Clause 20.2 Appointment of the Dispute Adjudication Board

Purpose and Implications

The primary purpose of Clause 20.2 is to establish the Dispute Adjudication Board (DAB), a neutral body intended to resolve disputes between the contracting parties. The clause outlines the procedures for appointing DAB members, their qualifications, and the scope of their responsibilities. The DAB serves as an interim step before arbitration and aims to provide a quicker, less formal resolution to disputes.

Key Aspects

1. Appointment Process: Specifies how DAB members are to be appointed and the qualifications they must possess.
2. Jurisdiction: Defines the types of disputes the DAB is authorized to handle.
3. Contractual Nature: The DAB’s powers are entirely contractual, and its decisions are binding but not enforceable like arbitral awards.
4. Enforcement: Details how a DAB’s decision can be enforced, usually through arbitration if one party does not comply.

FIDIC Yellow Book 1999: Clause 20.2 – Appointment of the Dispute Adjudication Board

In the FIDIC Yellow Book 1999, Clause 20.2 outlines the procedure for the appointment of the Dispute Adjudication Board (DAB). The Parties are required to jointly appoint a DAB within 28 days after a Party gives notice of its intention to refer a dispute to the DAB. The DAB can comprise either one or three suitably qualified individuals. If the Parties fail to agree on the appointment, an impartial entity named in the Appendix to Tender will make the appointment. The DAB’s role is to adjudicate disputes in accordance with Sub-Clause 20.4 [Obtaining Dispute Adjudication Board’s Decision]

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1. Appointment Process: The appointment of the DAB is governed by Sub-Clauses 20.2 and 20.3. These provisions require supplemental information to be specified in the relevant contract document.

2. Failure to Agree: If the Parties fail to agree on the appointment, an appointed entity agreed upon by the Parties in the Contract will make the nomination.

3. Timing and Duration: The timing of the appointment depends on whether it is a standing DAB or an ad hoc DAB. The DAB is to be appointed by the date stated in the Appendix to Tender or Contract Data.

4. General Conditions: The General Conditions of Dispute Adjudication Agreement contain clauses governing definitions, general provisions, warranties, and general obligations of the board member.

5. Ineffectiveness of Unilateral Appointment: It is likely to be futile for one Party to proceed with a referral to a DAB under only a bipartite Dispute Adjudication Agreement(s) with the member(s), i.e., without the agreement of the other Party. Any decision by the DAB in these circumstances is likely to be ineffective and unenforceable.

6. Replacement and Termination: Sub-Clause 20.2 and the General Conditions of Dispute Adjudication Agreement make provision for the resignation, termination, and replacement of the member’s appointment.

General Overview of Clause 20.0 CLAIMS, DISPUTES AND ARBITRATION

1. Sub-Clause 20.2: Appointment of the Dispute Adjudication Board: This sub-clause states that disputes shall be adjudicated by a Dispute Adjudication Board (DAB) in accordance with Sub-Clause 20.4. The Parties should jointly appoint a DAB within 28 days after a Party gives notice of its intention to refer a dispute to a DAB. The DAB can comprise either one or three suitably qualified individuals. The appointment of the DAB expires when it has given its decision on the dispute unless other disputes have been referred to it by that time.

2. Sub-Clause 20.4: Obtaining Dispute Adjudication Board’s Decision: This sub-clause outlines that any kind of dispute arising between the Parties can be referred in writing to the DAB for its decision. Both Parties should make all necessary information and facilities available to the DAB for making a decision.

3. Sub-Clause 20.7: Failure to Comply with Dispute Adjudication Board’s Decision: In the event that a Party fails to comply with any decision of the DAB, the other Party may refer the failure itself to arbitration under Sub-Clause 20.6. Sub-Clauses 20.4 and 20.5 do not apply to this reference.

4. Sub-Clause 20.8: Expiry of Dispute Adjudication Board’s Appointment: If there is no DAB in place and a dispute arises, Sub-Clauses 20.4 and 20.5 shall not apply, and the dispute may be referred directly to arbitration under Sub-Clause 20.6.

