CRW Joint Operation v PT Perusahaan Gas Negara (Persero) TBK

V K Rajah JA (delivering the judgment of the court):

[1] This is an appeal by CRW Joint Operation (“CRW”) against the decision of the High Court judge (“the Judge”) in PT Perusahaan Gas Negara (Persero) TBK v CRW Joint Operation [2010] 4 SLR 672 (“the GD”) allowing the application by the respondent, PT Perusahaan Gas Negara (Persero) TBK (“PGN”), to set aside a final award dated 24 November 2009 (“the Final Award”) issued by the majority members of the arbitral tribunal (“the Majority Members”) in International Chamber of Commerce (“ICC”) International Court of Arbitration Case No 16122/CYK (“the Arbitration”).

[2] This appeal raises some interesting issues in relation to the effect of a decision by a dispute adjudication board (“DAB”) constituted pursuant to the terms of a construction contract that has incorporated the provisions in Conditions of Contract for Construction: For Building and Engineering Works Designed by the Employer (1st Ed, 1999) (“the 1999 FIDIC Red Book”) published by the Fédération Internationale des Ingénieurs-Conseils (“FIDIC”), a federation which aims to represent globally the consulting engineering industry by promoting the business interests of firms supplying technology-based intellectual services for the built and natural environment. The 1999 FIDIC Red Book contains the standard provisions recommended by FIDIC for building or engineering contracts where the contractor undertakes works in accordance with a design provided by the employer. Despite the prevalence of these standard provisions in the construction industry, the issues raised in this appeal vis-à-vis the effect of a DAB decision do not, surprisingly, appear to have received any judicial scrutiny to date. In this judgment, we shall analyse the dispute resolution scheme in and the relevant clauses of the 1999 FIDIC Red Book. However, the salient legal points cannot be understood without a statement of the background facts, to which we now turn.

[3] CRW is a tripartite joint operation established under the laws of the Republic of Indonesia consisting of PT Citra Panji Manunggal, PT Remaja Bangun Kencana Kontraktor and PT Winatek Widita. PGN is a public listed state-owned company established under the laws of the Republic of Indonesia.

[4] Pursuant to a contract dated 28 February 2006 entitled “Pipeline Construction Contract For Grissik-Pagardewa Onshore Gas Transmission Pipeline No 002500.PK/243/UT/2006” (“the Pipeline Contract”), PGN engaged CRW to design, procure, install, test and pre-commission a 36-inch diameter pipeline and an optical fibre cable running from Grissik to Pagardewa in Indonesia. The Pipeline Contract adopted, with certain amendments, the standard provisions set out in the 1999 FIDIC Red Book (these standard provisions will be collectively referred to hereafter as “the 1999 FIDIC Conditions of Contract”).

[5] A dispute arose between the parties regarding 13 variation order proposals submitted by CRW to PGN. In accordance with sub-cl 20.4 of the 1999 FIDIC Conditions of Contract, the dispute was referred to a DAB consisting of a single member, Mr Iain Clark McIntosh (“the Adjudicator”), under a dispute adjudication agreement dated 22 February 2008.

[6] In his written decision handed down on 25 November 2008, the Adjudicator awarded a sum of US$17,298,834.57 to CRW. He indicated that the documentary evidence produced by the parties, the access granted to their files and records as well as the witnesses’ sworn statements negated the need for an oral hearing.

[7] The Adjudicator made a detailed analysis of the construction project undertaken by the parties (“the Project”), including the causes of delay (eg, late delivery of pipelines to the site and adverse ground conditions). Although the governing law of the Pipeline Contract was Indonesian law, the Adjudicator referred extensively to common law cases on the various issues raised by the parties and then gave his interpretation of the effect of the parties’ amendments to the 1999 FIDIC Conditions of Contract. Having considered the legal and the factual positions, the Adjudicator elaborated on his findings apropos the different heads of claim filed by CRW. Disappointed with the Adjudicator’s determination, PGN filed a notice of dissatisfaction (hereafter referred to interchangeably as a “NOD”) on 28 November 2008.

[8] CRW, on the other hand, issued an invoice dated 3 December 2008 to PGN for the amount awarded by the Adjudicator (viz, the sum of US$17,298,834.57). Unsurprisingly, PGN rejected the invoice on the basis that it had filed a NOD and, thus, the Adjudicator’s decision was not yet final and binding. It took the position that the parties should attempt an amicable settlement of their dispute in accordance with sub-cl 20.5 of the 1999 FIDIC Conditions of Contract.

[9] As the parties could not resolve their differences, CRW filed a request for arbitration (“Request for Arbitration”) on 13 February 2009 with the ICC International Court of Arbitration pursuant to sub-cl 20.6 of the 1999 FIDIC Conditions of Contract for the sole purpose of “giving prompt effect to the [Adjudicator’s] [d]ecision”. In response, PGN filed an answer to CRW’s Request for Arbitration (“Answer to Request for Arbitration”) dated 24 April 2009 submitting that the Adjudicator’s decision was not yet final and binding because it (PGN) had properly issued an NOD; thus, it had no obligation to pay CRW the sum of US$17,298,834.57. PGN also contended that pursuant to sub-cl 20.6 of the 1999 FIDIC Conditions of Contract, the Adjudicator’s decision ought to be re-opened by an arbitral tribunal and CRW’s request for prompt payment of the aforesaid sum should be rejected.

[10] On 3 April 2009, the ICC International Court of Arbitration confirmed the appointments of Mr Neil Kaplan (“Mr Kaplan”), who was CRW’s nominee, and Prof H Priyatna Abdurrasyid (“Prof Abdurrasyid”), who was PGN’s nominee, as co-arbitrators of the arbitral tribunal which was to hear the parties’ dispute (“the Arbitral Tribunal”). On 30 April 2009, Mr Alan J Thambiayah (“Mr Thambiayah”) was appointed as the chairman of the Arbitral Tribunal by the ICC International Court of Arbitration upon the proposal of the ICC’s Singapore national committee.

[11] At a preliminary meeting held on 1 June 2009, the parties and the Arbitral Tribunal discussed, inter alia, whether there was any issue or question which would be appropriate to determine preliminarily. The Arbitral Tribunal, after consideration, gave the following directions on 4 June 2009:

The two questions specified by the Arbitral Tribunal in the above extract – viz, (a) whether CRW was entitled to immediate payment of the sum of US$17,298.834.57 awarded by the Adjudicator; and (b) whether PGN was entitled, in the Arbitration, to request the Arbitral Tribunal to open up, review and revise the Adjudicator’s decision – will hereafter be referred to as “the First Preliminary Issue” and “the Second Preliminary Issue” respectively, and as “the Preliminary Issues” collectively.

[13] After the parties filed their respective memorials on the Preliminary Issues and their respective replies thereto, the hearing of the Preliminary Issues (“the Arbitral Hearing”) took place on 16 September 2009. After hearing the parties’ arguments, the Arbitral Tribunal reserved its decision.

