This article was featured in our 2023 Construction Arbitration Report, which is part of a series of industry-focused arbitration reports edited by Jus Connect and Jus Mundi.
This issue explores the construction industry and presents a goldmine of information based on data available on Jus Mundi and Jus Connect as of May 2023. Discover updated insights into construction arbitration and exclusive statistics & rankings, as well as in-depth global and regional perspectives on construction projects, disputes, & arbitration from leading lawyers, arbitrators, experts, arbitral institutions, and in-house counsel.
THE AUTHORS:
Yasemin Cetinel, Founding Partner, Cetinel Law Firm
Ayse Selcen Ozcan, Senior Associate, Cetinel Law Firm
Muhammet Bembeyaz, Senior Associate Cetinel Law Firm
Dispute Boards are creatures of contract uniquely designed and specifically used in construction contracts for the avoidance and resolution of disputes throughout the life-cycle of construction projects.
We note that dispute boards’ world-wide reputation commenced with the FIDIC 1999 Suite contracts (as “Dispute Adjudication Boards”, “DAB”s) and strengthened with the FIDIC 2017 Suite whereby all dispute boards are of a standing nature (as “Dispute Avoidance and Adjudication Boards”, “DAAB”s). We separately note that in recent years, dispute boards are also recommended in NEC contracts, which are frequently used as an alternative to FIDIC type contracts.
Despite the fact that the author of this article advocates for the avoidance aspect of the dispute boards rather than the resolution, boards naturally deal with disputes and render decisions. Indeed, when compared to the ultimate dispute resolution methods, dispute boards have crucial advantage for the contractual parties being a fast and low-cost intermediate and alternative dispute resolution method. Accordingly, when it comes to the role of dispute boards in providing decisions, the foremost and first question that we encounter is on the enforcement of these decisions.
Although parties may also empower the dispute boards with jurisdiction to provide non-binding recommendations, we will focus on the binding dispute board decisions.
This article will therefore aim to elaborate on the recommended ways to enforce a dispute board decision after tackling and establishing the definition and legal nature of the boards and their decisions.
Legal Nature of a DAB decision
FIDIC suites of contracts establish that dispute boards issue binding decisions that must be complied with immediately irrespective of whether the Parties have provided a Notice of Dissatisfaction against the same decision. In other words, the dispute board decision is binding in both cases. In cases where the parties did not provide a Notice of Dissatisfaction, it further becomes final.
In spite of the binding and at times final nature, the enforcement of the dispute board decision is not the same as an arbitral award or a court decision. It is because the decision is a contractual document at the end of the day. It has no enforcement power unless the specific country the decision is rendered has legislative provisions to provide enforceability. For example, the UK Section 108 of the Housing Grants, Construction and Regeneration Act 1996 provides exactly that. Indonesian Law No.2/2017, Peruvian Law No 30225 and Legislative Decree No 1362 are other examples of legislative forces regulating the dispute board usages and therefore enforceability issues.
Therefore, it is fair to conclude that the dispute board decision is a contractual document and a further step would be required to enforce the decision.
How to Enforce a Dispute Board Decision?
When FIDIC 1999 Suite of Contracts substantially inaugurated and incorporated the concept, little was known as to the practice on the enforcement of dispute board decisions for quite some time. It was clear that the parties to the contract could resort to arbitration for the ultimate resolution of their dispute, which had already gone through the dispute board decision process.
However, arbitration takes considerable time. The goal was therefore to benefit from the interim binding nature of the dispute board decisions through arbitration. But how?
It could be useful to refer to then contemporaneous case-law to understand how the jurisprudence approached the issue and settled the concepts.
The arbitral tribunal in ICC Case No. 10619 stated that a binding but not final decision of an engineer (under the FIDIC Conditions of Contract) may, in appropriate circumstances, be enforced by an arbitral award. As the Engineer’s decision procedure was replaced by the Dispute Adjudication Board in the FIDIC 1999 Red Book, it was then considered that the DAB’s decision could be equally enforceable by analogy.