5. Additional Context: The adjudication procedure relies on the Parties’ confidence in the agreed individual(s) serving on the DAB. If the individual is selected under Sub-Clause 20.3, the selection should be made by a wholly impartial entity.

Key Points

1. Jurisdiction of the DAB: The right to refer a dispute to the Dispute Adjudication Board (DAB) is governed by the contract’s terms. In the Gold Book, equivalent provisions are found in Sub-Clause 20.6. The procedure for obtaining a decision from the Operation Service DAB is also in accordance with Sub-Clause 20.6.

2. Contractual Nature: The powers and effects of the DAB’s decisions are entirely contractual and governed by the terms between the parties and the board members. The DAB is not an arbitral tribunal, and its decisions are not enforceable like arbitral awards.

3. Enforcement of DAB’s Decision: Although a DAB’s decision is binding on the parties, enforcement may be necessary if one party does not comply. The party in whose favor the decision is given may wish to enforce it. Sub-Clause 20.7 allows a party to refer to arbitration the failure of the other party to comply with a final and binding DAB decision.

4. General Conditions of Dispute Adjudication Agreement: This agreement contains clauses governing definitions, general provisions, and obligations of the board member, the Employer, and the Contractor. It also includes provisions for payment, termination, and member’s default.

5. Procedural Rules: These are annexed to the General Conditions of Dispute Adjudication Agreement and set out the way the DAB is to operate.

6. Personal Nature of Appointment: The power to make decisions on disputes under Sub-Clause 20.4 is granted by the Dispute Adjudication Agreement, and the appointment is personal to the member.

7. Types of Dispute Boards: The DAB issues decisions that are binding pro tem. It is different from the Dispute Review Board (DRB), which issues recommendations. There is also a Combined Dispute Board (CDB) that can issue both recommendations and decisions.

FIDIC Guidance Memorandum

The FIDIC Guidance Memorandum aims to clarify ambiguities surrounding the enforcement of DAB decisions. It explicitly states that the failure to comply with a DAB decision, whether binding or final, can be referred directly to arbitration under Sub-Clause 20.6, bypassing Sub-Clauses 20.4 and 20.5. This clarification is crucial because it streamlines the enforcement process and eliminates potential legal loopholes. The memorandum also recommends specific textual changes to Clause 20.2 and related clauses to align them with FIDIC’s intentions. These changes are highly recommended for anyone using the 1999 FIDIC Red, Yellow, or Silver books.

The FIDIC Guidance Memorandum aims to clarify the enforcement of DAB decisions that are binding but not yet final. It suggests textual changes to Clause 20, specifically Sub-Clause 20.7, to make FIDIC’s intentions explicit.

Key Takeaways:

1. Enforcement of DAB Decisions: The Memorandum clarifies FIDIC’s intention regarding the enforcement of DAB decisions that are “binding” but not yet “final.” It states that failure to comply with such decisions can be referred to arbitration under Sub-Clause 20.6 [Arbitration], bypassing Sub-Clause 20.4 [Obtaining Dispute Adjudication Board’s Decision] and Sub-Clause 20.5 [Amicable Settlement].

2. Clarification on ‘Binding’ vs ‘Final’: The Memorandum addresses the confusion around what constitutes a ‘binding’ vs ‘final’ decision by the DAB. A decision is ‘binding’ but not ‘final’ if either Party expresses dissatisfaction within 28 days of receiving the DAB decision.

3. International Arbitral Tribunals: The Memorandum acknowledges that international arbitral tribunals have found Clause 20 to be unclear, citing judgments like the Singapore Case that set aside an ICC award directing enforcement of a DAB decision.

4. FIDIC’s Recommendation: The Memorandum provides specific textual changes to Sub-Clause 20.4 and Sub-Clause 20.7 to make FIDIC’s intentions explicit. It also suggests changes to Clause 14, which deals with payments, to include amounts due in accordance with a DAB decision.