[14] On 24 November 2009, the Majority Members (namely, Mr Thambiayah and Mr Kaplan) issued what they described as a “final award” [emphasis added] in favour of CRW (ie, the Final Award defined at [1] above). With regard to the First Preliminary Issue, the Majority Members held that PGN had an obligation to make immediate payment of the sum of US$17,298,834.57 to CRW. As for the Second Preliminary Issue (ie, whether PGN was entitled to request the Arbitral Tribunal to open up, review and revise the Adjudicator’s decision), the Majority Members answered this in the negative. However, they also reserved PGN’s right “to commence an arbitration to seek to revise the [Adjudicator’s] decision”.

[15] On 26 November 2009, Prof Abdurrasyid issued a dissenting opinion. He emphasised that the Adjudicator had failed to apply Indonesian law, which was the governing law of the Pipeline Contract, and had also awarded CRW a sum of money in excess of the amount claimed (see also [71] below), which was prohibited under Indonesian law. In Prof Abdurrasyid’s view, these factors made a re-examination of the Adjudicator’s decision necessary. Further, it was imperative to have a site visit “to understand the real and actual condition of the [P]roject”.

[16] Having secured the Final Award, CRW promptly applied (via Originating Summons No 7 of 2010) for leave to enforce the Final Award in Singapore as though it were a judgment of a Singapore court. On 7 January 2010, an order of court to that effect (“the Enforcement Order”) was made. PGN, on its part, filed separate applications to set aside the Enforcement Order and the Final Award. The former application was adjourned pending the outcome of the latter application.

[17] At the hearing of its application to set aside the Final Award, PGN submitted that the Final Award ought to be set aside under Arts 34(2)(a)(iii)–34(2)(a)(iv) of the UNCITRAL Model Law on International Commercial Arbitration adopted by the United Nations Commission on International Trade Law on 21 June 1985 (“the Model Law”) and s 24(b) of the International Arbitration Act (Cap 143A, 2002 Rev Ed) (“the IAA”). In particular, it submitted that:

(a) The Majority Members exceeded their mandate and jurisdiction in converting the Adjudicator’s decision into a final award without determining the merits of the parties’ underlying dispute and/or without determining whether the Adjudicator’s decision had been made in accordance with the provisions of the Pipeline Contract (citing Art 34(2)(a)(iii) of the Model Law).

(b) The arbitral procedure was not in accordance with what the parties had agreed on, which required the merits of the underlying dispute and/or the accordance (or otherwise) of the Adjudicator’s decision with the provisions of the Pipeline Contract to be determined prior to the making of a final award (citing Art 34(2)(a)(iv) of the Model Law).

(c) The Majority Members’ refusal and/or failure to hear the parties on the merits of the underlying dispute and/or the accordance of the Adjudicator’s decision with the provisions of the Pipeline Contract constituted a breach of the rules of natural justice (citing s 24(b) of the IAA).

(d) The Adjudicator’s decision was not made in accordance with the provisions of the Pipeline Contract as the Adjudicator did not apply the governing law of that contract (viz, Indonesian law), and/or added new claims to the claims originally submitted by CRW, thereby double-counting several claims which had previously been settled.

[18] We should add that the last of the aforementioned grounds of challenge to the Final Award was briskly (and, in our view, rightly) rejected by the Judge as being outside the scope of s 24(b) of the IAA and Art 34(2)(a) of the Model Law (see [10] of the GD). This particular ground of challenge is no longer in issue in the present appeal.

[19] CRW, on its part, contended in the court below that PGN’s application to set aside the Final Award was substantially an appeal on the merits of that award, which was not permissible. It characterised the parties’ dispute on whether PGN was obliged to make immediate payment of the sum of US$17,298,834.57 as “a ‘second dispute’ between the parties” (see [4] of the GD), and explained that it had commenced the Arbitration for the purpose of resolving that second dispute (“the Second Dispute”) in accordance with the 1999 FIDIC Conditions of Contract. Its Request for Arbitration, CRW contended, was strictly limited to the Second Dispute, ie, to the issue of whether PGN was obliged to immediately comply with the Adjudicator’s decision.

[20] The Judge did not accept CRW’s main contention that PGN’s application to set aside the Final Award was an appeal on the merits of the Majority Members’ decision. In her view, the issue was whether the Majority Members had purported to exercise a power which they did not have under the 1999 FIDIC Conditions of Contract in ordering PGN to make immediate payment of the sum of US$17,298,834.57 to CRW (see [11] of the GD).

[21] After a carefully considered analysis of cl 20 of the 1999 FIDIC Conditions of Contract, the Judge set aside the Final Award on the ground that the Majority Members had exceeded the scope of the arbitration provisions in the 1999 FIDIC Conditions of Contract, namely, sub-cll 20.4–20.7 thereof (collectively referred to hereafter as “the 1999 FIDIC Arbitration Provisions” where appropriate). The Judge gave the following explanation for her decision on this point:

(a) The Majority Members had issued a final award on the Second Dispute even though that dispute had not been referred to the Adjudicator as required under the 1999 FIDIC Arbitration Provisions (see [30]–[31] and [37] of the GD); and

(b) even if the Second Dispute was referable to arbitration, the 1999 FIDIC Arbitration Provisions did not entitle the Arbitral Tribunal to make the Adjudicator’s decision final without first hearing the parties on the merits of that decision (see [33]–[37] of the GD).

[22] Having decided in favour of PGN on the above ground (which is, in essence, the ground set out in Art 34(2)(a)(iii) of the Model Law), the Judge proceeded to consider PGN’s submissions apropos Art 34(2)(a)(iv) of the Model Law and s 24(b) of the IAA. She rejected PGN’s submissions on both of these provisions – ie, she allowed PGN’s application to set aside the Final Award based on Art 34(2)(a)(iii) of the Model Law alone.

[23] Dissatisfied with the Judge’s decision to set aside the Final Award, CRW filed the present appeal.

[24] The issues arising in this appeal are as follows:

(b) What is the structure of the dispute resolution procedure set out in the 1999 FIDIC Conditions of Contract? (This shall be referred to as “Issue 2”.)

(c) Was the Final Award issued in accordance with sub-cl 20.6 of the 1999 FIDIC Conditions of Contract? (This shall be referred to as “Issue 3”.)

(d) If the answer to Issue 3 is “No”:

(i) did the Majority Members act in excess of their jurisdiction (“Issue 4”); and

(ii) was there a breach of the rules of natural justice at the Arbitral Hearing (“Issue 5”)?

(f) If the answer to Issue 4 and/or Issue 5 is “yes”, should the court exercise its residual discretion to refuse to set aside the Final Award? (This shall be referred to as “Issue 6”.)

Before we proceed to analyse these issues, we shall first outline the relevant legal principles apropos the court’s discretionary power to set aside international arbitral awards (referred to hereafter as “arbitral awards” simpliciter for short).

[25] The court’s power to set aside an arbitral award is limited to setting aside based on the grounds provided under Art 34 of the Model Law and s 24 of the IAA. As declared by this court in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd [2007] 3 SLR(R) 86 (“Soh Beng Tee”) at [59], the current legal framework prescribes that the courts should not without good reason interfere in the arbitral process. This policy of minimal curial intervention by respecting finality in the arbitral process acknowledges the primacy which ought to be given to the dispute resolution mechanism that the parties have expressly chosen.

