Chartered Institute of Arbitrators
Birmingham Centenary Conference
What has history taught us in ADR?
Avoidance of Dispute!
By
Nael G. Bunni, BSc, MSc, PhD, CEng, FICE, FIEI, FIStructE, FCIArb, FIAE, FConsEI
It has been said that wherever there is human endeavour, there is conflict; a conflict of differing
interests, of needs, of opinion or simply a conflict of a desired outcome to a prior agreement.
The earliest record relating to conflict might be in the Book of Genesis, where we can read:
“But the Lord came down to see the city and the Tower the people were building. The
Lord said, ‘If as one people speaking the same language they have begun to do this,
then nothing they plan to do will be impossible for them. Come, let us go down and
confuse their language so they will not understand each other.’”1
Perhaps therefore, this was the first established charter for the riches of lawyers. Many others
were to come later, as it was an inevitable outcome that disputes arose as a result of contractual
arrangements, particularly in complex, unique and long-term projects such as those in
construction. Since the beginning of time, disputes have emerged and flourished, as the
passage above intimates, by the language used. So, too, have the methods of resolving those
disputes become evolved and developed throughout the centuries.
The provision of a fair method of dispute resolution became paramount to a party’s confidence
that a contract would be justly operated. Traditionally, arbitration has been used more
extensively in the West, whereas conciliatory methods have been more commonly favoured in
the East. Arbitrators, mediators and other dispute resolution facilitators were traditionally
chosen for their standing in their community and for their wisdom, with each being referred to
originally by the same word, as for example in Arabic.2 Amicable dispute resolution methods
historically have been more popular than litigation in the courts.
This trend has continued in more recent times, where we can read that Emperor Kang-hsi, one of
the greatest Manchu emperors who ruled China from 1661 to 1722, was a proponent of
arbitration as opposed to litigation and decreed:
“The Emperor, considering the immense population of the empire, and the great
division of territorial property and the notoriously litigious character of the Chinese,
is of the opinion that lawsuits would tend to increase to a frightful extent if people
were not afraid of the tribunals and if they felt confident of always finding in them
ready and perfect justice … I desire, therefore, that those who have recourse to the
courts should be treated without any pity and in such a manner that they shall be
1
“The Bible Book of Genesis 11:1-9”, The Tower of Babel, see the whole section for the sake of completeness.
The word “Hakam” was used for conciliators and arbitrators. See Verses 35 and 58 to 65 of Surah “Al-Nisa’ in the
Qur’an”.
2
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disgusted with law and tremble to appear before a magistrate …In this manner the
evil will be cut up by the roots; the good citizens who may have difficulties among
themselves will settle them like brothers by referring to the arbitration of some old
man or the mayor of the commune. As for those who are troublesome, obstinate and
quarrelsome, let them be ruined in the law courts; that is the justice that is due to
them.”3
In the international field, arbitration rather than litigation is still the most successful method for
resolving complex technical and high value international disputes, as it provides the ultimate and
finally enforceable solution. Internationally, the parties face a number of additional uncertainties,
problems, risks and fears. These range from having to deal with people of different cultures,
language, customs, laws and business practices to having to select foreign lawyers to deal with a
foreign judicial process about whose neutrality and independence the parties may have serious
doubts.4 Indeed it has been said, that international commercial arbitration provides an answer to
many of these issues, but most significantly in respect of the recognition and enforcement of
foreign awards through the 1958 New York Convention and other similar international arbitral
treaties. For that reason, arbitration has been chosen as the preferred forum for dispute
resolution in the international field and has been influential in facilitating international trade,
investment and economic development around the world for many years.
This being said however, in the 1980’s, with the availability and greater use of computer
technology and as disputes became more complex with escalating disputed sums, particularly in
the technology and construction sectors, some unhappy experiences in arbitration emerged
which diminished the effect of many of its advantages, not least the speed of resolution and cost
effectiveness. The emergence of computerized programming; the critical path programmes and
their analysis; the various methods of delay analyses, prospective and retrospective; global
claims and their acceptability under different legal systems; and issues of fitness for purpose,
imposed or implied, added to the cost of arbitrations. Particularly in respect of the issue of cost
effectiveness, from my own experience in my most recent ten arbitrations the costs of the
reference and award have varied from 2.58% to as much as 37% of the overall value of the
amounts in dispute, with an average of 12.75%.5
These issues were first felt in the United States and only later in Europe. In the United States, the
solution that was adopted was the introduction of what became known as the Dispute Review
Board, DRB – a form of Amicable Dispute Resolution, usually referred to by the acronym
‘ADR’, with the letter ‘A’ standing for alternative to litigation. However, the letter ‘A’ could
equally refer to appropriate, alternative, available, affable, agreeable, acceptable, or affordable,
3
The National Geographic Magazine, June 1927, p.661,662, brought to life from a paper by Professor Park …
“Arbitration of international commercial disputes under the auspices of the ICC”, Stephen R. Bond, Conference
Proceedings, Centre of Construction Law and Management, King’s College London, 1990.
