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The ICC issues new rules governing Dispute Boards
Article | 02/10/15 | 4 min. |
The newly revised ICC Dispute Board Rules issued on 28 September 2015, i.e. 11 years after the first edition, are a reminder of the interest, yet unrecognized, that drafters of complex contracts may have in implementing such dispute prevention mechanism.
How Dispute Boards work
A Dispute Board (“DB”) is a standing body contractually setup, composed of one or three members, which handles all issues referred to it that arise during the performance of the contract and whose mission is to issue recommendations or decisions which are binding on the parties, at least on a provisional basis. Its role is to avoid suspensions of performance in case of disagreement while allowing parties to retain their rights to assert their claims at a later stage before any court of competent jurisdiction.
DBs are today mainly used in major construction projects, but their mechanism is also suitable for any contract whose purpose is the long-term conduct of a large-scale project (R&D contracts, major IT projects, production sharing agreements, etc.).
The ICC DB rules provide a framework and a variety of rules that are designed to facilitate the creation and operation of DBs.
Key innovations of the ICC 2015 Rules
The new ICC rules define three functions that DBs may play (Article 1).
The new Article 16, “Avoidance of disagreements”, explicitly encourages the DB to proactively identify potential conflicts, by triggering a dialogue between the parties to resolve potential deadlocks upstream. Following the same logic, the new Article 17, “Informal assistance with disagreements”, allows the DB to assist the parties in resolving any disagreements that have arisen during their informal discussions.
If the parties are unable to reach an agreement, a formal procedure allows the DB to fully play its role by issuing either a decision or a recommendation (Article 18, “Formal referral for a conclusion”).
Another innovation: the rules now clarify the distinction between the “binding” and “final” effect of recommendations issued by a Dispute Review Board (“DRB”) and decisions rendered by a Dispute Adjudication Board (“DAB”):
- DABs render decisions that are immediately binding on the parties, as they must be complied with without delay;
they become binding and final if no party objects within 30 days;
- DRBs issue recommendations that are not immediately binding on the parties but become binding and final if no
party objects within 30 days.
In addition, the new rules provide that a party that has failed to comply with a recommendation or a decision when required to do so, for reasons detailed above and in particular for lack of objection, may not raise any issue as to the merits of such recommendation or decision as a defense (Articles 4.4 and 5.4).
Expenses related to the establishment of a Dispute Board
Various years of practice since the first version of the ICC DB rules have confirmed that the investment in a DB remains beneficial compared to the costs of a litigation and the losses that can be incurred due to the fall of the project’s productivity in case of a dispute.
However, the financial cost of DBs remains a disincentive, even though unfounded.
The issue of the fees payable to the DB members was the focus of the discussions on the content of the new rules and, in fine, the ICC maintained the former system, i.e. monthly fees rather than daily fees, unless otherwise agreed by the parties (Article 29). The ICC indeed considered that daily fees give rise to various drawbacks:
- they give a misleading impression of savings in terms of budget: but the only substantial saving lies in the
avoidance of a litigation;
- they create a risk of a lesser involvement of the DB: but the DB should be permanently informed of the
situation between the parties and in the field in order to be efficient;
- they open up possibilities of disputes on the legitimacy of the working days performed by the DB.
Should difficulties arise, the ICC can be requested by the parties to fix the DB members’ fees (Article 28).
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The purpose of the newly revised ICC DB rules is to promote an efficient contractual tool of dispute prevention. In the framework of the rising interest in alternative dispute resolution mechanisms, it seems unfortunate to us that its use still remains too confidential and restricted to certain areas.
Carine Dupeyron, partner
Flore Poloni, senior associate