[26] However, it has also been said (correctly) that no State will permit a binding arbitral award to be given or enforced within its territory without being able to review the award, or, at least, without allowing the parties an opportunity to address the court if there has been a violation of due process or other irregularities in the arbitral proceedings (see Peter Binder, International Commercial Arbitration and Conciliation in UNCITRAL Model Law Jurisdictions (Sweet & Maxwell, 3rd Ed, 2010) at para 7-001).

[27] While the Singapore courts infrequently exercise their power to set aside arbitral awards, they will unhesitatingly do so if a statutorily prescribed ground for setting aside an arbitral award is clearly established. The relevant grounds in this regard can be classified into three broad categories (see generally Nigel Blackaby et al, Redfern and Hunter on International Arbitration (Oxford University Press, 5thEd, 2009) (“Redfern and Hunter”) at paras 10.30–10.86). First, an award may be challenged on jurisdictional grounds (ie, the non-existence of a valid and binding arbitration clause, or other grounds that go to the adjudicability of the claim determined by the arbitral tribunal). Second, an award may be challenged on procedural grounds (eg, failure to give proper notice of the appointment of an arbitrator), and, third, the award may be challenged on substantive grounds (eg, breach of the public policy of the place of arbitration).

[28] As stated at [22] above, in the court below, the Judge set aside the Final Award pursuant to Art 34(2)(a)(iii) of the Model Law only, relying on the specific ground that the Majority Members had exceeded their jurisdiction. She rejected PGN’s arguments that the Final Award could also be set aside based on Art 34(2)(a)(iv) of the Model Law and s 24(b) of the IAA. In this appeal, PGN does not dispute the Judge’s decision to reject its submissions on Art 34(2)(a)(iv) of the Model Law. Accordingly, we are concerned only with the applicability of Art 34(2)(a)(iii) of the Model Law and s 24(b) of the IAA.

[29] Article 34(2)(a)(iii) of the Model Law states:

[30] In PT Asuransi Jasa Indonesia (Persero) v Dexia Bank SA [2007] 1 SLR(R) 597, this court held (at [44]) that the court had to adopt a two-stage enquiry in assessing whether an arbitral award ought to be set aside under Art 34(2)(a)(iii) of the Model Law. Specifically, it had to determine:

(a) first, what matters were within the scope of submission to the arbitral tribunal; and

(b) second, whether the arbitral award involved such matters, or whether it involved “a new difference … outside the scope of the submission to arbitration and accordingly … irrelevant to the issues requiring determination” [emphasis in original] (at [40]).

[31] It is useful, at this juncture, to set out some of the legal principles underlying the application of Art 34(2)(a)(iii) of the Model Law. First, Art 34(2)(a)(iii) is not concerned with the situation where an arbitral tribunal did not have jurisdiction to deal with the dispute which it purported to determine. Rather, it applies where the arbitral tribunal improperly decided matters that had not been submitted to it or failed to decide matters that had been submitted to it. In other words, Art 34(2)(a)(iii) addresses the situation where the arbitral tribunal exceeded (or failed to exercise) the authority that the parties granted to it (see Gary B Born, International Commercial Arbitration (Wolters Kluwer, 2009) at vol 2, pp 2606–2607 and 2798–2799). This ground for setting aside an arbitral award covers only an arbitral tribunal’s substantive jurisdiction and does not extend to procedural matters (see Robert Merkin & Johanna Hjalmarsson, Singapore Arbitration Legislation Annotated (Informa, 2009) (“Singapore Arbitration Legislation”) at p 117).

[32] Second, it must be noted that a failure by an arbitral tribunal to deal with every issue referred to it will not ordinarily render its arbitral award liable to be set aside. The crucial question in every case is whether there has been real or actual prejudice to either (or both) of the parties to the dispute. In this regard, the following passage in Redfern and Hunter (at para 10.40) correctly summarises the position:

[33] Third, it is trite that mere errors of law or even fact are not sufficient to warrant setting aside an arbitral award under Art 34(2)(a)(iii) of the Model Law (see Sui Southern Gas Co Ltd v Habibullah Coastal Power Co (Pte) Ltd [2010] 3 SLR 1 at [19]–[22]). In the House of Lords decision of Lesotho Highlands Development Authority v Impregilo SpA and others [2006] 1 AC 221, which concerned an application to set aside an arbitral award on the ground of the arbitral tribunal’s “exceeding its powers” (see s 68(2)(b) of the Arbitration Act 1996 (c 23) (UK) (“the UK Arbitration Act”)), Lord Steyn made clear (at [24]–[25]) the vital distinction between the erroneous exercise by an arbitral tribunal of an available power vested in it (which would amount to no more than a mere error of law) and the purported exercise by the arbitral tribunal of a power which it did not possess. Only in the latter situation, his Lordship stated, would an arbitral award be liable to be set aside under s 68(2)(b) of the UK Arbitration Act on the ground that the arbitral tribunal had exceeded its powers. In a similar vein, Art 34(2)(a)(iii) of the Model Law applies where an arbitral tribunal exceeds its authority by deciding matters beyond its ambit of reference or fails to exercise the authority conferred on it by failing to decide the matters submitted to it, which in turn prejudices either or both of the parties to the dispute (see above at [31]).

[34] Based on the above principles, the challenge under Art 34(2)(a)(iii) of the Model Law to the Final Award in the present case involves the determination of:

(a) whether the Majority Members had the power under the TOR – in particular, under sub-cl 20.6 of the 1999 FIDIC Conditions of Contract, which forms part of the TOR (see [12] above) – to issue the Final Award without opening up, reviewing and revising the Adjudicator’s decision; and

(b) if the Majority Members did not have such power, whether their conduct in acting in excess of their jurisdiction caused real or actual prejudice to PGN.

[35] Section 24(b) of the IAA provides that notwithstanding Art 34(1) of the Model Law, an arbitral award can be set aside if a breach of the rules of natural justice occurred in connection with the making of the award, by which the rights of any party have been prejudiced. In this regard, Art 18 of the Model Law provides that the parties to an arbitration shall be treated with equality and each party shall be given a full opportunity of presenting his case.

[36] As noted in Soh Beng Tee at [63], the appointed arbitrator will usually be an expert in the field of law and/or trade that is the subject of dispute, and the parties intend to rely on his expertise to obtain a sound and expeditious decision. The courts, therefore, must not blindly and/or mechanically apply the rules of natural justice so as to require every conclusion that the arbitrator intends to make to be put to or raised with the parties (see also David Joseph, Jurisdiction and Arbitration Agreements and their Enforcement (Sweet & Maxwell, 2nd Ed, 2010) at para 16.28). As stated in Singapore Arbitration Legislation at p 65, a mere failure by an arbitrator to act as efficiently as he might or a minor divergence from the procedural rules established by the parties is not of itself sufficient to justify a remedy for breach of the rules of natural justice. An arbitrator is perfectly entitled to adhere to procedural rules agreed to by the parties or adopted by the arbitrator himself within his powers.

[37] To set aside an arbitral award under s 24(b) of the IAA, the court has to be satisfied, first, that the arbitral tribunal breached a rule of natural justice in making the arbitral award. Second, and more importantly, the court must then be satisfied that the breach of natural justice caused actual or real prejudice to the party challenging the award. In other words, the breach of the rules of natural justice must have actually altered the final outcome of the arbitral proceedings in some meaningful way before curial intervention is warranted. Where the same result could or would ultimately have ensued even if the arbitrator had acted properly, there would be no basis for setting aside the arbitral award in question (see Soh Beng Tee at [29] and [82]–[91]).

