INTERIM ENFORCEMENT OF AN ADJUDICATION DECISION

• Citation: (2016) 28 SAcLJ 354
• Date: 01 December 2016
• Published date: 01 December 2016

Case Note

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

[2015] 4 SLR 364

This case note discusses the Singapore Court of Appeal's most recent guidance on the proper construction of the dispute resolution clause contained in the widely adopted FIDIC 1999 Conditions of Contract, and the manner in which adjudication decisions may be enforced pending a review of their merits.

I. Introduction

1 The International Federation of Consulting Engineers (“FIDIC”) 1999 Conditions of Contract (“the Red Book”) is now reportedly the most widely adopted standard form contract internationally for construction contracts.1 One feature of the Red Book is that cl 20 provides for a three-tiered dispute resolution framework which begins in adjudication, proceeds to amicable settlement and concludes in arbitration (“the Dispute Resolution Clause”).

2 The popularity of the Red Book belies long-standing controversy surrounding the precise operation of the Dispute Resolution Clause. Questions have been raised as to (a) whether a dispute concerning non-compliance with an adjudication decision could be referred to arbitration pending a review of the merits of that decision; (b) whether such a dispute could be referred directly to arbitration without going through the first two steps prescribed by the Dispute Resolution Clause; and (c) whether an arbitral decision determining such a dispute could be enforced as an award.

3 These were the questions which the Singapore Court of Appeal had occasion to determine in PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation2

(“PT Perusahaan”). It answered all three questions affirmatively, but only by a majority (“the CA Majority”). The minority judge (“the CA Minority”) answered all three questions in the negative, and the polar views expressed by both sides of the bench in PT Perusahaan is representative of the ongoing debate surrounding the proper interpretation of the Dispute Resolution Clause.

4 This case note will critically appraise the disparate views expressed in PT Perusahaan and provide further elaboration on why the CA Majority's decision should, for the most part, set a precedent for future cases in Singapore and other jurisdictions adopting the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration3 (“the Model Law”). Finally, this case note hopes to provide practical suggestions for overcoming residual difficulties surrounding the use of the Dispute Resolution Clause.

II. Summary of PT Perusahaan

5 CRW Joint Operation (“CRW”) and PT Perusahaan Gas Negara (Persero) TBK (“PGN”) (collectively “the Parties”) entered into an agreement in 2006 for the design, procurement, installation, testing and pre-commissioning of a gas pipeline in Indonesia (“the Agreement”). The Agreement adopted the standard provisions of the Red Book, including the Dispute Resolution Clause.

6 Taken in the round, the mechanism prescribed by the specific provisions in the Dispute Resolution Clause entailed the following.

1. (a) Any party must first refer a dispute arising out of the Agreement for resolution by a dispute adjudication board (“DAB”).

2. (b) The DAB must issue a decision within 84 days from the referral of the dispute to it. The DAB's decision would 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”.

3. (c) Any party dissatisfied with the DAB's decision could issue a notice of dissatisfaction (“NOD”). The DAB's decision would become “final and binding” if no notice of dissatisfaction has been given by either party within 28 days of receiving the DAB's decision.

1. (d) If an NOD is issued, the Parties have up to 56 days from the NOD's issuance to reach an amicable settlement of their dispute. If no amicable settlement is reached within that time period, then the Parties may commence arbitration pursuant to the Parties' arbitration agreement set out at cl 20.6 of the Dispute Resolution Clause (“the Arbitration Agreement”).

2. (e) The Arbitration Agreement provides that any dispute in respect of which the “DAB's decision has not become final and binding” shall be resolved by arbitration. Additionally, cl 20.7 provides that a party's failure to comply with the DAB's decision, if it “has become final and binding”, may be referred to arbitration directly without first being referred to the DAB or amicable settlement attempts.

7 In the course of the Parties' commercial relationship, disputes arose over PGN's obligation to pay CRW for work allegedly carried out under the Agreement. The disputes were referred to the DAB in accordance with the Dispute Resolution Clause. The DAB duly rendered several decisions on CRW's claims to payment. PGN accepted all of the DAB's decisions except one (“DAB 3”) which ordered PGN to pay to CRW a sum of US$17,298,834.57 (“the Adjudicated Sum”).

