10 June, 2015
A failure by one party to comply with the decision of a Dispute Adjudication Board (DAB) under a FIDIC (International Federation of Consulting Engineers) form of contract can be directly referred to arbitration, the Singapore Court of Appeal said last week.
A party's obligation to comply with a DAB decision can be immediately enforced, either in a separate arbitration or through a separate interim award within the same arbitration, the court said.
"This is important as it has finally clarified what a party is meant to do in practice to enforce a binding, but not final, DAB decision made in its favour," said Paris-based construction dispute resolution expert Frédéric Gillion of Pinsent Masons.
The decision was made as part of a long-running dispute between Indonesian company CRW and Indonesian state-owned gas supplier Perusahaan Gas Negara. CRW was contracted in 2006 to "design, procure, install, test and pre-commission" a gas pipeline in the country.
Over the course of the project a dispute arose over changes made to the scope of work CRW was asked to carry out under the terms of its FIDIC contract with PGN. FIDIC forms are the most widely used forms of contract in the construction, plant and design industries.
In 2009 the dispute was referred to the DAB. CRW won the right to immediate payment of more than USD 17m from PGN, but PGN appealed the decision.
The case has since gone back and forth between courts and a decision from the High Court in Singapore in 2014 failed to clarify the issue, Gillion said.
The High Court examined two possible approaches: a 'two-dispute' approach where the winning party begins a separate dispute solely on the other party's failure to comply with the DAB decision; and a 'one dispute' approach where the winning party goes to arbitration over both the failure to comply and the merits of the decision itself, at the same time, Gillion said.
The High Court ruled that the 'one dispute approach' was correct. However, Gillion said that this conclusion was incompatible with FIDIC.
"That approach was directly inconsistent with the FIDIC's direct intentions as to the enforcement of DAB decisions. Also, and more importantly, it contradicted the primary purpose of the FIDIC's security of payment regime, which is for the employer to 'pay now and argue later'. The one dispute approach unnecessarily complicates the enforcement of DAB decisions by forcing a party who may be satisfied with a decision to take the onerous and time-consuming step of bringing a fresh arbitration on the underlying dispute when, ultimately, all they want is to be paid the sums awarded," Gillion said.
The latest ruling by the Court of Appeal rejects the 'one dispute' approach, and confirms that a contractor can now go to arbitration solely on the employer's failure to comply with the DAB's decision – in this case, to pay the sum awarded.
"In my view, this approach is correct, and indeed it best advances the FIDIC security of payment regime by requiring the employer to pay immediately while still allowing the employer to contest the underlying merit of that obligation to pay at a later stage if it wants to do so," Gillion said.
The Court of Appeal relied on the FIDIC guidance memorandum of April 2013, which Gillion said the High Court had not taken into account in its 2014 decision.
At the time of the 2014 decision, international arbitration expert Mark Roe of Pinsent Masons said that the wording of FIDIC needed amendment to clarify the position in DAB decisions.
"The FIDIC wording badly needs amendment to clarify the position and until that amendment is made the uncertainty and cost surrounding enforcement of DAB decisions will continue," Roe said.
For further information, please contact:
Frédéric Gillion, Partner, Pinsent Masons
frederic.gillion@pinsentmasons.com
Mark Roe, Partner, Pinsent Masons
mark.roe@pinsentmasons.com
