that the CDB issues a Recommendation. However, if one of the parties asks that the dispute be the subject of a Decision (and the other party does not object), then the CDB may (ie, it has a discretion to refuse) issue a Decision. If the other party does object then the CDB is entitled to decide whether to issue a Decision or a Recommendation.

DB Procedure

The ICC Rules provide the parties with a great deal of flexibility starting with the option of a DRB, DAB or CDB structure (Articles 4,5 and 6). The Parties are then free to agree (within the terms of contract) on the number and method of appointment of the DB members. In default of an agreement the number of DB members will be three. Where there is to be only one DB member then they shall be appointed jointly by the parties. Where there are three DB members then the first two shall be appointed jointly by the parties with the third being appointed by the first two members (Article 7).

Whilst the ICC Rules provide a replacement mechanism should a DB member be unable to continue to act, they do not provide a means of replacing a DB member if that member tums out to be incompetent or uncooperative etc. Given the contractual basis of the DB's jurisdiction the parties should be able to remove a member by agreement. Obviously, difficulties will arise if one party is unwilling to agree to this. For these reasons it is important that the parties choose DB members very carefully, particularly as a DB is likely to stand for a number of years. Given the importance of their position on a project the ICC Rules place obligations of Independence (Article 8) and Confidentiality (Article 9) on the DB Members by making them sign a DB Agreement (Article 10).

Once constituted the DB is free to settle on its own procedure to arrive at Recommendations or Decisions (so long as it complies with the Rules) including the language of the proceedings, production of documents, calling of meetings and hearings, questioning the parties, representatives and witnesses (Article 15). As well as issuing formal determinations, the DB is also permitted to take initiative "informally" to assist the parties in the resolution of disagreements that may arise during the course of the project. However, this informal assistance will not bind the DB should the disagreement subsequently be formally referred to them (Article 16).

A formal referral to the DB is made by one party submitting a Statement of Case to the other party and the DB (Article 17). The default position is that the other party shall then respond within 30 days (Response). The DB is entitled to request either party to provide further submissions or documentation to assist in the preparation of the determination (Article 18). Any hearing should then follow within 15 days (unless DB orders otherwise).

The DB decision should follow within 90 days of the submission of the Statement of Case (Article 20) and the DB members should strive for unanimity in their determinations (although a majority decision is acceptable (Article 23)). The ICC Rules provides that any determination should provide a summary of the dispute, a summary of relevant contractual provisions, a chronology of relevant events, a summary of the procedure followed and a list of the submissions and documents provided by the parties (Article 22). The parties may agree to refer such a determination to the ICC Centre for review as to determinations compliance with the rules (Article 21).

DBs are not intended to be arbitral tribunals and care needs to be taken when setting up the dispute resolution procedure in order to avoid them falling within the definition of an arbitration for purposes of the applicable law of the contract, the law where any DB (or subsequent arbitration) will be conducted, and where any Decision is likely to be enforced. The ICC rules make it clear from the outset that DBs are not arbitral tribunals (Article 1).

Interestingly, the ICC Rules permit DB determinations to be admissible to any subsequent judicial or arbitral proceedings, unless agreed otherwise by the parties (Article 25).

Conclusions

Dispute Boards are now a commonplace in construction contracts but given the introduction of these new ICC Rules may now be seriously considered in other commercial areas where contracts of a longer duration are entered into. The ICC Rules can be used either as a stand alone set of Rules or as a framework from which to build a bespoke set of rules and procedures suited to the project and the needs of the parties. Given the duration of the DB and its potential effect on the success of a project or commercial relationship it is essential that these are properly and carefully considered prior to the execution of the contract.

Herbert Smith, Arbitration Briefing
March 2005

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