5. Security for Payment: One of the recommendations is to allow the DAB to require the payee to provide appropriate security if the decision involves a payment from one Party to the other.

6. Compliance: The Memorandum strongly recommends compliance with these guidelines when using the 1999 FIDIC Red, Yellow, or Silver books.

Interaction with Other Clauses

1. Sub-Clause 20.4: The DAB’s decision is obtained under this clause. The new guidance suggests that this clause does not apply when referring the failure to comply with a DAB decision to arbitration.

2. Sub-Clause 20.5: This clause deals with amicable settlement attempts between the Parties. According to the new guidance, this clause is also not applicable when referring non-compliance with a DAB decision to arbitration.

3. Sub-Clause 20.6: This is the arbitration clause that becomes directly relevant when a Party fails to comply with a DAB decision, whether binding or final and binding.

4. Sub-Clause 14.6 and 14.8: These clauses relate to payments and may need to be adjusted to align with the new guidance on DAB decisions.

Sample Letters

Sample Letter 1: Appointment of DAB Members

Subject: Proposal for Appointment of Dispute Adjudication Board Members

Dear [Contractor’s Name],

As per Clause 20.2 of our contract, we are required to appoint members to the Dispute Adjudication Board (DAB). We propose the following individuals for your consideration:

1. [Name 1] – [Qualifications]
2. [Name 2] – [Qualifications]
3. [Name 3] – [Qualifications]

Please review these names and confirm your agreement or provide alternative suggestions within [timeframe as per contract].

Best regards, [Your Name] [Your Position]

Sample Letter 2: Agreement on DAB Members

Subject: Agreement on Proposed Dispute Adjudication Board Members

Dear [Employer’s Name],

We have reviewed the names you proposed for the Dispute Adjudication Board as per Clause 20.2. We agree with the appointment of the following individuals:

1. [Name 1]
2. [Name 2]
3. [Name 3]

We look forward to the formal establishment of the DAB.

Best regards, [Your Name] [Your Position]

Sample Letter 3: Request for Replacement of DAB Member

Subject: Request for Replacement of DAB Member

Dear [Other Party’s Name],

As per Clause 20.2, we have the right to request the replacement of a DAB member under certain conditions. We find that [Name of DAB Member] has a conflict of interest that may compromise the impartiality of the board.

We propose the following individual as a replacement:

• [New Name] – [Qualifications]

Please confirm your agreement or provide an alternative suggestion within [timeframe as per contract].

Best regards, [Your Name] [Your Position]

Checklists

Checklist 1: Proficient Execution of Clause 20.2

Checklist 2: Applying and Overseeing Clause 20.2

Checklist 3: Monitoring the Execution of Clause 20.2

Flow Diagrams and Explanations

Detailed Explanation of the Flowchart

1. Start: Intention to Refer Dispute – The process begins when a Party decides to refer a dispute to the DAB.
2. Notify Other Party within 28 days – The Party must notify the other Party of this intention within 28 days.
3. Jointly Appoint DAB – Both Parties work together to appoint the DAB.
4. DAB Composition Decision – Decide on the composition of the DAB based on the Appendix to Tender.
5. Decision Node: Three Members?
   • Yes: Each Party Nominates One – If three members are required, each Party nominates one member.
   • No: Proceed with One Member – If only one member is required, proceed to the next step.
6. Agree on Third Member as Chairman – If three members, agree on the third member to act as chairman.
7. Decision Node: List Available?
   • Yes: Select from Contract’s List – If a list of potential members is available, select from it.
   • No: Proceed without List – If no list, proceed to the next step.
8. Incorporate General Conditions of Dispute Adjudication Agreement – Incorporate the General Conditions into the agreement with the DAB members.
9. Agree on Members’ Remuneration – Mutually agree on the remuneration for the DAB members.
10. Decision Node: Need to Replace Member?
    • Yes: Replace Members by Mutual Agreement – Replace members if necessary by mutual agreement.
    • No: Continue with Current Members – If no replacement is needed, proceed to the next step.
11. Appointment Termination by Mutual Agreement – The appointment of any member can be terminated by mutual agreement.
12. Decision Node: Dispute Resolved?
    • Yes: DAB’s Appointment Expires Post Decision – The DAB’s appointment expires after the dispute decision.
    • No: Continue DAB Appointment – If the dispute is not resolved, continue with the DAB appointment.
13. End of DAB Appointment Process – Marks the conclusion of the DAB appointment process under Clause 20.2.

