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FIDIC guidance on enforcing binding (but not final) DAB decisions: does it help?

The uncertainty surrounding how to enforce dispute adjudication board (DAB) decisions that are binding but not yet final is a favourite topic for debate amongst FIDIC practitioners. However, it is more than simply an academic point. Arbitral tribunals are repeatedly grappling with it and are broadly divided, adding to the uncertainty. That FIDIC has recently (on 1 April 2013) taken the unusual step of publishing a Guidance Memorandum on this narrow issue underlines that it is a real concern for users of FIDIC contracts. This led me to ask whether this guidance moves matters forward?

Setting the scene: DABs and the FIDIC Contracts

The background will be familiar to many. The current editions of the FIDIC Red, Yellow and Silver Books (published in 1999) all provide for disputes, in the first instance, to be referred to a DAB. If either party is “dissatisfied” with the DAB’s decision, it may give notice of its dissatisfaction. It is the enforcement of these decisions, where notice of dissatisfaction has been given, that the Guidance Memorandum seeks to address.

If notice of dissatisfaction has been given, the parties may then refer the dispute to amicable settlement and, ultimately, to arbitration to be settled “finally”. If no notice of dissatisfaction is given, the DAB’s decision is “final” in that it cannot be challenged subsequently at arbitration.

Whether or not a party has given notice of its dissatisfaction, the DAB’s decision is immediately binding on the parties and they must promptly give effect to it, that is, they must comply with it.

Enforcing DAB decisions at arbitration: where the uncertainty lies

So far, this is straightforward. Yet it is not uncommon for one party to refuse to comply with the DAB’s decision. What then can the other party do to enforce the decision? One possibility might be to enforce it through arbitration. This is an option favoured by some because of the widely-enforceable nature of arbitration awards. This is particularly so for contractors where the DAB has decided an additional payment is due to the contractor. But is it possible to refer a DAB decision directly to arbitration under the 1999 FIDIC contracts?

For DAB decisions that have become final, the answer is easy. The FIDIC contracts contain a clause (sub-clause 20.7) that explicitly deals with this situation. It expressly allows a party to refer the other party’s failure to comply with such a decision direct to arbitration.

For DAB decisions that are binding but not final, the answer is not so easy. For these decisions there is no equivalent, clearly expressed clause granting a direct right to arbitration. It is here that different arbitral tribunals have adopted polarised positions, principally based on different interpretations of the primary arbitration clause, sub-clause 20.6.

The FIDIC guidance: what does it say?

The FIDIC Guidance Memorandum is commendably short (barely covering two pages) and very simple, so it would be wrong to over-analyse it.

FIDIC starts by making its intentions clear: the failure of a party to comply with a binding but not final DAB decision should be capable of being referred to arbitration directly.

Then, after explaining the background, FIDIC sets out various amendments that it highly recommends. These amendments mirror the wording of the FIDIC Gold Book, published in 2008.

The key amendment is a wholesale replacement of sub-clause 20.7. The new clause expressly allows a party to refer directly to arbitration the failure of the other party to comply with a DAB decision, whether that decision is binding or final and binding.

Does the FIDIC guidance help?

The short answer to this question is “not really”.

In essence, FIDIC’s guidance is that the contracts need to be amended to achieve what was originally intended and to clear up the current uncertainty. In reality, this is nothing new. The uncertainty has been known about for years and could have been addressed by similar amendments without FIDIC’s guidance. This is all the more so, given that it is widely known that FIDIC specifically dealt with this issue when drafting the FIDIC Gold Book. In this way, the guidance is very much a stop-gap until the second editions of the Red, Yellow and Silver Books are published (they are expected soon).

Nevertheless, the simple fact that FIDIC has gone on record to endorse these amendments might help parties currently negotiating contracts that are to incorporate the 1999 FIDIC conditions. Apart from providing the wording of possible amendments, FIDIC’s guidance lends credibility to a party that wants to deal with the inherent uncertainty up-front.

On the other hand, FIDIC’s guidance provides little assistance to parties that have already entered into contracts based on the 1999 FIDIC conditions. Indeed, it could even be said that issuing the guidance in this form is counter-productive.

In its guidance FIDIC could simply have clarified the intended effect of the current drafting, leaving the amendments for the second editions. This would be more akin to the guidance published alongside the 1999 contracts. Although FIDIC’s intentions might not be captured in the existing drafting, at least not with any clarity, having them expressed in the form of guidance would have been both informative and potentially persuasive before an arbitral tribunal (although not determinative). By recommending specific amendments, FIDIC must now have made it harder to persuade an arbitral tribunal that the existing drafting is adequate to give effect to FIDIC’s intentions, however clear those intentions may be.

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