by Kaira Pinheiro

Introduction

Disputes Boards (‘DBs’) are permanent panels set up to accompany the performance of a contract, and assist in avoiding or overcoming disagreements and disputes throughout the contractual process.[1] DBs establish a process not only to avoid disputes before they arise, but also a further process for the resolution of those disputes after they arise.[2] DBs functions range from identifying disagreements and informally assisting parties to resolve such matters, as well as determining disputes through formal decisions if such a referral is made by the parties.[3] A DB is generally set up at the commencement of performance of a contract and usually consists of three experts, who are experienced, respected, and impartial, acceptable to both the parties and conversant with the nature and complexity of the work involved.

While DBs are most commonly used in construction projects, they have proved to be effective in other fields concerning commercial contracts such as intellectual property, production sharing, etc.[4] Their dual approach of dispute-avoidance, as well as dispute-resolution, is one of the primary reasons that DBs have become a popular choice for many contracting parties that wish to avoid conventional dispute resolution processes that can often be lengthy and expensive. DBs have also been considered to be a more efficient method of dispute resolution since DB procedures are more informal and simplified than court or arbitration proceedings.  Additionally, since DB Members assist the contracting parties from the commencement of the project itself, they are well acquainted with the facts and circumstances of the contract at hand. Thus, they do not require additional time to familiarise themselves with the background and facts of the dispute, as would be the case with other dispute resolution forums.

Despite these various advantages, DBs do not seem to have been embraced in many jurisdictions. While the value of Australian and New Zealand projects utilising DBs is close to $60 billion,[5] many Asian countries have witnessed significant apprehension when it comes to using DBs as a means for avoiding and resolving disputes. The following article provides a brief overview of the DB institutions and frameworks present in India, Malaysia, Japan, China and Indonesia, with a specific focus on the barriers to implementation in these countries.

India

The system of DBs was first introduced in India in 1994, post liberalisation.[6] In 2016, World Bank partnered with Indian Council of Arbitration  (‘ICA’), an allied body of the Federation of Indian Chambers of Commerce & Industry) to introduce some improvements in DB to make them more popular and acceptable in India.[7] To ensure a high standard of application of DBs, the ICA established the Standard Operating Procedure for Institutional Dispute Board Services (‘SOP’), which is focused on construction disputes specifically.[8] The ICA also empanelled and trained nearly 200 experts in different trades as potential board members.[9]

Despite the various initiatives to establish a sound DB framework, these attempts have unfortunately proven to be largely ineffective. While DBs have been used in several large construction projects such as the Chennai Metro Rail Project, and the Indian Railways’ freight corridor project, DBs seem to lack popularity in India.[10] The decisions and recommendations of DBs are routinely rejected and challenged in arbitration and litigation in India, which result in significant delays and cost overruns.[11] Since the only way to enforce the award of the DB against a non-complying party is by referring the matter to arbitration (where it is provided by the agreement) or to the courts, the enforcement stage can also lead to delays.[12] Other reasons for the ineffectiveness of the DB system inter alia, include a delay in the constitution of DBs, and a lack of requisite qualifications and expertise of the members of the DBs.[13] There have also been several delays caused by the DBs while resolving disputes referred, often even beyond the period stipulated in the contract.[14] For all the above reasons, even in those contracts where DBs are mandatory, parties are found to be resisting constituting DBs or trying to bypass them.

Malaysia

FIDIC contracts are the most commonly-used standard form of international construction contracts in the world today.[15] The FIDIC model of contractual adjudication provides for temporary binding effect and enforcement of decisions of an impartial Dispute Adjudication Board (‘DAB’). The Malaysian construction industry has a DAB formed in some of the mega projects implemented by the Malaysian government recently namely the SMART Tunnel and BAKUM Dam.[16]

The FIDIC-DAB procedure, however, is only made available to contracts that are drafted based on the FIDIC model. These non-FIDIC based contracts contain no specific “adjudication” provisions (other than reference of the dispute to the Superintending Officer). In Malaysia however, many contracts, especially lower value contracts which adopt simplified formats, are bedevilled by disputes that mainly concern payment issues.[17] In order to enact statutory adjudication provisions to address cash flow problems, Malaysia enacted an adjudication statute – the Construction Industry Payment and Adjudication Act (‘CIPAA’) – which was passed as law by the Parliament in 2012, and came into force on 15th April 2014.[18]

The construction industry — in particular, the Construction Industry Development Board (CIDB) and Master Builders Association Malaysia (MBAM), and other related promoters —were instrumental in getting the government to enact this piece of legislation since 2003 to address the cash flow problems plagued by the industry.[19] The Act allows for a party who is owed monies under a construction contract to promptly obtain payment from the non-paying party, based on assessment of the merits of the claim by an appropriately qualified and independent industry expert i.e. the ‘Adjudicator’. Thus, the CIPAA-based statutory adjudication plays a beneficial role by protecting weaker parties in construction contracts that do not provide for contractual ‘Adjudication’ or other forms of dispute management or resolution mechanism as in the case of FIDIC and other standard forms.

