Dispute Boards: Another Potential Means of Resolving COVID-19 Disputes

COVID-19 has caused a widespread evaluation of how existing therapies could assist in treating this new pathogen. This OnPoint does something similar – though, of course, considerably less important. It examines how dispute boards, a dispute resolution mechanism historically found in construction contracts, can assist with disputes related to COVID-19. Below we (i) explain what dispute boards are, (ii) explore how their characteristics can assist with COVID-19 related disputes and (iii) address how to establish a dispute board, if a contract does not already provide for one.

What are Dispute Boards?

Dispute boards are a mechanism for resolving disputes, the development of which was spearheaded by the International Federation of Consulting Engineers (“FIDIC”). Several other entities have since also issued rules for the creation and operation of dispute boards, including the International Chamber of Commerce (“ICC”),¹ the American Arbitration Association (“AAA”),² the Chartered Institute of Arbitrators (“CIArb”)³ and the Dispute Resolution Board Foundation (“DRBF”).⁴ Dispute boards are still most commonly found in the construction sector – where FIDIC developed them – though they are increasingly being used in other sectors and industries. For instance, to resolve disputes under shareholders’ agreements, research and development arrangements and distribution agreements.

Though, as developed below there are important distinctions, in general terms dispute boards function similarly to a court or arbitral tribunal: each side presents its case, first in writing, and then, if required, orally at a hearing, before the decision maker – the dispute board – decides the case.

Dispute boards are generally categorized as either:

• Dispute review boards, or ‘DRBs’, which issue recommendations that the parties are not contractually bound to follow.
• Dispute adjudication boards, or ‘DABs’, which issue decisions or determinations that the parties may be contractually bound to implement.

Further, dispute boards can either be:

• Standing, meaning that they are established to resolve disputes that arise during the lifetime of a certain relationship or project, prior to those disputes occurring.
• Ad hoc, meaning they are set up to settle a specific dispute once it has arisen.

Dispute boards are commonly used as an initial or intermediate step in dispute resolution mechanisms. If a dispute board fails to resolve a dispute, the matter often proceeds to arbitration (for instance, FIDIC provides for ICC arbitration where the parties are unwilling to accept the dispute board’s decision).

Why Consider Dispute Boards now?

COVID-19 is seriously disrupting economic activity globally. Dispute boards are another available tool to assist in resolving disputes stemming from those disruptions.

Dispute boards may be of particular interest where the effects of COVID-19, and the measures to combat it, are causing differences of opinion in longer term relationships and projects. Indeed, dispute boards’ evolution as a means of resolving disputes on major construction projects, means that they are well suited to scenarios in which it is vital to both (i) ensure the parties’ ongoing and future cooperation, and (ii), nevertheless, settle disputes over discrete issues. Their relatively short and flexible procedures also mean that they could be used effectively to resolve pressing issues during the ongoing disruption caused by COVID-19, and immediately afterwards as the world returns to normal.

The following features of dispute boards assist in doing this:

• Dispute board procedures settle disputes in a specified period, and can take as little as a few months. For instance, the ICC Rules provide for the dispute board to issue its ‘conclusion’ within 90 days from its receipt of the Statement of Case, and – unless the parties consent – this cannot be extended by more than 20 days. Short procedures allow the parties to ‘move on’ as soon as possible, and help focus the parties’ efforts on the key issues. Of course, if the relevant contract provides for arbitration – depending on the arbitral rules concerned – the appointment of an emergency arbitrator and/or expedited arbitration proceedings may be another means of achieving a quick result.
• Dispute boards have relatively flexible procedures and evidential rules. This helps accommodate a shorter procedure, and facilitates the resolution of matters that are evolving in real time. In the present circumstances, it should also be relatively easy to provide for a procedure that can accommodate the current constraints caused by COVID-19, perhaps by foregoing a hearing or holding a hearing by video-conference.
• Dispute board procedures allow for relatively detailed briefs. As noted below, while the hearings are very different to those in arbitral and court proceedings, the written submissions are similar. Counsel usually play a more significant role in drafting the briefs, to assist with strategy and ensure their client emphasizes its strongest arguments and advances them clearly.
• Dispute board hearings are informal. The parties address the dispute board directly, and the role of counsel at hearings is generally limited to legal issues. Keeping client representatives front and center can assist in protecting the parties’ relationship and also help foster creative solutions. Conversely, this does not provide the parties with the protections offered by speaking only through counsel, and dispute boards may not be suitable when addressing delicate issues. Further, dispute board hearings – which involve no formal examination of witnesses or experts – should, when compared to more formal hearings, be easier to conduct electronically.
• Dispute adjudication boards provide a definitive result. By providing for a dispute adjudication board as opposed to a dispute review board, the parties will obtain a response to their dispute that is contractually binding (though not directly enforceable in the same way as a court judgment or arbitral award). A clear result like this can help the parties move forward, and can help avoid the risk of getting drawn-out in negotiation, conciliation or mediation.
• A ‘standing dispute board’ can be set up where a project or relationship repeatedly gives rise to issues. Having the same person, or people, hearing each dispute related to a given relationship or project can be valuable. This may be especially important in the context of disputes stemming from the effects of COVID-19, which may cause a series of associated issues as the crisis develops.
  

These features all contribute to making dispute boards an effective tool to promptly resolve issues both, as they arise from the ongoing disruption caused by COVID-19, and during the months in which activities are reinitiated and the world starts to recover from the present disruption. More generally, they are an efficient means of addressing discrete issues, especially where it is important that the parties preserve their relationship and otherwise continue cooperating.

How to Provide for a Dispute Board if your Contract Does not Already do so?

Dispute boards are a creature of contract. Therefore, if the parties’ contract does not already provide for a dispute board, an amendment to the contract’s dispute resolution clause will be required.

This will normally need the consent of all parties to the contract. That said, we anticipate that in the present uncertain times, counterparties may be open to discussing new means of efficiently managing issues arising in their relationship.

If an agreement is reached to use a dispute board, one of the standard clauses published by the organizations noted above can be adopted.⁵ However, as dispute boards normally form part of a tiered dispute resolution mechanism (often providing for arbitration where a party will not accept the dispute board’s decision), it is important that contractual amendments are properly integrated with the rest of the dispute resolution mechanism and contract as a whole.

How Can Dechert Assist?

Amending dispute resolution clauses: Dechert’s blend of deep transactional and contentious experience means that it is well placed to assist with adjusting dispute resolution clauses, to better suit the present conditions (including by providing for a dispute board).

Resolving disputes themselves: Dechert’s dispute resolution teams are experienced in a wide range of complex international disputes. They assist clients at all stages in the life of disputes from initial inter-party discussions to post-judgment enforcement, including by representing parties before dispute boards, and in arbitral proceedings following dispute board proceedings.

This OnPoint was written by Philip Dunham, José Manuel García Represa, and Jago Chanter.

Footnotes
1) See ICC Dispute Board Rules (2015).
2) See AAA Dispute Resolution Board Hearing Rules and Procedures (2000).
3) See CIArb Dispute Board Rules (2014).
4) See DRBF Dispute Board Manual (2019).
5) For standard clauses, see e.g. ICC Standard Dispute Board Clause, AAA Practical Guide for Dispute Resolution Clauses, p. 34, Article 2 of the CIArb Dispute Board Rules, DRBF Dispute Board Manual.