1. Start: The flowchart begins with the initiation of a dispute under Clause 20.2.

2. Dispute Arises: When a dispute arises, the parties have the option to refer it to the Dispute Adjudication Board (DAB) under Clause 20.2.

3. DAB Appointed?: This decision node checks if the DAB has been appointed. If not, the Appointing Entity appoints the DAB, as per Clause 20.3.

4. DAB Decision: Once the DAB is appointed, it makes a decision on the dispute under Clause 20.4.

5. Satisfied with DAB Decision?: If either party is not satisfied with the DAB decision, they can give notice of dissatisfaction within 28 days, leading to amicable settlement discussions under Clause 20.5.

6. Amicable Settlement Successful?: If the amicable settlement is successful, the process ends. If not, the dispute is referred to arbitration under Clause 20.6.

7. Failure to Comply with DAB Decision: If a party fails to comply with the DAB’s decision, the other party can refer the failure itself to arbitration under Clause 20.7.

8. DAB Appointment Expires: If the DAB’s appointment expires, the process moves to Clause 20.8 to handle the expiry of the DAB’s appointment.

9. End: The flowchart ends, indicating that the dispute resolution process under Clause 20 is complete.

FAQ’s

Binding Arbitration

Q: What is binding arbitration?
A: Binding arbitration is a form of dispute resolution where an impartial third party, known as an arbitrator, makes a decision that is legally binding on both parties involved in the dispute.

Arbitration vs Mediation

Q: What is the difference between arbitration and mediation?
A: Arbitration is a more formal process where an arbitrator makes a binding decision. Mediation is less formal and involves a mediator facilitating a discussion between parties to reach a mutual agreement.

Arbitration Agreement

Q: What is an arbitration agreement?
A: An arbitration agreement is a contract in which parties agree to resolve disputes through arbitration rather than through court litigation.

Mediation and Arbitration

Q: What is the difference between mediation and arbitration?
A: Mediation is a facilitative process, while arbitration is adjudicative. Mediation aims for mutual agreement, whereas arbitration results in a binding decision.

Binding Arbitration

Q: What is binding arbitration?
A: Binding arbitration means that the decision made by the arbitrator is final and legally binding, with limited scope for appeal.

Arbitration Clause

Q: What is an arbitration clause?
A: An arbitration clause is a section in a contract that specifies that disputes will be resolved through arbitration.

Arbitration in Law

Q: What is arbitration in law?
A: In law, arbitration is an alternative dispute resolution method where a neutral third party makes a binding decision.

Difference Between Arbitration and Conciliation

Q: What is the difference between arbitration and conciliation?
A: Arbitration is more formal and results in a binding decision. Conciliation is less formal and aims for mutual agreement.

Arbitration and Conciliation Act 1996

Q: What is the Arbitration and Conciliation Act 1996?
A: It is an Indian law that provides a legal framework for arbitration and conciliation as methods of dispute resolution.

International Commercial Arbitration

Q: What is international commercial arbitration?
A: It is a method of resolving disputes between parties in different countries through arbitration rather than litigation.

Adjudication vs Arbitration

Q: What is the difference between adjudication and arbitration?
A: Adjudication is generally quicker and less formal, often used in construction disputes. Arbitration is more formal and can be used in a variety of contexts.

Advantages of Arbitration

Q: What are the advantages of arbitration?
A: Arbitration is generally faster, less expensive, and more private than litigation.

Advantages of Arbitration Over Litigation

Q: What are the advantages of arbitration over litigation?
A: Arbitration is generally quicker, less expensive, and allows for more control over the process compared to litigation.