09 Jan 2018

Dispute resolution under FIDIC 2017

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What you need to know

Following our briefing note which covered the new features in the FIDIC 2017 Suite more generally, this note deals specifically with the dispute resolution updates.

A number of key changes seek to encourage dispute avoidance, such as the heightened role of the Dispute Avoidance / Adjudication Board ("DAAB") and the splitting out of the 'Claim' and 'Dispute' procedures. The 2017 Suite also includes more prescribed notice and time bar provisions in relation to Claims and Disputes which will increase the administrative burden on the Parties and the Engineer. The Procedures for Contractor and Employer Claims have also been changed.

Key changes to dispute resolution provisions

The broad dispute resolution framework of the FIDIC 1999 Suite remains the same in the FIDIC 2017 Suite, i.e. Notice of Claim; Determination by Engineer / Employer's Representative; Decision by DAB / DAAB; Arbitration. However, significant changes in the detail have been made. These include:

  • Splitting 'Claims' and 'Disputes': Clause 20 (Claims, Disputes and Arbitration) of the 1999 Suite has been split in two. Under the 2017 Suite, Clause 20 addresses Claims and Clause 21 addresses Disputes. This change emphasises the FIDIC distinction between Claims and Disputes, i.e. a Claim is an assertion of an entitlement under the terms of the Contract, and a Dispute arises when a Claim is rejected.
  • Employer and Contractor Claims: Under the 1999 Suite, Contractor and Employer Claims were dealt with separately, and had different procedural requirements under Sub-Clauses 2.5 and20.1 respectively. Clause 20 of the 2017 Suite deals with Contractor Claims and Employer Claims together and the same rules apply to both.
  • Early Warning System: New Sub-Clause 8.4 provides that each Party (and the Engineer, where applicable) shall advise the other in advance of any known or probable events or circumstances which may adversely affect the works, Contract Price or progress. Here, FIDIC appears to have borrowed from the approach taken in the NEC Suite of Contracts.
  • Notice of Claim: New Sub-Clause 1.3 requires Notices (including Notices of Claim) to be identified as a Notice and refer to the provision of the Contract under which it is issued, which aims at limiting the scope for Disputes relating to the validity of a purported Notice.
  • Claim Time Bars:

- Under new Sub-Clause 20.2, both the Contractor and the Employer wishing to make a Claim must provide a Notice of Claim to the Engineer (or the other Party under the Silver Book) within 28 days of the date it became aware or should have become aware of the event or circumstance giving rise to the Claim. Failure to provide a Notice of Claim on time will mean that the Claim is time-barred (i.e. the claiming Party loses any entitlement and the other Party is discharged from all liability in connection with the relevant event or circumstance).
 
- The claiming Party must also provide a "fully detailed Claim" within 84 days (rather than 42 days under the 1999 Suite) of the date it became aware or should have become aware of the event or circumstance giving rise to the Claim. The new Suite prescribes the contents for a fully detailed Claim, whereas the 1999 Suite simply required "full supporting particulars". If the fully detailed Claim is not provided on time, the Notice of Claim lapses.
 
- If the Engineer considers that a Notice of Claim or fully-detailed Claim is out of time, it must notify the Parties within 14 days of receipt of the Notice of Claim or expiry of the fully detailed Claim time limit respectively. If the Engineer or other Party says that a Notice of Claim is time-barred, but the claiming Party disagrees or believes that there are justifying circumstances, it may raise this in the fully-detailed Claim and the Engineer or Employer's Representative then proceeds with the determination taking this into account.

  • DAAB Time Bar Waiver: The onerous nature of the time bar provisions is softened by new Sub-Clause 20.2.5, which empowers the Engineer (or the Employer's Representative under the Silver Book) to waive a failure to comply with a time bar requirement in making its agreement or determination of the relevant Claim. Sub-Clause 20.2.5 provides that the Engineer / Employer's Representative may find that late submission of a Notice of Claim was justified, taking into account factors including whether the other Party would be prejudiced by the late Notice and whether the other Party had prior knowledge of the event or circumstance giving rise to the Claim. Notably, the Sub-Clause provides that the factors which may be taken into account "shall not be binding". One view put forward at the FIDIC International Users Conference was that this contemporaneous determination by the Engineer / Employer's Representative will provide clarity to parties. This may be so if the description of the factors as non-binding is given full force, however, it would remain open for a party dissatisfied with such agreement or determination to refer the matter to a DAAB under Sub-Clause 21.4, which may in fact lead to more Disputes being referred to the DAAB.
  • The New Dispute Avoidance / Adjudication Board ("DAAB"): One of FIDIC's new 'FIDIC Golden Principles', which enshrine FIDIC's core contracting philosophy, provides that "All formal disputes must be referred to a Dispute Adjudication Board for a provisionally binding decision as a condition precedent to arbitration." Parties are therefore discouraged from amending a FIDIC form to state otherwise. As signalled by the name change, the new DAAB differs considerably to the Dispute Adjudication Board ("DAB") of the 1999 Suite.

- The default position is that all DAABs are 'standing', i.e. appointed at the outset of the Contract and throughout its lifetime;

- The Parties may jointly request DAAB assistance in relation to any issue, and the DAAB may also invite the Parties to make such a request;

- The 2017 Suite expressly provides that upon termination of the Contract, the DAAB will expire 28 days after the DAAB has given its decisions on all Disputes referred to it or (if earlier) when the Parties reach final agreement on all matters in connection with the termination;

- A Party may provide a Notice of Dissatisfaction ("NOD") in relation to part only of a DAAB Decision; that part is then deemed severable from the rest of the DAAB decision and the remainder becomes final and binding to the extent that no NOD is given in respect of it;

- Even if a NOD has been issued, if a Party fails to comply with a DAAB Decision, the winning party under the Decision may refer the losing party's failure to comply with the DAAB decision directly to arbitration (i.e. without a separate DAAB Decision and amicable settlement period).

Conclusions

The separation of Claims and Disputes in the new FIDIC 2017 Suite emphasises that one Party's assertion of a right under the Contract may be resolved without a fully developed Dispute between the Parties. Updates to the DAAB and Notice of Claim requirements seek to encourage early awareness and resolution of events and circumstances which may give rise to a Dispute. It remains to be seen whether such provisions will prove to be helpful tools for avoiding disagreements or whether they will simply create new grounds for dispute. It is also uncertain whether the Parties (in particular, Employers) will accept or revise the new dispute resolution provisions to reflect the familiar 1999 provisions governing Employer Claims.

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KEY CONTACT

Graeme Barton

Graeme Barton
Partner

T:  +44 20 7809 2355 M:  +44 7875 611 475 Email Graeme | Vcard Office:  London

Ron Nobbs

Ron Nobbs
Partner

T:  +44 20 7809 2280 M:  +44 7831 245 682 Email Ron | Vcard Office:  London

Paul Thwaite

Paul Thwaite
Partner

T:  +44 20 7809 2341 M:  +44 7881 913 246 Email Paul | Vcard Office:  London

Amy Crocker-White

Amy Crocker-White
Associate

T:  +44 20 7809 2963 M:  +44 774 007 8064 Email Amy | Vcard Office:  London