www.landoltandkoch.com © christopher koch, 2010 15th geneva global arbitration forum the use of...

www.landoltandkoch.com© Christopher Koch, 2010

15th GENEVA GLOBAL ARBITRATION FORUM

THE USE OF DISPUTE BOARDS IN NON-CONSTRUCTION SETTINGS

by Christopher Koch

LANDOLT & KOCH17, rue du Mont-Blanc

CH-1201 GenevaTel.+41 22 311 00 51Fax. +41 22 311 0054

[email protected]


Time & the Contractual Management of Risk

Contracting is and exercise in Risk management• A contract is a promise based on the parties’

understanding of the economic risk at the time of contracting.

• When performance takes place over time, this introduces a factor of uncertainty that makes contractual management of risk more difficult.

• The more complex a project, the harder it is to provide for a contractual solution to all possible contingencies.

When time and complexity make it difficult for the parties to contractually allocate risks it is time to think about a mechanism for doing this.


Dispute Boards as risk allocation device DBs were used in construction because

•Building a project it takes time •Conditions are often unforeseeable •Parties are obliged to work together •Need for a contractual unblocking device to keep the project going

DB has an unblocking function•DB’s are designed to unblock a situation •when the contract does not give the parties sufficient guidance on how to allocate the risk of a given situation•The emphasis is on speed and the assistance to the parties to continue their contractual performance rather than on a final determination of rights.

Use of DBs is not restricted to construction •ICC Rules are industry neutral


SHIP BUILDING & REFURBISHMENT

Ship Projects with DBs

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10

20

30

40

50

60

70

80

90

100

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Year

Nu

mb

er o

f D

isp

ute

Bo

ard

sShipbuilding much like construction•Project time 2 to 3 years•Imponderables: price of steel, economic evolution•Design issues, refurbishment issues because vessel in worse shape than anticipated.• Many of the same issues as in

All statistics provided by the Dispute Board Federation


Traffic Charge Disputes between Telecoms

Roaming charges concern multiple operators

•Depending on where the user is he may be using three to five different networks.

Telecoms are necessary contractual partners

•Home operator has no choice of who will carry the signal when the client travels abroad.•Telecoms must work together and preserve relationship. •Operational disputes have to be addressed quickly and be resolved with amicably.

What kind of Board and procedure?•Ad hoc, 1 member DB Boards, •Document only proceeding •Decision within 30 days of receipt of documents.


Hospital Services with DBs

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2

4

6

8

10

12

14

16

1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

Year

Nu

mb

er

of

Dis

pu

te B

oa

rds

Hospital related DBs in England with NHS

NHS enters into long terms building and equipment leases•Use of DB’s for disputes regarding equipment and building performance standards•Disputes with independent practitioners using NHS facilities


Concession related DBs in Public-

Private Partnerships

Concession related DBs

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50

100

150

200

250

300

350

400

450

500

1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

Year

Nu

mb

er

of

Dis

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te B

oa

rds

DB perfect for Concession disputes•Infrastructure– Utilities - Hospitals – Prisons •Concessions last 20 – 50 years•Public interest in obtaining public service at affordable price v./ private interest in recovering investment + a profit •Private – Public risk allocation is dependent on many factors, including political + economic•The crisis in government finances will accelerate use of PPP in financially less stable countries.


Other Areas where DBs could be used effectively

Distribution Agreements • determination of performance targets • price determination issues• product supply and quality issues

Mid and Long-term Supply Agreements

• quality issues• price determination issues• delivery issues

Oil & Gas exploration contracts

• Exploration and production issues• Royalty issues• Product and service contract issues


What type of DB’s are used

Use of ICC DB rules •No ICC statistics available•From the anecdotal evidence it seems that the DB rules are popular in non FIDIC settings. When they are used, parties seem to adopt CDBs.•Since ICC Rules only deal with standing DB’s they may not be too well suited to the setting up of ad hoc DB’s

Standing or Ad hoc DBs? •It depends on the type of sector and the kind of dispute which parties anticipate. In telecoms roaming charge disputer ad hoc DB’s with as Sole DB Member. Parties to a dispute may differ each time. •In the concession setting DB’s may be set up at the beginning of the operations phase, but are not active until a dispute is referred to them. They are in fact, hybrid standing as to their appointment but ad hoc in terms of how they function, since there is no regular flow of information between them and the parties performing the contract.

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