In the famous Persero saga, the enforceability of a DAB decision has been treated in numerous layers and the result was that:
- an arbitral tribunal may not simply issue an award on the enforceability of a binding dispute board decision without then delving into the merits of the case, and
- an arbitral tribunal on the other hand may issue an interim and/or partial award as the case may be, in order to ensure the enforceability of a binding decision of a dispute board.
Another remarkable decision was the Tribunal’s decision on ICC No.15751/JHN, whereby the ruling established that the failure to promptly comply with a binding dispute decision is a breach of contract, which triggers liability for damages irrespective of other disputes existing between the parties.
Therefore, it could be fair to state that the jurisprudence established after FIDIC 1999 Suites of Contracts’ wording that the parties do not need to wait for the final resolution of their disputes through arbitration in order to have enforceability of the dispute board decisions.
Further provisions have been explicitly added to the FIDIC 2017 Suite of Contracts, specifically in Sub-Clause 21.7; whereby now we know that that the arbitral tribunal shall have the power to order the enforcement of a binding or final and binding DAAB decision in the event that a party fails to comply with the DAAB decision. The decision can be enforced in a summary or other expedited procedure by an interim or provisional measure or an award.
Enforceability Issues in Turkey
There are no specific regulations or supreme court decisions about the enforcement of dispute board decisions by arbitration under Turkish Law, wherefore the general rules of law should be taken as basis. As internationally recognized, and as explained above, the failure to comply with a board decision would therefore be qualified as a breach of contract under Turkish law as well, and without specific legal provisions, such breach shall need to be channelled through arbitration in order to obtain enforceability power. For the purposes of this paper, we exclude other options of amicable settlement, mediation and attorney protocol settlement, that the parties may resort to in order to make the dispute board decision enforceable.
Indeed, under Turkish law the arbitral tribunal is empowered to issue both interim injunctions / decisions and final awards which may be partial as well. That said, especially in relation with the execution of the interim decisions, the arbitral decision is usually assisted with the local courts in order to grant an official enforceability.
Accordingly, the author of this article sees no obstacle to use the method of requesting either interim or partial award by an arbitral tribunal in order to enforce a binding (or final and binding) dispute board decision through arbitration.
Consideration could also be given to the use of emergency arbitrator or fast-track arbitration options that are locally available through Istanbul Arbitration Centre or Istanbul Chamber of Commerce Arbitration Centre; both of which provide both options.
ABOUT THE AUTHORS
Yasemin Cetinel is the founding partner of Cetinel Law Firm based in Istanbul, specializing in international construction law, international investment, and commercial arbitration, with a specific emphasis on construction disputes. She serves as counsel and holds positions as a board member or arbitrator in construction disputes at both dispute board and arbitration levels. Registered with the Istanbul Bar Association, Yasemin represents and advises contractors from diverse nationalities on projects or cases spanning Eastern Europe, the Middle East, Turkic countries, sub-Saharan Africa, and Latin America. She possesses extensive experience in FIDIC/ICE-based contracts, EPC contracts, and ad hoc construction contracts involving Turkish, Middle Eastern, European, and African contractors and state entities. Additionally, she is well-versed in dispute board proceedings within construction contracts and has participated in numerous ICSID and/or other investment arbitrations arising from construction projects.
Ayse Selcen Ozcan, a licensed attorney registered with the Istanbul Bar Association, joined Cetinel Law Firm in August 2016. She plays a significant role in international arbitration, investment arbitration, and dispute adjudication board (DAB) procedures, focusing on international construction projects concerning contract management and pre-contract risk analysis. Ayse represents and advises contractors of various nationalities on cases or projects located in Europe, the Middle East, and Turkic countries. She has served as a party representative and tribunal secretary in matters governed by institutions such as ICC, PCA, and ISTAC.
Muhammet Bembeyaz, also a licensed attorney registered with the Istanbul Bar Association, holds a senior associate position at Cetinel Law Firm. He actively participates in international arbitration, investment arbitration, and dispute adjudication board procedures, concentrating on international construction projects involving contract management and pre-contract risk analysis. Muhammet represents and advises contractors from various nationalities on projects or cases situated in Eastern Europe, the Middle East, and Turkic countries. He has been involved in matters conducted under the rules of institutions such as ICC, PCA, and ISTAC.
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