Federal Tribunal, 7 July 2014, 4A_124/2014
On 6 July 2014, the Swiss Federal Tribunal dismissed an application for setting aside a partial award reminding that, contrary to the Arbitral Tribunal’s decision, the dispute resolution procedure by the “Dispute Adjudication Board” (“DAB”) as per article 20 of the FIDIC is mandatory, but, in certain circumstances, may suffer exceptions.
In this case, a French law company and a Romanian State company entered into two contracts for restoration works of a national road.
Among the contractual documents were the general conditions applicable to construction contracts, 1st edition, 1999 of the International Federation of Consulting Engineers (“FIDIC”). In March 2011, the French company advised the Romanian company of its intention to bring a dispute to the DAB by proposing four candidates as potential members of the DAB.
In July 2012, as the DAB had still not been set up after 15 months, the French company filed a request for arbitration with the Secretariat of the International Court of Arbitration of the International Chamber of Commerce (ICC) from Paris.
The Arbitral Tribunal issued a partial award which accepted jurisdiction over the French company’s claim, declared it admissible and rejected the jurisdictional objections raised by the Romanian company based on the failure to comply with the DAB procedure contained in article 20 FIDIC General Conditions.
The seat of the arbitration being Geneva, the Romanian company brought an action for annulment of the partial award before the Swiss Federal Tribunal.
The issue was whether (i) the pre-arbitration phase set forth in the general conditions is mandatory and (ii) if so, what the legal consequences of the failure to comply with this procedural requirement are.
Without a body empowered to provide a harmonized interpretation of FIDIC conditions of contract, the Federal Tribunal proceeded to a meticulous interpretation of article 20 and the facts of the case:
- First, the Federal Tribunal noted the DAB system established by FIDIC was conceived above all with a view to constituting a permanent DAB throughout the execution of the contract and not an ad hoc DAB when the dispute arisen. The idea was to facilitate speed resolution of the disputes. However, in the present case, the DAB was ad hoc and its constitution was not subjected to any delay requirement.
- Then, the Federal Tribunal pointed out that the procedure to constitute the DAB had started 15 months before the French company filed its request for arbitration. The Federal Tribunal noticed that this delay “is a long time in the context of a dispute resolution mechanism supposed to be expeditious”;
- Finally, the Federal Tribunal noticed that paragraph 5 of Sub-Clause 20.2 of the general conditions requires the parties to enter into a Dispute Adjudication Agreement (“DAA”) with the three members of the DAB individually. The Federal Tribunal highlighted that “failing this, legal writing considers that there is no validly constituted DAB and that the only remedy a party has when faced with the others refusal to sign the DAA is to go arbitration directly”. In this case, since the parties failed to sign a DAA, no operational DAB was set up when the request for arbitration was filed.
The Federal Tribunal then dismissed the application for annulment of the partial award, stating that:
“Considering the process of constitution of the DAB, it is indeed impossible to blame the Respondent [the French Company] for losing patience and finally skipping the DAB phase despite its mandatory nature in order to submit the matter to arbitration”
In the present case, the Swiss Federal Tribunal reminded the mandatory nature of the DAB proceedings provided for by FIDIC Contracts, the breach of which leads to the inadmissibility of the request for arbitration. However, the Federal Tribunal specifically added that this rule could suffer from exceptions supposing that the particular circumstances of the case can authorize the parties to resort to arbitration.
The decision is available here.