Japan International Cooperation Agency (JICA) recently released its Dispute Board Manual to assist stakeholders in setting up dispute boards to resolve disputes relating to the implementation of Japanese Official Development Assistance (ODA) Loan projects, among others. JICA advocates the use of dispute boards, which have “proven to be a remarkably successful method of avoiding and resolving contract disputes without use of arbitration or litigation, often before completion of construction.”
The Manual discusses the Dispute Board required under Clause 20 of the Conditions of Contract for Construction (Multilateral Development Bank Harmonised Edition, 2010). The Dispute Board is considered an “essential member of the Contract team” whose purpose is “to assist the parties and the Engineer to prevent disagreements from becoming formal disputes.”
If the disagreement becomes a formal dispute, the Dispute Board may render a decision that is binding on the parties. The Dispute Board’s decision is immediately executory even if one of the parties decides to refer the dispute to arbitration pursuant to the contract.
The Manual suggests that for the Dispute Board to serve its purpose, it must be established at the beginning of the contract, before there are any disagreements between the parties. It should continue working until the Performance Certificate is issued and the “Defects Notification Period” has expired.
The Dispute Board may consist of one person, but for larger and more complex contracts, a Dispute Board composed of three members is recommended. The members of the Dispute Board shall be chosen by agreement of the parties, and the cost and expenses of its operations shall be borne by both parties.
To qualify as a member, one must be: (a) experienced in the type of work to be carried out under the contract; (b) experienced in the interpretation of contracts; (c) fluent in the stipulated language for communication, as provided in the contract; and (d) independent of both parties and must not have any ties to either of them and the Engineer.
Upon appointment of each member of the Dispute Board, the employer/project owner, the contractor, and the Dispute Board member shall execute a tripartite agreement which, among others, shall provide for the general conditions of the Dispute Board Agreement and the procedural rules to be adopted by the Dispute Board.
In performing its functions, the Dispute Board is authorized to conduct regular site visits, the first of which must be made as soon as the Dispute Board is constituted. Regular site visits shall be between 70 to 140 days apart and are intended to apprise the Dispute Board of the current status and progress of the works.
After each visit, the Dispute Board shall prepare a Site Visit Report. During the intervals between site visits, the Dispute Board may request from the parties any information regarding the contract, including contract documents, progress reports, variation instructions, certificates and other relevant documents.
At any time, the parties may request the Dispute Board to issue non-binding, informal opinions or recommendations regarding certain matters, which the parties may use in negotiating the settlement of contractual or performance concerns.
If any concern or matter is not amicably resolved by the parties among themselves, the issue may be referred to the Dispute Board for its decision. The Dispute Board will then require the parties to file written submissions and conduct a hearing. Once the Dispute Board decides the issue, its decision is binding on the parties and is immediately enforceable.
However, either party may give a timely Notice of Dissatisfaction with the Dispute Board’s decision, in which case the dispute will be referred to arbitration. Nevertheless, unless the arbitral tribunal rules otherwise during the arbitration, the decision of the Dispute Board remains binding and enforceable.
Judicial restraint in arbitrable disputes
Party autonomy is the defining feature of arbitration that distinguishes it from conventional litigation. Section 2 of Republic Act No. 9285 (2004) defines party autonomy as the freedom of the parties to make their own arrangements to resolve their disputes. Beyond its definition, party autonomy is best felt within the arbitral forum itself where the arbitrator, though capable of exercising the coercive powers of a judge over the parties, is nevertheless guided and bound by the terms of reference that the parties themselves helped shape.
When the Special Rules of Court on Alternative Dispute Resolution (A.M. No. 07-11-08-SC, or SADR) became effective four years later in 2009, the concept of party autonomy was enhanced. As originally formulated in Section 2 of RA 9285, it was declared “the policy of the State to actively promote party autonomy in the resolution of disputes or the freedom of the parties to make their own arrangements to resolve their disputes.” To this, the SADR adds, “… with the greatest cooperation of and the least intervention from the courts.” As expressed in Rule 2.1 of the SADR, the provision now reads: “It is the policy of the State to actively promote the use of various modes of ADR and to respect party autonomy or the freedom of the parties to make their own arrangements in the resolution of disputes with the greatest cooperation of and the least intervention from the courts…”
From RA 9285 in 2004 to the SADR in 2009, what is observable is the refinement of the concept of party autonomy with the introduction of the policy of judicial restraint. The prescription for “the greatest cooperation of and the least intervention from the courts” is not a motherhood statement. There are several other provisions in the SADR where the policy of judicial restraint is imposed by affirmative provisions.
Rule 2.2 of the SADR recognizes the principle of competence-competence, which means that the arbitral tribunal may initially rule on its own jurisdiction, including any objections with respect to the existence or validity of the arbitration agreement or any condition precedent to the filing of a request for arbitration. In implementing the principle of competencecompetence, Rule 2.4 of the SADR provides that “[t]he arbitral tribunal shall be accorded the first opportunity or competence to rule on the issue of whether or not it has the competence or jurisdiction to decide a dispute submitted to it for decision, including any objection with respect to the existence or validity of the arbitration agreement. When a court is asked to rule upon issue/s affecting the competence or jurisdiction of an arbitral tribunal in a dispute brought before it, either before or after the arbitral tribunal is constituted, the court must exercise judicial restraint and defer to the competence or jurisdiction of the arbitral tribunal by allowing the arbitral tribunal the first opportunity to rule upon such issues.”
As Rule 2.4 indicates, a court may be confronted with an issue on the arbitral tribunal’s jurisdiction either before or after it is constituted.
Before the arbitral tribunal is constituted, in fact even before the arbitration commences, the policy of judicial restraint is already in effect. Rule 3.3 of the SADR provides that at any time prior to the commencement of arbitration, a party may file a petition for judicial determination of the existence, validity and/or enforceability of an arbitration agreement. At this point, the court is the only existing dispute resolution forum that can rule on the existence, validity and/or enforceability of an arbitration agreement, for the obvious reason that the arbitral tribunal is still inexistent. Yet, although Rule 3.5 of the SADR recognizes that the court may rule that the arbitration agreement is, under the applicable law, invalid, void, unenforceable or inexistent, Rule 3.8 in relation to Rule 2.4 of the SADR expressly provides that, under the policy of judicial restraint, the court must make no more than a prima facie determination of that issue. In the absence of a prima facie ruling that the arbitration agreement is null and void, inoperative or incapable of being performed, the court is duty-bound under Rule 2.4 to “suspend the action before it and refer the parties to arbitration pursuant to the arbitration agreement.”
The ruling of the court is prima facie because Rule 3.11 of the SADR recognizes the right of any party to resurrect the issue of the existence, validity and enforceability of the arbitration agreement before the arbitral tribunal or the court in a subsequent action to vacate or set aside the arbitral award. This is something novel in the Philippine legal system – a panel of private individuals constituted as an arbitral tribunal passing upon the ruling of a court of justice.