Dispute Review Boards: The Gun Without Bullets

In a post that I wrote early this year, I discussed the new, for India, concept of Dispute Review Boards. There I merely gave an overview of what the concept is all about, without resorting to any sort deep analysis, and the role of lawyers in such kind of proceedings. Though I wrote that post without actually attending in person any DRB proceedings, my opinions were based on the way in which everyone who is involved in it treated it, as an adjudicating process. My fears, in fact proved to be true beyond reproach as I got to attend one of the most hostile conciliation in my very limited experience. 

The problems in this particular DRB proceeding that I happened to involve myself are numerous. I can with a degree of certainty state that the same is the case with most other DRB proceedings in India. The fundamental problem is the mind-set that every person involved in the proceedings has towards the proceedings itself. As stated in my earlier post, lawyers contribute the most to this problem. Everyone involved in the proceedings thinks this merely as another box ticking exercise that has to be done before reaching the process of litigation, how much ever long drawn and adversarial it could be. This is no less because of the fact that none of the people who were involved in the process were either trained in the process or at least gone through the pain of reading the literature on this process. They essentially treated this like arbitration with a change in the nomenclature of certain things here, like an award in arbitration into recommendation. One of the important contributing reasons for this waywardness is the poor drafting of contractual clauses concerning the DRB. The contract that I was involved in, merely had two lines to the effect that the disputes should be first referred to a DRB and the process shall be governed by the ICC (International Chamber of Commerce) Dispute Board Rules. 

When to form?

The primary aim that is sought to be achieved through this conciliatory process is to solve any dispute in a commercial transaction as and when it arises and as amicably as possible. This has to be seen in the light of the fact that the whole concept Dispute Boards evolved as a solution for the problem of delay that happens frequently in the construction industry. To the contrary, in my case, the DRB process was initiated only after the whole project is over defeating the whole purport. In case the process is initiated post the completion of project, apart from the failure to resolve the disputes on time, it also results in a futile reconstruction of whole process again, wherein inevitably some muddling happens resulting in time and cost to the parties. A real time settlement more than settling the disputes helps preserving the relationship between the parties. An important reason for this mistake is because it has not been expressly mentioned in the contract, that the DRB has to be constituted at the beginning of the project, in order to continuously monitor the project and settle the disputes in real time.

Is It a Necessary Condition Precedent?

An interesting implication can be drawn if we suppose that a party bypasses the process completely and goes to litigate its claims. Though I was not able to find any Indian case law on this subject (Albeit it is a limited and indolent search of a lazy bone) I was able to find several American case laws, for the process has matured to a greater extent there. Two possibilities arise in such situations. One is where the claimant simply bypasses it and initiates litigation and another is where the other party simply insists upon the DRB proceedings to buy more time from litigation. The court (in BAE Automated Systems V. Morse Diesel International), as expected, ruled that, in the absence any legally justifiable reasons the process cannot be bypasses. The reasons can be waiver by one of the parties, fraud, estoppel etc. 

Appointment and Removal of Members

As in all conciliatory proceedings the integrity and impartiality of the person who is appointed as a member of the board is of utmost importance. It will be rhetoric to write about the code of conduct that a member of DRB must follow. In the proceedings that I happened to witness one of the members of DRB was visibly advocating the cause of the party who appointed him when the other party’s counsel made his oral presentation of his case. The reason could either be because he did not realise that it is a conciliatory proceedings and that he has to be impartial or because he is just a plain old jackass. The implications of such instances are very important, for any loss of confidence that a party has over the member will undermine the sanctity of overall process.

Applicability of Part III

I was curious after the incident, over whether the provisions of Arbitration and Conciliation Act, 1996, pertaining conciliation will be applicable in this case or not. It is given that it is a conciliation process; however it is still a creature of a contract. One possible reason can be that we cannot thrust in something which is not there already in the contract, with this essentially being a creation of the contract we cannot set it aside. However, Section 61 of the Act clears the air by defining its application and scope.

61. Application and scope - (1) Save as otherwise provided by any law for the time being in force and unless the parties have otherwise agreed, this Part shall apply to conciliation of disputes arising out of legal relationship, whether contractual or not and to all proceedings relating thereto. (2) This Part shall not apply where by virtue of any law for the time being in force certain disputes may not be submitted to conciliation.

I found an Indian case law that indirectly deals with the applicability of Part III of the act to the proceedings before DRB (Alcove Industries Ltd. Vs. Oriental Structural Engineers Ltd. [1]). The main issue in this case is the responsibility of an arbitrator to disclose in writing at the outset, such facts, which may give rise to justifiable doubts to his independence and impartiality. The arbitrator in this case, before being appointed as an arbitrator by the defendant company, worked as a member of Dispute Board, in respect of some works executed by respondent company. This fact was not disclosed when the appointment to the present arbitration proceedings were made. The court in order to explicate the bar of a conciliator (member of DRB in this case) referred to the provisions contained in Part III of the act. The judgement goes on to hold that section 80 of the act prohibits a conciliator from acting as an arbitrator or as a representative or counsel of a party in any arbitral or judicial proceeding in respect of a dispute that is the subject matter of the conciliation proceedings. Though these aspects are irrelevant for the present post, the important aspect that I can infer from this decision is the applicability of Part III of the act to the DRB proceedings. The decision, albeit indirectly, makes it clear that DRB proceedings are indeed governed by the provisions of the act.