8 PGN issued an NOD against DAB 3 shortly after it was issued, and did not respond to CRW's subsequent requests for payment of the Adjudicated Sum in accordance with DAB 3. CRW then commenced an arbitration against PGN on 13 February 2009 (“the 2009 Arbitration”), seeking an order that PGN comply with DAB 3 notwithstanding that it had issued an NOD against it. The procedural history of the 2009 Arbitration is not material for the purposes of this case note, save that the tribunal in the 2009 Arbitration issued a “final award” in favour of CRW for the Adjudicated Sum pending a review of DAB 3, but decided not to review DAB 3 while reserving PGN's rights to pursue that review in subsequent arbitral proceedings. That award was set aside by the Court of Appeal in CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK4 (“Persero (CA)”), where it was held that the Arbitration Agreement required the determination of both non-compliance with DAB 3 pending a review of DAB 3 (“the Enforceability Dispute”) as well as a review of the merits of DAB 3 (“the Primary Dispute”) in the same arbitration,5 and that the tribunal in the 2009 Arbitration failed to do so in accordance with the Arbitration Agreement.6

9 In 2011, CRW commenced a fresh arbitration against PGN (“the 2011 Arbitration”), seeking a final determination of both the Enforceability and Primary Disputes. The majority of the tribunal in the 2011 Arbitration (“the Majority 2011 Arbitrators”) found in favour of CRW on the Enforceability Dispute, and decided that PGN was obliged to comply with DAB 3 notwithstanding the issuance of the NOD and the pending resolution of the Primary Dispute. The Majority 2011 Arbitrators further found that compliance with DAB 3 could be enforced by way of an “interim award” ordering immediate payment of the Adjudicated Sum, and the 2011 Tribunal proceeded to issue an award in those terms (“the 2011 Interim Award”). The dissenting arbitrator in the 2011 Arbitration reached the opposite conclusion, opining that such an award would be “provisional” in nature and could not be enforced in Singapore.

10 CRW then applied to enforce the 2011 Interim Award in the Singapore courts and was granted leave to do so by an enforcement order. PGN applied to set aside both the enforcement order and the 2011 Interim Award. The High Court in PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (Indonesia)7 (“PT Perusahaan (HC)”) dismissed PGN's applications, and it is that dismissal which was the subject of appeal in PT Perusahaan. On 25 September 2014, the 2011 Tribunal issued a partial award purporting to “revise” various parts of the 2011 Interim Award” (“the Partial Award”).

III. The decision in PT Perusahaan

11 The Court of Appeal unanimously held that, once a decision of the DAB was issued, the parties would be contractually obliged to give effect to the decision by making timely payments of money in accordance with it notwithstanding that an NOD had been issued against the decision.8

12 The principal controversy which arose in PT Perusahaan, and which the Court of Appeal was divided on, was the means by which the contractual right to prompt compliance with a DAB's decision should be enforced by a receiving party. Specifically, the Court of Appeal had to decide whether a DAB's decision could be enforced by way of an arbitral award notwithstanding that the merits of the decision would be reviewed in an arbitration. This turned on the following questions which the Court of Appeal considered:

1. (a) whether the Enforceability Dispute fell within the scope of the Arbitration Agreement; and

2. (b) whether the 2011 Interim Award was a “final” award within the meaning of s 19B(1) of the International Arbitration Act9 (“IAA”).

A. Whether the Enforceability Dispute fell within the scope of the Dispute Resolution Clause

13 Whether the 2011 Tribunal had jurisdiction to determine the Enforceability Dispute turned on a proper construction of the Dispute Resolution Clause.

(1) The CA Majority's decision

14 The CA Majority held the Enforceability Dispute fell within the scope of the Dispute Resolution Clause. It reasoned that, because the Dispute Resolution Clause is drafted in broad terms and covered “a dispute of any kind whatsoever” and “any dispute in respect of which the DAB's decision … has not become final and binding”, the provision could not be interpreted to exclude certain categories of disputes which must be resolved by alternative means.10

15 The CA Majority understood the Enforceability Dispute as one concerning whether the party which issued the NOD against DAB 3 was required to comply immediately with DAB 3.11 Having regard to the broad language of the Dispute Resolution Clause, the CA Majority concluded that the Enforceability Dispute fell within the scope of the Arbitration Agreement.

16 In the CA Majority's view, the real issue was not whether the Enforceability Dispute could be referred to arbitration at all. Rather, it was whether it...