FIDIC: when is a dispute not a dispute?

Posted by PLC Construction on 2nd April 2012.

Michael Stewart, partner, Pinsent Masons LLP: 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 engineers 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 DABs 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 employers 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 adjudicators 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.
HOW NOT TO INTERPRET THE FIDIC DISPUTES CLAUSE: THE SINGAPORE COURT OF APPEAL JUDGMENT IN PERSERO CHRISTOPHER R SEPPL * Partner, White & Case LLP, Paris Special Adviser, FIDIC Contracts

Committee I. INTRODUCTION As a result of the recent decision of the Court of Appeal of Singapore (the CA or the Court) in CRW Joint Operation v. Perusahaan Gas Negara (Persero) TBK 1 (the Persero case), which dismissed an appeal against the judgment of the High Court of Singapore setting aside an International Chamber of Commerce (ICC) arbitration award, there has been increased uncertainty about the effect of a binding, but not final, decision of a DAB under the FIDIC Conditions of Contract for Construction, 1999 (the 1999 Red Book). 2 The ICC Arbitral Tribunal in that case, on the one hand, and two Singapore courts, on the other hand, arrived at widely different interpretations of sub-clauses 20.4 to 20.7 of the 1999 Red Book. In light of this uncertainty, and given that I have been involved in the review and drafting of the disputes clause in the 1999 Red Book since the Fourth Edition was published in 1987, I would like to comment on these decisions, specifically the CA judgment, as it is the lastand finalword from Singapore. 3 Accordingly, in this article I will briefly review the facts of the Persero case (Section II), the ICC arbitration and award (Section III) and the judgments of the High Court (HC) and the CA in Singapore (Section IV). I will then comment on the CA decision (Section V), before drawing some conclusions (Section VI). * The views expressed herein are those of the author and not necessarily those of the law firm or organisation, such as FIDIC, with which he is affiliated. The author is grateful to Matthew Secomb and Diana Bowman, his colleagues at White & Case LLP, Paris, for their comments on this paper in draft. However, only the author is responsible for its contents. 1 [2011] SGCA 33. 2 See, e.g., Frederic Gillion, Enforcement of DAB Decisions under the 1999 FIDIC Conditions of Contract: A Recent Development: CRW Joint Operation v. PT Perusahaan Gas Negara (Persero) TBK [2011] ICLR 388 (hereinafter cited as Gillion) who refers (at p. 389) to the confusing message sent by the High Court judgment. 3 The Court of Appeal is Singapores highest court. Pt 1] How Not to Interpret the FIDIC Disputes Clause 5