FIDIC: when is a dispute not a dispute?

My last blog looked at the difficulties that can arise in a typical FIDIC scenario where an employer does not honour a dispute adjudication board (DAB) decision that is binding, but not final.

This blog looks at the difficulties that can arise in relation to the definition of the “dispute” that is submitted to the DAB and then to arbitration.

To recap, if the contractor does not like the engineer’s determination of a claim, it refers what is by that stage the “dispute” to the DAB. The DAB then makes a decision on the matter.

If the employer is “dissatisfied” with the DAB’s decision, it can give notice of its dissatisfaction. The parties then try and settle the dispute amicably. If that is not possible, the parties can refer the dispute to arbitration.

A common scenario

This process can give rise to another difficulty. For example, consider this scenario:

  • The contractor is retained on a civil engineering project under the FIDIC Red Book (1999).
  • At an early stage of the works, the contractor discovers that the site investigation information included within the tender is deficient.
  • The contractor brings this to the attention of the engineer and the matter is discussed in the normal manner.
  • After some delay, the contractor is instructed to carry out additional site investigation.
  • Once the results of those investigations have been considered, the contractor then has to excavate to revised levels, positions and dimensions.
  • The contractor incurs costs in waiting to receive instructions from the engineer, carrying out the additional site investigation and then excavating to the revised levels.
  • The contractor submits a claim under clause 20.1, the engineer determines the claim under clause 3.5 and the contractor then submits the dispute to the DAB, seeking to recover its costs by way of a variation under clause 13.1.
  • The DAB decides the matter, the contractor issues a notice of dissatisfaction and the dispute goes to arbitration.
  • At this stage, the lawyers become involved. Among other things, they point out that the contractor also has entitlements under clauses 1.19 (delayed drawings or instructions) and 4.12 (unforeseeable physical conditions). The contractor then puts its claim on these alternative bases, as well as advancing its claim for a variation.
  • The employer alleges that the arbitral tribunal has no jurisdiction to deal with the alternative claims brought under clauses 1.19 and 4.12, as they were not put before the DAB, so are not part of the “dispute” which is permitted to be submitted to arbitration.

What happens here?

The underlying facts are identical for all the alternative claims. Does the employer’s argument have any merit?

Is it fair to expect the contractor to have to think of all possible legal and contractual arguments when the dispute is referred to the DAB? If so, would this not defeat the commercial purpose of the tiered dispute resolution provisions, effectively meaning that the contractor would have to retain lawyers or specialist claims advisors during the whole of the works?

Surely it must be open to the contractor to refine its entitlements as the dispute progresses through the tiers within clause 20?

There is also clause 20.6, which states that “neither party shall be limited in the proceedings before the arbitrator(s) to the evidence or arguments previously put before the DAB to obtain its decision”, but what does this mean in practice?

Witney Town Council v Beam

Much will of course depend upon the jurisdiction and the governing law. In terms of the position in England and Wales, some guidance is provided in Witney Town Council v Beam Construction. Although a decision in relation to adjudication, the principles are equally applicable to the scenario set out above.

In Witney, Akenhead J held that there was only one dispute between the parties by the time of the service of the notice of adjudication and only one dispute had been referred to adjudication. He therefore rejected the challenge made to the validity of the adjudicator’s decision. This decision very much depended upon the facts of the case, but Akenhead J helpfully reviewed the relevant authorities and restated the principles that should be applied when considering whether a party has attempted to refer more than one dispute to adjudication.

Parallel claims and practicalities

The answer to any such jurisdictional challenges is relatively straightforward – simply ensure that all parallel or alternative claims are included in the reference to the DAB. However, in the real commercial world, this is far more easily said than done.

One thought on “FIDIC: when is a dispute not a dispute?

  1. The other option is to start a second adjudication concurrently when DAB discussions are heading toward consideration of parallel or alternative claims. What do you think of such a possibility?

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