[38] As in the preceding section vis-à-vis challenging the Final Award based on Art 34(2)(a)(iii) of the Model Law (see [34] above), the pertinent questions where challenging the Final Award based on s 24(b) of the IAA is concerned are: (a) whether the Majority Members breached any rule of natural justice in making the Final Award without opening up, reviewing and revising the Adjudicator’s decision; and, (b) if they did commit such a breach, whether the breach caused actual or real prejudice to PGN.

[39] Having set out the broad legal principles above, we can now turn to analyse the issues which we have identified (at [24] above) as being the relevant issues in this appeal.

[40] We begin with Issue 1, viz, the issue of what matters the Arbitral Tribunal was appointed to decide in the Arbitration.

[41] As mentioned at [9] above, CRW filed its Request for Arbitration pursuant to sub-cl 20.6 of the 1999 FIDIC Conditions of Contract. However, it expressly stated in its Request for Arbitration that the ambit of the Arbitration was “limited to giving prompt effect to the [Adjudicator’s] [d]ecision”, and framed the issue to be decided by the Arbitral Tribunal as follows:

[42] PGN firmly rejected CRW’s position in its Answer to Request for Arbitration. PGN submitted, inter alia, that it had no obligation to pay the US$17,298,834.57 awarded by the Adjudicator because it had validly submitted a NOD, which rendered the Adjudicator’s decision “not yet final and binding”. PGN contended that, therefore, the Arbitral Tribunal ought to open up, review and revise the Adjudicator’s decision, as well as hear the relevant witnesses and experts to obtain actual information and evidence pertinent to the parties’ dispute in accordance with sub-cl 20.6 of the 1999 FIDIC Conditions of Contract. It emphatically stated that the Arbitral Tribunal “[could] not and [should] not deliberate the current dispute merely based on [the Adjudicator’s] [d]ecision”.

[43] Subsequent to the directions given by the Arbitral Tribunal on 4 June 2009 (see [11] above), the parties signed the TOR on 17 June 2009 (see [12] above). The TOR stated clearly that the Arbitration was commenced pursuant to sub-cl 20.6 of the 1999 FIDIC Conditions of Contract. Further, it is plain that under the TOR, the Arbitral Tribunal was, by the parties’ consent, conferred an unfettered discretion to reopen and review each and every finding by the Adjudicator. In other words, the Arbitral Tribunal was appointed to decide not only whether CRW was entitled to immediate payment of the sum of US$17,298,834.57 (viz, the First Preliminary Issue defined at [11] above), but also “any additional issues of fact or law which the Arbitral Tribunal, in its own discretion, [might] deem necessary to decide for the purpose of rendering its arbitral award”. With this crucial factual backdrop in mind, we now turn to consider Issue 2, viz, the structure of the dispute resolution procedure prescribed in the 1999 FIDIC Conditions of Contract.

[44] The dispute between the parties centred on the construction of the dispute resolution provisions in the 1999 FIDIC Conditions of Contract, in particular, on sub-cll 20.4–20.7 thereof (viz, the 1999 FIDIC Arbitration Provisions defined at [21] above). These sub-clauses outline the process of referring a dispute to a DAB and, subsequently (where applicable), to arbitration as follows:

[45] It can be seen from the foregoing that the dispute resolution procedure under the 1999 FIDIC Conditions of Contract envisages a dispute being referred to a DAB first, with arbitration being resorted to only if there is dissatisfaction with the DAB’s decision which the parties are unable to resolve amicably. Accordingly, in the analysis which follows, we shall consider dispute resolution by a DAB first, before turning to dispute resolution by arbitration.

[46] In Cyril Chern, Chern on Dispute Boards: Practice and Procedure (Blackwell Publishing, 2008) (“Chern”), the general nature of a DAB is succinctly summarised (at p 2) thus:

[47] Chern elaborates (at p 192) on the inquisitorial nature of a hearing conducted by a DAB:

[48] In short, the DAB is not bound by any fixed rules of procedure, and is able to adopt the most appropriate method in making its determination (such as conducting a hearing or undertaking an inquisitorial process), subject to the general requirements of: (a) acting fairly and reasonably; and (b) giving each party a reasonable opportunity to advance its case and to respond to the other party’s case. Indeed, the DAB may even do without an oral hearing if it believes that such a hearing is unnecessary, unless one or both of the parties request for it (see Susanne Kratzsch, “ICC Dispute Resolution Rules: ICC dispute boards and ICC Pre-Arbitral Referees” (2010) 26 Constr LJ 87 at p 94).

[49] In the present case, the status or effect of a DAB decision under the 1999 FIDIC Conditions of Contract formed the crux of the dispute in the Arbitration. Sub-clause 20.4 of the 1999 FIDIC Conditions of Contract provides that a decision of a DAB shall be “binding” on the parties, who shall “promptly give effect to it unless and until it shall be revised in an amicable settlement or an arbitral award”.

[50] Chern remarks (at p 5) that a DAB decision has interim binding effect, as opposed to a decision of a dispute review board, which only serves as a non-binding recommendation. According to Chern (likewise at p 5):

While it is generally accepted that a DAB decision has interim binding effect, the mode of enforcing such a binding decision has been the subject of much debate and, unsurprisingly, no little controversy. In Ugo Draetta, “Dispute Resolution in International Construction-Linked Contracts” (2011) 1 IBLJ 69, the author assesses the effect of a DAB decision as follows (at p 80):

[51] A binding decision is one that has an obligatory effect. The terms “binding” and “final” are not synonymous. A binding decision is not invariably a final one. A final decision is, in essence, one that is unalterable and not open to further review. Where a DAB decision is concerned, the decision remains binding and has contractual force even if a NOD is filed. But, the decision is not conferred the status of a final decision. It does not have the status of finality that an arbitral award has under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards adopted in New York on 10 June 1958 by the United Nations Conference on International Commercial Arbitration at its twenty-fourth meeting (“the New York Convention”). Vis-à-vis arbitral awards to which the New York Convention applies, our courts have little choice but to recognise and enforce such awards unless one or more of the grounds prescribed in Art V of the New York Convention for refusing to recognise and enforce an arbitral award exist (see ss 29 and 31 of the IAA). In contrast, a DAB decision is not a final award or decision in the conventional sense as the entire underlying dispute which gave rise to the decision can be reheard if and when it is referred to arbitration pursuant to the scheme set out in the 1999 FIDIC Conditions of Contract.

[52] Since there is no treaty or legislation based on which a DAB decision may be enforced, any avenue of enforcement of a DAB decision is dependent on the terms of the contract between the parties (see Doug Jones, “Dealing with Multi-Tiered Dispute Resolution Process” (2009) 75 Arbitration 188 at pp 193–194). In the present case, CRW sought to rely on sub-cl 20.6 of the 1999 FIDIC Conditions of Contract to enforce the Adjudicator’s decision by commencing the Arbitration for the sole purpose of giving prompt effect to that decision. The crucial question is whether, under sub-cl 20.6, the Majority Members could issue a final award without first considering the merits of PGN’s NOD by opening up, reviewing and revising the merits of the Adjudicator’s decision. This requires a consideration of the arbitration regime set out in the 1999 FIDIC Conditions of Contract, to which we now turn.

