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

• Judgment Date: 20 July 2010
• Date: 20 July 2010
• Docket Number: Originating Summons No 206 of 2010
• Court: High Court (Singapore)

PT Perusahaan Gas Negara (Persero) TBK

Plaintiff

and

CRW Joint Operation

Defendant

[2010] SGHC 202

Belinda Ang Saw Ean J

Originating Summons No 206 of 2010

High Court

Arbitration–Award–Final award–Recourse against award–Setting aside–Order 69A r 2 (1) (d) Rules of Court (Cap 322, R 5, 2006 Rev Ed)–Arbitral tribunal's powers–Whether arbitral tribunal acted in excess of its powers by rendering final award pertaining to dispute not within scope of arbitration agreement–Article 34 (2) (a) (iii) UNCITRAL Model Law on International Commercial Arbitration ( Model Law )–Whether arbitral tribunal acted in accordance with arbitral procedure–Article 34 (2) (a) (iv) Model Law–Whether there had been breach of rules of natural justice–Section 24 (b) International Arbitration Act (Cap 143A, 2002 Rev Ed) and Art 18 Model Law

The parties entered into a contract involving the construction of a pipeline and an optical fibre cable in Indonesia. The contract adopted the standard provisions of the FIDIC Conditions of Contract for Construction (1st Ed, 1999) also known in the industry as the 1999 Red Book , with some modifications made thereto by the parties ( Conditions of Contract ).

A dispute subsequently arose between the parties and pursuant to the Conditions of Contract, a Dispute Adjudication Board ( the DAB ) was appointed by the parties to hear the dispute. The DAB ordered the applicant to pay the respondent a sum of US$17,298,834.57 ( the DAB Decision ).

The applicant, being unhappy with the DAB Decision, submitted a Notice of Dissatisfaction ( NOD ) in accordance to the Conditions of Contract, and pending the resolution of its dissatisfaction, refused to pay the sum of US$17,298,834.57. The respondent then filed a request for arbitration to determine if the applicant was obliged to immediately pay the respondent the sum ordered by the DAB notwithstanding the NOD. At the heart of the arbitration was the proper interpretation of sub-cll 20.4 to 20.7 of the Conditions of Contract which set out the effect of a DAB decision and the effect of a NOD. Particularly, sub-cl 20.4 stated, inter alia, that the [DAB] decision shall be binding on both [p]arties, who shall promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award as described below, and that [i]f the DAB has given its decision as to a matter in dispute to both [p]arties, and no notice of dissatisfaction has been given by either [p]arty within 28 days after it received the DAB's decision, then the decision shall become final and binding upon both [p]arties .

The majority members of the arbitral tribunal ( Majority Tribunal ) concluded that the DAB Decision was binding (albeit not final) on the parties and that the applicant had an obligation to make immediate payment to the respondent. As for the applicant's contention that the arbitral tribunal should open up and review the DAB Decision, the Majority Tribunal held that this argument failed as a defence to the binding nature of DAB's decision. Concomitantly, the Majority Tribunal noted that the applicant nonetheless had the right to commence a separate arbitration to open, review and revise the DAB Decision.

The applicant sought an order that the award be set aside pursuant to s 24 of the International Arbitration Act (Cap 143A, 2002 Rev Ed) ( the IAA ) and Art 34 (2) of the UNCITRAL Model Law on International Commercial Arbitration ( the Model Law ) (set out in the First Schedule to the IAA). It premised its challenge and application on the following grounds:

1. (a) first, that the Majority Tribunal exceeded its mandate or jurisdiction in converting the DAB Decision into a final award without determining the merits of the underlying dispute and/or without determining whether the DAB Decision was made in accordance with the contract;

2. (b) second, that the arbitral procedure was not in accordance with the agreement of the parties, which required the merits of the underlying dispute to be reviewed and/or the question of whether the DAB Decision was made in accordance with the contract to be determined prior to making that decision a final award;

3. (c) third, the refusal and/or failure of the Majority Tribunal to hear the parties on the merits of the underlying dispute and/or the question of whether the DAB Decision was or was not made in accordance with the contract was a breach of the rules of natural justice; and

4. (d) fourth, the DAB Decision was not made in accordance with the contract in that the DAB did not apply Indonesian law, which was the governing law of the contract, and/or added new claims to those originally submitted by the respondent, thereby double-counting several claims which had been previously settled.

