CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK

• Jurisdiction: Singapore
• Judgment Date: 13 July 2011
• Date: 13 July 2011
• Docket Number: Civil Appeal No 59 of 2010 (Summons No 4970 of 2010)
• Court: Court of Appeal (Singapore)

CRW Joint Operation

Plaintiff

and

PT Perusahaan Gas Negara (Persero) TBK

Defendant

[2011] SGCA 33

Chao Hick Tin JA

,

Andrew Phang Boon Leong JA

and

VK Rajah JA

Civil Appeal No 59 of 2010 (Summons No 4970 of 2010)

Court of Appeal

Arbitration—Award—Final award—Recourse against award—Setting aside—Arbitral tribunal's powers—Whether arbitral tribunal acted in excess of its powers by rendering final award without considering merits of parties' disputes—Article 34 (2) (a) (iii) UNCITRAL Model Law on International Commercial Arbitration

Arbitration—Award—Final award—Recourse against award—Setting aside—Breach of rules of natural justice—Whether party provided with proper opportunity to present its case—Section 24 (b) International Arbitration Act (Cap 143 A, 2002 Rev Ed) and Art 18 UNCITRAL Model Law on International Commercial Arbitration

Arbitration—1999 FIDIC Conditions of Contract for Construction (1 st Ed, 1999) —Effect of valid notice of dissatisfaction—Decision of dispute adjudication board—Binding but not final—Role of arbitration tribunal constituted—Need to examine merits before final decision was made

Words and Phrases—‘Final’—‘Binding’—1999 FIDIC Conditions of Contract for Construction (1 st Ed, 1999)

The parties entered into a contract for the construction of a pipeline and optical cable fibre network in Indonesia. The contract adopted, with certain modifications, the 1999 FIDIC Conditions of Contract for Construction (1 st Ed, 1999) (‘the 1999 FIDIC Conditions of Contract’) . A dispute arose between the parties and this was referred to a single-member dispute adjudication board (‘DAB’) in accordance with the 1999 FIDIC Conditions of Contract.

The DAB decided that PGN owed the sum of US$17,298,834.57 to CRW, in excess of the US$13,955,634 claimed by CRW. Dissatisfied with the DAB decision, PT (Perusahaan Gas Negara (Persero) TBK (‘PGN’) submitted a notice of dissatisfaction (‘NOD’) while CRW Joint Operation (‘CRW’) issued an invoice to PGN for US$17,298,834.57. PGN rejected the invoice on the basis that the DAB decision was not final and binding under the 1999 FIDIC Conditions of Contract as it had filed a NOD.

As the parties could not reach a settlement pursuant to sub-cl 20.5 of the 1999 FIDIC Conditions of Contract, CRW filed a request of arbitration under sub-cl 20.6 purportedly for the sole purpose of enforcing the DAB decision. On the other hand, PGN submitted, inter alia, that CRW's request for prompt payment should be rejected as the DAB decision was not yet final and binding. It argued that the arbitral tribunal (‘the Arbitral Tribunal’) was required to open up, review and revise the DAB decision pursuant to sub-cl 20.6.

Subsequent to a preliminary meeting, the Arbitral Tribunal issued a direction that a preliminary hearing would be held to determine, inter alia, whether CRW would be entitled to immediate payment and whether PGN was entitled to request the Arbitral Tribunal to review the DAB decision. Under the terms of reference, the Arbitral Tribunal was conferred an unfettered jurisdiction to adjudicate on all matters in dispute between the parties and was empowered to make partial or interim awards if necessary.

After the preliminary hearing, the majority members of the Arbitral Tribunal (‘Majority Members’) issued a ‘Final Award’, deciding that PGN was required to make immediate payment to CRW of the sum decided by the DAB and that it was not entitled to request for a review of the DAB decision. However, the Majority Members reserved the right of PGN to commence subsequent arbitration to review the DAB decision. On the other hand, the dissenting member of the Arbitral Tribunal considered that a re-examination of the DAB decision was necessary and it was imperative to carry out a site visit to understand the actual condition of the construction project.

PGN filed an application to set aside the Final Award. The High Court Judge granted the application on the basis that the Final Award was contrary to Art 34 (2) (a) (iii) of the UNCITRAL Model Law on International Commercial Arbitration (‘the Model Law’) . However, PGN's submissions based on the rules of breach of natural justice and Article 34 (2) (a) (iv) of the Model Law were rejected. Dissatisfied with the decision, CRW appealed.

Held, dismissing the appeal:

(1) While the court should not, without good reason, interfere with the arbitral process by setting aside arbitral awards, it would not hesitate to do so if a statutorily prescribed ground was clearly established. An arbitral award might be set aside based on the three broad categories of jurisdictional grounds, procedural grounds or substantive grounds: at [26] to [28].