4
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depending on the context of its use. Specifically dealing with DRB though, this is a board of
impartial and independent professionals established at the beginning of a project to follow the
progress of construction and to be available on short notice to visit the site to resolve disputes
for the whole duration of the project.6 Disputes are formally referred to the DRB for a hearing
and written recommendation(s), which are non-binding and presented in a written report. The
report typically includes an explanation of the DRB’s evaluation of the documents and facts, as
well as the reasoning that led to the recommendation. The success of the DRB process became
apparent through its use not only in underground construction, but also in highways; and in
heavy civil, process and building construction, throughout North America.
In Europe and internationally, this type of solution was not adopted until 1987 by the
International Federation of Consulting Engineers, FIDIC, in its standard form of contract, the
Fourth Edition of the Red Book, in the format of amicable settlement as a pre-requisite step to
arbitration. Sub-clause 67.2 of that contract provided that arbitration should not be commenced
unless an attempt was first made by the parties to settle the dispute amicably. A period of fiftysix days is allowed for such an attempt to be made, which may be extended by agreement of the
parties. This attempt towards amicable settlement was made obligatory for two reasons: firstly,
in order to eliminate any possibility that the party who starts the process giving the impression of
having a weak case; and the second to prevent any suspicion of under-hand pursuit.
The success of ADR has prompted many institutions to follow the example of FIDIC.7 It is of
note that in November 1996 FIDIC went a step further by the introduction within its Supplement
to the Fourth Edition of the Red Book, providing for the establishment of a Dispute
Adjudication Board that is in itself another form of ADR. The idea of the Dispute Adjudication
Board stems from the American DRB, but with adjudication resulting in a temporarily binding
decision rather than a recommendation.8 In 2008, since their use by FIDIC, Dispute
Adjudication Boards have been of immense advantage to the avoidance of disputes, and
particularly so when FIDIC further developed the role of Dispute Avoidance of the DAB by
introducing its Gold Book with its Sub-Clause 20.5. Many institutions developed rules for such
boards following on from the FIDIC Rules, such as the International Chamber of Commerce in
Paris and the Institution of Civil Engineers in London. In November 2014, The Chartered
Institute of Arbitrators issued its own Rules for Dispute Boards, DRB and DAB, which as in the
case of the ICC Rules, are intended for wider fields than construction, and in particular long
term contracts. The cost of using the DRB or the DAB procedures, from research carried out by
5
The figures are: 2.58%, 3.04%, 4.34%, 4.8%, 6.9%, 13.14%, 18.8%, 24.2%, and 37%. For a declaratory award,
the costs were Euro 3.79m.
6
The first project that used the DRB process was the Eisenhower Tunnel during the construction of the second
tunnelling bore in Colorado, USA.
7
The Institution of Civil Engineers in London introduced Conciliation Procedures in its Minor Works Contract
Form, first published in 1988. The success of that move prompted the introduction of such procedures in its
subsequent forms of contract.
8
The DAB Rules were first used in the Channel Tunnel project between 1987 and 1993.
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the DRBF is around 0.7% of the cost of the project which is a small fraction of the cost of
arbitration, with the further advantage of either avoiding the occurrence of a dispute or resolving
it within a much shorter period of time.
The idea of the use of a DRB was also picked up and developed in Hong Kong in 1991 to yet
another innovative solution with the use of The Dispute Resolution Adviser, DRA, on the
renovation of a hospital which included demolition and construction activities to be carried out
whilst the hospital remained operative, including its operating theatres. The DRA made monthly
visits to the Site to monitor the work being carried out and to facilitate discussions about
emerging issues. The DRA was expected then to propose the most appropriate method of dispute
settlement and make either a recommendation or a non-binding evaluation. If matters are not
resolved within a short period of time, the DRA would be expected then to set the motion for a
short form of arbitration.
