Reflection 10 of 14 - Chapter 10 (the interim deciding of a Dispute)

Introduction

Thank you, again, friends, for subscribing to my newsletter and for your interest in this newsletter.  Reflection 10 of 14 offers you a brief tour of Chapter 10 of my book concerning the interim decision as to a Dispute.

Reflection 9 traced what could be just the latest leg of what is becoming a bit of a trek for the Parties and their Dispute (and possibly dear reader!), and I won’t retrace the steps that brought us here.  Suffice it to say that much time and effort will likely have been expended by this time to avoid or resolve the Dispute amicably in the first place.  Where that has not been possible and a Dispute has been duly referred, the DAAB will then summon its adjudicative function and powers.  Chapter 10, at a total of 46 pages, the fourth longest chapter of the book, guides the reader through the first of a possible two substantive decision-making procedures. It offers a description of the procedure for invoking the adjudicative functions of the DAAB, focusing on the DAAB’s management of the adjudication and the binding disposal of the Dispute by means of a decision, the inner workings of the DAAB and its ancillary powers.

The thrust of Chapter 10

Once a Dispute has been referred to a DAAB (discussed in Chapter 9), the DAAB Member(/s) and the Parties will be bound by a range of obligations dictating various aspects of how each must act in connection with the adjudication proceedings, thus commenced.  Chapter 10 seeks to encapsulate (including by means of an illustration in Figure 10.1) the typical adjudication by way of a series of five (overlapping) phases each conducted pursuant to the DAAB Procedural Rules. 

The DAAB Member(/s) will be vested with certain powers to aid the DAAB's conduct of the adjudication proceedings. The FIDIC Second Editions provide ample guidance for the DAAB and the Parties in relation to the procedural steps, duties and, for the DAAB Members, the relevant powers, by way of Sub-Clause 21.4 [Obtaining DAAB's Decision], the General Conditions of Dispute Avoidance/Adjudication and the DAAB Procedural Rules. 

Ultimately, the DAAB is empowered to give a decision binding on both Parties (see Sub-Clauses 21.4 and the fourth paragraph of Sub-Clause 21.4.3). The decision might require payment of an amount by one Party to the other Party (see the fifth paragraph of Sub-Clause 21.4.3), or it might be declaratory only — i.e. it might set out the DAAB's binding decision by way of confirming or revising the determination of the Engineer (in the case of FIDIC Red 2017 and FIDIC Yellow 2017) or the Employer's Representative (in the case of FIDIC Silver 2017) in respect of time or value, with the latter declaration to be reflected in the subsequent Statement, and then (in the case of FIDIC Red 2017 and FIDIC Yellow 2017) the certificate for payment or (in the case of FIDIC Silver 2017) the payment itself.

A valid decision of a DAAB will, in all events, be binding on both Parties. Suppose either Party gives a timely Notice of Dissatisfaction (NOD) with the DAAB's decision in accordance with Sub-Clause 21.4 [Obtaining DAAB's Decision]. In that case, the decision will remain binding and will not become final. In this scenario, the DAAB's decision is effectively an interim decision on the Parties' Dispute only, which may subsequently be amicably settled (see Chapter 12), failing which it may be referred to and finally decided by way of arbitration (something I will outline in Reflection 13). However, if neither Party gives such a NOD, that decision will become final and binding. The latter circumstance underscores the importance of the procedure set out in the FIDIC Second Editions for obtaining a DAAB's decision on a Dispute between the Parties.

The DAAB’s procedural obligations

Chapter 10 details the five key steps and timelines for obtaining a DAAB decision, as well as the DAAB's procedural obligations. Firstly, it sets out the DAAB's procedural obligations in general terms and with reference to collective decision-making (see paragraphs 732 to 736). 

Secondly, Chapter 10 focuses on the DAAB's duty to act fairly and impartially (see paragraphs 737 to 747). 

[T]he DAAB ‘shall … give each Party a reasonable opportunity (consistent with the expedited nature of the DAAB proceeding) of putting forward its case and responding to the other Party’s case’ (per paragraph (a) of Sub-Rule 6.2).  The parenthetic qualification reflects the inherent ‘rough and ready’ nature of the adjudication process.

Thirdly, this chapter addresses the DAAB's obligation to adopt an appropriate procedure for its deliberations in reaching a decision, including the privacy of meetings, the unanimity of the decision to be reached and the potential failure of a DAAB Member to comply with his or her duties in relation to deliberation (see paragraphs 748 to 756). 

Fourthly, Chapter 10 considers the extent of the DAAB's obligation to provide a reasoned decision (see paragraphs 757 to 759). Fifthly, this chapter assesses the nature of the DAAB's ability to correct a decision and the procedural requirements and grounds for doing so (see paragraphs 760 to 773). Sixthly, this chapter notes the circumstances in which the DAAB may clarify any ambiguity in its decision (see paragraphs 774 to 777).

