The disputes between PT Perhusahaan and Negara have been running for a number of years. There have been proceedings before Dispute Boards, arbitration tribunals and in the Singapore courts. The case has all along been an interesting one, (and the first part of the summary below is based on an article from the very first IQ) as it has raised a number of interesting issues about the enforcement of Dispute Board decisions. In 2014, the case came before the Singapore courts for a second time.

The contract; dispute; and DAB decision

In February 2006, PGN, an Indonesian state-owned company, entered into a contract with CRW for the construction by CRW of a pipeline and optical fibre cable in Indonesia. The contract incorporated the General Conditions of the FIDIC Conditions of Contract for Construction (First Edition, 1999) ("the 1999 Red Book"), with some amendments (together "the Conditions of Contract"). The law governing the contract was that of Indonesia.

A dispute arose between the parties over certain variation order proposals and requests for payments submitted by CRW. Following a referral of that dispute to the DAB, the DAB issued several decisions, all of which were accepted by PGN except for one, dated 25 November 2008, ordering PGN to pay CRW a sum in excess of US$17 million ("the DAB Decision"). In accordance with Sub-Clause 20.4 of the Conditions of Contract, PGN submitted a Notice of Dissatisfaction ("NOD") in respect of that decision.

Arbitration proceedings - 2009

PGN subsequently refused to comply with the DAB decision. This led CRW to file a request for arbitration with the ICC International Court of Arbitration on 13 February 2009. Importantly, the dispute referred to arbitration was however not the underlying dispute which was the subject of the DAB decision, but was in fact a new dispute, namely, whether CRW was entitled to immediate payment by PGN of the sum awarded by the DAB in its decision of 25 November 2008 ("the dispute").

CRW's case was that, notwithstanding PGN's notice of dissatisfaction, PGN still remained bound by the DAB decision and was required to "promptly give effect" to that decision in accordance with Sub- Clause 20.4 of the Conditions of Contract. In its defence, PGN argued that the DAB decision was not "final and binding" as it had served a notice of dissatisfaction and that a binding but not final DAB decision could not be converted into a final arbitral award without first determining whether the DAB decision was correct (or ought to be revised) on the merits. PGN in particular sought to argue that the powers of the arbitral tribunal set out in sub-clause 20.6 did not include the power to direct a party to make immediate payment of the sum awarded by the DAB without a review confirming the correctness of the DAB decision.

The arbitral tribunal found in CRW's favour and held by majority in a final award ("the Final Award") that the DAB decision was binding and that PGN had an obligation to make immediate payment to CRW of the US$17,298,834.57 awarded by the DAB. The Tribunal also dismissed in its award PGN's interpretation of Sub-Clause 20.6 and its argument that the arbitral tribunal should open up and review the DAB decision. It however noted that PGN had still the right to commence a separate arbitration to open up, review and revise the DAB decision.

Proceedings in the High Court of Singapore

CRW then proceeded to apply to the High Court of Singapore to register the Final Award as a judgment in Singapore. In response, PGN applied to set aside the registration order and also sought an order from the court to set aside the Final Award pursuant to section 24 of the Singapore International Arbitration Act and Article 34 (2) of the UNCITRAL Model Law. The primary argument put forward by PGN in support of its application to set aside the Final Award was that the arbitral tribunal had exceeded its jurisdiction by converting the DAB decision into a final award without determining first whether the DAB was correct on the merits. The High Court agreed with PGN.

The High Court held that the Arbitral Tribunal had acted outside its jurisdiction in two respects:

  1. The Dispute that CRW referred to arbitration (namely PGN's nonpayment of the sum set out in the DAB Decision) had not been first referred to the DAB and was therefore "plainly outside the scope of subclause 20.6 of the Conditions of Contract"; and
  2. The arbitration proceedings commenced by CRW were made pursuant to Sub-Clause 20.6 of the Conditions of Contract, which, according to the Singapore court, requires "a review of the correctness of the DAB decision" and must be distinguished from proceedings brought under Sub-Clause 20.7 which do not require the arbitral tribunal to consider the merits of the DAB decision. That distinction meant, according to the Singapore court, that the arbitral tribunal had acted outside its jurisdiction by making final a binding DAB decision without first hearing the merits of that DAB decision.

CRW's appeal to the Court of Appeal of Singapore

Dissatisfied with the High Court decision, CRW filed an appeal, which was dismissed by the Court of Appeal of Singapore in its judgment dated 13 July 2011 ("the Court of Appeal decision"), although the basis on which it reached its decision was quite different. The Court of Appeal made no reference to the fact that the Dispute that CRW referred to arbitration had not been first referred to the DAB and was therefore outside the arbitral tribunal's jurisdiction as the High Court had decided. Instead, the Court of Appeal found that the Arbitral Tribunal had exceeded its jurisdiction in making the Final Award solely on the basis that the Tribunal issued the Final Award without opening up, reviewing and revising the DAB decision.

Arbitration proceedings - 2011

The result of the Court of Appeal's above mentioned decision was that CRW's attempts through the 2009 arbitration to compel PGN to comply with the DAB decision failed. CRW therefore commenced a second arbitration in 2011, but changed its approach to meet PGN's earlier (above mentioned) argument. It did so by placing before the arbitral tribunal both components of the parties' dispute: the primary underlying dispute which formed the subject matter of the original DAB decision, and the secondary dispute arising from PGN's failure to pay CRW pursuant to the DAB decision.

The arbitral tribunal held unanimously that PGN's obligation to give prompt effect to the DAB decision was entirely unaffected by the fact that PGN gave notice of its dissatisfaction with that DAB decision. The tribunal therefore found in CRW's favour, and issued an interim award compelling PGN to give prompt effect to the DAB decision pending the tribunal's final resolution of the parties' underlying dispute. CRW subsequently obtained leave to enforce that award against PGN as though it were a judgment of the High Court.

