Singapore: Dispute Adjudication Or Avoidance Board Decision Under The 1999 FIDIC Red Book

Last Updated: 14 October 2016
Article by Eugene Tan

In PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2015] 4 SLR 364 (SGCA) ("Perusahaan"), the Singapore Court of Appeal confirmed that interim awards made under Singapore's International Arbitration Act ("IAA") are final and enforceable. Notably, that an interim award based on a binding but non-final dispute adjudication or avoidance board ("DAB") decision made under the 1999 FIDIC Red Book Conditions of Contract for Construction (the "Red Book"), is final and enforceable.

The decision is also significant as it confirms that a DAB decision made under the Red Book must be complied with, and promptly, thereby reinforcing the "pay now, argue later" principle central to the DAB procedure. In this regard, the Singapore Court of Appeal clarified that any failure to comply with a binding but non-final DAB decision may be referred directly to arbitration without having to first attempt amicable settlement and/or allowing the period for amicable settlement to lapse. If the arbitral tribunal subsequently overturns the DAB decision, an account of money would be made, such that any overpayment or underpayment in the interim award based on the DAB decision, would be dealt with in the final award.

Brief background

The subject matter of the Singapore Court of Appeal's decision in PT Perusahaan Gas Negara (Persero) v CRW Joint Operation (Indonesia) [2015] SGCA 30 ("Perusahaan") related to a dispute that had arisen between PT Perusahaan Gas Negara ("Persero") and CRW Joint Operation (Indonesia) ("CRW"). The dispute had arisen from variation claims made by CRW under a 1999 FIDIC Red Book contract ("Contract") for the design, procurement, installation, testing and pre-commissioning of a pipeline to convey natural gas from South Sumatra to West Java, Indonesia. CRW referred the matter to the DAB constituted under the Contract, which decided that PGN was to pay approximately USD 17.3 million to CRW ("DAB Decision").

Despite the fact that the Contract contained a provision requiring PGN to comply with the DAB Decision, it refused to do so. A plethora of arbitral and court appeal proceedings followed. Essentially, CRW pursued enforcement of the DAB Decision through arbitration, and thereafter attempted to enforce the subsequent arbitral awards in the Singapore Courts as PGN continually refused to comply with the DAB Decision.

In 2011, after the High Court and Court of Appeal had set aside a previous arbitral decision, which required PGN to comply with the DAB Decision, CRW returned to arbitration, seeking two awards:

  • First, an interim or partial award permitting it to enforce the DAB Decision against PGN; and
  • Second, a final award for the sums determined in the DAB Decision (i.e. dealing with the Primary Dispute).

CRW successfully argued the first ground, and the tribunal issued an interim award compelling PGN to comply with the DAB Decision (the "Interim Award"). CRW obtained leave from the High Court to enforce the Interim Award against PGN, and in response, PGN applied to the High Court to set aside the award (PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (Indonesia) [2014] SGHC 146).

In the High Court, the positions of the parties were as follows:

  • PGN argued that the Interim Award was a "provisional" award intended to have finality only until the arbitral tribunal had rendered an award on the merits of the DAB Decision, and that section 19B of Singapore's International Arbitration Act (the "IAA") did not permit such provisional awards. PGN, therefore, asserted that the arbitral tribunal did not have the power to award such provisional relief.
  • In response, CRW asserted that the Interim Award wasnot "provisional", but final and binding pursuant to section 19B(1) of the IAA. CRW argued that this was particularly so when read in conjunction with the terms of the Interim Award, which stated that it was final and binding "pending the final resolution of the [merits dispute] raised in these proceedings". CRW went on to argue that the arbitral tribunal's eventual final award (in respect of its decision on the substances and merits of the DAB Decision) would not vary or otherwise affect the final and binding nature of the Interim Award because it would determine (and would be final and binding in respect of) a different dispute, being the merits dispute.

The High Court agreed with CRW, deciding that the Interim Award was final and binding under section 19B of the IAA, that being, CRW's undisputed substantive right to be "paid now" and PGN's substantive obligation to "argue later". Consequently, the Interim Award acknowledged that CRW's substantive right to be paid promptly, was final. It did not require that other aspects of the dispute be resolved with finality. PGN appealed the High Court's decision.

The Court of Appeal decision

Essentially, PGN's case followed a similar vein as in the High Court, essentially consisting of two arguments.

  • First, PGN argued that the Interim Award was inconsistent with s 19B of the IAA on the basis that both CRW and the arbitral tribunal in 2011 envisaged that it would be "subject to future variation" (see paragraph 26). PGN asserted that CRW essentially sought only one relief in those arbitral proceedings, being to enforce the DAB Decision, and that it never intended for the Interim Award to finally resolve the merits dispute arising under the DAB Decision; indeed, PGN considered that CRW was aware that any interim award made could subsequently be varied by the final award on the merits; and
  • Second, PGN argued that the effect of Clause 20.4 of the Contract was so that the DAB Decision ceased to be binding as soon at the tribunal made any award on the merits of the DAB Decision. As the tribunal had made certain findings on the merits of the DAB Decision in a subsequent partial award, PGN considered the DAB Decision no longer binding.