[53] Sub-clause 20.6 of the 1999 FIDIC Conditions of Contract provides that any DAB decision which has not become final and binding “shall be finallysettled by international arbitration” [emphasis added in italics and bold italics]. It further provides that neither party shall be limited in the arbitral proceedings to the evidence or arguments previously presented to the DAB or to the reasons for dissatisfaction stated in the NOD filed. Prof Nael G Bunni (“Prof Bunni”), a leading arbitrator in international dispute resolution concerning construction disputes, has written an authoritative commentary, “The Gap in Sub-Clause 20.7 of the 1999 FIDIC Contracts for Major Works” [2005] ICLR 272 (“Prof Bunni’s article”), in which he argues (at p 280) that since the parties to an arbitration under sub-cl 20.6 of the 1999 FIDIC Conditions of Contract can make new submissions before the arbitral tribunal, the case presented to the arbitral tribunal could be an entirely different one from that examined by the DAB. Prof Bunni suggests, therefore, that sub-cl 20.6 is “not intended to be an appeal but a fresh submission that would lead to a new case” (at p 280), with the arbitral tribunal discharging not an appellate or confirmatory role, but a fresh adjudicatory role in the new case presented to it. However, Prof Bunni also maintains (correctly, in our view) that pending the arbitral tribunal’s adjudication, there should be compliance with the DAB decision.

[54] A similar view has been cogently expressed in Ellis Baker et al, FIDIC Contracts: Law and Practice (Informa, 2009) as follows:

[55] Where a DAB decision is not challenged within the prescribed time period of 28 days provided for in sub-cl 20.4 of the 1999 FIDIC Conditions of Contract, it becomes final and binding on the parties. In such a situation, pursuant to sub-cl 20.7 of the 1999 FIDIC Conditions of Contract, non-compliance with the DAB decision can be referred to arbitration for the sole purpose of enforcement. As stated in Jeremy Glover & Simon Hughes, Understanding the New FIDIC Red Book: A Clause-by-Clause Commentary (Sweet & Maxwell, 2006) (“Understanding the New FIDIC Red Book”) at para 20-053:

[56] Prof Bunni’s article penetratingly analyses the situation where a DAB decision has not become final and binding, and the party against whom the decision was made fails to comply with it (this is the “gap” which is the subject matter of that article). Prof Bunni’s article points out (at p 276) that in such a case, there is no remedy offered by cl 20 of the 1999 FIDIC Conditions of Contract, other than that of treating the non-compliant party as being in breach of contract and, accordingly, liable for damages. The drawback of this method of recourse is that the DAB decision becomes of little immediate value. Sub-clause 20.7 of the 1999 FIDIC Conditions of Contract is of no assistance to the aggrieved party in this scenario (ie, where there is non-compliance with a binding but non-final DAB decision) as it applies only to DAB decisions which have become final and binding.

[57] Both Prof Bunni and the learned authors of Understanding the New FIDIC Red Book did not consider the decision in ICC International Court of Arbitration Case No 10619 (“ICC Case No 10619”), which, although rendered in 2001, was published only in 2008. In ICC Case No 10619, the claimant contractor entered into two separate contracts with the respondent employer for the construction of roads. The contracts incorporated the provisions set out in FIDIC’s Conditions of Contract for Works of Civil Engineering Construction (4th Ed, 1987) (“the 1987 FIDIC Red Book”). The engineer made certain decisions ordering payment by the employer to the contractor, but the employer did not comply with those decisions. Subsequently, the contractor filed a Request for Arbitration with the ICC International Court of Arbitration pursuant to cl 67 of the 1987 FIDIC Red Book. The contractor claimed damages based on several complaints, including the employer’s failure to grant funding for the project and possession of the site, as well as the employer’s “failure to give effect to [the] Engineer’s decision[s] pursuant to sub-clause 67.1 of the [1987 FIDIC Red Book]” (see para 4(e) of the interim award made in ICC Case No 10619). It should be noted that prior to filing its Request for Arbitration, the contractor had also issued a NOD in respect of the engineer’s decisions (ie, the contractor, although dissatisfied with the engineer’s decisions, was at the same time seeking to enforce those decisions).

[58] The relevant portion of sub-cl 67.1 of the 1987 FIDIC Red Book provides that:

[59] After the contractor’s Request for Arbitration and the employer’s Answer to Request for Arbitration were filed, the contractor declared its intention to request the arbitral tribunal to render an interim award to the following effect (see para 6 of the interim award made in ICC Case No 10619):

[60] The arbitral tribunal granted an interim award in respect of two of the engineer’s decisions on the ground that this was simply a matter of contract law (it rejected, however, the contractor’s request for an interim award in respect of two other decisions of the engineer on the ground that those decisions had been rendered out of time). The arbitral tribunal explained its decision as follows in the interim award:

[61] The arbitral tribunal in ICC Case No 10619 thus astutely made it clear that enforcing the engineer’s decisions by way of an interim award would not prejudice the employer’s right to argue later in the same arbitration that those decisions were wrong and that the corresponding amounts which the engineer had ordered to be paid to the contractor should be repaid to the employer. The arbitral tribunal subsequently released a final award which examined fully the merits of the parties’ dispute.

[62] In Christopher R Seppälä, “Enforcement by an Arbitral Award of a Binding but not Final Engineer’s or DAB’s decision under the FIDIC Conditions” [2009] ICLR 414 (“Seppälä’s article”), the author suggests (at p 424) that the arbitral tribunal in ICC Case No 10619:

The author argues (at p 426) that the same result should be reached in the case of a DAB decision under cl 20 of the 1999 FIDIC Conditions of Contract because the relevant language of that clause is essentially the same as that of cl 67 of the 1987 FIDIC Red Book.

[63] Accordingly, Seppälä’s article suggests (correctly, in our view) that even if either party has issued a NOD with respect to a DAB decision pursuant to sub-cl 20.4 of the 1999 FIDIC Conditions of Contract, each party is bound to give effect to that decision (which will be binding but non-final by virtue of the NOD(s) issued), and if that decision calls for payment to be made by one party to the other, then the decision should be enforceable directly by an interim or partial award pursuant to the ICC Rules of Arbitration. Further, as stated at para 9.220 of FIDIC Contracts: Law and Practice, while a party has no express right to refer to arbitration the failure of the other party to comply with a DAB decision where a NOD has been given by either party (ie, where the DAB decision in question has not become final and binding), a party may include (in an arbitration commenced under sub-cl 20.6 of the 1999 FIDIC Conditions of Contract) a claim for an interim award to enforce the DAB decision pending the final resolution of the dispute by the arbitral tribunal.

