FIDIC, as is well known, are currently finalising a new amended version of the Yellow Book. In a taste of what is to come, on 1 April 2013 the FIDIC Contracts Committee issued a Guidance Note dealing with the powers of, effect of and the enforcement of Dispute Adjudication Board (“DAB”) decisions.

The purpose of the Guidance Note is to clarify clause 20 of the General Conditions of the Rainbow Suite or 1999 Conditions of Contract. The guidance is intended to address the question of how one enforces DAB decisions that are binding but not yet final. FIDIC say that their intention is to make it explicit and clear that the failure to comply with a DAB decision should be capable of being referred to arbitration under sub-clause 20.6 without the need first to obtain a further DAB decision under sub-clause 20.4 and to comply with the amicable settlement provisions of sub-clause 20.5.

Such an approach will be familiar to those who operate in jurisdictions where shortform adjudication has been introduced (for example the Housing Grants, Construction and Regeneration Act in the UK) and where decisions that are binding and not yet final can be immediately enforced. Indeed the Building and Construction Industry Security of Payment Act 2006 in Singapore goes as far as to state that an application for review of an adjudicator’s decision can only be heard if that decision has actually been paid.

The idea behind clause 20.4 is that whether or not a party has given notice of its dissatisfaction, the DAB’s decision should be immediately binding on the parties and they must comply with it promptly. If a party fails to comply with a DAB decision and that decision has become final, sub-clause 20.7 already provides for a party to refer the other party’s failure to comply with such a decision direct to arbitration. However, if the DAB decision is binding but not final (i.e. the “losing” party has served a notice of dissatisfaction), there is now doubt about whether or not there is a straightforward route to enforcing that decision.

The reason why FIDIC has issued this guidance now owes much to the discussion and disagreement that followed the Singapore case of CRW Joint Operation v PT Perusahaan Gas Legara (Persero) TBK [2011] SGCA 33. Here, the Singapore Court of Appeal held that an Arbitral Tribunal had, by summarily enforcing a binding but non-final DAB decision by way of a final award without a hearing on the merits, acted in a way which was: “unprecedented and more crucially, entirely unwarranted under the 1999 FIDIC Conditions of Contract”. The problem for the court was that the Arbitral Tribunal had assumed that they should not open up, review and revise a DAB decision which was the subject of a notice of dissatisfaction.

The Singapore case examined the grounds for setting aside arbitration awards in construction-related disputes. If, within 28 days after receiving a dispute adjudication board (DAB) decision, either party gives notice to the other party that it is dissatisfied with the decision, the decision will be binding but not final. This case looked at whether a party may refer to arbitration the failure of the other party to comply with a DAB decision that is binding but not final.

However, where a party does not comply with the DAB decision and where the Singapore case is followed, the decision of the dispute board itself cannot simply be enforced as an arbitral award, without some form of arbitration, or local court litigation (where the contract permits it), which opens up and reviews again the issues decided by the DAB. This is particularly unhelpful to a contractor who has been awarded money. It is to avoid similar problems in the future, that FIDIC has now issued the Guidance Note which suggests amendments to clause 20.

The Guidance Note follows the approach to be found particularly in sub-clause 20.9 of the FIDIC Gold Book. It provides a new sub-clause 20.4, and amends the wording to sub-clause 20.7 as well as providing further provisions at clauses 14.6 and 14.7. The amendments are for use in the Red Book, Silver Book and Yellow Book. The Gold Book already adopts a different approach, and so the amendments proposed in the Guidance Note should not be used in their current state. FIDIC recommends the introduction of a new penultimate paragraph of sub-clause 20.4:

“If the decision of the DAB requires a payment by one Party to the other Party, the DAB may require the payee to provide an appropriate security in respect of such payment.”

This gives the DAB a contractual right or power to order one party to provide security. The DAB cannot force a party to comply, and so once again a party may have to go to arbitration in order to obtain an appropriate sanction and then seek to enforce that award in an appropriate court. In relation to the payment provisions in clause 14, a payment under sub-clause 14.6 “shall” now include any amounts due to or from the contractor in accordance with the DAB’s decision. Sub-clause 14.7 further requires that amounts due under a DAB decision be included within any Interim Payment Certificate that is to be issued. The intention here is that any amount ordered by the DAB to be paid should be included within an assessment of payment made by the engineer or the Employer’s Representative, and then included within the Interim Payment. Failure to do so is simply a further breach.

Sub-clause 20.7 is then deleted and replaced with the following:

“In the event that a Party fails to comply with any decision of the DAB, whether binding or final and binding, then the other Party may, without prejudice to any other rights it may have, refer the failure itself to arbitration under Sub-Clause 20.6 [Arbitration] for summary or other expedited relief, as may be appropriate. Sub-Clause 20.4 [obtain Dispute Adjudication Board’s Decision] and Sub- Clause 20.5 [Amicable Settlement] shall not apply to this reference.”

Sub-clause 20.7 relates to decisions that are either binding or final and binding. Therefore regardless of any notice of dissatisfaction, or more importantly any arguments or issues as to the adequacy or timing of any notice of dissatisfaction, a valid referral can be made to arbitration. The amendment also clarifies that the parties expect a summary or expedited relief to be used if and as appropriate. That said, the ICC’s emergency arbitrator provisions are unlikely to be appropriate. This is because they are for use when the contract itself does not provide for an expedited procedure. A DAB dispute resolution procedure is such an expedited procedure. Therefore it is probably more appropriate to commence arbitration and seek an immediate award for payment if there is any failure to honour the DAB decision.

Of course, this guidance will only apply to future contracts, where the amendment is negotiated and agreed. However for current contracts, the likelihood must be that it will be more difficult for a party to persuade a court or tribunal that the current (1999) drafting does actually achieve FIDIC’s intentions that the DAB decision, if it is not followed, can be summarily enforced. The issuing of contract amendments will be used as proof that the existing contract form does not achieve this aim. By simply issuing guidance that the Singapore Court of Appeal’s decision was contrary to FIDIC’s intentions regarding the operation of clause 20, FIDIC may have had a different effect. But by issuing amendments to the existing contract, FIDIC have gone further and might be said to have admitted that their existing contract was not sufficiently clear.

That said, it is useful to know now some of the changes that are likely to appear in the new FIDIC Form, and the Guidance Note itself is a useful reminder of the need for clarity and certainty within tiered dispute resolution provisions, not only in FIDIC and other standard forms but also bespoke construction contracts.