In this article we consider recent case law in Singapore that confirms that arbitral tribunals have an obligation to review the decisions of Dispute Adjudication Boards under Clause 20.6 of the FIDIC Conditions of Contract for Construction before declaring them final.
The Case
In CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK [2011] SGCA 33, Indonesia's state-owned gas company, Perusahaan Gas Negara (PGN), had hired Indonesian Joint Venture (CRW) to design, procure, install, test and pre-commission an optical fibre cable in Indonesia (the Contract).
The Contract adopted standard "conditions of contract" set out in the 1999 FIDIC Red Book. Standard FIDIC forms of contracts contain requirement for disputes to be referred to a Dispute Adjudication Board (DAB) for its decision in the first instance.
When a dispute arose between the parties regarding variation proposals issued by CRW to PGN, it was accordingly referred to a DAB. The DAB heard the dispute and made several decisions, all of which were accepted, save for one which required PGN to pay CRW the sum of US$17,298,834.57. In accordance with the procedure set out in the Contract, PGN issued a Notice of Dissatisfaction (NOD) alleging the amount awarded by the DAB was excessive and refused to pay.
The matter remained unresolved and on 13 February 2008, CRW filed a request for arbitration with the ICC pursuant to Clause 20.6 of the Contract, with the seat of the arbitration being Singapore. PGN argued that the DAB decision was not "final and binding" and could therefore not be converted into a final arbitral award without the arbitral tribunal first determining whether the DAB decision was correct on the merits. In a "final award" the majority of the ICC arbitral tribunal confirmed that Clause 20.7 does not involve an enquiry into the merits of the DAB decision and that PGN should immediately pay the US$17,298,834.57.
CRW subsequently took out an application before the High Court of Singapore to register the award as a judgment in Singapore. PGN applied to Court to set aside the registration order. The High Court set aside the arbitral award pursuant to Section 24 of the Singapore International Arbitration Act and Article 34(2) of the Model Law since the Contract did not entitle the arbitral tribunal to make the DAB decision final without first hearing the parties on the merits of the decision.
CRW appealed to the Singapore Court of Appeal. On 13 July 2011, the Court considered this issue and approved the set-aside of the ICC arbitration award in favour of CRW on the grounds that the arbitral tribunal had failed in this obligation. The court also held that Clause 20.6 of the Contract and Terms of Reference made it clear that the arbitral tribunal was to decide not only whether CRW was entitled to immediate payment but also, in respect of a binding but non final DAB decision, additional issues of fact or law which the tribunal deemed necessary so that the entirety of the parties disputes can be resolved afresh.
What will be the impact?
This is the first judicial case in which the concept of an interim award to enforce a DAB decision under Clause 20.6 has been discussed and this ruling confirms that arbitral tribunals have an obligation to review the decisions of DABs before declaring them final.
The case also provides a test for whether a DAB decision should be enforced by means of arbitration under Clause 20.6 or Clause 20.7, contingent on whether a valid NOD has been submitted and consequently, whether the DAB decision is "final and binding" or merely "binding".
This ruling could also impact on new trends of expert determination, which are final and binding only in an interim sense, reserving the more complex and mature disputes for arbitration. Such expert determinations could now be subject to the same obligation of merit review by an arbitral panel as DABs.
What do you need to do?
The message from this ruling is that it is critical to ensure that the DAB decision is enforced by arbitration under the correct provision of the relevant arbitration agreement to help avoid a challenge to or overturning of the award.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.