A Parade of Choices: Alternatives for the Alternatives (International Perspectives)
December 10, 2007
SEVERAL MONTHS AGO, VETERAN ARBITRATION ATTORNEY MAURO RUBINO SAMMARTANO, OF MILAN, ITALY, SUBMITTED A TWO-PART ARTICLE FOR INTERNATIONAL PERSPECTIVES. THE CONCLUDING SEGMENT IS BELOW, FOLLOWING THE ORIGINAL FIRST PART. (SEPT. 18, 2008)
BY MAURO RUBINO SAMMARTANO
The author heads his own Milan, Italy, law firm, Rubino-Sammartano E Associati. He is a Chartered Arbitrator (U.K.); president of the European Court of Arbitration, and Chairman Emeritus of the International Bar Association’s International Construction Projects Committee.
Why a search for alternatives?
When the dissatisfaction of court-based resolution became serious, recourse to arbitration seemed the perfect solution.
Arbitration is a very good solution. But, as with many human things, it may be affected by mismanagement. Arbitration became quite expensive in many jurisdictions and subject to frequent serious delays.
Furthermore it could not avoid lawyer control: the process was removed from the parties to the lawyers, and the parties’ problems transformed into legal issues.
Rather than ensuring that the parties remain involved in the process and that the arbitrator remembered that the parties want a solution, not a brilliant legal fight, mismanagement at the arbitration agreement contracting stage, and when choosing an arbitrator, tended to be addressed by looking for further alternatives, such as mediation, and hybrid med-arb processes.
None of the alternatives are bad. They all tend to ensure that justice is achieved quickly and cheaply. And far from perpetuating conflict, they provide a reasonable sequence of resolution procedures.
Mediation is an extremely useful tool to settle problems but, except for the United States and the United Kingdom, it has had difficulties in becoming known and appreciated. In the meantime, new formulas have become fashionable, such as the arbitral referee, the dispute adjudication board, and adjudication.
Are any of them better than the others? Here’s a comparison:
The Pre-Arbitral Referee
This procedure, which was launched about 30 years ago (by an International Chamber of Commerce working committee, of which this author has been a member), allows a party to obtain an order designed to solve an urgent problem.
The timing is very short. The referee is to be appointed within eight days from the receipt of the request; the referee must issue an order within 30 days from receipt of the file.
The referee has wide powers, such as to order:
--any measure to conserve property or assets;
--any matter of restoration;
--any payment, or
--to take any step provided for by the contract.
The order doesn’t prejudice the substance of the case, and remains in force until a competent authority decides otherwise.
This procedure’s fundamental elements are:
- It aims to solve urgent problems, without dealing with the substance of the dispute.
- It is immediately and provisionally binding for the parties.
- It does not bind the arbitrator or the court hearing the dispute.
The Dispute Adjudication Board
The Dispute Adjudication Board was introduced in 1999 in the general construction contract conditions issued by the Geneva, Switzerland-based International Federation of Consulting Engineer, better known as Fidic. The boards have a good reputation, and are mostly used in international construction contracts.
This procedure targets disputes arising from construction contracts. The dispute generally arises when a party makes a claim to the designated engineer (who must make a decision within 42 days), and the engineer's determination is not accepted.
The DAB is empowered to decide on payments, and to open up, review, and revise any engineer’s certificate or decision. Within this framework, the DAB may decide upon provisional relief, such as interim or conservation measures.
The DAB must decide within 84 days. Its decision becomes final if it is not challenged by a party issuing a notice of dissatisfaction within 28 days. The notice is followed by an attempt to settle, and arbitration may be commenced only 56 days after that notice.
If the DAB's decision is not challenged, but a party fails to comply with it, the other party may refer that failure to arbitration.
This procedure is directed to resolve an issue of substance
--It may include within that framework provisional relief.
--It is binding on both parties.
--It becomes final if it is not challenged.
This U.K. procedure is in force under the Housing Grants, Construction and Regeneration Act of 1996. It cannot be rejected by the parties. The Scheme for Construction Contracts ( England and Wales) Regulation 1998 applies as a statutory default scheme in the absence of any provision to this effect in the construction contract’s terms, or of its inconsistency with the Housing Grants Act.
Under these regulations, disputes arising from construction contracts must be submitted to adjudication. The adjudicator is appointed by an adjudicator nominating body within one week, and must decide within 28 days after the adjudicator receives the applicant’s referral notice.
Adjudication is informal, which means the absence of strict evidentiary rules. It doesn’t require lawyers’ involvement. Also, a hearing isn’t required, and there is no automatic right to reply to the response provided by the other party, which is generally given a 14-day time period.
