16 June, 2015
Despite the increasing use of Dispute Adjudication Boards (DAB) in recent years, there has been considerable uncertainty as to the enforceability of decisions. In a recent judgment, the Singapore Court of Appeal has considered the extent of a party's obligation to comply with a decision of a DAB under a FIDIC (International Federation of Consulting Engineers) form of contract, and how that obligation can be enforced. In doing so, the Court of Appeal has also clarified the status of interim arbitral awards under Singapore's International Arbitration Act (IAA). The decision has important implications both for the construction industry and for arbitration practitioners, as we explains.
Introduction
In PT Perusahaan Gas Negara (Persero) TBK-v-CRW Joint Operation, the majority of the Singapore Court of Appeal ruled that a failure by one party to comply with a DAB decision under a FIDIC form of contract can be referred direct to arbitration. That aspect of the decision in itself will prove significant, both in Singapore and elsewhere, in clarifying the steps that should be taken. Moreover, in reaching its decision, the majority provided important guidance on the distinction between provisional, partial, interim and final awards, and their status under the IAA.
Background
In 2006, PT Perusahaan Gas Negara (Persero) (PGN) and CRW Joint Operation (Indonesia) (CRW) entered into a contract (based largely on the 1999 FIDIC Red Book) to design, procure, install, test and precommission a gas pipeline in Indonesia. They appointed a DAB to resolve disputes arising out of the contract and referred various disputes to it. In November 2008, the DAB made a decision in favour of CRW for an amount of USD 17.3m.
PGN issued a Notice of Dissatisfaction to contest the DAB's decision (meaning that, under the FIDIC form, the decision was considered "binding" but not "final and binding"), but did not refer the matter to arbitration or make payment. Accordingly, CRW initiated an arbitration to seek payment which, it contended, PGN was required under Clause 20.4 of the contract to make.
In its defence, PGN argued that Clause 20.6 required the arbitral tribunal to first decide on the merits of the underlying claim presented before the DAB, before making an award in respect of the matter. This was accepted by the High Court and the Court of Appeal in Singapore who refused to enforce the tribunal's award.
CRW then initiated a second arbitration in 2011. In this arbitration, CRW sought: (i) an order determining the merits of the underlying dispute; and (ii) an interim award for immediate payment of the amounts already awarded by the DAB.
The tribunal issued an interim award (the Interim Award) as sought by CRW, and the Singapore court allowed its enforcement. PGN challenged the enforcement order and sought to have the Interim Award set aside, first in the High Court (whose decision is discussed here), then – when unsuccessful – in the Court of Appeal.
PGN's key ground of appeal before the Court of Appeal was that the Interim Award could change once a decision on the merits was made. Since a non-final award would be contrary to Section 19B of the IAA, which is part of the law governing the arbitration, it would follow that the arbitration was not conducted in accordance with the parties' agreed procedure and that the Interim Award should be set aside.
The Court Of Appeal
The majority of the Court of Appeal dismissed PGN's appeal. The Interim Award was held to be a valid award under the IAA.
The Decision – Enforcement
The majority considered the provisions of the FIDIC form and held that Clause 20.4 imposes a distinct contractual obligation on a paying party to complypromptly with a DAB decision. This obligation, the majority held, is capable of being directly enforced by arbitration. Contrary to the earlier decision of the Court of Appeal, the majority considered that such an arbitration might be a stand-alone arbitration or, alternatively, an arbitration which also considered the underlying merits of the dispute.
The majority also opined that, in the case of an arbitration dealing with both a failure to pay and with the underlying merits, a tribunal can: (i) make an interim or partial award which finally disposes of the first issue (that is, whether the paying party has to comply promptly with the DAB decision); (ii) then proceed to consider the second issue (that is, the merits of the DAB decision), which is a separate and conceptually distinct matter; and (iii) subsequently, make a final determination of the underlying dispute between the parties.
The Decision – Interim Awards
In reaching its decision, the majority distinguished between, on the one hand, "partial" and "interim" awards (being, broadly, awards made during the course of proceedings that dispose of certain preliminary issues or certain claims for relief prior to the disposition of all the issues) and, on the other, "provisional" awards (being awards issued to protect a party from damage during the course of the arbitral process, such as awards preserving assets).
Partial and interim awards, the majority said, set out a tribunal's final determination on those issues with which they are concerned, and so qualify as "awards" under the IAA. In contrast, provisional awards are inherently capable of being varied or revoked by a tribunal, and so do not qualify as "awards" under the IAA. A provisional award cannot, therefore, be enforced as a judgment of the Singapore High Court.
The Court considered that Section 19B of the IAA operates to render the Interim Award final and binding as regards the particular issue which it decided, that is, PGN's obligation to make prompt payment of the amounts awarded by the DAB. The Tribunal did not (and could not, under the IAA) intend their conclusion on that issue to be varied, although they might subsequently render a decision on the merits of the underlying dispute. In that case, an account would have to be taken of the amounts due one way or another (including any payments made in respect of the Interim Award) but the Interim Award itself would not be varied.
Comment
For commercial parties entering into construction contracts, the majority's decision is helpful in clarifying that a failure by a party to comply with a DAB decision under the FIDIC Red Book can be referred direct to arbitration. That approach is consistent with guidance issued by FIDIC itself as to the intent of its adjudication scheme. Nevertheless, parties would be well advised to clearly specify in their contracts the process of enforcement of a DAB decision. We recommend that, if using the FIDIC Red Book, parties should amend the drafting to provide expressly that a failure to comply with a DAB decision can itself be referred to arbitration without referring the underlying dispute.
The decision also provides clarification on the status of an interim arbitral award — in particular, that an interim arbitral award is final and binding on the parties, and that an arbitral tribunal cannot decide any further on matters determined by that interim award. It is important for parties to bear this principle in mind when framing issues in arbitration, so as to ensure that a tribunal is not asked to go beyond its powers and vary or amend issues decided in an interim award.
For further information, please contact:
Rob Palmer, Partner, Ashurst
rob.palmer@ashurst.com