The Court of Appeal rejected PGN's first argument, finding that Clause 20.4 of the Red Book imposed "a distinct contractual obligation on the parties to comply promptly with a DAB decision once it is issued". It found that CRW had a separate substantive right to enforce the DAB Decision whether the DAB decision was final and binding or merely binding but non-final. The fact that the Tribunal subsequently still needed to review the DAB Decision and determine whether it ought to be opened up and revised did not have the effect of varying the Interim Award. Under section 19B of the IAA, the Interim Award would be final and binding and PGN had to comply with the DAB Decision.

The Court of Appeal also rejected PGN's second line of argument. It found that it was not commercially sensible to read Clause 20.4 to have the effect of a DAB Decision ceasing to be binding once the tribunal made any determination on any aspects of the merits of the parties underlying dispute. The key point was that the Interim Award was a final decision and could be enforced against PGN on its terms save only where there were grounds to set it aside or resist enforcement. The Interim Award required PGN to make prompt payment of the DAB Decision. This obligation remained valid and binding regardless of any subsequent award on the merits of the underlying dispute.

Separately, the Singapore Court of Appeal explained that any failure to comply with a binding but non-final DAB decision may be referred directly to arbitration without having to first attempt amicable settlement and/or allowing the period for amicable settlement to lapse under the terms of the Red Book. If a party fails to comply with a DAB decision, the counter-party may therefore immediately apply for a final award to enforce the DAB decision, or request an interim award from an arbitral panel requesting that the decision be enforced, separately from its request for a final award on the merits of that DAB decision.

If the merits of the underlying dispute had been finally resolved (which in this case, they had not), and the outcome was an amount different from the DAB Decision, it was the parties' obligation then to resolve the state of the final accounts. The fact that this accounting exercise subsequently needed to be carried out did not by itself render the Interim Award invalid or unenforceable.

Comments

The Court of Appeal's decision in Perusahaan will no doubt be welcomed for those involved in international projects in Singapore or under Singaporean law. For one,it confirms the final and binding nature of an interim arbitral award issued under Singapore's international arbitration legislation, echoing Singapore's continued support for arbitration, whether domestic or international. For those carrying out operations under a FIDIC contract, the decision in Perusahaan is significant because it clarifies the obligation to pay DAB decisions promptly, thereby encouraging the security of payments under FIDIC contract.

The Court of Appeal's explanations of the operation of Clause 20 of the 1999 Red Book sheds light on the doubts arising under that provision. Namely, it confirms that a party required to pay an amount in accordance with a DAB decision under those Conditions of Contract must do so promptly. The DAB procedure is intended to resolve disputes in the first instance, the resolution of which may be subjected to arbitral review at some later stage, and that any decision made by the DAB must be complied with. Therefore, DAB decisions under FIDIC are binding, but not final, where a notice of dissatisfaction is given within the contractually stipulated timeframe.

Any failure to comply with a binding but non-final DAB decision may be referred directly to arbitration without having to first attempt amicable settlement and/or allowing the period for amicable settlement to lapse. If a party fails to comply with a DAB decision, the counter-party may therefore immediately apply for a final award to enforce the DAB decision, or request an interim award from an arbitral panel requesting that the decision be enforced, separately from its request for a final award onthe merits of that DAB decision. Under section 19B of the IAA, that interim award (such as the Interim Award in Perusahaan) would be final and binding in respect of its declaration that the recalcitrant party comply with the DAB decision. Although a party may challenge the merits of the DAB decision in the same arbitration, the interim award stands as a final and binding arbitral award. If the arbitral tribunal subsequently overturns the DAB decision in its final award, an account of money would be made, such that any overpayment or underpayment in the interim award based on the DAB decision, would be dealt with in the final award. This is in line with FIDIC's views expressed in the FIDIC Guidance Memorandum (2013).

The decision therefore reinforces the "pay now, argue later" principle that is crucial to the success of DABs under the FIDIC suite of contracts in resolving disputes and ensuring the security of payment on large international projects. The Singapore Court of Appeal's decision gives full practical effect to Clause 20 of the Red Book. The winning party of a DAB decision no longer faces uncertainty, in Singapore at least, as to whether they can promptly enforce an arbitral award ordering prompt compliance with a DAB decision.

Given the Singapore Court's clarification in Perusahaan, it would be wise for parties who use the Red Book regularly, to consider nominating Singapore as the choice of law, venue and seat of the corresponding arbitration agreement.

Dispute Adjudication Or Avoidance Board Decision Under The 1999 FIDIC Red Book

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Eugene Tan
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.