[64] Subsequent to the publication of the decision in ICC Case No 10619, the Dispute Board Federation, an organisation founded to promote the use of dispute boards as a means of dispute avoidance on large infrastructure projects in developing countries, published on its website a special edition of its newsletter dated September 2010 (“the September 2010 DBF newsletter”) highlighting another recent decision of the ICC International Court of Arbitration. In that decision, the arbitral tribunal was concerned with the enforcement of two binding but non-final DAB decisions rendered under a slightly amended version of the 1999 FIDIC Conditions of Contract. The DAB decisions were effectively obtained ex parte by the contractor in its favour as the employer had continually refused to participate in any stage of the DAB process. The employer then served a notice of dissatisfaction against the DAB decisions and proceeded to refer its own disputes to arbitration. The contractor counterclaimed for damages by relying on the DAB decisions and applied for bifurcation of the arbitral proceedings, seeking a partial award that, inter alia, the DAB decisions were binding and enforceable against the employer. (The contractor sought a partial award instead of an interim award because the former was considered to be more straightforward than the latter where enforcement in the courts of the employer’s jurisdiction was concerned.)

[65] The arbitral tribunal agreed with the contractor’s primary argument that the DAB decisions were enforceable under a partial award. In reaching that conclusion, the arbitral tribunal made it very clear that the subject matter of the DAB decisions could be opened up, reviewed and revised by the arbitral tribunal subsequently in the same arbitration in accordance with the express power to do so as granted by sub-cl 20.6 of the 1999 FIDIC Conditions of Contract.

[66] In the light of the foregoing, it seems quite plain to us that a reference to arbitration under sub-cl 20.6 of the 1999 FIDIC Conditions of Contract in respect of a binding but non-final DAB decision is clearly in the form of a rehearing so that the entirety of the parties’ dispute(s) can finally be resolved afresh. While there is a theoretical gap in the immediate enforceability of such a DAB decision under the 1999 FIDIC Conditions of Contract, both ICC Case No 10619 and the case mentioned in the September 2010 DBF newsletter suggest that the practical response is for the successful party in the DAB proceedings to secure an interim or partial award from the arbitral tribunal in respect of the DAB decision pending the consideration of the merits of the parties’ dispute(s) in the same arbitration.

[67] In addition, we note an important point which was not considered in the court below. Where a NOD has been validly filed against a DAB decision by one or both of the parties, and either or both of the parties fail to comply with that decision (which, by virtue of the NOD(s) filed, will be binding but non-final), sub-cl 20.6 of the 1999 FIDIC Conditions of Contract requires the parties to finally settle their differences in the same arbitration, both in respect of the non-compliance with the DAB decision and in respect of the merits of that decision. In other words, sub-cl 20.6 contemplates a single arbitration where all the existing differences between the parties arising from the DAB decision concerned will be resolved. The respondent to the proceedings may raise the issues which it wishes the arbitral tribunal to consider either in its defence and or in the form of a counterclaim. There is no particular doctrine or rule that the respondent can only dispute a binding but non-final DAB decision by way of a counterclaim. Even if both parties were to file NODs in respect of the DAB decision, all the disputes have to be resolved in one consolidated arbitration.

[68] This observation is consistent with the plain phraseology of sub-cl 20.6, which requires the parties’ dispute in respect of any binding DAB decision which has yet to become final to be “finally settled by international arbitration”. Sub-clause 20.6 clearly does not provide for separate proceedings to be brought by the parties before different arbitral panels even if each party is dissatisfied with the same DAB decision for different reasons.

[69] We move on now to Issue 3, viz, whether the Final Award was issued in accordance with sub-cl 20.6 of the 1999 FIDIC Conditions of Contract. This turns on whether the Majority Members had the power to issue the Final Award without opening up, reviewing and revising the Adjudicator’s decision (see [34] and [52] above).

[70] In its memorial dated 13 July 2009, CRW argued that PGN was not entitled to request the Arbitral Tribunal to open up, review and revise the Adjudicator’s decision. It submitted that the scope of the Arbitration was limited to giving prompt effect to the Adjudicator’s decision as reflected in its Request for Arbitration (see above at [9]). As PGN had not submitted a counterclaim, its request to open up, review and revise the Adjudicator’s decision should be rejected. We should also point out that CRW initially challenged the validity of PGN’s NOD on the basis that it had not been properly submitted. However, at the commencement of the Arbitral Hearing, CRW retracted that objection.

[71] In contrast to the position taken by CRW, PGN, in its memorial dated 10 July 2009, set out in a detailed manner the Arbitral Tribunal’s power to: (a) open up, review and revise the Adjudicator’s decision; (b) hear the relevant witnesses and experts in order to obtain actual information and material evidence; and (c) independently determine the actual payment that either party had to make to the other. PGN elaborated at length on the alleged errors in the Adjudicator’s decision (eg, it argued that the decision was not made in accordance with the governing law of the Pipeline Contract, which was Indonesian law, as the Adjudicator had referred extensively to common law cases and had not referred to Indonesian law at all). In addition, PGN alleged that the Adjudicator had failed to observe factual conditions, and had also failed to afford PGN a reasonable opportunity to present its case as he had accepted the evidence of a representative of CRW without giving PGN the chance to respond to that evidence. Importantly, PGN also referred to various underlying documents to submit that the Adjudicator had strangely expanded CRW’s claim from US$13,955,634 to US$17,298,834.57 as a result of several erroneous instances of double-counting. Based on the above factors, PGN submitted that the Arbitral Tribunal ought to grant its request to open up, review and revise the Adjudicator’s decision.

[72] The parties resolutely maintained their respective positions in their reply memorials and also during the Arbitral Hearing on 16 September 2009 (save for a crucial concession made by CRW (see below at [87])).

[73] After the Arbitral Hearing on 16 September 2009, the Majority Members issued the Final Award on 24 November 2009. It is noteworthy that the Majority Members acknowledged (at para 25 of the Final Award) that the dispute had been referred to arbitration under sub-cl 20.6 of the 1999 FIDIC Conditions of Contract.

[74] With regard to the First Preliminary Issue, the Majority Members analysed sub-cll 20.4–20.6 of the 1999 FIDIC Conditions of Contract and stated thus in the Final Award:

[75] It can be seen from the above extract that the Majority Members were clearly aware of the distinction between a final and binding DAB decision and a binding but non-final DAB decision. The Majority Members concluded (at para 45 of the Final Award) that PGN had an obligation to make immediate payment of the sum of US$17,298,834.57 to CRW.

[76] As for the Second Preliminary Issue (ie, whether PGN was entitled to request the Arbitral Tribunal to open up, review and revise the Adjudicator’s decision), the Majority Members placed emphasis (at paras 48–51 of the Final Award) on the fact that PGN had not served any counterclaim. They considered PGN’s request for a review of the Adjudicator’s decision to be merely a defence to CRW’s claim for immediate payment, which defence was untenable. The Majority Members reasoned as follows in the Final Award:

[77] The Majority Members thus decided that the answer to the Second Preliminary Issue was “no”, although they reserved PGN’s right to commence a fresh arbitration to revise the Adjudicator’s decision. The Majority Members concluded at para 53 of the Final Award:

[78] In our view, the emphasised part of the above quote sets out the crucial difference between the Arbitration in the present case and the other two ICC International Court of Arbitration cases referred to above at [57]–[66], where an interim or partial award was granted to enforce binding but non-final DAB decisions. Despite purporting to reserve PGN’s right to commence fresh arbitration proceedings to open up, review and revise the Adjudicator’s decision, the fact remains that the Arbitration concluded with the Majority Members making the Final Award upholding that decision without an examination of its merits.