Conclusion
Whatever is the form that the efforts for an amicable dispute resolution might take, it all ends up depending upon the intention and ability of the lawyers to best utilize the opportunity, more than the parties themselves, to settle the disputes in the most prudent way possible. The very intent of the process is defeated in most cases with things as basic as the tenor language that is used in the written communications. Without a fundamental understanding of such intricacies it is impossible for such efforts to succeed at any level. Moreover, in most cases with the resolution process being administered ad hoc without any institutional assistance, just like the case of arbitration, in India, the process loses its focus and the required streamlined approach without required expert assistance. The solution cannot be a something that can be done at the stroke of a pen. It requires some ideological acceptance of the process as a genuine alternative to settle the disputes. 

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[1] 2008 (1) ARBLR 393 (Delhi)

Dispute Boards: An Overview

In the legal universe dispute settlement is a never ending process that seeks constant attempts to innovate and try new mechanisms. This attains enormous significance in the case of India, given its infamous reputation for its long drawn judicial decision making process. Now that the economy of the country is making giant strides, the consequent increase in commerce needs for such innovations to be made in the alternative dispute resolution mechanisms to provide the entrepreneurs with a safe and effective decision making process to fall back upon. However, India has always been late in adopting such innovations. One example for that can be the Arbitration as an effective alternative dispute settlement process. It was not until the Arbitration and Conciliation Act, 1996 was passed that it was really seen as an effective solution to resolve the disputes. These days it has become an invariable standard for everyone to resort to arbitration to solve their disputes. Ignoring the harsh reality that in most of the cases the arbitral awards are challenged again the court giving raise to numerous litigations, rendering the whole intention of resorting to the arbitration in the first place ineffective, we still have to recognize the fact that it still provides a person a safe and effective dispute settlement process over which is both flexible and on time.

Arbitration as a dispute settlement process, however, comes into play only after a dispute arose and both the parties recognize that it has to be decided by way of a formal adjudication. Thus it still is a process that possesses the possibility to delay the projects, if it is an ongoing one. Moreover, the whole process is adversarial that it will not result in an amicable ‘settlement’. Though other dispute resolution mechanisms like mediation, conciliation do exist they still lack the actual engagement between the parties in real time to be effective to curb a problem as and when it arises. This role of providing a platform for the parties to realistically engage can be provided by the still budding concept of ‘Dispute Board’. Though the concept itself is not new, it is yet to attain the required traction in India. Major commercial contracts have just begun to include Dispute Board Clauses with reference to the International Chamber of Commerce (ICC) Rules.

Dispute Boards- An Overview

The International Chamber of Commerce defines a Dispute Board as standing bodies, comprising one or three members, normally set up at the outset of a contract to help parties resolve any disagreements and disputes that may subsequently arise during its performance. Under the ICC Dispute Board Rules three different types of Dispute Boards has been prescribed, giving the parties a choice to choose amongst them according to their own preference and convenience. They are

i)                    Dispute Review Boards (DRB), which issues recommendations

ii)                  Dispute Adjudication Boards, which issue decisions and

iii)        Combined Dispute Boards (CDB), which normally issue recommendations but may  issue decisions if a party so requests and no other party objects.

The classification is completely based on the binding nature of the decisions or recommendations that the parties wishes the Dispute Board to issue, where a decision must be complied with by the parties without any delay and a recommendation must be complied with only if no party expresses dissatisfaction within a prescribed time limit. Also it is free for the parties to make even the non-binding observations made by the board admissible as evidence in the court. Thus it is completely dependent upon the choice made by the parties over the nature and mandate of the Dispute Board.

An Ideological Hijack

The major advantage of this model of dispute resolution technique is that this is a ‘hands on’ approach that involves both the parties in a fair and transparent manner without any third party intervention, read lawyers. In India at least, I feel that, the reason for failure of arbitration and other dispute resolution methods is because they have been hijacked by lawyers. Yes, the involvement lawyers to a great extent as defeated the purpose of such alternative dispute resolution mechanisms. The very moment a lawyer gets involved in the process he brings with him all those unnecessary legalese that the process is designed to avoid. Of course, one can never refuse the necessity of involving a lawyer in certain unavoidable situations within these mechanisms, but the level of involvement has become too much for any meaningful outcome from these mechanisms.

The Dispute Boards on the contrary stands out with the difference that it seeks to involve the parties directly and its formation is, as mentioned earlier, is right at the outset of the project itself. The parties gets to appoint a member of their own in the board and the board will meet periodically to review the project as a whole, looking for any emerging issues between the parties to nip them in the bud. Thus this is proactive in its way of functioning. As far as involvement of the lawyers are concerned, the International Chamber of Commerce (ICC) Dispute Board Rules, which provides with a standard and uniform set of rules for the procedures before the dispute board, Article 19 (7) is the provision that is used as the entry ticket. It reads as follows

“The parties shall appear in person or through duly authorized representatives who are charge of the performance of the Contract. In addition, they may be assisted by advisors.”

The problem arises when the lawyers who involve themselves brings with them the uncalled for courtly atmosphere. Even with my very limited experience in dealing with this I was able to see this plainly. The fact that the parties feel a psychological discomfort when they do not have a lawyer around, even for a process as friendly as this only adds to the woes. Unless this still budding mechanism is rescued from the hands of lawyers like me by limiting their role only to the extent as an adviser the novel concept will definitely go wayward like others of our history.