Held, granting the application:

(1) Two situations might fall within the ambit of Art 34 (2) (a) (iii) of the Model Law. The first contemplated the typical common situation where an award was made by a tribunal that had jurisdiction to deal with the dispute, but exceeded its powers by dealing with matters that had not been submitted to it. The second situation was where the dispute referred to the arbitrators was one that was not within the parties' arbitration agreement or that went beyond the scope of that agreement. An arbitration clause defined the scope of the dispute that might be referred to arbitration including the powers of the arbitrators. Whether a dispute fell within an arbitration clause in a contract had to depend on first, what the dispute was about and second, the kinds of disputes the arbitration clause covered: at [26] and [28].

(2) A particular feature of sub-cl 20.6 of the Conditions of Contract was that before a dispute could be subject to arbitration, it had to first have been referred to the DAB. The dispute which the respondent wanted the arbitral tribunal to resolve was whether the respondent was entitled to immediate payment by the applicant of the sum set out in the DAB Decision. This was not an issue which had been referred to the DAB. The award regarding this dispute therefore exceeded the scope of the arbitration agreement and was set aside under Art 34 (2) (a) (iii) of the Model Law: at [29], [30] and [31].

(3) In addition, sub-cl 20.6 did not allow an arbitral tribunal to make final a binding DAB decision without first hearing the merits of that DAB decision. The arbitral tribunal's powers under sub-cl 20.6 was expressly to open up, review and revise the DAB decision, which meant that an adjudication on the dispute regarding the DAB decision without determining the correctness of the DAB decision would be tantamount to converting that binding but not final decision into a final arbitration award and ignoring the provisions of the Conditions of Contract concerning dispute resolution: at [35].

(4) In the applicant's second ground of challenge, what the applicant was concerned about was the substantial aspect of the arbitration agreement, not the procedure. Article 34 (2) (a) (iv) of the Model Law contemplated challenges to irregularities in the procedural rules agreed between the parties. The second ground was actually another facet of the same complaint under the first ground, viz, that the Majority Tribunal had acted in excess of its power, which had already been considered: at [39].

(5) The third ground was not made out. The applicant's allegation that the Majority Tribunal breached the rules of natural justice was too vague. The applicant had been heard for the purposes of determining the issues that were put before this arbitration and was never denied an opportunity to present or argue its case on why it should be entitled to open up, review and revise the DAB Decision. There was therefore no breach of any rules of natural justice: at [42].

(6) The fourth ground failed in limine as it was outside the scope of s 24 (b) of the IAA and Art 34 (2) (a) of the Model Law: at [10].

[Observation: What the winning party could do, in the face of a valid NOD, to enforce a binding but not final decision of the DAB when the other party failed to give prompt effect to it as required by sub-cl 20.4 of the 1999 Red Book, was to submit the dispute covered by the DAB decision in question to arbitration and ask the arbitral tribunal to review and confirm the DAB decision. It could include a claim for an interim award vis- -vis the DAB decision to be enforced, with the amount owed as set out in the DAB decision to be paid pending accordingly. The amount paid out was liable to be returned to the payer, depending on how the tribunal, after reviewing DAB decision, decided the case. Alternatively, the losing party might also submit the dispute covered by the DAB decision in question to arbitration. The losing party could ask the arbitral tribunal to review and revise the DAB decision: at [38].

Even though the Majority Tribunal made express reference in the final award that the applicant was free to commence separate arbitration proceedings to review the merits of the DAB Decision, the problem was that the reservation of the applicant's right to commence separate arbitration was unlike a reservation of rights to argue before the same tribunal which made an interim award that the award was wrong. Furthermore, there couldpotentially be issues of res judicata, particularly since the respondent had obtained an ex parte order to convert the final award into a judgment: at [36].]

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