Dispute Board decisions in Honduras: Their practical and legal significance and their application in FIDIC contracts and ICC regulations.
Effective dispute management in construction projects and commercial contracts is essential for the success and smooth flow of operations. In this context, Dispute Boards (Expert Panels) emerge as a valuable tool for early and effective conflict resolution. These panels, composed of one to three impartial experts, play a crucial role by providing binding decisions that seek to prevent the escalation of disputes and ensure the continued progress of projects.Historical background of Dispute Boards in HondurasDispute Boards, outside the United States, have their first major historical precedent in Latin America, specifically in Honduras. A Dispute Resolution Committee (Dispute Board) was successfully implemented in 1980 as part of an international project carried out in Honduras, involving the construction of the El Cajón Dam and the corresponding hydroelectric plant. This project, supported in part by the World Bank, involved collaboration between an Italian contractor, a Swiss engineer, and an unusual owner: the Honduran electric company, which was facing its first foray into a project of such magnitude and with the unique feature of involving international contractors. The successful implementation of the Dispute Board in El Cajón marked a significant milestone, thus initiating the recurring use of these mechanisms in large-scale international projects.[1] Regulation of Dispute Boards in Honduran LegislationDispute Boards, despite being a relatively new entity, are regulated by Honduran legislation in the State Procurement Law and its regulations. The State Procurement Law, in its Article 3, paragraph (a), establishes that while the legal framework for public works contracts is administrative law,the expert panels(or Dispute Board) will be competent to hear disputes arising from the contract. Likewise, Article 14 of the Regulations of the State Procurement Law establishes that public works contracts will follow the hierarchical order of the regulations, firstly the Constitution of the Republic, followed by the international instruments relating to administrative contracting, in this case the Contracts (Fédération Internationale Des Ingénieurs-Conseils) by its acronym in French, which are a set of standard contracts commonly used in the construction and engineering industry internationally, which contain within their clauses the use of Dispute Boards, and which are endorsed by the World Bank and the Inter-American Development Bank. The above is reinforced by Article 95 of the General Provisions of the 2022 Honduras Budget, which establishes thatThe Dispute Resolution Board (MRD)to which Article 3-A of the State Procurement Law refers, is a dispute resolution body, formed by one or three (3) persons so designated in the Contract. For contracts with an initial contract amount equal to or greater than fifty million lempiras (L. 50,000,000.00), the contracting parties shall jointly appoint a Dispute Resolution Board (MRD) on the date established in the contract, in which the remuneration conditions of the sole member, or of each of the three (3) members, including the remuneration of any expert whom the Dispute Resolution Board (MRD) consults, shall be determined by mutual agreement between the contracting parties when agreeing on the conditions of the appointment. Each contracting party will be responsible for paying half of this remuneration, therefore, each State institution that in its Annual Procurement and Contracting Plan PACC plans to sign contracts for initial contracting amounts equal to or greater than fifty million lempiras (L.50,000,000.00), must make the provision of funds in the Expenditure Budget to make the corresponding payments.Practical/legal value of a Dispute Board's decisionDecisions issued by Dispute Boards, regulated in Honduras, contribute to dispute mitigation and promote a more equitable and collaborative contractual environment. In an increasingly complex business environment, understanding the impact and implementation of Dispute Board decisions is essential for parties involved in major projects, which is why the decision has significant practical and legal value in the context of a construction project. Although the nature and scope of the decision may vary depending on the contractual agreement, the value of a Dispute Board decision generally includes the following:
- Early dispute resolution:The DB is designed to address and resolve disputes early and effectively in the project, helping to prevent them from escalating into protracted litigation. This saves significant time and costs.
- Enforceability:In many contracts, the DB's decision is binding on the parties involved. This means that the parties are legally obligated to comply with the DB's decision. If one party refuses to comply, the other party can seek redress for breach before an arbitration tribunal.
- Avoid costly litigation:By providing an efficient and effective dispute resolution process, the DB can help avoid protracted and costly litigation that could arise from project disputes.
- Agility and experience:DB members are often subject matter experts and can issue decisions more quickly than courts. This allows for more expeditious dispute resolution.
- Maintaining the relationship:Early dispute resolution through the DB can help maintain a more positive and constructive working relationship between the parties, which can be essential in long-term projects.