[79] We find it difficult to understand why the Majority Members ignored the clear language of sub-cl 20.6 of the 1999 FIDIC Conditions of Contract to “finally [settle]” the dispute between the parties and instead abruptly enforced the Adjudicator’s decision (by way of the Final Award) without reviewing the merits of that decision. What the Majority Members ought to have done, in accordance with the TOR (and, in particular, sub-cl 20.6 of the 1999 FIDIC Conditions of Contract), was to make an interim award in favour of CRW for the amount assessed by the Adjudicator (or such other appropriate amount) and then proceed to hear the parties’ substantive dispute afresh before making a final award.

[80] Accordingly, our answer to Issue 3 is “no” – ie, the Final Award was not issued in accordance with sub-cl 20.6 of the 1999 FIDIC Conditions of Contract. This in turn raises the question of whether the Majority Members exceeded their jurisdiction in making the Final Award (which is Issue 4) and whether they breached the rules of natural justice (which is Issue 5). If Issue 4 is answered in the affirmative, the Final Award may be set aside under Art 34(2)(a)(iii) of the Model Law, whilst if Issue 5 is answered in the affirmative, the Final Award may be set aside under s 24(b) of the IAA.

[81] Before we consider Issue 4, it is necessary to briefly deal with a preliminary point raised by CRW, namely: PGN had not raised any jurisdictional objections before the Arbitral Tribunal and, therefore, it had (according to CRW) waived its right to object to the Arbitral Tribunal’s lack of jurisdiction and/or was estopped from raising this objection before the Judge. In our view, this argument is entirely misconceived. From the time PGN filed its Answer to Request for Arbitration, it steadfastly objected to CRW’s submission that the Arbitral Tribunal had the authority or power to limit the scope of the Arbitration to giving prompt effect to the Adjudicator’s decision without going into the merits of that decision. We need say no more on this.

[82] Given what we have said earlier about the structure of the dispute resolution procedure under the 1999 FIDIC Conditions of Contract, we are of the view that the Majority Members simply did not have the power under sub-cl 20.6 to issue the Final Award in the manner that they did, ie, without assessing the merits of PGN’s defence and of the Adjudicator’s decision as a whole. As we have shown above (at [53]–[54]), an arbitration commenced under sub-cl 20.6 constitutes a rehearing, which in turn allows the parties to have their dispute “finally settled” in that arbitration. The Majority Members clearly ignored sub-cl 20.6 (and, indeed, the TOR as a whole), and fundamentally altered the terrain of the entire proceedings as well as the arbitral award which would have been issued if they had reviewed the merits of the Adjudicator’s decision (regardless of what the final outcome might have been).

[83] The Majority Members did not say in the Final Award that there were no merits in PGN’s grounds for refusing to make payment of the sum of US$17,298,834.57 to CRW. If they genuinely believed that PGN had to file a counterclaim in order to pursue its objection to making payment (in this regard, see further [87]–[88] below), it was certainly open to them to direct that such a counterclaim be filed. They did not, however, do so. Instead, they inexplicably proceeded to adopt an unprecedented course of action – viz, making the Arbitrator’s decision final without assessing its merits – and did not adequately explain the basis for this course of action.

[84] In this regard, counsel for CRW ingeniously suggested to this court that the Final Award was not in effect “final” since the Majority Members had expressly reserved PGN’s right to commence a separate arbitration to challenge the Arbitrator’s decision. We cannot accept this submission. Quite apart from the fact that the award made by the Majority Members was conspicuously labelled as a “Final Award” [emphasis added] on its cover page, the Majority Members stated (at para 53 of the Final Award) that “there [was] nothing further to be dealt with in th[e] [A]rbitration” [emphasis added]. It is as plain as a pikestaff that the Majority Members meant “final” to mean “conclusive or unalterable” [emphasis added in bold italics] (see para 38 of the Final Award). The purported reservation of PGN’s rights to commence a fresh arbitration before another arbitral tribunal to review the merits of the Adjudicator’s decision was odd, to say the least.

[86] What we have said at [82]–[85] above suffices to dispose of Issue 4. Before we move on to Issue 5, we wish to make some observations on PGN’s failure to file a counterclaim in the Arbitration and the bearing which this had (if any) on whether or not the Arbitral Tribunal had to review the Adjudicator’s decision on the merits.

[87] Much was made by CRW of PGN’s failure to file a counterclaim in the Arbitration. CRW argued repeatedly both during the Arbitration and in the court proceedings that PGN’s failure in this regard meant that the Arbitral Tribunal was not required to review the Adjudicator’s decision on the merits. However, we note that CRW made a crucial concession on this issue during the Arbitral Hearing, as can be seen from the following exchange between CRW’s counsel, Mr Siraj Omar (“Mr Omar”), and the Arbitral Tribunal:

[88] Counsel for CRW therefore accepted that if PGN had sufficiently particularised its defence for the Arbitration, the Arbitral Tribunal could proceed to examine the merits of PGN’s dissatisfaction with the Adjudicator’s decision. However, despite this concession by CRW, the Majority Members – curiously – declined to open up, review and revise the Adjudicator’s decision on the sole basis that PGN had not filed a counterclaim (see [76] above). As stated above at [67], it was not necessary for PGN to file a counterclaim before it could challenge the Arbitrator’s decision on the merits. In addition, PGN’s memorial dated 10 July 2009, in our view, did include sufficient details of the alleged errors committed by the Adjudicator (see [71] above). The Arbitral Tribunal could quite easily have examined the underlying documents placed before it to consider PGN’s allegations as well as undertake a rehearing of the parties’ dispute in accordance with sub-cl 20.6 of the 1999 FIDIC Conditions of Contract after making an interim order for payment in favour of CRW.

[89] While the Arbitral Tribunal did express concerns about the inability of PGN to provide at the Arbitral Hearing an exact figure of what it believed was owed to CRW, it bears reiteration that the Arbitral Hearing was merely a preliminary hearing in accordance with the directions made on 4 June 2009 (see above at [11]). PGN’s position was that once the Preliminary Issues had been resolved, the Arbitral Tribunal could proceed to examine the merits of the Adjudicator’s decision. This emerges from the following exchange between Mr Kaplan and Mr Efendi Manurung (“Mr Manurung”), PGN’s Indonesian solicitor, at the Arbitral Hearing:

[90] PGN was thus consistent and, in our view, correct in asserting that after resolving the Preliminary Issues, the Arbitral Tribunal ought to open up, review and revise the Adjudicator’s decision in accordance with sub-cl 20.6 of the 1999 FIDIC Conditions of Contract. The reason why evidence on the merits of the parties’ respective positions vis-à-vis their dispute over the Project was not adduced at the Arbitral Hearing was because of the peculiar manner in which CRW initiated the Arbitration, ie, solely for the purpose of giving prompt effect to the Adjudicator’s decision. As a result, a dispute arose as to whether PGN was entitled to request the Arbitral Tribunal to open up, review and revise the Adjudicator’s decision, which in turn necessitated a hearing (ie, the Arbitral Hearing) to resolve the Preliminary Issues. PGN justifiably expected that evidence on the merits of the Adjudicator’s decision would only be presented at a subsequent hearing to be fixed by the Arbitral Tribunal.

