Introduction

Construction industry is a highly challenging industry. As we have already known, construction industry has
contributed to the nations GDP and is one of the main macro-economic indicators. It has helped many
other sectors of works and services by providing infrastructures, offices, houses, and even the job
vacancies. Despite this, construction industry is also a very complex industry which leads it to the possibility
of many disputes appearance. Construction industry can be a large, complex, high risk and multi-party
business. Disputes may arise from the failure of parties involved in the industry to identify and manage their
contractual relationships. Poor prepared contract, financial issues, late payment, delayed certificates, and
even communication problems may cause dispute in a project.
According to Oxford Dictionary, dispute is a misunderstanding between two parties, either contractual or
non-contractual but the fact is there is a misunderstanding between the two. While according to Brown et
al. (1993), a dispute is defined as a class or kind of conflict, which manifests itself in distinct and justifiable
issues. It involves disagreement over issues capable of resolution by negotiation, mediation or third party
adjudication.
The Nature and Challenges of Dispute Adjudication Board
The Malaysian Scenario
Seng Hansen
Master Student of Construction Contract Management UTM
Email: hansen_zinck@yahoo.co.id
According to Hellard (1987), dispute can be divided into four categories as follows:
1. Time related disputes (delayed processes)
2. Financial matters disputes (claims and payments)
3. Standards of workmanship disputes (designs and manual works)
4. Relationships and peoples conflict in the industry
In solving such disputes, we need some methods to deal with these disputes. Basically there are two ways
of dispute settlement, namely: 1) by litigation or judicial determination, and 2) by non-litigation or ADR.
ADR or alternative dispute resolution is processes other than judicial determination in which impartial
person assists those in a dispute to resolve the issues between them. There are many methods included in
ADR. One of them is adjudication. Adjudication is a process in which the parties present arguments and
evidence to a neutral third party who we called as the adjudicator, and then he makes a determination.
Once the adjudicator is appointed, they must remember that the settlement of a dispute is based on ex
aequo et bono or on the basis of equity.
Figure 1. Fishbone diagram showing all major root causes of construction dispute (Caleb, 2006)
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The Nature of Dispute Adjudication Board
In FIDIC Red Book 1999, there are two ways to resolute dispute besides going to litigation, i.e. adjudication In FIDIC Red Book 1999, there are two ways to resolute dispute besides going to litigation, i.e. adjudication
and arbitration. In serving this function, FIDIC then introduce the term DAB or Dispute Adjudication
Board, as the first attempt that should be taken by both parties if any dispute has arisen. FIDIC Red Book
1999 described DAB as the persons so named in the Contract, or other person(s) appointed under Sub-
Clause 20.2 [Appointment of the Dispute Adjudication Board] or Sub-Clause 20.3 [Failure to Agree Dispute
Adjudication Board]. Unfortunately the FIDIC Red Book 1999 itself does not define the term of dispute. We
can find the definition of dispute in FIDIC Conditions of Contract for Design, Build and Operate Project 2008
as any situation where (a) one Party makes a claim against the other Party; (b) the other Party rejects the
claim in whole or in part; and (c) the first Party does not acquiesce, provided however that a failure by the
other Party to oppose or respond to the claim, in whole or in part, may constitute a rejection if, in the
circumstances, the DAB or the arbitrator(s), as the case may be, deem it reasonable for it to do so.
Below are some natures of dispute adjudication board.
1. It is appointed early and can be conducted at any time
The DAB is appointed in short time after the commencement date of the project (not more than 28 days).
The DAB then has their role to settle any dispute arise during the construction period at any time.
2. It is a job-site process
The DAB is appointed by both parties. They will have to be present in the site and will start working soon to
identify any potential disputes during the construction period in the site.
3. It imposes a duty of adjudicators to act impartially
The DAB will have the same duty as the arbitrators to act impartially, even if the board member is
nominated by one party (as has been described in FIDIC, the board shall comprised either one or three
suitably qualified persons or the members. In case of three members, one party shall nominate one
member for the approval of the other party.
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4. Its decision is binding until the dispute is finally determined
The DABs decision is binding for both parties until the dispute is finally determined by way of litigation or
arbitration.