Despite these progressive legislative moves, Malaysia has also experienced barriers to the effective implementation of DBs. A primary reason for this is a lack of awareness of such a form of dispute avoidance and resolution even amongst construction industry players.[20] The cultural attitude of the Malaysian industry players has also proven to be an issue since many are sceptical of the need to pay for DBs even before any dispute has arisen. Based on a general behavioural tendency to negotiate to resolve disputes, many Malaysian parties are apprehensive about the costs involved to set a Board, especially at a stage when no dispute exists in the first place.[21]

Japan

The Japan International Cooperation Agency (JICA) has carried out various dissemination activities of the Dispute Board (DB) for projects financed by JICA ODA (Official Development Assistance) loan.[22] JICA also issued a user’s manual of the DB in 2012.[23] Nevertheless, the application of the DB in actual projects has reportedly seen very slow progress due to a general lack of availability of DB members to adjudicate a rising number of disputes.[24] Many are of the opinion that the establishment of DBs also lacked support since the real benefit of DBs has not yet been recognised by many construction industry players.[25]

Standard contract forms in Japan typically stipulate a multi-tier dispute resolution mechanism, in which parties are initially obliged to refer their disputes to the Committee for Adjustment of Construction Work Disputes which offers mediation, conciliation and arbitration services.[26] Dispute Review Boards (‘DRBs’) are rarely used in domestic construction contracts. In fact, neither standard contract forms for public construction nor forms for private construction have applied provisions for DRBS.  The legal status and the effect of decisions or recommendations rendered by DRBs may vary depending on the terms of the contract.[27]

China

The use of the dispute board mechanism for dispute resolution has been known in China for almost thirty years.[28] The concept and mechanism were first introduced on the Ertan Hydropower Project in 1990.[29] From then on, the concept and was further promoted and used on three other projects: the Xiaolangdi Multipurpose Dam Project, the Yellow River Diversion Project and the Kunming Zhangjiuhe River Water Diversion & Water Supply Project.[30] At that time, contracts for civil works were based on FIDIC’s standard form of contract.

The Construction Contract for Construction Projects (Model Form) (GF-2017-0201) incorporates the DRB mechanism.[31] Under it, the DRB’s decision will become binding on the parties after they sign on the decision. If either party refuses to sign or act on the decision, the parties may launch a court or an arbitration proceeding (as the case may be).[32] The China International Economic and Trade Arbitration Commission (CIETAC) also provides dispute review board services with similar provisions under the CIETAC Construction Project Dispute Review Rules, as does the Beijing Arbitration Commission (BAC) under the Construction Dispute Board Rules.

In 2018, a seminar themed “International Engineering Dispute Resolution” jointly organized by the BAC and the Dispute Resolution Board Foundation (‘DRBF’) was held to increase awareness regarding DBs.[33] It was hoped that these initiatives would lead to future training on successful use of DBs in China. However, very slow progress has been made since then.

Indonesia

Due to the use of the FIDIC model contract, DBs have existed as an alternative method of dispute resolution prior to arbitration proceedings in Indonesia for over a decade.[34] The recent Law No. 2/2017 also provided that in certain cases, mediation and conciliation can be replaced with the appointment of a dewan sengketa (‘DS’), which is essentially a modification of a DB.[35] The issuance of the law as well as dissemination and training by the government have had a positive impact on using DBs. Pilot projects on using a dewan sengketa demonstrated an effort to resolve potential disputes while being aligned with the Indonesian law and regulations.[36]

Despite all the above initiatives, the use of DBs in Indonesia is still not as popular as expected, especially among government institutions and state-owned companies, who hold the opinion that the existence of a DB only lengthens the time needed for the dispute resolution process. This is primarily because any DB decision can still be challenged in arbitration, and because an arbitration tribunal can also be challenged in court, as stated in Law No. 30/1999 concerning arbitration and alternative dispute resolution.[37] The landmark case of PT Perusahaan Gas Negara (Persero Tbk.) v. CRW Joint Operation,[38] served as a testament to these concerns.[39] The case involved the implementation of a DB decision for immediate payment filed before the Singapore International Arbitration Court (SIAC) – a matter which was eventually concluded after more than 5 years.

