A decision of the Singaporean Court of Appeal published last week has considered a well-known difficulty which exists in many of the FIDIC forms of contract regarding the enforcement of DAB decisions. Although DAB decisions have to be complied with pending any final determination through arbitration proceedings, the drafting of the FIDIC provisions (together with the specific requirements of local arbitration laws) has to date presented obstacles to the enforcement of such decisions ahead of any final determination. In this latest decision, the Singaporean Court of Appeal has split 2:1 on the issue. A detailed dissenting judgment together with the majority’s own disagreement with a previous Singaporean Court of Appeal decision is likely to add further uncertainty to this area of the law. 

Background

We reported last year on two decisions, one in Switzerland and one in England, finding that the multi-tiered dispute resolution process provided by the FIDIC form required disputed to be referred to a Dispute Adjudication Board (“DAB”) as a pre-condition to arbitration (see our Law-Nows here and here. Once a DAB decision has been obtained, the FIDIC processes allows either party to serve a Notice of Dissatisfaction. This notice prevents the DAB’s decision from becoming final and allows arbitration proceedings to be commenced to challenge the decision. In the meantime, however, the parties are required to comply with the DAB’s decision.

This process potentially gives rise to a problem, which was summarised last year by the English Technology and Construction Court (in Peterborough City Council v Enterprise Managed Services):

 “… what has been described as "the gap" in those sub-clauses … arises when the DAB has made a decision and one party has given a notice of dissatisfaction - with the result that the DAB's decision, whilst binding, is not final. The problem then is that if the unsuccessful party refuses to comply with the decision of the DAB, as it is required to do by sub-clause 20.4.4, the only remedy (it is said) available to the other party is to refer the dispute occasioned by the refusal to comply to yet another adjudication. This can have the effect, [it is] submitted, that the party in default can embark on a course of persistent non-compliance with DAB decisions and thereby deprive the other of any effective remedy.”

The court was able to side-step this issue because the contract before it provided for court proceedings rather than arbitration. It noted that whilst the point “may be arguable in the context of the standard FIDIC Books which include an arbitration clause”, an English court was not subject to the same jurisdictional limitations as an arbitrator. It could, for example, simply order specific performance of a DAB decision pending final determination through further court proceedings.

PT Perusahaan Gas Negara (Persero) v CRW Joint Operation

The difficulties which arise in an arbitration context have, however, been addressed head-on by long running litigation in Singapore. The first round of the litigation involved a contractor obtaining a DAB decision for the payment of $17 million against an owner. The owner gave a Notice of Dissatisfaction and the contractor commenced an arbitration to enforce the DAB’s decision. The arbitral tribunal gave a final award enforcing the DAB’s decision and declined the owner’s request to consider the underlying merits of the contractor’s claim. The tribunal ruled that the proper course for the owner was to seek such a review by a separate arbitration.

This final award was ultimately struck down by the Singaporean Court of Appeal in 2011 as being without jurisdiction and in breach of the rules of natural justice. The arbitral tribunal was required to determine the full dispute between the parties and had been wrong to decline the owner’s request to consider the underlying merits of the claim. The court noted that a better approach for the contractor would have been to seek an interim or partial award pending the making of a final award on the merits of the DAB’s decision.

Heeding the court’s advice, the contractor commenced a further arbitration, this time seeking an interim award to enforce the amount of the DAB’s decision. An interim award was granted and the owner then brought proceedings before a Singaporean court to challenge its validity. The owner contended that the enforcement of the DAB’s decision fell outside the scope of the FIDIC arbitration clause. Alternatively, it argued that the applicable arbitration rules prevented any provisional award being made which might be varied in the tribunal’s final award and also offended against a provision in the rules which prevented the tribunal from varying, amending or revoking an award. 

In a first instance decision last year, the Singaporean court rejected the owner’s challenge, adopting a pragmatic view as to the scope of the FIDIC arbitration clause. It found that the tribunal’s award, although expressed as being “interim”, was final and binding in relation to its subject matter, that being the owner’s compliance with the DAB decision. If the DAB decision was reversed in the final award that would not be an amendment or revocation of the interim award, as such, but merely an accounting exercise given effect to by the final award. The owner appealed.

The Court of Appeal decision

By a majority of 2:1 the Court of Appeal dismissed the owner’s appeal. The majority emphasised the importance of taking a pragmatic approach to the FIDIC dispute resolution clauses. They relied in particular upon a Guidance Memorandum issued by FIDIC in 2013 and articles written by a member of the FIDIC drafting committee to support their conclusion that the arbitration clause must have been intended to encompass a dispute as to compliance with a DAB decision as well as a dispute as to its substance. The majority also confirmed that the tribunal’s interim award did not lack finality. Although by the time of the appeal hearing the tribunal had already issued a further partial award indicating that it would not award the owner the full amount of the DAB decision and that the repayment of part of the amounts awarded by the DAB decision was a likely result of the tribunal’s final award, the two awards were to be seen as standing together rather than one having reviewed or altered the other.

In reaching their decision the majority also noted their disagreement with the earlier Singaporean Court of Appeal decision from 2011 noted above. Given their findings as to the FIDIC arbitration clause, the majority accepted that a DAB decision was enforceable by way of a specific arbitration limited to compliance with the decision as the owner had sought to do initially.

In a robust dissenting judgment running to 95 pages, directly opposing views on these issues were put by the third member of the court. By tracing the history of the FIDIC form to its origins as a domestic English law contract in 1957, the intention of the FIDIC arbitration clause was said to be in favour of a “gap” in relation to the enforcement of DAB decisions. In the dissenting judge’s view, the enforcement of DAB decisions was originally intended under the FIDIC form to have been carried out through local court procedures rather than through arbitration. The judge also considered that an interim award seeking to enforce a DAB decision lacked sufficient finality for the purpose of local Singaporean arbitration law and noted a number of practical difficulties with the majority’s views to the contrary.

Conclusions and implications

Whilst providing an illuminating addition to the debate over the operation of the FIDIC dispute resolution procedure, this most recent decision is unlikely to provide any greater certainty to parties grappling with the difficulties posed by the FIDIC form. The Singaporean Court of Appeal’s rejection of its own 2011 decision together with a robust dissenting opinion from one member of the court is instead likely to encourage greater uncertainty.

The FIDIC drafting committee is presently working on a revised suite of contracts, the first of which according to FIDIC’s 2013/14 Annual Review had most recently been expected to be released last year. It is understood that these revisions will include changes to the dispute resolution procedure which mirror the majority view in the present case by giving an express right to enforce non-final DAB decisions by arbitration in the same way as is provided under the FIDIC Gold Book (the only FIDIC contract which presently escapes the above difficulties). Amendments to this effect have already been put forward by FIDIC in its Guidance Memorandum issued in 2013. Parties would be well advised to consider the adoption of these amendments pending the release of a revised suite of contracts. 

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References: Peterborough City Council v Enterprise Managed Services Ltd [2014] EWHC 3193 (TCC);

PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation (Indonesia) [2015] SGCA 30