5. It enables the board to take the initiative
There must be no limitation to the power of the board. The contract must enable the members of the board
to able to ascertain the facts and the law.
6. It is a confidential process
Like arbitration and any adjudication processes, the DAB is also a confidential method of dispute resolution.
7. It can improve compliance of the contract time
8. It can lower costs due to the potential conflicts that can be avoided during the contract period
9. It can be very flexible with the project and time constraints for issuing decisions
10. It can improve the contractual relationship and create an atmosphere of cooperation and trust
11. The cost of DAB is usually equally shared by both parties
From the above explanation, it is clear that DAB serves as the method choosed by FIDIC to settle disputes.
There are some advantages and disadvantages of this method.
The advantages of DAB:
1. A decision when the contract needs it 1. A decision when the contract needs it
2. A decision by people chosen by the Parties
3. A decision at an early stage
4. The losing party cannot simply ignore the decision
5. Involving the decision makers
6. A well informed procedure
7. Identifying some issues before they become disputes
8. Less adversarial than arbitration
9. Less formal than arbitration
10. Shared cost
However, it can be very costly since we establish DAB at earlier stage of the construction period.
The Operation of Dispute Adjudication Board
Before we talk about the operation of DAB, it is much better if we talk briefly about the quality of the
members of DAB. The responsibility of DAB members is to resolve dispute in quick manner and fair justice.
Therefore, we need a well trained and experienced person to ensure the successful of DAB process.
However there is no detail requirements described in FIDIC regarding the quality of the members.
Figure 2. Typical Sequence of Dispute Events Envisaged in Clause 20
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Figure 2 shows us the typical sequence of dispute events as has been described in clause 20 of FIDIC Red
Book. The major difference between DAB and other ADR techniques is that the DAB is appointed early after
the commencement date of a project before any disputes arise and is actively involved throughout the
project. In order to ease the understanding of DAB operation, below is the flow chart of DAB operation
process.
Figure 3. Flow Chart of DAB Procedure
SOLE MEMBER
CONTRACT BASED ON FIDIC
PROJECT COMMENCEMENT DATE
APPOINTMENT OF DAB (20.2, 20.3)
THREE MEMBERS
CONTRACTOR EMPLOYER
DISPUTE ARISE (20.1)
DAB GIVES DECISION (20.4)
SATISFY WITH THE DECISION NOT SATISFY WITH THE DECISION
NOTICE OF DISSATISFACTION BINDING
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NOTICE OF DISSATISFACTION
AMICABLE SETTLEMENT (20.5)
INITIATE ARBITRATION (20.6)
ARBITRATION PROCEEDINGS
SATISFY WITH THE SETTLEMENT NOT SATISFY WITH THE SETTLEMENT
BINDING
From the above chart and figure, we can see that both parties in disputes should refer to the DAB first and
seek for the DAB decision. If one party does not satisfy with the decision, then he may submit a notice of
dissatisfaction. Less than 56 days after the submission of the notice, the parties are suggested to do an
amicable settlement. However, if there is no amicable settlement during this period, an arbitration
proceeding may be initiated.
There are two cases regarding the operation of DAB in construction contract. In the case of Mersing
Construction & Engineering Sdn Bhd v Kejuruteraan Bintai Kindenko Sdn Bhd & 3 Ors [2010] MLJU 1684,
the plaintiff was appointed by the 1
st
defendant as a subcontractor for a Pipe Jacking and Manholes
Subcontract for Petaling Jaya. The plaintiff was claiming from the 1
st
defendant RM914,110.55 for work
done under the subcontract to the Court. The 1
st
defendant contended that under item 14 of the Appendix,
all dispute must be referred to arbitration and therefore the claim should be referred to arbitration. The
plaintiff however submitted that the 1
st
defendant has failed to discharge their burden to show that there is
an arbitration clause in the document governing dispute between them.
The 1
st
defendant had only exhibited the Appendix to the Main Contract which was not yet signed by the
parties. It was further submitted by the plaintiff that even if the Appendix to the Main Contract is referred,
the procedure for settlement of dispute is to the DAB and not arbitration. The High Court gave a decision in
favour of the plaintiff. The 1
st
defendant appealed to the Court of Appeal. Held: the Appendix to the Main
Contract only makes reference to a Dispute Adjudication Board for settlement of dispute. There is no
reference of arbitration even though as pointed out by the 1
st
defendants counsel that in the FIDIC General
Conditions of Contract if the DAB is unable to resolve the dispute then it will be referred to arbitration. In
conclusion, the Appendix to the Main Contract only makes reference to a DAB for settlement of dispute.