Deadline for a Dispute Board to issue a DecisionThe timeframe for a Dispute Board to issue a decision arising from a dispute may vary depending on the regulations and specific agreements between the parties. In the context of contracts based on theFIDICRed Book (which is commonly used for construction projects), the timeframe for a Dispute Board (DB) to issue a decision is generally governed by clause 20.4. Under this clause, a DB has a responsibility to issue a decision within84 days from the date on which it receives the case in question, or within the period proposed by the Dispute Resolution Commission and approved by both Parties, so it is important to keep in mind that this specific timeframe may vary depending on the specific conditions stipulated in the Project Contract, as the parties involved can customize them. However,ICC (International Chamber of Commerce)In its Regulations on Dispute Boards, it establishes in its article 22 that the DB will issue its Conclusion promptly and, in any case,Within 90 days of the defined Start Date, i.e., the date of receipt of the Statement of Claim by the Sole Member of the DB or the Chair of the DB, as applicable, will be considered the start date for submission. However, the DB may extend this deadline with the agreement of the Parties.It is important to emphasize that the ICC Rules allow the parties to agree on specific deadlines for the issuance of Dispute Board decisions. These deadlines are usually part of the contractual terms and may vary depending on the agreement between the parties.Procedure to follow once the Dispute Board makes a Decision. FIDICOnce the DB makes a decision which must be justified and express that it is based on clause 20.4, the procedure to be followed according to the FIDIC Red Book is that the parties will comply without delay with the decision, which will be binding, unless and until it is modified in an amicable settlement or in an arbitration award, whereby the decision of a DB becomes effective.by the contractual agreement between the partiesIn a construction project, if a party fails to comply with this decision, it may subsequently be challenged in arbitration for compliance. Notice of Disagreement If either party disagrees with the decision of the Dispute Resolution Commission, that party may, within 28 days of receiving the decision, give a notice of non-compliance.Notification of Nonconformityto the other Party indicating its disagreement and its intention to initiate arbitration proceedings. This Notice of Disagreement shall state the subject matter of the dispute and the reason(s) for the disagreement. Neither Party is entitled to initiate arbitration proceedings for a dispute if a Notice of Disagreement has not been served pursuant to Sub-Clause 20.4. If neither Party serves a Notice of Disagreement within 28 days after receiving the decision of the Panel of Experts, the decision shall become final and binding on both Parties. Amicable Settlement Once a Notice of Disagreement has been served, both Parties shall seek an amicable settlement before initiating arbitration proceedings. However, unless both Parties agree otherwise, the Party giving the Notice of Non-Compliance may initiate arbitration after the fifty-sixth (56) day from the date of the Notice of Non-Compliance, even if no attempt has been made to reach an amicable settlement. Arbitration Thereafter, any dispute between the Parties arising out of or in connection with the Contract, not settled amicably and in respect of which the decision of the Dispute Resolution Commission (if issued) has not become final and binding, shall be finally settled by arbitration. Arbitration shall be conducted as follows: (a) for contracts with foreign contractors, arbitration shall be international:
- Administered by the institution nominated in the Contract Data and conducted under the arbitration rules of that institution; or, if so specified in the Contract Data;
- In accordance with the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL) or, in the event that no arbitration institute or the UNCITRAL arbitration rules are specified in the Contract Data, the proceedings shall be administered by the International Chamber of Commerce (ICC) and shall be conducted under the ICC Arbitration Rules; by one or more arbitrators appointed in accordance with such arbitration rules,
(b) For contracts with domestic contractors, arbitration shall be conducted in accordance with procedures established in accordance with the laws of the Contracting Party's country. It is worth mentioning that the above is also regulated in Article 17 of the Regulations of the State Procurement Law, which establishes the possibility of submitting disputes arising in the execution of public works contracts to arbitration.ICC RULES A Party disagreeing with a Decision must, within 30 days of receipt, submit to the other Party and to the DAB a written notice of disagreement.Such notice may specify the reasons for the Party's disagreement, without which the DAB may request the Party to briefly explain to it, as well as to the other Party, the reasons for its disagreement. If a Party submits such written notice expressing its disagreement with the Decision, it shall be finally settled by arbitration, if the Parties have agreed to it, or failing such agreement, by any competent court. Until the Dispute has been finally settled by arbitration or other means, or unless the arbitral tribunal or court decides otherwise,Any decision issued within the specified period must be complied with by the Parties.In conclusion, Dispute Boards represent a valuable tool in dispute management in construction and engineering projects. Through their preventative and decisive approach, these committees offer an efficient way to address and resolve disputes early, avoiding escalation into costly and lengthy legal proceedings. The authority of Dispute Board decisions, backed by the will of the contracting parties, contributes to maintaining the integrity and effectiveness of the process. However, although these decisions are binding, compliance can be undermined by various factors, such as lack of familiarity with the mechanism, disagreement with the resolution, or even a deliberate desire not to comply. It is essential to consider these aspects when implementing Dispute Boards, ensuring that confidence in the process is preserved and any potential challenges addressed to ensure the continued effectiveness of this valuable approach to dispute management. I hope this has been helpful in addressing some of your doubts and concerns about this topic. As professionals in construction law and alternative dispute resolution, we want to offer our services to assist you with any needs you may have in these areas. If you need advice or would like to learn more about our skills and experience, please do not hesitate to contact us. You can find me on our website www.lexincorp.com or send us an email atbzelaya@lexincorp.com, lcruz@lexincorp.comandinfohn@lexincorp.comIt will be a pleasure to work with you and help you achieve your goals. See you soon! *Legal Notice: The general information contained in this document is provided for informational purposes only and should not be construed as legal advice on any of the topics discussed. You should not act or refrain from acting on the basis of any content included in this document without seeking legal or other professional advice. We disclaim any liability for any actions you take or refrain from taking based on any content in this communication.[1]Jácome Carrera, JP (2021). How to use dispute boards effectively (Master's thesis, Quito). Written by: Luis Cruz, Lic.