In the United Kingdom, statutory adjudication in construction was introduced in 1996,9 a route
which was followed in various other countries, such as Australia, New Zealand and more
recently in Ireland with the introduction of the Construction Contracts Act 2013. In the United
Kingdom, it is widely believed that the adjudication process has achieved the success that was
envisaged. Following its introduction, the number of adjudications increased slowly, accelerated
to a peak after two years, fell back by 25% and has then leveled out. However, many feel that
this method of dispute resolution has also become a charter for the riches of some lawyers, with
many cases proceeding to the Technology and Construction Court.
However, an issue that should be borne in mind when discussing Adjudication or Dispute
Adjudication Boards is the problem of the enforcement of the decision of the adjudicator or the
DAB. This may ultimately impact on the attractiveness of the process, particularly, in the DAB
process, but let us hope for a solution in the very near future.
An interesting and a significant step towards the avoidance of conflict and therefore of disputes
rather than dispute resolution, was used in the contracts for the 2012 Olympic Games in
London.10 Two panels were formed at the commencement of the project. The first was an
Independent Disputes Avoidance Panel, IDAP, whose purpose was to identify problems before
they arose and then seek a solution before the problem evolved into a dispute. The second panel
was also set up to resolve any dispute that either was not spotted or avoided through the IDAP.
This latter panel was to implement the adjudication provisions prevalent in the jurisdiction. The
result we are told was extremely successful with very few disputes that went to adjudication and
none that went beyond. The process was a new approach to managing disputes. It required the
Client’s leadership; the establishment of two panels beyond reproach; each with set criteria to
9
The Housing Grants, Construction and Regeneration Act 1996.
“London 2012 Avoiding acrimony – A Client Perspective”, Marc Bryant, A paper presented at the DRBF
Conference in May 2013, in Paris. Also see the New Civil Engineer of 8 th April 2008.
10
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operate; and with proper risk sharing based on appropriate principles. Unfortunately, the process
has not been publicised and the details remain confidential to the parties that were involved.
As I see it, the current predicament or problem that is most prevalent today in arbitration is the
dramatic and unwarranted rise in the time and the cost that it takes to resolve a dispute through
arbitration. The recent Technology revolution where documents and communications are
increasingly becoming digital and virtual, have significant implications for conflict management.
As a primary means of communication between parties who perhaps are not only far away from
each other, but also within the same office, e-mail has become an indisputable element in
conflict management, when the conflict becomes a dispute that proceeds to adjudication or
arbitration. Electronic interchange is now an essential part of modern business transactions. The
vast amount of electronic data represents the greatest emerging challenge for parties in managing
disclosure or discovery of documents. Management of this aspect of any case is already one of
the more expensive activities in dispute resolution, particularly in litigation. I am told that as
soon as the process starts, the law firms involved deploy scores of paralegals and assistants,
billing long hours at high rates. Such a process has already become even more expensive with
the e-mail problem and has contributed to another charter for the riches of lawyers.
With this in mind, the future and continued success of arbitration as a form of dispute resolution
will depend on a number of factors. Firstly, the procedures to be followed must be managed
with efficiency and cost effectiveness.11 Secondly, the matters in dispute must be analysed with
logic and simplicity, following which decisions must be rendered with speed and exigency so as
not to cause either party any hardship, in time or indeed, and probably most importantly, in
money.12
However, in my opinion, it is more important for the industry to focus primarily on dispute
avoidance before focusing on dispute resolution. More effective management of the topic of
conflict and its transformation into a dispute, a topic that can be conveniently referred to as
disputology, must be based on avoidance rather than resolution. It is only then that we can
reduce the cost and time relating to conflict and ultimately reduce the cost of the project itself.
This can be done easily by advocating the use of Sub-clause 20.5 of FIDIC’s Gold Book in
combination of the method used for the 2012 Olympic Games Contracts, mentioned above. The
name of the appointed Board should then be changed to Dispute Avoidance and Adjudication
Board, DAAB and it is only then that some common sense can prevail on the escalating cost and
time due to conflict.
Nael G. Bunni,
11
“Techniques for controlling Time and Costs in Arbitration”, A Report from the ICC Commission on Arbitration,
ICC Publication no. 843, 2007.
12
See Articles 22 & 24 and Appendix IV of the 2012 ICC Rules for Arbitration.
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December 2014.
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