There is no specific or express provision that the dispute will be referred to arbitration. While in the case of
PT Perusahaan Gas Negara (Persero) Tbk v CRW Joint Operation [2010] SGHC 202, the applicant (PGN)
and the respondent (CRW) entered into a contract under which PGN engaged CRW to design, procure,
install, test and pre-commission a pipeline running from Grissik to Pagardewa in Indonesia. The contract
adopted the standard FIDIC conditions (1st edn, 1999) (the 1999 Red Book) with modifications. There were
disputes between the parties about variations which were referred to a Dispute Adjudication Board (the
DAB). The DAB made several decisions. One, which was not accepted by PGN, was rendered on 25
November 2009 and ordered PGN to pay to CRW US$17,298,834.57. PGN submitted a notice of
dissatisfaction on 20 November 2008. On 13 February 2009 CRW filed a request for arbitration with the ICC
International Court of Arbitration claiming that PGN's refusal to pay had given rise to a 'second dispute'. The
hearing of the arbitration took place on 16 September 2009 and the majority of the members decided by a
decision published on 24 November 2009 that the DAB decision was binding on the parties and that PGN
had an obligation to make immediate payment to CRW under the contract. The majority held that the
argument that the Arbitral Tribunal should open up and review the decision was not open as a defence but
that PGN had a right to commence a separate arbitration to open, review and revise the DAB decision. PGN
sought an order that the majority award should be set aside pursuant to s 24 of the International
Arbitration Act and art 34(2) of the UNCITRAL Model Law on International Commercial Arbitration. It was
accepted that the DAB decision had not become final and binding because PGN had given a valid notice of
dissatisfaction but that it was binding within sub-cl 20(4). Held: for the reasons stated, the Majority Tribunal dissatisfaction but that it was binding within sub-cl 20(4). Held: for the reasons stated, the Majority Tribunal
had acted in excess of its powers given under the Arbitration Agreement. The application to set aside the
Majority Award was therefore allowed with the costs of the proceedings to be taxed if not agreed.
The Suitability of Dispute Adjudication Board for This Project
As in the case of Hoenig v Issacs (1952) 2 ALL ER 176, the contractor in the absent of any express or implied
provision in their contract for progress payments during the progress of work, he would not be entitled to
claim for their work done unless he has substantially completed the work. Therefore, in the absence of the
substantial completion, the contractor would not be able to claim for the work done or even on the basis of
quantum meruit.
This is not fair from contractors point of view. It is common and normal for the contractor to pursue his
claim for the work done or materials or services. However, the employer may also think that he has the
right to counter claim or set-off for the defective work, unfinished work, delayed completion, etc.
Therefore, if both parties have come into this kind of conflict, dispute may arise. Thus, a dispute is
unavoidable in construction industry. DAB appointed early so that they can identify soon this kind of dispute
rather than just wait until the dispute arise.
And below are some reasons why it is suitable for both parties to apply DAB in this kind of project.
1. For a project requiring a considerable amount of earth works, DAB may be the most appropriate because
they could visit the site on a regular basis and examine the physical conditions of the site and the work.
Therefore, if the contractor activities for earth work subject to the high risk of encountering unforeseen
conditions when preparing his tender, DAB may be the most appropriate.
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2. Earth work projects usually is to be subject to measurement, since there will be so many variations and
other matters which not finally determined in the contract. For projects which are subject to re-
measurement, DAB may be the most appropriate because they could visit the site on a regular basis and
therefore they understand about the sequence of variations (and both parties agreements regarding
payment) and be available if both parties agree to refer a measurement matter to the DAB.
3. If the project indicates a greater likelihood of disputes, DAB may be the most appropriate because they
are appointed early and will identify any potential disputes before they become a dispute.
4. For a project where both parties are not in the same nationality, as in the case of joint venture contractor
between Malaysia-Australian, DAB may be the most appropriate because they are based on international
basis which is FIDIC Standard Form of Contract.