The Parties’ procedural obligations

Turning to the Parties' procedural obligations, after an introduction to them (see paragraphs 778 to 779), Chapter 10  discusses the Parties' obligation to cooperate with each other (see paragraphs 780 to 782) and, separately, with the DAAB (see paragraphs 783 to 785).  In paragraph 781, there is an explanation of how adjudication does not afford a Party any release from its existing contractual obligations.

[J]ust as the obligations of either Party to make payments due to the other Party under the Contract shall not be excused by an Exceptional Event … so too, the referral of a Dispute to the DAAB does not excuse non-payment…

The DAAB’s substantive obligations

With regard to the DAAB's substantive obligations, after an introduction (see paragraph 786), eighthly, this chapter explores the DAAB's power and duty to determine its competence; in particular, that it has the requisite jurisdiction to give a decision and that such jurisdiction extends to the full scope of the Dispute referred to it (see paragraphs 787 to 789). 

Although there is no express contractual requirement for the DAAB to specifically set out its decision on jurisdiction, it is submitted that to do so accords with good practice in the giving of decisions.

Ninthly, this chapter examines the DAAB's duty to apply the law (see paragraphs 790 to 796), which includes the governing law of the Contract and any applicable mandatory law, and the relevance of this duty to the potential challenge of a DAAB Member.

The fact that knowledge of the governing law or even any system of laws is not the subject of any of the DAAB Member’s warranties … probably reflects the balancing of interests that leaves the decisive importance, in the particular case, of a DAAB Member having a formal education in law as something for the better judgement of the Parties (acting consensually), failing which, for that of the appointing entity or official.

The DAAB’s substantive powers

Tenthly, this chapter introduces the DAAB's four express substantive powers (see paragraphs 797 to 798), ancillary to its power to give a decision, namely the powers to:

1. decide its own jurisdiction and the scope of the Dispute referred (see paragraphs 799 to 809);
2. to decide any provisional relief (see paragraph 810);
3. to open up, review and revise certain acts by, and certain results of, the Engineer or the Employer (as the case may be) (see paragraphs 811 and 812); and
4. to decide on the payment of financing charges (see paragraphs 813 to 815).

Paragraph (i) offers helpful clarity as to the basis for the DAAB’s power to award ‘financing charges’, and, in conjunction with the corresponding data item within Contract Data, the calculation thereof.

The DAAB’s procedural powers

Eleventhly, Chapter 10 introduces to the reader the DAAB's extensive procedural powers (see paragraphs 816 to 819).

Within the broad compass of the case management power established by sub-paragraph (b) of Rule 5.1, there are 15 more specific procedural powers…

The 15 specific procedural powers include:

• deciding on jurisdiction (see paragraphs 820 to 828), 
• establishing the procedure to be applied in giving decisions under the Conditions of Contract (see paragraphs 829 to 831), 
• ascertaining the facts and matters required for a decision (see paragraphs 832 to 835),
• requesting that written documentation and arguments from the Parties be submitted to it before any hearing (see paragraphs 836 to 846), 
• the requirement of submissions from the Parties (see paragraphs 847 to 853),
• the use of the DAAB's own or an appointed expert's specialised knowledge (see paragraphs 854 to 861), and
• the requirement for and conduct of a hearing (see paragraphs 862 to 885).

The DAAB’s decision

Chapter 10 also describes the rules and other provisions regulating the DAAB's decision (see paragraphs 886 to 899), including the policy favouring unanimity, how a decision is to be given, when it must be given, and when it is received.

Unanimity is not sought at the price of accountability or the integrity of decision-making.  The endeavours to achieve unanimity must be ‘reasonable’. 

Dissatisfaction with the decision (or the absence thereof)

Lastly, Chapter 10 also evaluates the Parties' optional rights and attendant obligations if (at least) one Party is dissatisfied with a DAAB decision or the absence thereof, namely:

1. the right to give a NOD (see paragraphs 900 to 907),
2. the form and mechanics concerning the preparation and giving of a NOD, including in the event of only partial dissatisfaction (see paragraphs 908 to 923), and
3. the effect of giving a NOD, be it timely or late (see paragraphs 924 to 930).

Chapter 10 is a fulsome chapter covering the heart of the DAAB's second functional competency. Candidly it has been a challenge to summarise this subject in a single episode of these reflections on the book, however I do hope that what I have written gives the reader a sense for the detailed content of the chapter.

Look Ahead

In the eleventh edition of this newsletter, I will take you further on this book tour, taking in Chapter 11, setting out an account of the implementation of the DAAB’s decision upon the referral of a Dispute.

Thank you for your attention, and feel free to share this content.

Nicholas

26 March 2023