Projects & Construction
In this article, we consider the risks of failing to amend the FIDIC 1999 Short Form of Contract in Tanzania, which prescribes adjudication as the first step of the dispute resolution process.
Adjudication as a method of dispute resolution is something that is familiar to the construction industry globally. Indeed, a number of the most commonly used standard form contracts contain provisions requiring adjudication as the first stage in the mechanism of dispute resolution prior to the commencement of any litigation or arbitration proceedings.
However, in Tanzania adjudication is at a comparatively early stage of development for the judiciary and the wider construction industry. Unlike an arbitration award, an adjudicator's decision is not enforceable, in its own right, in the courts of Tanzania.
This has led the construction industry in Tanzania to adopt an approach of deleting the adjudication provisions from the respective construction contracts, with a reliance instead placed on what are seen as more conventional methods of dispute resolution, namely, arbitration and litigation. The issue arises however if these provisions are not deleted from the contract when it is negotiated and this can become a particularly acute problem in relation to the standard form FIDIC 1999 Short Form of Contract or 'Green Book', which is relatively popular in Tanzania and across Africa.
The FIDIC Green Book is a form of contract that is primarily intended for use on smaller construction projects that are anticipated to be completed within a relatively short period. The contract is also intended for use on projects that do not require a great deal of contract administration and where the risk levels are low. However, the Green Book has been used on larger projects for a longer duration in certain jurisdictions and is popular due to its simplicity.
The Green Book makes the use of adjudication a condition precedent to arbitration. The contract requires the parties to refer any dispute or difference that is not settled amicably to adjudication. The adjudicator will then make his or her decision in accordance with the rules of adjudication that are incorporated into the contract.
If either party is dissatisfied with the decision of an adjudicator, then that party may serve a notice of dissatisfaction within 28 days of the date of the adjudicator's decision. Provided such a notice is served then the dispute can be referred to arbitration. However, if no notice is served within that period, then the adjudicator's decision becomes final and binding on the parties. The only route to arbitration under the Green Book is therefore by serving a notice of dissatisfaction against the decision of an adjudicator.
However, what happens if you are a party where the adjudicator's decision is entirely in your favour but the other party refuses to comply with the decision? As discussed above, in Tanzania you cannot take the decision of the adjudicator to the courts and attempt to enforce it. As such, as a party holding the favourable decision of an adjudicator, you also cannot commence arbitration to obtain an enforceable arbitral award because you are barred from doing so without first issuing a notice of dissatisfaction, which you will have no grounds for issuing with the adjudicator's decision entirely in your favour.
There is a risk that this therefore becomes somewhat of a black hole for such a party – with it holding a decision in its favour that it seemingly cannot enforce. This is in addition to the fact that the party will have already experienced a delay in resolving the dispute or obtaining monies that are owed to it by having to proceed through an adjudication process that is meaningless.
This issue highlights the importance of carefully considering a contract before entering into it. The easiest route of avoiding such a situation is to amend the standard form contract, either by deleting the adjudication process entirely or including a provision dealing with the event where the other party does not comply with the decision of an adjudicator. It is likely that in Tanzania, due to the unenforceability of an adjudicator's decision, parties will simply adopt the approach of deleting the adjudication provisions and amending the contract accordingly.
It should be noted however that FIDIC, in its recently published 'FIDIC Golden Principles', stated that adjudication was a golden principle of its contracts and if the procedure was deleted the contract would no longer ostensibly be a FIDIC contract. The importance of this is unclear in terms of how the contracts are considered by the courts but it is something for parties to bear in mind when amending the contracts also.
However, there are other potential routes out of the situation set out above, with the simplest being for the party holding the adjudicator's decision in its favour to find a reason to issue a notice of dissatisfaction. We have seen this employed by various parties and there are a number of "creative" ways that such a notice could likely be drafted, inevitably however this would be on a case-by-case basis. It is likely that one of the most straightforward and reliable methods for this will simply be for a party to claim all its costs, which are unlikely to have been awarded in full by the adjudicator.
There is another route available in Tanzania which involves filing a civil claim in the Tanzanian courts after obtaining the adjudicator's decision. In filing such a claim, the adjudicator's decision will not go through the conventional methods of enforcement, such as that of an arbitration award which involves filing the award in court for registration. A party can however, commence civil proceedings against the losing party using the decision of an adjudicator as the basis of the claim. This approach will involve a party establishing and proving a claim in a civil court against the losing party in an adjudication. The same approach has been used in relation to parties seeking to enforce foreign judgements from countries that do not fall under the Tanzanian legislation for reciprocal enforcement of foreign judgments.
The above highlights the importance of parties carefully considering the contract that they are entering into and how each provision will work in practice. In relation to the Green Book in Tanzania however, it also highlights the importance of amending the dispute resolution provisions of the contract so as to provide a contractual route out of being stuck with an adjudicator's decision that is difficult to enforce.