PGN's 2013 Application to the High Court of Singapore

In October 2013, PGN applied to the High Court to set aside the 2011 tribunal's interim or partial award and with it the order permitting CRW to enforce that award. The central issue to be decided on here was whether CRW was entitled to enforce the DAB decision by way of a final and binding interim award without the arbitral tribunal having first determined the underlying merits of the DAB decision.

PGN's arguments on this were as follows:

  1. The majority in the 2011 arbitration issued an award which they described as an interim or partial award but which was in truth a provisional award. It was provisional because the majority intended their interim award to have finality only up until the time the 2011 arbitral tribunal had heard and determined the primary dispute on the merits and with finality.
  2. Singapore's International Arbitration Act (the "IAA") does not permit a tribunal to issue a provisional award. As a matter of form, s.2 of the IAA refers only to interim, interlocutory or partial awards and makes no mention of provisional awards. As a matter of substance, and more importantly, s.19B(1) of the IAA deems every award which a Singapore-seated arbitral tribunal issues – however it may be described – to be final and binding. Finally, the legislative history of s.19B shows an intent not to permit provisional awards.
  3. The 2011 tribunal therefore had no power to award CRW provisional relief as it attempted to do: as an award that PGN "shall promptly pay the sum of US$17,298,834.57 as set out in the DAB Decision" to CRW "pending the final resolution of the Parties' dispute raised in these proceedings".
  4. Section 19B(1) of the IAA deems the majority's award to be a final and binding award. That overrides the majority's intent that its award should have only provisional effect. Further, under s.19B(2) of the IAA, no future award can vary the majority's award. The majority therefore converted a DAB decision which had only interim finality under the parties' contract into an award which, under s.19B of the IAA, is final and unalterable. The majority therefore determined with finality the existence and extent of PGN's obligation to pay CRW. Further, they did so without determining or even considering the primary dispute between the parties on the merits.
  5. The primary dispute is founded on the same question as the majority determined in their award: the existence and extent of PGN's obligation to pay CRW. The majority's award therefore inadvertently rendered the primary dispute res judicata. This was contrary to the parties' arbitration agreement. That agreement requires an arbitral tribunal to hear and determine the parties' primary dispute on the merits before determining that dispute with finality and making it res judicata. (vi) Further, having inadvertently rendered the primary dispute res judicata, the 2011 tribunal also rendered itself functus officio on the issue of how much PGN must actually pay CRW. The tribunal has no power to inquire any further into the primary dispute to ascertain that amount on the merits. This is despite the 2011 tribunal's express intention to go on to hear and determine the primary dispute on the merits and with finality in the 2011 arbitration.

In response, CRW argued as follows:

  1. That it was correct to place both the primary and the secondary dispute before the tribunal in the 2011 arbitration and to seek an interim award on the secondary dispute. It argued that this approach was consistent with the parties' agreement as interpreted by the Court of Appeal when it upheld the decision to set aside the final award in the 2009 arbitration.
  2. The 2011 tribunal's interim award is not a provisional award. It is a final and binding award as mandated by s.19B(1) and will not be varied by the final award in the 2011 arbitration contrary to s.19B(2). It is final and binding on the secondary dispute pending the final resolution of the primary dispute. And the final award in the arbitration need not and will not vary the interim award because it will determine with finality a different dispute: the primary dispute.
  3. The 2011 tribunal is not functus officio because it has determined with finality only one of the disputes placed before it – the secondary dispute – expressly leaving the primary dispute to be heard and determined in a future decision, on the merits and with finality.
  4. The arguments put forward by PGN are inconsistent with: (i) the approach which PGN itself suggested that CRW should have taken when PGN made its submissions in the litigation arising out of the 2009 arbitration; and (ii) the way forward for CRW which the High Court and the Court of Appeal endorsed in that litigation.

2014: The decision of the High Court

Having heard the above arguments, the view of the High Court was as follows:

  1. Nothing in s.19B of the IAA prohibits a tribunal from issuing a provisional award – that is, an award granting relief which is intended to be effective for a limited period of time – but even if s.19B does contain such a prohibition, it was not breached by the tribunal here, as the tribunal's interim award was not provisional.
  2. The tribunal's interim award was final and binding, and therefore complied with s.19B(1), because the subject matter of the award was CRW's undisputed substantive provisional right to be paid now and PGN's substantive obligation to argue only later. In other words, the subjectmatter of the interim award was the secondary dispute, and therefore the award determined with finality CRW's substantive but provisional right to be paid promptly without having to wait for all remaining aspects of the parties' one dispute to be resolved with finality. Further, the tribunal is perfectly able to dispose of the primary dispute without needing to vary the interim award, and so s.19B(2) of the IAA will not be breached.
  3. The tribunal's award has no preclusive effect on the primary dispute. PGN asserted that as the IAA prohibits provisional awards, and the tribunal's interim award was one such provisional award, s.19B of the IAA makes the award final and binding on the issue of how much PGN must pay CRW and therefore rendered the 2011 tribunal functus officio. However, this argument conflates the primary dispute with the secondary dispute. It is the secondary dispute which is the interim award's subject matter, and nothing about the interim award's finality with regard to the secondary dispute affects the tribunal's ability to determine the primary dispute. (iv) The parties' primary dispute is not res judicata. The tribunal's final award will not revisit the subject-matter of the interim award.

As such, the High Court dismissed both of PGN's applications. PGN has appealed to the Court of Appeal of Singapore and we will continue to monitor what happens next!

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