Through adjudication, money claims, claims under warranty or for delay, disruption, for extension of time, for a declaratory decision, and even for specific performance can be decided. Disputes about contract formation may not be resolved through adjudication.
A further requirement of the Housing Grants Act is that the construction agreement be in writing, or evidenced in writing. Under the Scheme for Construction Contracts, the adjudicator does not have to provide reasons for the decision unless one party or both ask for a reasoned award.
Either party may have the dispute heard de novo in court or by arbitration.
But adjudication is binding on both parties pending the court’s or arbitrator’s final decision. If the losing party doesn’t comply, an application to the Technology and Construction Court may be made for an ex parte summary judgment.
As a rule each party bears its costs.
The success of mediation in the United States and in the United Kingdom seems largely due to Courts ordering it during proceedings.
This, as well as statutory provisions that make it mandatory, helps set aside parties’ reluctance to enter into a mediation agreement. Settlement rates are high under the courts’ strong influence.
Court-ordered mediation seems to be still one of the best tools to avoid being stuck in litigation or arbitration
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[END PART I; BEGIN PART II]
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What are the Differences in these Proceedings?
It is not easy to reduce an entire procedure to one sentence. But the main features of each are identifiable.
The Pre Arbitral Referee procedure has the clear scope to solve an urgent problem. It is particularly useful in long duration contracts.
On the contrary, the Dispute Adjudication Board aims to solve substantive contract issues, and is to be found in the general conditions of international contracts. Provisional relief isn’t in its main scope, but rather within that overall framework.
United Kingdom-style Adjudication aims to solve all the disputes arising from construction contracts.
The parties must have agreed on Pre Arbitral Referee or the DAB in advance to be able to take advantage of the processes. The basis of both procedures is voluntary. Adjudication, however, is a mandatory procedure in the United Kingdom and in a few other jurisdictions.
Parties may voluntarily submit the dispute to a DAB, even outside of construction contracts, and they may voluntarily make adjudication become a contract term, even outside the United Kingdom.
Court-ordered mediation involves the duty to try to solve the dispute–in good faith, but without a legal commitment to settle.
The Effect of Legal Proceedings
Generally, it is quite difficult to eliminate all of the legal issues before entering the alternative procedures discussed above. The lawyers tend not to miss any of them.
This is a problem for the Pre Arbitral Referee in those jurisdictions that don’t grant to arbitrators the authority to issue interlocutory measures. The response to that might be to frame joint instructions by the parties that allow the referee to decide such measures, as the parties themselves would be entitled to do, totally outside of any adjudicatory procedure.
Other jurisdictions do not allow appellate arbitral proceedings. This argument may be used against a DAB, since it really functions as a first-instance arbitral procedure.
The response to this argument might be more difficult than for referee procedures, since the Fidic General Conditions discussed above provide that the dispute “shall be adjudicated” by a DAB, and that the DAB makes its “decision.” For more information on Fidic, see http://www.fidic.org/.
The DAB decision may be challenged before an arbitrator and, even if not challenged, it requires under the Fidic provisions that the matter be referred to arbitration.
The adjudication of a dispute by private persons is an alternative to a court decision. Even if it does not necessarily amount to arbitration, it is very close to it.
Doubts have been expressed about the Fidic enforcement provisions where a party fails to comply with a DAB decision. Can the other party refer the failure to comply with arbitration? This mechanism causes concern since arbitration already is available against the DAB decision itself, and also because arbitration frequently requires more than one year to be decided.
But arbitration proceedings are provided only as to a DAB decision that has not been challenged otherwise through arbitration, and one that also has not been complied with.
The enforcement problem for a DAB final decision remains then to be addressed even if one does not wish to refer it to arbitration. The civil procedure rules of each jurisdiction will dictate enforcement. This will make it necessarily to characterize it as an arbitral award or otherwise, which confirms that this issue is not merely theoretical.
These procedures aren’t perfect, but all are good in the sense that they have the common purpose to provide a quick solution. And because they may be challenged either through a request for court review or by arbitration.
It isn’t easy to suggest that one of them is better than the other ones–it depends on the dispute.
For urgent measures, the Pre Arbitral Referee procedure seems to be quite effective.
As to disputes which go to the contract's substance, the DAB, and adjudication in the United Kingdom, both seem good, subject to the enforcement concern about the DAB.
And voluntary or court-ordered mediation remains a very good tool to settle a disagreement, international or otherwise, in a not-litigious way.