(2) Article 34 (2) (a) (iii) of the Model Law applied where an arbitral tribunal improperly decided matters that had not been submitted to it or failed to decide matters that had been submitted to it. However, a failure to deal with every issue referred to the arbitral tribunal did not render the arbitral award liable to be set aside unless there had been real or actual prejudice to either (or both) of the parties to the dispute. In addition, mere errors of law or fact were insufficient to warrant setting aside an arbitral award: at [31] to [33].

(3) In order to set aside an arbitral award under s 24 (b) of the International Arbitration Act (Cap 143 A, 2002 Rev Ed) (‘the IAA’) , the court had to be satisfied, first, that the arbitral tribunal breached a rule of natural justice in making the arbitral award. Second, and more importantly, the court had to be satisfied that the breach of natural justice caused actual or real prejudice to the party challenging the award, ie, the breach had to have altered the final outcome of the arbitral proceedings in some meaningful way before curial intervention was warranted: at [38].

(4) Under the 1999 FIDIC Conditions of Contract, where arbitral proceedings had been commenced in relation to a DAB decision for which a NOD had been validly served by one or both of the parties, ie, a binding but non-final DAB decision, the arbitration took the form of a rehearing so that the entirety of the parties' dispute (s) could be finally resolved. Pending the final resolution, the arbitral tribunal could enforce the DAB decision by way of an interim or partial award: at [61], [63] and [66].

(5) Where a NOD had been validly served, and either or both of the parties failed to comply with the binding but non-final DAB decision, sub-cl 20.6 of the 1999 FIDIC Conditions of Contract required the parties to finally settle their differences in the same arbitration, both in respect of the non-compliance with the DAB decision and in respect of the merits of that decision. Sub-clause 20.6 contemplated a single arbitration where all the existing differences between the parties arising from the DAB decision concerned would be resolved. The respondent to the arbitral proceedings was able to raise the issues which it wished the arbitral tribunal to consider by way of a defence. It was not necessary to file a counterclaim: at [67].

(6) The Final Award was set aside under Art 34 (2) (a) (iii) of the Model Law. By issuing a final award which upheld the DAB decision without going into the substantive merits of the parties' dispute, the Majority Members ignored the clear wordings of sub-cl 20.6 of the 1999 FIDIC Conditions of Contract and fundamentally altered the terrain of the entire proceedings as well as the arbitral award which would have been issued if they had reviewed the merits of the DAB decision (regardless of what the final outcome might have been) . PGN suffered real prejudice as it was deprived of its contractual right to have the DAB decision reviewed unless it incurred additional time and costs in commencing fresh arbitration proceedings (assuming such an option were legally feasible) : at [82] to [85].

(7) There was a breach of the rules of natural justice in the making of the Final Award under s 24 (b) of the IAA. PGN was not provided with a real opportunity to present its case on what was owing to CRW. PGN's inability to state clearly its position during the arbitral hearing was because it was meant to be a preliminary hearing. PGN did not envisage having to present evidence at that stage. It was entitled to have a proper opportunity to comprehensively present its case on the DAB decision at a hearing before the arbitral tribunal. However, it was denied this opportunity as the Majority Members summarily made the Final Award without considering the merits of the real dispute between the parties. PGN clearly suffered prejudice as a result: at [93] to [96].

(8) The court's residual discretion to decline to set aside an arbitral award even though one of the prescribed grounds for setting aside had been made out should be exercised only if no prejudice had been sustained by the aggrieved party. PGN suffered real prejudice as a result of the Majority Members acting in excess of its jurisdiction and also in breach of the rules of natural justice. There was no basis to exercise the court's residual discretion: at [98] to [100].

Lesotho Highlands Development Authority v Impregilo Sp A [2006] 1 AC 221 (refd)

Newspeed International Ltd v Citus Trading Pte Ltd [2003] 3 SLR (R) 1; [2003] 3 SLR 1 (refd)

Paklito Investment Ltd v Klockner East Asia Ltd [1993] 2 HKLR 39 (refd)

PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR (R) 597; [2007] 1 SLR 597 (folld)

PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2010] 4 SLR 672 (refd)

Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR (R) 86; [2007] 3 SLR 86 (folld)

Sui Southern Gas Co Ltd v Habibullah Coastal Power Co (Pte) Ltd [2010] 3 SLR 1 (refd)

International Arbitration Act (Cap 143 A, 2002 Rev Ed) s 24 (b) , First Schedule Art 34 (2) (a) (iii) (consd) ;ss 24, 29, 31, First Schedule Arts 34 (1) , 34 (2) , 34 (2) (a) , 34 (2) (a)...