Possible Difficulties of Implementing DAB in Malaysia
Adjudication is still a new mechanism of dispute settlement in Malaysia. DAB as one of the variant of
adjudication also has some challenges for it to be implemented in Malaysia. Below are some possible
difficulties or challenges of implementing DAB in Malaysian context.
1. Binding only if there is no notice of dissatisfaction
The Latin neatly expresses the principle reipublicae ut sit finis litium, that dispute resolution should indeed
be final, but subject to just a few exceptions. This however has made another problem of decision
enforcement. The losing party will usually try to refuse the decision by way of issuing notice of
dissatisfaction. This is common and usually happened. However, as in the case of Macob Civil Engineering
Ltd v Morrison Construction Ltd [1999] BLR 93, Dyson J decided on the enforcement of adjudicators
decisions. This decision approved by Court of Appeal and has enabled the adjudication system to function
smoothly. smoothly.
2. Amicable settlement (see clause 20.5)
The term amicable settlement is used in FIDIC and provides for both parties to try and achieve a negotiated
settlement. Once a notice of intention to commence arbitration proceedings has been issued, the parties
are given a period of time to settle the dispute amicably before the commencement of arbitration.
Traditionally, this is not effective in common law since the agreement in good faith could not be enforced.
However, in the case of of Petromec Inc v Petroleo Brasileiro (2005), it was held that an express provision
in a contract for good faith negotiations to take place can be enforced. Moreover, amicable settlement is
not a necessary precondition to arbitration as has been described in clause 20.5.
3. The local culture/the psychology of Malaysian construction industry
The local culture of Malaysian construction industry seems to be more resistance towards new methods.
DAB as a relatively new method of dispute settlement will also faced this challenge. Arbitration is still
considered as the best method of dispute settlement outside the court. DAB may be seen as extra expenses
that both parties should be paid.
4. Lack knowledge about DAB
Lack knowledge of DAB and lack experience in its use has become one of the possible difficulties in
implementing this method in Malaysia. There are only few cases regarding the implementation of DAB
decision, not like arbitration. The best way to solve this is through information dissemination: to educate
employers, contractors and professionals, and to spread the nature and benefits of the DAB.
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Conclusion
As in the case of arbitration, A & D. Maintenance and Construction Ltd v Pagehurst Construction Services
Ltd. Judge Wilcox quote that:
Had it been the intention of Parliament to limit the time wherein the party could give notice
of his intention to refer a matter to adjudication, in the exercise of his right under s108(1), it
could have imposed a clear time limit. Precise limits as to the appointment of adjudicators
and timetabling of the process of adjudication are set out in the Scheme. By contrasts there is
no such limitation under the Act or the Scheme as to when a notice of intention to refer a
matter to adjudication may be made, by analogy with arbitration provisions, there is clear
authority to proposition that those terms governing reference to arbitration survive the
determination of the contract.
From the above statement, we may conclude that the contract must allow adjudication as a dispute
settlement method to be used. DAB as has been described in the above, is actually a variant of adjudication
where both parties of contract agree to establish and appoint persons to be members of DAB. In doing their
practice, the DAB should follow the principles of natural justice and recognize the maxim of audi alteram
partem, let the other side be heard. Although it is relatively new in Malaysia, DAB may become more
important as a dispute resolution method in the next few years.
References
Axel, V.J. and Gtz, S.H., 2010. FIDIC A Guide for Practitioners. Heidelberg: Springer. Axel, V.J. and Gtz, S.H., 2010. FIDIC A Guide for Practitioners. Heidelberg: Springer.
FIDIC, 1999. Conditions of Contract for Construction (Red Book). Geneva: FIDIC.
Hua, T.Y., 2009. Application of Adjudication in Malaysia. M.Sc. (unpublished). Johor Bahru: Universiti
Teknologi Malaysia.
Loosemore, D.J., 2009. The Use of Dispute Boards Recent Experience. [online publication].
Rozilah, T., 2011. Dispute Review Boards in the Context of Malaysian Construction Industry. M.Sc
(unpublished). Johor Bahru: Universiti Teknologi Malaysia.
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