A recent decision of the Singapore High Court has considered how a party should enforce a FIDIC dispute board decision.
The FIDIC suite of international construction contracts provides for a tiered dispute resolution process. The Red, Silver and Yellow books contain broadly similar dispute clauses requiring parties to first refer a dispute to a dispute board before arbitration for final determination.
The referral of disputes to a dispute board is on the “pay now, argue later” principle familiar to participants of adjudication processes which now exist in many jurisdictions including the UK, Australia and Singapore. In other words, a process that provides a binding, but not a final decision. This facilitates a contractor’s desire for cash flow, but without disturbing the employer’s entitlement (and indeed also the contractor’s entitlement) to argue later in arbitration or litigation about the underlying merits.
What happens, however, if an employer fails to honour a binding dispute board decision?
The Singapore High Court gave guidance on the approach to enforcement of dispute board decisions inPT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (Indonesia)1 which concerned a project contracted under the FIDIC Red Book.
A variations dispute was referred to the dispute board which held that CRW was entitled to payment of US$17 million. Persero declined to pay the decision. It accepted that it was under a contractual obligation to give effect to the decision, even though the underlying dispute had not been finally resolved. However it said it did not need to comply because the contract did not permit CRW to do anything to enforce that decision.
CRW disagreed and made an attempt through arbitration to compel Persero to pay the sum awarded. It asked the arbitral tribunal to deal with both that failure and the underlying dispute.
CRW obtained two interim orders at an early stage in the arbitral proceedings. First, an “interim award” compelling Persero to give effect to the decision pending resolution of the underlying dispute. Second, an order to enforce the decision as though it were a court judgment.
In response, Persero applied to the Singapore High Court to set aside the interim award and the order. It argued that the award was a provisional award, binding only until the tribunal determined the underlying dispute, and as such it was prohibited by the International Arbitration Act in Singapore.
The judge found in favour of CRW and held that the award was entirely consistent with the parties’ contract. The judge also held that the award was not prohibited by Singapore’s International Arbitration Act. As part of its judgment the court considered how a party should enforce a FIDIC dispute board decision.
It considered whether a party should refer solely the issue of the non-compliance, i.e. as a separate dispute in its own right distinct from the underlying dispute (the two-dispute approach). Alternatively, whether both the other party’s non-compliance as well as the merits underlying the dispute board decision should be referred (the one-dispute approach).
The judge rejected the two-dispute approach. He considered that such an approach would require the party seeking to enforce the decision to comply with the pre-conditions contained in clause 20 before it could resolve the dispute by arbitration – such an approach would be contrary to the security for payment regime intended by the dispute board process.
He held in favour of the one-dispute approach because this best supported the FIDIC payment security regime. It would mean that the non-compliance with the decision was an aspect of the primary underlying dispute, and not a separate dispute in itself, and for which the condition precedents to arbitration have already been satisfied.
Persero has appealed the court’s judgment and the outcome of the appeal is awaited.