The CIArb dispute board rules

December 2015 | PROFESSIONAL INSIGHT | LITIGATION & DISPUTE RESOLUTION

Financier Worldwide Magazine

The Chartered Institute of Arbitrators (CIArb) held a public consultation on dispute boards in 2013 and 2014, seeking to identify the key issues of a dispute board process which is not geared to any particular economic sector. The consultation produced feedback from individuals and organisations.

In August 2014 the CIArb published a single set of international dispute board rules, together with a model tripartite agreement. The CIArb Rules can be used on a wide range of commercial projects by the incorporation of a short precedent dispute board clause into the parties’ contract.

The CIArb Rules make the two ‘classic’ alternatives available: Dispute Review Boards (DRBs) and Dispute Adjudication Boards (DABs). Article two provides sample clauses – parties decide whether to have a DRB or DAB and include the appropriate clause in their contract.

The CIArb Rules adopt a straightforward approach and equally apply to both types of dispute board procedures. The only difference arising from the parties’ choice of a DRB or a DAB is that DRBs issue non-binding Recommendations, whereas DABs issue binding Decisions (Articles three and four).

The process of appointing dispute board members is challenging. The CIArb Dispute Board Rules opted for the method which appears to be the most frequently used in cases of three-member DBs – each party nominates a member for approval by the other parties. The two appointed members will then nominate the third member, who requires the approval of the parties and will usually serve as chair.

Dispute boards in context

Conflict is an inevitable part of life. It cannot be eliminated, but the way we deal with conflict can be transformed. In the last 20 years there has been an increasing demand for less adversarial dispute resolution methods such as mediation and dispute boards.

It is not surprising that disputes arise in the construction and engineering industry. The size and complexity of projects, the number of participants, and the use of detailed standard and non-standard contracts make disagreements likely. The use of dispute boards in the construction industry has, over many years, significantly contributed to the avoidance and early resolution of disputes, saving time, project costs and legal fees in the process. However, the scope for DBs is substantial and they could be established in a range of industries worldwide, such as the financial services industry (and project finance), operational and maintenance contracts, IT projects, manufacturing, aerospace procurement, the maritime industry (particularly shipbuilding), telecommunications, and film and TV production.

What about the costs? The cost of a DB is an understandable concern. A standing dispute board which remains in place for the duration of a contract is an additional expense for the parties. It is therefore likely that dispute boards will mainly be suitable for mid- to high-value projects because of the cost involved.

The CIArb follows the DRBF’s policy of recommending standing DBs over ad hoc DBs. The key characteristic that sets DBs apart from other non-court dispute procedures is that its establishment at the start of a project enables the board members to monitor the project’s progress and be available as soon as the seeds of a dispute are sown. Parties are less likely to adopt extreme positions in order to keep credibility with the DB members, also in view of the possibility that the DB’s determinations are admissible as evidence in case of arbitration or court proceedings.

The cost of litigation and arbitration can be extremely high, and the applicable courts and arbitral tribunals are often unable to facilitate the rapid resolution of an international commercial dispute that can be crucial in a long-term contract where maintaining a commercial relationship is very important.

The early resolution of disagreements by a readily available DB is much more cost-effective and less acrimonious than arbitration or litigation. The true mission of a dispute board is not judicial; rather, it is to prevent formal disputes. At any time the parties may jointly refer a matter to the DB for it to give an informal advisory opinion as a means of dispute avoidance.

DB member’s obligations

Eight key aspects of the obligations of a DB member can be distilled from existing dispute board rules: neutrality, impartiality, independence, disclosure of circumstances which could be perceived as conflict of interest, relevant qualifications and experience, availability for the duration of the project, and confidentiality.

The DB member’s independence and impartiality are imperative for the parties’ confidence in the whole board, and the only way to avoid any perception of bias, even if real bias does not exist. Therefore a DB must maintain impartiality and must also be seen to be acting impartially.

Referring a dispute to a DB

The CIArb Rules allow for any matter or disagreement arising under the contract to be referred to the DB by either party. However, the parties must comply with any contractual pre-review requirements or prior dispute resolution process as stated in the contract, if applicable.

Monthly retainer?

About 50 percent of the respondents to the CIArb consultation believe that the use of monthly retainers has been a major deterrent to the adoption and use of dispute boards, especially in developing countries. The principal objection of borrowers from multilateral development banks is the cost of boards.

The monthly retainer is paid to secure the availability and independence of the DB members, but may give the impression to parties that they are paying considerable amounts, while the DB members may have comparatively little work for part or even the entire project.

The CIArb Tripartite Agreement gives users of dispute boards a choice between two alternatives of remuneration. If alternative one is chosen, the DB member shall be paid a monthly retainer plus a daily fee and expenses. If alternative two is chosen, payment made to the DB member shall be for services rendered plus expenses, without a monthly retainer fee.

Nicholas Gould is a partner and Christina Lockwood is a consultant at Fenwick Elliott LLP. Mr Gould can be contacted on +44 (0)20 7421 1986 or by email: ngould@fenwickelliott.com. Ms Lockwood can be contacted by email: clockwood@fenwickelliott.com.

Nicholas Gould and Christina Lockwood

Fenwick Elliott LLP