Back in December 2014, I wrote an introductory article about the FIDIC suite of contracts (‘FIDIC explained’), which focused on the provisions within the FIDIC forms relating to dispute adjudication boards (DABs). Six months on, there has been a case in the Singapore Court of Appeal which has addressed a perceived deficiency surrounding enforcement of a DAB’s decision.
The FIDIC forms of contract contain a multi-tiered dispute resolution procedure, the first tier of which is to refer any dispute to a DAB. As explained in my previous article, the DAB is a one to three member panel of informed and independent professionals who can deal with a wide range of issues or disputes on the project without having to resort to a formal arbitration or litigation. Once a DAB has made a decision on a dispute, the dissatisfied party (which is based on the assumption that one party will always be dissatisfied) has the option to serve a notice of dissatisfaction with the decision. The notice of dissatisfaction is a precondition to the dissatisfied party’s entitlement to commence arbitration proceedings to have that dispute finally resolved.
If a dissatisfied party fails to comply with a DAB decision, and does not serve a notice of dissatisfaction within a specified time period, that decision will become final. In those circumstances, the FIDIC terms provide for the successful party to refer the dissatisfied party’s failure to comply with such a decision direct to arbitration.
Following service of the notice of dissatisfaction, and whether or not arbitration proceedings have been commenced, the decision of the DAB is still to be complied with by the dissatisfied party. However, the problem was thought to arise in circumstances where a dissatisfied party served a notice of dissatisfaction and yet didn’t comply with the decision of the DAB. It was thought that there was then no provision for the successful party to enforce compliance with the DAB’s decision. The point was usefully summarised by an English court(1) last year:
“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 [the FIDIC terms], 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 … 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.”
In the Peterborough City Council case, as the ultimate tribunal was litigation and not arbitration and the English courts have such wide-ranging powers, that the court could, for example, simply order the dissatisfied party to perform the terms of the DAB’s decision. However, this is not the case in arbitration where typically the arbitrator’s powers are much more limited, and so the problem there still remained. FIDIC issued a Guidance Memorandum on the point in 2013 but the issue objectively remained unresolved.
PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation(2)
That is, until the case mentioned above, from the Singaporean Court of Appeal.
The starting point in this case involved an owner (PTP) being ordered to pay a contractor (CRW) $17 million. PTP issued a notice of dissatisfaction and did not comply with the DAB’s decision. CRW commenced an arbitration to enforce the DAB’s decision. The tribunal upheld CRW’s case that PTP had to comply with the DAB’s decision, as it was binding, albeit temporarily. The tribunal declined PTP’s request to consider the underlying merits of CRW’s claim and ruled that the correct course of action for PTP was to commence a separate arbitration.
That final award was set aside by the Singaporean Court of Appeal in 2011 on the grounds that the tribunal had exceeded its jurisdiction, as it had incorrectly failed to first determine whether the DAB’s decision had been correct on the merits, and was also in breach of the rules of natural justice. The Court of Appeal noted that a better approach for CRW would have been to commence an arbitration seeking a final award on the merits of the claim, but in the meantime seek an interim or partial award to enforce the DAB’s decision.
CRW did just that, and an interim award was granted enforcing the DAB’s decision. PTP argued against this in the tribunal, and subsequently brought proceedings before a Singaporean court to challenge the validity of the interim award. PTP argued that the enforcement of the DAB’s decision was outside the scope of the FIDIC arbitration clause because the tribunal could not issue an interim award which could subsequently be amended, revoked or varied in the final award determining the merits.
The tribunal and the Singaporean High Court rejected PTP’s argument and ordered PTP to pay the sum as ordered by the DAB pending the final resolution on the merits. The High Court found that the tribunal’s award, although said to be interim, was final and binding in relation to its subject matter, i.e. PTP’s compliance with the DAB’s decision. If the DAB’s decision was changed in the final award that would not be an amendment or revocation of the interim award but it would merely“reflect the ultimate determination of all aspects of the parties’ dispute”.
PTP appealed to the Court of Appeal which, by a majority of 2:1, again dismissed PTP’s arguments and found in favour of CRW. The Court of Appeal majority preferred the view that there was no deficiency in the FIDIC terms. As the DAB had decided that the sum ordered was payable, and had therefore implicitly decided that it was payable forthwith, then “the dissatisfaction expressed in a NOD already inherently extends to the requirement that payment of the adjudicated amount be made forthwith, and there is nothing further to be referred back to the DAB”. Any other decision would subject the successful party to the “inordinate delay” discussed in the Peterborough City Council case, which would be an unsatisfactory commercial position.
As so often with court decisions in common law jurisdictions, where there may be a perceived, possibly academic, deficiency in a set of contractual terms, the courts seem intent on resolving the matters as pragmatically as possible, and removing an uncommercial interpretation, if possible. This decision is also another step in the reinforcement of the “pay now, argue later” mentality that countries around the globe expect to be commonplace in the global construction industry.