[91] We should add that it is significant that CRW had, prior to the Arbitral Hearing, adopted the position that PGN had not validly submitted a NOD (see [70] above). That position, if correct, would have meant that the Adjudicator’s decision had become final and binding, and CRW could then have referred PGN’s non-compliance with that decision to arbitration under sub-cl 20.7 of the 1999 FIDIC Conditions of Contract for the sole purpose of enforcing the decision. However, once that position was abandoned by CRW (see [70] above), there was no longer any basis for the Arbitration to proceed for the sole purpose of giving prompt effect to the Adjudicator’s decision.

[92] Turning now to Issue 5 (viz, whether there was a breach of the rules of natural justice at the Arbitral Hearing), the Judge dismissed PGN’s submission that there had been such a breach. She considered (at [42] of the GD) that PGN had not been very clear in its allegations on which rule of natural justice had been contravened, and also pointed out that PGN had been given an opportunity to present or argue its case on why it should be entitled to open up, review and revise the Adjudicator’s decision. The Judge further highlighted the inability of PGN to answer the Arbitral Tribunal’s enquiries on how much it believed it owed to CRW.

[93] With respect, we do not agree with the Judge’s conclusion on this point. In our view, PGN was not given a real opportunity to defend its position as to why the sum of US$17,298,834.57 awarded by the Adjudicator was excessive. As stated above at [89]–[90], the questions raised by the Arbitral Tribunal on how much PGN believed it owed to CRW were clearly premature given the nature of the Arbitral Hearing. Mr Kaplan’s criticism of the inability of PGN to particularise its position (see [89] above) was, in our view, rather unfortunate.

[94] To fault PGN for its inability at the Arbitral Hearing to specify the amount which it claimed it owed to CRW is, in our view, an affront to the principle that each party must have a reasonable opportunity to present its case. As stated above (at [89]–[90]), PGN had not envisaged having to produce evidence on how much it believed it owed to CRW during the Arbitral Hearing, which had a rather limited compass. PGN was entitled to be accorded a proper opportunity to comprehensively present its case on the Adjudicator’s decision, with all the relevant submissions and evidence, at a subsequent hearing before the Arbitral Tribunal. However, it was denied this opportunity as the Majority Members summarily made the Final Award without considering the merits of the real dispute between the parties.

[96] Our ruling on Issue 5 is thus in the affirmative. We also hold that the breach of natural justice in this case caused real prejudice to PGN. This finding is consistent with the observation in Soh Beng Tee (at [71]) that in the ordinary run of cases, the answer to whether an issue decided by the arbitral tribunal was within the scope of submission to the tribunal should be the same as the answer to whether the rules of natural justice were observed by the tribunal in making its arbitral award.

[97] In view of our ruling that: (a) apropos Issue 3, the Final Award was not made in accordance with sub-cl 20.6 of the 1999 FIDIC Conditions of Contract; (b) apropos Issue 4 and Issue 5, the Majority Members exceeded their jurisdiction and also breached the rules of natural justice in making that award; and (c) the Majority Members’ conduct caused real prejudice to PGN, the elements necessary to set aside the Final Award under both Art 34(2)(a)(iii) of the Model Law and s 24(b) of the IAA have clearly been established. What we now have to consider is Issue 6, viz, whether this court should exercise its residual discretion to refuse to set aside the Final Award. In this regard, the learned author of International Commercial Arbitration states (at p 2563) that although the court is not mandatorily required to annul an arbitral award where one or more of the grounds specified in Art 34(2) of the Model Law (and/or s 24 of the IAA) applies, in many cases, the existence of any one of these grounds will be “sufficiently serious [for] annulment of the award [to] be virtually automatic”. We agree with this summary of the salient legal principle.

[98] Before us, CRW raised a new argument that was not canvassed in the court below, namely, that the court had a residual discretion to refuse to set aside an arbitral award even though one or more of the prescribed grounds for setting aside had been made out. CRW did not point us to any direct case authority for this submission and instead referred to Halsbury’s Laws of Singapore vol 2 (LexisNexis, 2003 Reissue) (“Halsbury’s Laws of Singapore”), which states (at para 20.140), in the context of enforcement of arbitral awards, that the court has a residual discretion to enforce an arbitral award notwithstanding that one of the prescribed grounds for resisting enforcement has been established.

[99] The footnote for the above proposition in para 20.140 of Halsbury’s Laws of Singapore refers to, inter alia, Newspeed International Ltd v Citus Trading Pte Ltd [2003] 3 SLR(R) 1, where Woo Bih Li JC cited (at [20]–[29]) the Hong Kong case of Paklito Investment Limited v Klockner East Asia Limited [1993] 2 HKLR 39 (“Paklito”). In Paklito, the plaintiff obtained an arbitral award in its favour in China. It successfully applied, ex parte, to the High Court of Hong Kong for an order giving it leave to enforce the Chinese arbitral award in Hong Kong, but that enforcement order was later set aside after an inter partes hearing. The plaintiff’s appeal against the setting aside of the enforcement order was dismissed by Kaplan J on the ground that the enforcement order had been rightly set aside as there had been a serious procedural irregularity in the Chinese arbitral proceedings, in that the defendant had not been given an opportunity to deal with new evidence presented by the plaintiff in the course of those proceedings (see s 44(2)(c) of the Arbitration Ordinance (Cap 341) (HK) (“the Hong Kong Arbitration Ordinance”), which is in pari materia with Art 34(2)(a)(ii) of the Model Law). Vis-à-vis the submission by the plaintiff’s counsel that the court could, in its discretion, still allow enforcement of the Chinese arbitral award even though the ground for refusing enforcement under s 44(2)(c) of the Hong Kong Arbitration Ordinance had been made out, Kaplan J stated (at 49–50):

[100] We accept that the court may, in its discretion, decline to set aside an arbitral award even though one of the prescribed grounds for setting aside has been made out. However, in our view, the court ought to exercise this residual discretion only if no prejudice has been sustained by the aggrieved party. In the present case, as shown at [85] and [94]–[95] above, PGN has suffered real prejudice as a result of the Majority Members acting in excess of their jurisdiction and also in breach of the rules of natural justice. Given the prevailing circumstances, there is simply no basis for this court to invoke its residual discretion to refuse to set aside the Final Award.

[101] There appears to be a settled practice, in arbitration proceedings brought under sub-cl 20.6 of the 1999 FIDIC Conditions of Contract, for the arbitral tribunal to treat a binding but non-final DAB decision as immediately enforceable by way of either an interim or partial award pending the final resolution of the parties’ dispute. What the Majority Members did in the Arbitration – viz, summarily enforcing a binding but non-final DAB decision by way of a final award without a hearing on the merits – was unprecedented and, more crucially, entirely unwarranted under the 1999 FIDIC Conditions of Contract. The Majority Members had neither the jurisdiction nor the power to make the Adjudicator’s decision “final” without following the prescribed procedure. Further, the purported reservation of PGN’s right to refer the Adjudicator’s decision to arbitration before another tribunal was questionable, to say the least.