UK: Enforcement Of Interim Binding Dispute Board Decisions

Last Updated: 1 July 2015
Article by John Wright

International construction projects frequently use an industry form known as the FIDIC Conditions of Contract. Although the contracts vary, the differences are not significant for the purposes of this article.

The FIDIC Conditions of Contract for Construction (where the design is undertaken by or on behalf of the Employer) are known as the "Red Book". In this contract, the standard form provides for the appointment at the outset of the project of a Dispute Adjudication Board ("DAB"). Although the DAB's prime function is to assist the parties in avoiding disputes, in some projects this is not possible and disputes are referred to the DAB either during the course of the carrying out of the project works or subsequently.

Clause 20.4 of the Red Book provides that the DAB's decision:-

"Shall be binding on both parties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award ..".

Clause 20.4 also goes on to provide that a party who is dissatisfied with the DAB's decision may, within 28 days after receiving the decision, give notice to the other party of its dissatisfaction. This is critical because if no Notice of Dissatisfaction ("NOD") is given, the contract provides that the decision becomes final and binding on the parties.

In summary, therefore, a party who is dissatisfied with the DAB's decision is well advised to give a notice within the 28 day period as otherwise it has no further recourse to challenge the underlying merits of the decision.

The successful party usually has a relatively simple task in enforcing a decision that has become final and binding and it is unnecessary to go into this procedure here. The problem has traditionally arisen where a NOD has been given and yet the losing party has failed to pay the amount ordered by the DAB's decision.

It can be seen immediately that the dispute resolution system set out in the FIDIC Suite of Contracts is unlikely to succeed unless there is a mechanism for the enforcement of decisions which are only temporarily binding and not final and binding. The English Courts have, ever since the advent of adjudication, been rigorous in their support of the adjudication process and have steadfastly refused challenges against enforcement unless there has been a serious breakdown in the procedure or the adjudicator has exceeded his jurisdiction.

The English Courts have also in October 2014 lent support to the use of Dispute Boards. In the case of Peterborough City Council –v- Enterprise Managed Services Limited the TCC Judge upheld a clause in a FIDIC contract mandating the resolution of disputes by a DAB despite one party wishing to proceed straight to litigation. The author was the DAB appointed by the nominating body and proceeded to determine the dispute.

Unfortunately, the same practical and commercial approach as found in the English Courts regarding adjudication and DABs generally has not generally been seen worldwide as regards the enforcement of DAB decisions.

Although there have over the years been a number of incidences where parties have sought to enforce temporarily binding DAB decisions reached under FIDIC contracts, these have generally been in arbitration and therefore unreported. There have been articles in the Construction legal journals regarding such cases but of course the facts are very rarely set out in full and a body of case law, similar to that which exists in England regarding the enforcement of adjudicator's decisions, has not been built up. The only case on enforcement of DAB decisions which has reached the Courts is the case in Singapore of PT Perusahaan Gas Negara (Persero) TBK –v- CRW Joint Operation ("The Persero Case").

Although the facts of the case are simple, the procedural history is extraordinarily complex and cannot be set out in full here. Suffice it to say that the Contractor ("CRW") obtained a decision from the DAB ordering the Employer ("PGN") to pay it sum US$17,000,000. PGN issued a Notice of Dissatisfaction very promptly and so the decision remained only temporarily binding. PGN refused to pay and in 2009 CRW applied to an Arbitral Tribunal for enforcement.

The first Arbitral Tribunal issued a final award and this was set aside both in the High Court of Singapore and the Court of Appeal on the basis that the Tribunal should not have granted a final award as that then precluded any discussion on the underlying merits of the DAB decision. The Courts said that the Tribunal should have issued only an interim or a partial award, which would have kept alive the debate on the merits of the facts and matters underlying the DAB decision which PGN was entitled to have if it so wished.

In 2011, CRW commenced fresh arbitral proceedings and a differently constituted Tribunal issued an interim award ("the 2011 Award") ordering payment of the sums contained in the DAB decision. CRW then applied to the High Court to enforce the 2011 Award against PGN, and in turn PGN sought to set aside the 2011 Award.

The High Court enforced the 2011 Award and PGN then applied to the Singapore Court of Appeal. The judgment of the Court of Appeal was delivered on 27 May 2015, but only by a majority of 2:1. Fortunately, amongst the majority was the Chief Justice, Sundaresh Menon CJ. It is, however, a measure of the strength of the dissenting judgment that whereas the majority judgment runs to 64 pages the dissenting judgment extends to no less than 96 pages. The majority judgment upheld the High Court's decision and enforced the 2011 Award.

The Court of Appeal emphasised that the DAB decision remained binding notwithstanding the issue of an NOD and the paying party must comply with the decision promptly. The challenge by PGN to the 2011 Award was rejected on the basis that PGN's right to have the underlying merits of the case determined either in the same or a separate arbitration was not prejudiced or affected at all by the 2011 Award which simply dealt with the payment of the sums in the DAB decision.

There was also some discussion as to whether it was necessary for the successful party under a DAB decision to refer any failure to pay back to the DAB before commencing arbitration proceedings. This, perhaps on the face of it slightly strange, result had been reached in some of the earlier arbitrations brought to enforce a DAB decision. The Court of Appeal made it clear that this was not necessary and that a successful party could refer the paying party's failure to honour the DAB decision to an Arbitral Tribunal and seek an interim or partial award enforcing that decision.

The very lengthy dissenting judgment was to the effect that the 2011 Award was a provisional award which was outside the ambit of an award capable of enforcement under the relevant Singapore legislation. Perhaps fortunately for the future of speedy determination of issues arising from DAB decisions, this view did not find favour with the majority.

It is now 6 years since CRW obtained the DAB decision but it appears that PGN may have now exhausted its attempts to avoid payment.

As someone who frequently sits as a DAB, the author welcomes the pragmatic approach adopted by the majority of the Singapore Court of Appeal and hopes that their reasoning will be adopted in other jurisdictions.

This may, in the event, only be a temporary problem. Not only has FIDIC proposed the adoption in its contracts of a specific set of wording making it clear that the failure to pay a temporarily binding DAB decision can itself be referred direct to arbitration, but also the new FIDIC Suite of Contracts is expected to include wording included in one of the most recent contracts which puts the matter beyond doubt.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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