There has however been a new regulation that has introduced significant changes to the implementation of Indonesia’s construction services law.[40] The new regulation, Government Regulation Number 22 of 2020 regarding Implementing Regulations of Law No. 2/2017, was promulgated on April 23, 2020.[41] The regulation contains detailed provisions relating to dispute resolution by a Dispute Board appointed by the parties to the construction services dispute. The law is expected to affect business actors in the country’s construction sector, and to increase the popularity of the DB system in Indonesia.

Conclusion

The DB concept and method of dispute resolution stands distinguished from most other forms of alternative dispute resolution. Its dualistic approach to dispute avoidance as well as dispute resolution is what makes it an ideal forum, especially for contracts concerning medium or long-term projects. While the untapped potential of the DB system has been recognised across Asia, an overall analysis seems to indicate similar barriers to implementation being faced across the aforementioned countries.

Despite the active initiatives that have been taken across these nations in order to establish robust DB frameworks, these attempts are nevertheless met with significant apprehension. The reasons for these apprehensions range from costs involved in setting up a DB Board, to a shortage of DB Members available to resolve disputes, as well as a lack of expertise in the Members that are available. While there do exist procedural concerns (such as the enforceability of these awards), a majority of the problems faced by parties seem to stem primarily from logistical issues that can be largely resolved through enhanced governmental support. Governments, dispute resolution organisations, and other stakeholders need to actively collaborate in order to create more awareness about DBs and increase their. DBs have the potential to revolutionise the field dispute resolution, and radically improve the efficiency with which projects are carried out. If successfully implemented, it is only a matter of time before they become the most predominant method of dispute resolution for construction and other commercial disputes in Asia.

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[1] International Chamber of Commerce, Dispute Boards, available at https://iccwbo.org/dispute-resolution-services/dispute-boards/

[2] Henry Joyce, Concepts, available at https://www.drbf.org.au/concept

[3] International Chamber of Commerce, Dispute Boards, available at https://iccwbo.org/dispute-resolution-services/dispute-boards/

[4] Henry Joyce, Concepts, available at https://www.drbf.org.au/concept

[5] Andrew Stephenson & Lucy Goldsmith, Time for Australia to embrace Dispute Resolution Boards?, available at https://www.corrs.com.au/insights/time-for-australia-to-embrace-dispute-resolution-boards

[6] Indian Council of Arbitration New Delhi, “Improving the Functioning of Dispute Review Boards (DRB) in India”, Standard Operating Procedures for Dispute Boards in India, available at https://www.icaindia.co.in/DB-ica/Final-SOP.pdf

[7] Shanker Lal, Resolving disputes, avoiding litigation in India, available at https://blogs.worldbank.org/governance/resolving-disputes-avoiding-litigation-india

[8] Indian Council of Arbitration New Delhi, “Improving the Functioning of Dispute Review Boards (DRB) in India”, Standard Operating Procedures for Dispute Boards in India, available at https://www.icaindia.co.in/DB-ica/Final-SOP.pdf Clause 1.1.1 and 1.3.1.

[9] Shanker Lal, Resolving disputes, avoiding litigation in India, available at https://blogs.worldbank.org/governance/resolving-disputes-avoiding-litigation-india

[10] Nishith Desai Associates, Construction Disputes in India, April 2020, available at https://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Construction-disputes-in-india.pdf

[11] Business Standard, World Bank partners with Indian Council of Arbitration for dispute board services in India, available at https://www.business-standard.com/article/news-ani/world-bank-partners-with-indian-council-of-arbitration-for-dispute-board-services-in-india-116062300924_1.html

[12] Nishith Desai Associates, Construction Disputes in India, April 2020, available at https://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Construction-disputes-in-india.pdf

[13] Indian Council of Arbitration New Delhi, “Improving the Functioning of Dispute Review Boards (DRB) in India”, Standard Operating Procedures for Dispute Boards in India, available at https://www.icaindia.co.in/DB-ica/Final-SOP.pdf p.2.

[14] Id.

