Developments and Challenges of DAB Procedures Enforcement of a DAB s Decision

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1 Developments and Challenges of DAB Procedures Enforcement of a DAB s Decision By Dr. ImadAl Jamal 1. The decision of a Dispute Adjudication Board ( DAB ) becomes a contract obligation by virtue of Sub-Clause 20.4 of the 1999 Red Book providing: [t]he 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 1

2 2. Sub-Clause 20.4 differentiates between a DAB s decision which is binding unless revised, that is, which is a contract obligation, and a DAB s decision which is binding and final [i]f the DAB has given its decision as to a matter in dispute to both Parties, and no notice of dissatisfaction has been givenby either Party within 28 days after it received the DAB s decision, then the decision shall become final and binding upon both Parties. When a DAB decision becomes final (as well as binding ), this means that it is no longer subject to legal recourse, whether by arbitration or before the courts, 3. Under most laws, a DAB proceeding would not be considered to be an arbitration and a DAB s decision would not be deemed to be an arbitral award. Thus, Sub-Clause 20.4 of the Red Book provides: The DAB shall be deemed to be not acting as arbitrator(s). 4. As a DAB s decision, whether binding or final and binding, is not an arbitral award, it cannot be enforced internationally under the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. 2

3 5. There are, however, reported cases where Engineer s decisions (under older editions of the Red Book), whether final and finding or merely binding but not final, have been enforced by arbitral awards. See,e.g.the interim award in ICC Case No in 2001 (Red Book, fourth edition) for the latter case. 6. However, I am aware of at least one (unpublished) ICC interim award (in 2002) which refused to enforce a binding decision of a DAB under a FIDIC contract and two awards that have enforced such a decision, see, e.g. (1) an ICC partial award described in the Dispute Board Federation s Newsletter of September 2010, and (2) A final award by a majority of the arbitrators in ICC Case No /CYK issued in On the other hand, the award in ICC Case No /CYK was set aside by a decision dated July 20, 2010 of a Singapore court. While this decision has been appealed, the appeal is not expected to be decided before

4 8. Sub-clause 20.7 of the 1999 Red Book has been perceived as an obstacle to the enforcement of a merely binding DAB decision. This provides as follows: In the event that: (a) Neither Party has given notice of dissatisfaction within the period stated in Sub-Clause 20.4, (b) the DAB s related decision (if any) has become final and binding, and (c) 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 As Sub-Clause 20.7 only provided for the referral of a final and binding decision to arbitration, it is argued that a binding decision cannot be enforced by an arbitral award. 9. However, it was never the intention that Sub- Clause 20.7 (Sub-Clause 67.4 in the fourth edition) be interpreted in this way. This provision was inserted in the Red Book to correct a deficiency in Clause 67 of the third edition. Clause 67 had provided that a party could only refer a dispute to arbitration if: (1) It had referred it to the Engineer for decision, (2) the Engineer had rendered a decision (or failed to decide), and (3) a party had expressed dissatisfaction with the decision, if any. This meant that only a decision which had been subject to a notice of dissatisfaction could be referred to arbitration. A decision which had not been the subject of a notice of dissatisfaction and which, consequently, had become final and binding could not if referred to arbitration even if it had not been complied with. 4

5 10.Consequently, in the case of a failure to comply with a final and binding decision, there was no remedy save for resort to a national court. As a practical matter, in the case of an international project, this could often mean no remedy at all. 11. To resolve this difficulty in the FIDIC, fourth edition, we inserted Sub-Clause 67.4 which provides as follows. Where neither the Employer nor the Contractor has given notice of intention to commence arbitration of a dispute within the period stated in Sub-Clause 67.1 and the related decision has become final and binding, either party may, if the other party fails to comply with such decision, and without prejudice to any other rights it may have, refer the failure to arbitrationin accordance with Sub-Clause The provisions of Sub-Clause 67.1 and 67.2 shall not apply to any such reference. Sub-clause 67.4 was essentially repeated in Sub-Clause 20.7 of the Red Book. 5

6 12.There was no intention by these provisions to address the enforceability of binding or final and binding decisions. The only intention was to ensure that final and binding decisions could be referred to arbitration were they not complied with (it had always been clear that binding decisions could, by definition, be referred to arbitration). 13.At all events, under Sub-Clause 20.9 of the new DBO form (2008), it is now clearer that any kind of DAB decision should be enforced: In the event that a Party fails to comply with any evidence of the DAB, whether binding or final and binding, thenthe other Party may, without prejudice to any other rights it may have, refer the failure itself to arbitration under Sub-Clause 20.8 [Arbitration] for summary or other expedited relief, as may be appropriate. Sub-Clause 20.6 [Obtaining Dispute Adjudication Board s Decision] and Sub-Clause 20.7 [Amicable Settlement] shall not apply to this reference. 6

7 14.The ICC s Dispute Board Rules contain a similar provision. Thus, Article 5.4 provides as follows: if any Party fails to comply with a Decision when required to do so pursuant to this Article 5, the other Party may refer the failure itself to arbitration, if the Parties have so agreed, or, if not, to any court of competent jurisdiction. 15. Once enforced by an arbitral award, the decision of a DAB or Engineer or, more exactly, the award incorporating the decision could, subject to national law, be enforced internationally. 16. However, under the laws of some countries, an arbitral award must dispose finallyof a dispute or a separable portion of a dispute. Consequently, a provisional or interim measure would not qualify for enforcement by an arbitral award. The same reasoning could be held to apply to a binding (but no final ) decision of a DAB. 7

8 17.On the other hand, the better view, according to a leading authority (Mr. Gary Born), is that provisional measures, including, I suggest, binding DAB decisions, should be enforceable by arbitral awards. As stated by the same authority, provisional measures are final in the sense that they dispose of a request for relief pending the conclusion of the arbitration. The same may be said of a binding but not final decision of a DAB. 18.After all, the very purpose of the DAB procedure in the FIDIC contracts is to provide interim relief pending any arbitration on the merits. That purpose is achieved only if a party is made to honour a binding decision. 8

9 Prepared by Dr. Imad Al Jamal. Phone: Fax: imad53pn@hotmail.com imad53pn@yahoo.com imad.aljamal@idraac.com Website: Prior permission in writing must be obtained before publishing of all or any part of the above article by any method of advertising or publication and under any circumstances. 9

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