[15] Pinsent Masons, Standard Form Contracts: FIDIC, Out-Law Guide, available at https://www.pinsentmasons.com/out-law/guides/standard-form-contracts-fidic

[16] Ming-Lee Chong & Heap-Yih Chong, Dispute Review Board: Concept and introduction to developing countries, 2 Interscience management Review 1, (200(), available at   Lhttps://www.interscience.in/cgi/viewcontent.cgi?article=1018&context=imr

[17] Asian International Arbitration Centre, Dispute Boards & Adjudication in Malaysia : An insight into the Road Ahead by Professor Datuk Sundra Rajoo, available at https://www.aiac.world/news/108/Dispute-Boards-&-Adjudication-in-Malaysia-:-An-Insight-into-the-Road-Ahead-by-Professor-Datuk-Sundra-Rajoo

[18] Id.

[19] Id.

[20] Ming-Lee Chong & Heap-Yih Chong, Dispute Review Board: Concept and introduction to developing countries, 2 Interscience management Review 1, (200(), available at   Lhttps://www.interscience.in/cgi/viewcontent.cgi?article=1018&context=imr

[21] Id.

[22] AJCE Activity 2012, JICA’s Initiative on Dissemination of Dispute Board, available at http://ecfa.or.jp/english/Adjudicator/JICA%20rep.pdf

[23] Japan International Cooperation Agency, Dispute Board Manual, March 2012, available at  https://www.jica.go.jp/activities/schemes/finance_co/procedure/guideline/pdf/DisputeBoardManual_201203_e.pdf

[24] AJCE Activity 2012, JICA’s Initiative on Dissemination of Dispute Board, available at http://ecfa.or.jp/english/Adjudicator/JICA%20rep.pdf

[25] Id.

[26] Anderson Mori & Tomotsune, In brief: construction disputes in Japan, Lexology, available at https://www.lexology.com/library/detail.aspx?g=030d57d5-a918-4e62-8605-28fff7a6022b

[27] Id.

[28] The Dispute Board Federation, The Use of Dispute Boards in Public-Private Partnership Transactions, The Dispute Board in Practice, available at https://ppp.worldbank.org/public-private-partnership/sites/ppp.worldbank.org/files/documents/Dispute%20Board%20Federation-%20Dispute%20Boards%20in%20Practice%20by%20Cyril%20Chern.pdf

[29] Id.

[30] Hongwei Zhao, The DRB Landscape in China Foundation Forum, available at https://www.disputeboard.org/wp-content/uploads/2016/02/The-DRB-Landscape-in-China.pdf

[31]  Wanhe Ye & Ziwei Zhang, Construction & Engineering Law, China, ICLG, ¶4.2, available at https://iclg.com/practice-areas/construction-and-engineering-law-laws-and-regulations/china

[32] Pinsent Masons, In brief; construction disputes in China, available at  https://www.lexology.com/library/detail.aspx?g=9c4cc30e-3fc3-47ba-b15b-8dee1c65a43a

[33] Beijing International Arbitration Centre, “International Engineering Dispute Resolution” Seminar and Cooperation Singing Ceremony between BAC and DBRF Successfully Held, available at  https://www.bjac.org.cn/english/news/view?id=3327

[34] Sarwono Hardjomuljadi, Use of Dispute Avoidance and Adjudication Boards, available at https://ascelibrary.org/doi/full/10.1061/%28ASCE%29LA.1943-4170.0000431

[35] Id., see also Soemadipradja & Taher, New Government Regulation now implements the 2017 Construction services Law – after three years in the pipeline, available at https://www.soemath.com/public/images/page/download1_437_Client%20Update%20-%20GR%2022%20of%202020%20on%20Construction%20Services%20(final).pdf

[36] Id.

[37]  Law No. 30 of 1999 concerning Arbitration and Alternative Dispute Resolution, available at http://www.flevin.com/id/lgso/translations/Laws/Law%20No.%2030%20of%201999%20on%20Arbitration%20and%20Alternative%20Dispute%20Resolution%20(no%20elucidation).pdf

[38] Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation, SGHC 202 [2010].

[39] Id.

[40] Herbert Smith Freehills LLP, Indonesia update: New implementing regulation seeks to increase legal uncertainty in the Indonesian construction industry, Lexology, available at  https://www.lexology.com/library/detail.aspx?g=c19b16e7-e911-49d4-9a2b-c199bc3315de

[41] Nico Mooduto & Raoul Aldy Muskitta, Building Failure Liability in Indonesia’s Construction Sector, available at https://www.ssek.com/blog/building-failure-liability-in-indonesia-s-construction-sector

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* Kaira Pinheiro

Kaira is a penultimate year student of law at the West Bengal National University of Juridical Sciences, Kolkata. Kaira was part of the winning team at the 2021 ADC-ICC Asia Pacific Mediation Competition.  Kaira takes a special interest in investment law, intellectual property law, and data protection.